On rising corporate power

US intellectuals face the challenge of how to think about rising corporate power. This is not because corporations or corporate power are inherently bad things. I don't believe they are, and to think they are is merely an assertion. Intellectuals need to make arguments, not assertions. Instead, the problem of corporations has to do with the steady economic power corporations have amassed relative to households. Here are five graphs to make this point:

1. Real median household income. In 2012 the median household income was $51,017, a meager rise since 1984 ($47,181). In fact, today's median household income is basically at the same level it was in 1995/1996. Remarkable.

 

2. Real median household income/GDP. As we see above, median household income, in absolute terms, is stagnating or even falling. This second graph shows how far median household income is falling behind economic growth as measured by GDP. See the following as more or less a ratio between HH income and GDP.

 

3. Total corporate profits/GDP. In contrast to household income, corporate profits are not only keeping pace with economic growth, corporate profits are rising relative to growth.

 

4. Domestic corporate profits/GDP. Perhaps US households aren't seeing any returns from economic growth because corporate profits are based offshore? Put another way, perhaps domestic profits are as stagnant as domestic household income gains? No, they are not. Unlike HH income, domestic corporate profits are more than keeping pace with growth.

 

5. Overseas corporate profits/GDP. This is one to keep an eye on. Essentially, corporate profits from outside the US are now as high as total corporate profits were barely a decade ago (offshore corporate profits in 2011: $419 billion. Total corporate profits in 2000: $482 billion). Indeed, as we've seen, corporate profits across multiple categories are at historically unique levels. But the continued ability of US corporations to extract profits outside the US domestic economy could continue to have deleterious effects for households and even small businesses anchored to the domestic economy. The more US corporations can earn profits with emerging market consumers, the less incentive the US political structure will have to invest in middle-class institutions like education, infrastructure, and health here at home.

 

In sum: US households' incomes, in absolute numbers, are at best stagnating. They are, in relative terms, falling dramatically behind. Meanwhile, corporate profits are at record highs, and even outpacing economic growth itself. US does not have a well-functioning domestic economy, in the sense that wealth gains right now are not being broadly shared.

2013 GDP disappoints: fiscal austerity main culprit

The BEA released GDP numbers for 4Q 2013 and therefore for the entirety of the year (with revisions to come in Feb). The growth rate disappointed, showing a slowdown as compared to the year before. The two headline numbers:

"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter)"

And:

"Real GDP increased 1.9 percent in 2013 (that is, from the 2012 annual level to the 2013 annual level), compared with an increase of 2.8 percent in 2012"

It should be noted, when measured from 4Q 2012 to 4Q 2013, yearly GDP rose a bit more, by 2.7 percent. Below I've collected a number of tweets by experts that I think represent the pessimistic response. Many economists and economics writers didn't like what they saw on the year-to-year number. The most important detail on the downside, as far as I can tell, has to do with the drag exerted by federal government cutbacks — "austerity," US-style. Sequester. Whatever you want to call it.

No matter what the tea party or "grand bargain" adherents say, government contraction is getting in the way of economic recovery, not fostering it. For example, look at this:

"Q4 growth was very different from Q3" http://t.co/kWwowoANd2 pic.twitter.com/r5eI6BpXVa
— Matthew B (@boes_) January 30, 2014

Here's a string of tweets from Ryan Avent, economics correspondent for The Economist:

3.2% GDP growth in Q4 is really good for this recovery, and pretty disappointing by all other standards.
— Ryan Avent (@ryanavent) January 30, 2014

Annual growth of 1.9% in 2013 is lousy. When the US did that in 1990 it was easily the worst year of the 1980s expansion.
— Ryan Avent (@ryanavent) January 30, 2014

From 1992 to 2000, the US never grew less than 2.7% per year.
— Ryan Avent (@ryanavent) January 30, 2014

Arguably, the US fell farther behind the pre-crisis trend in 2013. It's on track to write off $1 trillion in econ potential, permanently.
— Ryan Avent (@ryanavent) January 30, 2014

But yeah, apart from that Q4 was pretty smokin.
— Ryan Avent (@ryanavent) January 30, 2014

Here's another negative look, from Mike Konczal:

Again, recovery rate slowed rather than sped up in 2013. You would have rather had another 2012 instead. What an unforced, human disaster.
— Mike Konczal (@rortybomb) January 30, 2014

But hey, we locked in $4 trillion in deficit reduction over ten years, so the stagnating misery of our economy has that going for it.
— Mike Konczal (@rortybomb) January 30, 2014

And so forth:

Austerity continues. In fourth quarter, declines in federal government spending reduced GDP growth by .98%--huge.
— Daniel Gross (@grossdm) January 30, 2014

And I'll finish with some optimism:

It'll be nice to get the fiscal austerity monkey off the back of the economy in 2014. It knocked 0.9% off Q4 growth. Growth coulda been 4%!
— Justin Wolfers (@JustinWolfers) January 30, 2014

Finally, writing in the Financial Times, Robin Harding gives the bad & the good.

First the bad:

Despite high profits, business just will not invest Most forecasts for strong growth in 2014 – and all hopes for sustainable growth – rest on a pick-up in business investment. Despite record high corporate profits as a share of gross domestic product, investment has recovered at a much slower pace than after previous recessions. That story continued in the fourth quarter of 2013 with annualised growth in fixed investment a disappointing 0.9 per cent. The composition of that was a little more encouraging – investment in equipment rose at an annualised 6.9 per cent but was dragged down by falling investment in commercial real estate – but the overall picture is still that companies are content to sweat their existing assets rather than invest strongly in future growth.

And then the good:

But the bottom line is: good news The single most useful number in the GDP release is not the top line but a figure called “final sales of domestic product”. It strips out inventory movements to report how much stuff the US economy actually sold to buyers both at home and abroad. Final sales of domestic product accelerated in every quarter of 2013, from 0.2 per cent growth in the first quarter, to 2.1 per cent in the second quarter, 2.5 per cent in the third and then 2.8 per cent growth in the final quarter of the year. That is strong evidence that the underlying performance of the economy picked up through the year and headed into 2014 with strong momentum. Despite the occasional wobble, the long-awaited pick-up in US growth still seems to be coming through.

Inequality, opportunity, bifurcation, and Obama's SOTU

The full transcript of the President's State of the Union Address can be read here.

There really isn't much to add or comment on regarding the SOTU that hasn't been said or doesn't come off as boring conventional wisdom. Yes, I second many of the domestic initiatives Obama outlined under the theme 'opportunity,' which I'm fine with as a rhetorical stand-in for 'inequality.' The two words are not synonymous. But in the context of what is possible, it is hard for me to get worked up about 'opportunity,' even as I admit it is often used as a way to sound like you care about inequality while dismissing any actually redistributive policies. That said, opportunity has the advantage of being unmistakably positive. The US could reduce its inequality, while helping no one. The US could increase the opportunities for the disadvantaged while damaging no one. And I'm not afraid of "class warfare" as I write that.

As long as we are discussing which words to use, why not, as Mike Konczal suggests, bring back "full employment"? I'd be happy to start there.

Because, as John Aziz and Krugman discuss, not only is the economy bifurcating (i.e. the middle class is hollowing out), the US public's sense of the economy and themselves increasingly reflects this bifurcation. This graph from Pew Research is making the rounds:

-Pew Research-

In sum:

"[T]he proportion of Americans who identify themselves as middle class has dropped sharply in recent years. Today, about as many Americans identify themselves as lower or lower-middle class (40%) as say they are in the middle class (44%)

Here's Krugman on the possible implications:

The whole politics of poverty since the 70s has rested on the popular belief that the poor are Those People, not like us hard-working real Americans. This belief has been out of touch with reality for decades — but only now does reality seem to be breaking in. But what it means now is that conservatives claiming that character defects are the source of poverty, and that poverty programs are bad because they make life too easy, are now talking to an audience with large numbers of Not Those People who realize that they are among those who sometimes need help from the safety net."

Krugman basically wonders if policies to address the economic problems of the disadvantaged will become more tenable as more people come to see themselves as part of the truly disadvantaged. We shall see.

Anyway, I warmed up for Obama's SOTU by reading David Remnick's quite long New Yorker essay in which he interviews the President while following along on a "three-day fund-raising trip to Seattle, San Francisco, and Los Angeles." Here are a few excerpts of particular interest.

• First, on the all-important Iran deal, Obama didn't exactly express optimism the deal will ultimately come to fruition:

"The night before, Iran had agreed to freeze its nuclear program for six months. A final pact, if one could be arrived at, would end the prospect of a military strike on Iran’s nuclear facilities and the hell that could follow: terror attacks, proxy battles, regional war—take your pick. An agreement could even help normalize relations between the United States and Iran for the first time since the Islamic Revolution, in 1979. Obama put the odds of a final accord at less than even ..." [bold mine]

• Indeed: "less than even." Here, in Remnick's words, is why on Iran optimism takes a back seat to realism:

"The Saudis, the Israelis, and the Republican leadership made their opposition known.... Even a putative ally like New York Senator Chuck Schumer could go on 'Meet the Press' and, fearing no retribution from the White House, hint that he might help bollix up the deal."

• On Syria:

“I am haunted by what’s happened,” he said. “[But] I am not haunted by my decision not to engage in another Middle Eastern war. It is very difficult to imagine a scenario in which our involvement in Syria would have led to a better outcome, short of us being willing to undertake an effort in size and scope similar to what we did in Iraq."

• In a recent speech, Obama again referred to economic inequality as "the defining challenge of our time." This is notable given that he also thinks his second term can be defined by progress rather than maintenance — going on "offense" rather than playing mere "defense":

“The conventional wisdom is that a President’s second term is a matter of minimizing the damage and playing defense rather than playing offense,” Obama said in one of our conversations on the trip and at the White House. “But, as I’ve reminded my team, the day after I was inaugurated for a second term, we’re in charge of the largest organization on earth, and our capacity to do some good, both domestically and around the world, is unsurpassed, even if nobody is paying attention.”

• Remnick points out, "Obama lost among white voters in 2012 by a margin greater than any victor in American history."

• On the flipside, Remnick reports "Obama’s advisers are convinced that if the Republicans don’t find a way to attract non-white voters, particularly Hispanics and Asians, they may lose the White House for two or three more election cycles"

• Finally, back to inequality and the broader issue of economic stagnation. Perhaps the most interesting thing the Remnick essay reveals is how Obama will assess his own final three years. In foreign policy, Obama has wound down two wars (Iraq & Afghanistan) and dramatically undercut the likelihood of a third war (Iran). Setting that aside, the biggest issue facing US political economy is whether it is again willing to invest in its own domestic society, whether through deficit spending or through higher tax revenues. So far, the answer is a resounding no. But the decay of the US domestic economy is very real, and will only grow more recognizable over time. This then is the statement to remember, I think, while reflecting about Obama's SOTU, and more importantly, watching him and US political economy over the next three years:

"I can tell you that I will measure myself at the end of my Presidency in large part by whether I began the process of rebuilding the middle class and the ladders into the middle class, and reversing the trend toward economic bifurcation in this society."

We shall see if the bifurcation mentioned by Aziz and Krugman, and empirically documented in the Pew data, will be addressed by this President, facing as he does a remarkably hostile opposition party that is not yet growing any less hostile.

The nature of the blog (1st post)

This is a blog covering current events in US political economy from the point of view of an economic/political sociologist. I am not an academic, and I have a day job. So I'm not the best person to write such a blog. Regardless, I am struck by how few econ/poli sociologists actively engage with current events on the internet. By contrast, economics has a thriving web community. 

Probably better than describing myself as a sociologist would be to describe myself as practicing a "Bourdieuian analytics." I have an ongoing project developing a theory of social analysis largely taken from the late French intellectual Pierre Bourdieu. In short, Bourdieuian analytics emphasizes symbolic forms of power; multiple forms of capital endemic to the modern world (intellectual, social, cultural capital in addition to economic); and a sociology-of-knowledge/social-psychological perspective in which actors internalize the thinking, habits, and norms of the contexts ("fields") immediately surrounding them.

I also add to Bourdieuian analytics by borrowing a focus on "systems" from Habermas and a belief in the reflective & creative possibilities of human minds from American pragmatists Mead, Dewey, and Mills.

But my focus here is on current events.

Here are the subjects I anticipate covering:

— US fiscal budget and the question of whether US will once again use its incredible monetary & fiscal privileges to invest in the domestic economy

— Will US elites, who are increasingly global elites reliant on consumers all over the world, see it in their interest to re-invest in the US consumer?

— Economic growth in the post-recession era. Not just economic growth as measured by GDP, but the qualities of that growth: Who benefits? Where? How? Why?

— Will the US use its post-recession economic growth to develop an actually thriving labor market?

— I want to use that phrase again; I'll return to it time and again: An actually thriving labor market

— Intellectual Property: Will humans become proficient at quantitatively valuing intangible assets like data, knowledge, communications?

— US money and inflation/deflation, role of the dollar in world financial arrangements

— US foreign policy:

     a) Iraq: Do we come to grips with the strategic/moral/economic failure? Do we admit we "lost" a war? Do the pundits who supported that war face accountability? Do we become fully isolationist? Do we develop a theory of how to use our military might for common good?

    b) Iran: Does the tenuous nuclear deal being worked on come to fruition? Do we avoid war while maintaining essential alliances?

    c) China: How will China's inevitable economic slowdown change their internal dynamics & effect is relationship with the rest of the world, i.e. the US.

— The energy boom US currently experiencing: What are the effects on US role in the world? Does it lessen the risks of more war? Does it help spur domestic economic improvements?

— US politics: Will the GOP make the reforms it needs to field a more viable candidate in 2016? (It is the GOP's presidency to lose, according to my formulation.) Will Hillary run? (I predict she won't.) If she doesn't, who will? 

— Media & knowledge & tech: How will communications media continue to evolve and/or continue to change the society around it? For example, will the Klein/Silver push toward "data-driven journalism" result in broader implications? Will Twitter & Facebook fulfill their valuations?

— Professional sports: How will pro football reflectively adapt to the health crises essential to the game's very character? How will pro basketball evolve following the retirement of its long-time commissioner? And in all sports, how will the 'advanced stats' revolution continue to uproot long-standing pieces of knowledge?

And other subjects too. Thanks for reading.