- "Globalization" has opened up a vast pool of billions of workers who work for much less than Americans. This, in turn, has resulted in companies shifting formerly middle-wage-paying jobs overseas.
- Technology has continued to increase productivity, allowing companies to do more with fewer employees.
- Average hourly earnings have been flat for ~50 years (after adjusting for inflation), as companies steer their wealth primarily to senior management and owners at the expense of average employees.
- Tax policies have increasingly favored investors and high wage earners over middle-class and upper-middle-class wage-earners.
- An obsession with "shareholder value" at the expense of other stakeholders (namely, customers and employees) has led companies to cut employee costs to the bone.
These and other factors have contributed to the most radical redistribution of wealth that the United States has ever seen. Since the late 1970s, the country's assets and income have moved steadily from "average" Americans to the richest Americans. This has created a society with more extreme wealth inequality than we have seen at any time since the 1920s.
Fairness aside, the problem with this state of affairs is that it leaves hundreds of millions of American consumers?the real engines of the economy?with little money to spend. With consumers having little money to spend, businesses suffer. As businesses suffer, they look for ways to cut costs. And this, in turn, hurts employees (consumers) even more.
One thing to keep in mind as we think about how to fix this state of affairs is that this is not an era in which everyone is suffering. Everyone is not suffering. Big companies and their owners and senior managers are not suffering. They are doing great. Big companies and their owners and senior managers, in fact, are doing better than they have done at any time in history, at least judging by the amount of profit they are producing.
It's everyone else who is getting hosed.
Now, in the current political environment, you can't make an observation like that without being pegged as an anti-business "socialist" or "communist." So, it's important to emphasize that there is nothing anti-business about this observation. I am as "pro-business" as they come. I just don't believe that great businesses exist solely to capture "profits" and steer cash into the pockets of their owners.
When a free-market economy is functioning well, as the American economy did for most of the 1950s, 1960s, 1980s, and 1990s, the benefits of the system accrue to all participants, namely:
- Owners and senior managers
- Customers
- Employees
- Society at large
When the system gets out of balance, however, the benefits begin to accrue disproportionately to one or two of of the constituencies at the expense of the others.
And that's the situation we're in now.
The benefits of our free-market capitalist system?which, by the way, is the best economic system on the planet, by a mile?are accruing disproportionately to owners, managers, and customers, at the expense of everyone else.
If we want to fix our economy, we have to fix that. Specifically, we have to persuade companies and their owners to hire more employees and share more of their immense wealth and profits with them.
Importantly, companies don't need to do this just for altruistic reasons (though no one would object if they did). If enough companies do this, they will not just help their employees. They will help their future sales growth. Because their employees and customers, the American consumers, will then have more money to spend.
The following three charts illustrate the current situation.
1) Corporate profit margins are at an all-time high. Companies are making more per dollar of sales than they ever have before. (This chart, by the way, gives the lie to the common refrain that companies are suffering from "too much regulation" and "too many taxes." Small companies may be suffering, but big ones certainly aren't).
2) Fewer Americans are working than at any time in the past three decades. One reason corporations are so profitable is that they don't employ as many Americans as they used to.
3) Wages as a percent of the economy are at an all-time low. This is both cause and effect. One reason companies are so profitable is that they're paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" are other companies' revenue.
One thing is clear: Our current system and philosophy are not sustainable.
Why not?
Because they're creating a country of a few million overlords and 300+ million serfs.
That's not what has made America a great country. It's also not what most people think America is supposed to be about. And it's not what will restore our economy to health.
SEE ALSO: Okay, Let's Put Aside Politics And Look At The Economic Facts...
Source: http://www.businessinsider.com/heres-the-problem-with-our-economy-2012-9
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