America's Corporate Recovery Is More Fragile Than You Think
Robert B. Reich
At a time when corporate profits are through the roof, the Dow has reached 12,000,
The U.S. economy added just 36,000 jobs in January, according to the
Remember, 125,000 new jobs a month are needed just to keep up with the increase in the population of Americans wanting and needing work. And 300,000 a month are needed -- continuously, for five years -- if we're to get back to anything like the employment we had before the Great Recession.
How can big corporations and
First, companies continue to make money selling abroad from their foreign operations. Second, big corporations continue to show profits by keeping their costs down in the U.S., especially their labor costs. They continue to outsource work abroad, or substitute automated and computerized machines for workers. Third, stock prices are being pushed up by
The result: America's corporate economy is booming, but the real economy is still in the doldrums.
Most Americans are still struggling with a mountain of debt and job losses. The official rate of unemployment is 9 percent, but counting everyone who's working part-time but needing a full-time job and others who have become too discouraged even to look for work, the actual rate is closer to 17 percent.
Americans in the real economy own little or no shares of stock. Their major asset is their homes, whose values continue to drop. In coming months most Americans will also be contending with sharply rising prices for food and fuel.
The inhabitants of America's corporate economy, by contrast, are mainly managerial, professional and college-educated. Their unemployment rate is around 5 percent and their wages are good. The corporate economy is centered in
Americans in the corporate economy have most of their savings in stocks and bonds, and right now they are living well off of global corporate profits. The richest 10 percent of Americans, holding 90 percent of all financial assets, are riding the wave of the stock market rally. Their upscale spending has given high-end retailers and producers a bounce.
Most Americans are not in the corporate economy, but the corporate economy is more visible and influential than the real one. That's why you hear that the U.S. economy is recovering, when for most people it's not. Our representatives in
The denizens of the corporate economy -- along with most of official
The consumption of the richest 10 percent of Americans depends on a continuously rising stock market. The so-called "wealth effect" that's fueling their purchasing will end when the bull market runs out of steam. But corporate profits cannot continue to rise without a broad-based consumer recovery in the U.S.
Foreign sales aren't enough.
Cost-reductions in the U.S. can't continue to generate profits. Most of these cost cuts generate one-time gains. To the extent they're based on job or wage and benefit cuts, they reduce the capacity of American consumers in the first economy to buy the goods and services these companies are selling.
Nor, finally, will stock prices continue to rise because of debt-financed speculation on
Here's the bottom line.
Don't believe the economic cheerleaders on
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America's Corporate Recovery Is More Fragile Than You Think | Politics
(c) 2011 Robert Reich