The Greatest Recovery

According to a recent CNN poll, three out of four Americans believe the recession is not over. Unemployment has not been this high for this long in most Americans’ lifetime. By every measure, the US economy is failing to recover from the Great Recession.

Every measure except one.

In the last 18-20 months, corporate profits climbed at the fastest pace on record. Non-financial companies are reporting the highest free cash-flow (profits after dividends and capital expenditures) in a half-century. Profit margins at S&P 500 companies are now above nine percent, approaching uncharted territory. Joseph Lavorgna, chief US economist of Deutsche Bank stresses, “Not only are we seeing a tremendous V-shaped recovery in corporate profits, but we are in fact seeing the biggest corporate profit recovery ever.”

The Greatest Recovery is turning the traditional formula on its head; corporate profits have not been a leading indicator of economic recovery, but a lagging indicator of Main St. impoverishment. Corporate America’s Greatest Recovery and the Great Recession are two sides of the same coin.

Worker-advocacy group Change to Win released the results of a recent survey which found that wage stagnation ranks as the most common impact of the Great Recession. Workers will believe in the recovery narrative when they see a raise in their paychecks. For now, productivity gains are going straight to their employers’ bottom line. Andrew Sum, professor of Economics at Northeastern University, concludes that the current expansion “has seen the most lopsided gains in corporate profits relative to real wages in our history.”

The Greatest Recovery marks corporate executives’ latest triumph in their decades-long campaign against labor. Since the Reagan expansion, US corporate profits exhibited a permanent tendency to soar at the expense of wages. The top one percent of income earners accrued nearly two-thirds of all economic growth. Profit margins expanded in an unprecedented super-cycle while workers struggled through increasingly lopsided, “jobless” recoveries. The last three expansions presaged the Greatest Recovery and defined its precise shape.

The unequal distribution of income between profits and wages is ultimately reflective of an unequal distribution of power between business and labor—at the workplace and in Washington.

President Obama signaled his commitment to continuity early on. Despite underestimating the rise of unemployment in late 2008 and early 2009, Obama’s advisors rejected the public employment option swifter than its counterpart in healthcare reform. President Obama initially defended the stimulus on the specific grounds that the private sector would create 95% of the jobs.

Some critics of the plan correctly argued that, given the decline in demand, the stimulus should have been larger. Size was not the only problem. Larry Summers, Obama’s former Chair of Economic Advisors, designed the stimulus to maximize GDP rather than employment—job creation, private sector included, was at best an incidental goal.

Twenty-six million Americans are presently unemployed or underemployed. According to Economic Policy Institute’s Heidi Schierholz: “If the rate of job growth were to continue at October’s rate, the economy would achieve prerecession unemployment rates (5% in 2007) in roughly 20 years.”

The Obama administration’s laissez-faire attitude towards the reeling labor market contrasts sharply with the direct assistance it provided to the financial industry. The two-dozen Treasury and Federal Reserve policies implemented during the financial crisis shared one overriding goal: prevent prices from falling (deflation) in the real estate, bond, and equity markets. Yet, the Obama administration ignored the Employee Free Choice Act even as the price of labor (wages and salaries) suffered the sharpest decline in fifty years. The administration’s economic policy regime compels workers to the free-market while protecting banks from its ruinous fallout.

President Obama’s refusal to resolve the unemployment crisis provides the corporate sector with a crucial, often overlooked, subsidy. High unemployment permits management to extort wage concessions and productivity gains from their anxious employees. An article in the December issue of The Economist explains, “Since the end of 2008 business-sector productivity has grown at an impressive annualized rate of 4.2% while hourly compensation has crept ahead by just 2.1%. Unit labor costs have fallen at an annualized 2% rate, the steepest cumulative decline since the 1950s. Profits owe their V-shape in great part to employment’s L-shape.”

The unemployment crisis qualifies as a national emergency; it’s also the foundation of the Greatest Recovery.

Mark Provost is an activist and freelance writer in Manchester, NH. He can be reached at: gregsplacenh@gmail.com. Read other articles by Mark.

6 comments on this article so far ...

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  1. bozh said on December 14th, 2010 at 9:21am #

    does this herald or prove that u.s supremacists are really on their way to establish a perfect fascist structure of society? seems to me, u.s is at least a few steps ahead in achieving final solution. tnx

  2. AaronG said on December 14th, 2010 at 7:34pm #

    The capitalist/money system has to go. It only creates conflict – at a personal and national/regional level………

    My goal under the capitalist system as a worker is to work for $1,000,000/hour
    My goal under the capitalist system as an employer is to get you to work for 12cents/hour

    Therein lies the conflict………………..and the employers are currently winning!

  3. hayate said on December 14th, 2010 at 9:52pm #

    “Therein lies the conflict”

    On the surface, maybe, but the problem goes a bit deeper and involves treating one’s fellows as something to be exploited. In other words, the basic flaw of capitalism.

    Imagine you had to pay for sexual relations with your beloved, each and every time, or extract wages for the same (I know, in the usa, that is all too common, and has always been…).

  4. hayate said on December 14th, 2010 at 10:24pm #

    Rocker Jon Bon Jovi becomes White House official
    06:03 15/12/2010

    “Rocker Jon Bon Jovi becomes White House official
    06:03 15/12/2010

    U.S. President Barack Obama has nominated famous rock star Jon Bon Jovi as a member of a newly-founded White House Council for Community Solutions.”

    Rocker?

    :D

    I suppose that’s better than appointing glennis beck or madonna….

  5. hayate said on December 14th, 2010 at 10:25pm #

    Link: [http://en.rian.ru/world/20101215/161780385.html]

  6. cruxpuppy said on December 16th, 2010 at 4:56pm #

    Bernanke’s bailout of the banks, hedge funds, and corporations, in ’08 amounting to trillions in loans, seems to have worked wonderfully. Do we know who got what when and whether they paid it back? Not really, even though the Fed was forced by the Dodd Frank “financial reform” legislation to reveal what it had been up to.

    On the face of it, the recovery of the large corporations in such a dramatic way while unemployment has actually been edging up, is as suspicious as rising gas prices in a time of flat or falling demand. If the corps aren’t hiring here, does this mean their profits are coming from overseas production? It would be helpful to know what they are doing to show such dramatic results, and where they’re doing it. Obama’s GM has cut wages in half, but is it selling more cars or producing fewer cars more cheaply on the backs of labor? How much of this corporate profit is from purely financial activity?

    It seems crazy