First published on ZNet, April 19, 2013. When you hear corporate media news broadcasters talk about “the economy” and “recovery,” always ask yourself whose economy and whose recovery they have in mind.
According to the New York Times’ economics writer Nelson Schwartz, “it’s tough to make sense of the economy these days.” In what he calls “a seeming riddle,” Schwartz notes that the stock market “is defying gravity, marching ever higher” even as hiring and consumer confidence are down and “austerity reigns in Washington.”
On one hand, everyday working people and smaller businesses – what pundits and politicians like to call Main Street – are hurting. The pain comes in no small part from “The fiscal tightening in Washington – primarily the automatic budget cuts imposed by Congress…and the increase in Social Security taxes this year.” Small business is “dead in water” (so says the head of the National Federation of Independent Businesses), generating a bleak mood that “remains stuck near recession levels.”
On the other hand, corporate “earnings” are at record levels. Profits for the largest 100 companies in the Standards & Poor 500 stock index are expected to increase by 6.6% this quarter. Fully 22% of the S&P 500’s profits will come from the nation’s largest 10 publicly traded companies, up from 18% in 2010 [1].
Schwartz could have added that after-tax U.S. corporate profits last year were $1.75 trillion, a more-than-50% increase over the previous record of $1.125 trillion in 2006. He might have noted that, as Joel Geier recently observed in the International Socialist Review, those “profits were the highest percentage of GDP on record, with wages the lowest percentage historically.”
Schwartz could also have added that U.S. corporations are currently sitting on a remarkable $2 trillion cash hoard – a giant surplus that could be used to put people to work, to fund social programs for the many millions of poor, and/or to pay down the deficit that corporate propagandists and corporate-captive politicians constantly (and disingenuously) bemoan. The hoard is used instead to “fuel…the asset bubble of the stock market rally of recent months, as cash moves out of low interest-rate bonds into equities or [into] mergers and acquisitions” [2].
Additions aside, where’s the “riddle?” The notion of there being a paradox or something “tough to make sense of” in the fact that Main Street and working class America are hurting while Wall Street and corporate America are thriving is naïve. It is based on the childish assumption of a harmony of interests between the wealthy few’s giant corporations and the rest of us.
Capitalist reality is rather different. Contrary to any notion of shared interests, less business and market share for smaller and medium-sized business is more business and market share for giant firms. Less hiring sustains the “reserve army of [jobless] labor” (Marx’s excellent still relevant term), which helps suppress wages, which boosts profits. The deficit and austerity reflect the reduction of taxes on U.S. corporations, who have been quietly granted a remarkable 50% tax cut between 2006 and 2012 (another great sign of the “progressive” Obama era!) while slashing the social wage. The reduction of the social wage (benefits to workers that come from sources other than employment) deepens workers’ reluctance to challenge bosses and demand higher rent levels for their labor power [3].
The powerful and highly class-conscious political and policy actors in the corporate and financial “1%” [4] know all this very well. They do not rely on the market alone to bring about record-setting profits while millions struggle with the merely “human recession” that festers beneath the “statistical recovery.” Behind their “anti-government” and “free market” rhetoric, they pull plutocratic strings to ensure that government works on behalf of big capital and the upward distribution of wealth. Thanks in no small part to their pressure, for example, the White House and Congress imposed the lion’s share of last year’s last-minute tax increase on the working and middle classes – not the so well-to-do who sit atop a class structure that is now so savagely unequal that the six Walton (Wal-Mart) heirs have as much total net worth as the bottom 41.5% of Americans [5]. The majority of the whittled-down Obama tax hike – $125 billion of the $212 billion increase – came from increasing the payroll tax by 2%. This amounted to a 2% wage reduction for all Americans making less than $113,000 a year. Thanks to elite money influence, it remains unthinkable that policymakers would exhibit a serious commitment to deficit reduction and to the reasonable funding of Social Security by getting rid of the blatantly regressive cap on payroll taxation beyond $113,000 [6].
To mention another among many examples of U.S. state capitalism today, the Federal Reserve has acted since the Great Recession’s onset to:
“organize…the rapid, large-scale concentration of the banking system, subsidizing the largest banks’ acquisition of weaker, less efficient banks that were on the verge of bankruptcy….In this crisis, the state arranged for and provided indirect capital in order to concentrate finance capital. The top five banks (Chase, Wells, Bank of America, Citicorp, and Goldman Sachs) now control more than 70 percent of bank assets, up from 50 percent before the crisis. The Fed forced through sales (of Washington Mutual, Merrill Lynch, Bear Stearns, and many others) to the top banks at prices beneficial to them, guaranteeing the non-performing loans of the banks being sold, and has assured the large banks of its protection on the grounds that they are too big to fail. As a result, the rates the large banks pay for capital are significantly lower than their smaller, weaker, non-Fed-protected competitors, subsidizing their profits by billions of dollars each year…..”
As if that isn’t plutocratic enough, the Fed has “kept interest rates at zero for more than four years, giving the banks free money with which to speculate (in commodities, stocks, junk bonds, derivatives, and the whole symphony of instruments that provoked the financial panic of 2008) and restore their balance sheets. The Fed has bought $1 trillion of mortgage-backed securities and continues to do so at a rate of $40 billion a month…” [7].
It is true that, as Schwartz worries, the current austerity (imposed by big capital, as Schwartz fails to note) threatens to slow the “recovery.” Big capital has a response to that concern: “So what?” The biggest “American” companies tend to be multinational corporations like General Electric (GE), which garners more revenue and employs more workers abroad than at “home.” As Schwartz reports, the U.S. share of GE’s workforce and revenues fell from 51% and 55% to 44% and 47% between 2005 and 2012, respectively [8].
At the same time, the elite business class is banking on the U.S. becoming a more hospitable (profitable) environment for investment and production in the not-so distant future, once the shocks imposed by fiscal austerity force down wages, benefits, taxes and regulations to the point deemed sufficient. As Geier observes, the Obama administration’s introduction of a two-tier wage system (cutting new hires’ hourly wage from $28 to $16) is part of a domestic restructuring plan whereby “the United States is becoming the cheap labor market of the industrialized world” [9].The regressive auto bailout was just one of many ways in which the corporate- and Wall Street-captive federal government has been helping the latest crisis play the basic role assigned to recessions and depressions under the profits system: cutting labor, materials, tax and regulatory costs for capital, eliminating “less efficient” capital, and concentrating wealth and control into fewer hands. Another method is the recent dramatic, Washington-approved and environmentally disastrous expansion of domestic oil and gas production through hydraulic fracturing and horizontal drilling [10].
There’s no mysterious paradox – no hint of a “riddle” – in all of this. It’s American State Capitalism 101, working for the rich and powerful as always and now posing an ever more clearly imminent threat to life on Earth.
Paul Street is the author of many books. His next volume is They Rule: The 1% v. Democracy (Paradigm, Fall 2013).
1. N. Schwartz, “As Wall Street Soars in Tough Era,” NYT, April 15, 2013, A1, B9.
2. J.Geier, “Capitalism’s Long Crisis,” ISR 88 (March-April 2013), 4.
3. For a useful discussion of the importance of the social wage to workers’ labor market bargaining power, see Francis Fox Piven and Richard Cloward, The New Class War: Reagan’s Assault on the Welfare State and Its Consequences {New York: Pantheon, 1985), 22-36, 53-70
4. use quote marks because the real beneficiaries of American neoliberal capitalism are in a far more elevated income and wealth segment than just the top hundredth. As the global business journalist Cynthia Freeland noted last year: “Notwithstanding Occupy Wall Streets focus on the ‘one per cent’ or Obama’s choice of two hundred and fifty thousand dollars as the level at which taxes on family incomes should rise, the salient dividing line between rich and not-rich is much higher up the income-distribution scale.” Cynthia Freeland, “Super-Rich Irony: Why do Billionaires Feel Victimized by Obama,” New Yorker, October 8, 2012. It should be noted that Obama was subsequently prevailed upon to push the tax-rise threshold for family income to $400,000.
5. Tampa Bay Times, “Bernie Sanders Says Walmart Heirs Own More Wealth Than Bottom 40 Percent of Americans,” PolitiFact.com (July 31, 2012), http://www.politifact.com/truth-o-meter/statements/2012/jul/31/bernie-s/sanders-says-walmart-heirs-own-more-wealth-bottom-/ . See also Truth-0-Meter, “Michael Moore Says 400 Americans Have More Wealth Than Half of All Americans Combined,” (March 2011), Journal-Sentinel PolitiFact Wisconsin, read online at http://www.politifact.com/wisconsin/statements/2011/mar/10/michael-moore/michael-moore-says-400-americans-have-more-wealth-/ (accessed December 18, 2012). The unnamed authors of this fact-checking provide exhaustive sources and data supportingMoore’s assertion
6. Geier, “Capitalism’s Long Crisis,” 6,
7. Geier, 5.
8. Schwartz, “As Wall Street Soars,” B9.
9. Geier, 6.
10. For a chilling account, see Richard Manning, “Letter From Elkhorn Ranch: Bakken Business,” Harper’s Magazine (March 2013)