Popular Economics Weekly
Bernie Sanders and Donald Trump won their respective Indiana primaries, and we know why.
In February air-conditioner manufacturer Carrier, a wing of United Technologies, announced that beginning next year it will move its Indianapolis production to Mexico and lay off the company’s U.S. workers. (It will also gut the factory’s suppliers and surrounding businesses.) The announcement was caught on video and went viral just as the presidential campaign was focusing on the disastrous effects of our country’s “trade” policies.
Why is this an issue now when so many jobs have already moved overseas? Because of the presidential primaries, of course, and both Bernie Sanders and Donald Trump have taken notice.
“United Technologies reported $7.6 billion in profits for 2015,” reports The Campaign For America’s Future, a progressive blog. “This was up from $6.2 billion in 2014. The company is spending $12 billion to purchase its own stock, which manipulates an increase in the stock price. That gives an idea of just how much cash the company has at its disposal. They use plenty of it to enrich executives, with their CEO getting almost $10 million in 2014 after getting more than $20 million in 2013.”
The sad fact is this has become an everyday event for many American workers, and the reason it has taken so long for workers’ salaries to begin to rise again, reports New York Times Neil Irwin.
United Technologies’ decision is of course an outrage, any way it’s looked at. How can a major and very profitable corporation dare to only enrich its executives and shareholders, but not benefit its employees? We know why. Big Business has succeeded in reducing tax rates for the highest income tax brackets, and granting major loopholes for corporations to shelter their profits (both domestically and overseas) since the late 1970s, with the deregulation of whole industries and globalization of the workforce.
“American workers are reaping fewer of the gains of a growing economy in the form of pay and benefits,” said Irwin. “Shareholders are reaping more in the form of corporate profits. That shift has been one of the most important economic stories of the past several decades, and it’s the key to understanding stagnant wages for middle-class workers and a soaring stock market in the last quarter-century.”
It is why corporate profits’ share of national income soared to a record 14.2 percent in the middle of 2014, the highest in history, and only now is beginning to decline to 12.1 percent by the end of 2015, reports Irwin, as we edge closer to full employment.
This graph shows what corporations haven’t done with their profits, here called nonresidential investments, as a percentage of GDP growth. The largest negative component of Q1 Gross Domestic Product (up just 0.5 percent in initial estimate) was business spending as nonresidential fixed investment. It fell 5.9 percent for a second drop in a row. Business spending had been a plus for GDP until the last two quarters.
Instead, corporations in particular have been using their record profits to enrich their execs and shareholders, as I’ve said. This is while consumers are still spending, which should boost nonresidential investment, since consumers make up some 70 percent of economics activity these days. Personal consumption expenditures rose at a 1.9 percent annualized rate vs rates of 2.4, 3.0, and 3.6 percent in the prior three quarters (when GDP growth was higher).
The good news is that businesses are still hiring, but mostly in the lower-paying service industries, as higher-paying manufacturing jobs continue to move overseas. So Bernie and The Donald are right in calling out U.S. corporations. How is it benefiting American workers? Stay tuned. Maybe the outcome of this presidential election will help to answer that question.
Harlan Green © 2016
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen