Inequality dragon rears its head. Again.
This morning鈥檚 GDP data reveal that growth in the second quarter was a little slower than we thought鈥攔evised down to 1% from 1.3%. With 0.4% in the first quarter, that means growth in the first half of the year amounts to about 0.7%. that it takes growth at trend鈥攁bout 2.5%鈥搕o just keep unemployment from rising, and you will understand my incessant clamoring for someone to do something. Like !, for example.
There鈥檚 another reason for the urgency. You can also see in these data the resurgence of income and wealth inequality. There鈥檚 quite a lag to the inequality data, so no one knows what the trends in income or wealth disparities look like post-2008, e.g. What with high unemployment and weak middle-class earnings, along with solid corporate profits, one assumes that after taking a hit in the downturn, wealth accumulation is 鈥渂ack on track鈥� as it were. That鈥檚 certainly been the pattern of the last two recessions/recoveries.
Today鈥檚 data provides some evidence in support of that expectation. The first figure (see top image) shows the recent trends, up through last quarter, in corporate profits and workers鈥� compensation as a share of GDP.
As you can see, corporate profits have not only recovered their post-recession highs, they鈥檝e surpassed it. And compensation as a share of the economy is far lower. You can also compare how different these patterns look compared to last recession in 2001, when the income shifts were not nearly so sharp.
It鈥檚 truly a picture of two very different economies, one for those who depend on their paychecks and one for those who depend on their portfolios. And yes, there鈥檚 an intersection of those two groups鈥攃orp profits do not solely enrich the haves鈥攂ut that鈥檚 more of nuance.
The key point remains that even at less than one percent growth, stagnant real wages, and a sharp decline in the compensation share, corporate profits have more than recovered. Clearly, these corporations are selling into emerging markets, tapping productivity gains without hiring, and trading financial instruments. Nothing inherently wrong with that, unless it鈥檚 the only thing that going right in this economy. Which it kinda is.
A few weeks ago I the deeply corrosive impact of such extreme wealth concentration, as it shuts down new ideas that can correct this destructive trend. And just last night, I worried that we鈥檙e losing our ability to .
The image of the above figure should be viewed as a big, scary dragon of sorts, as in the next figure (click on graphic to the left). And we must stop its flight before it devours what鈥檚 great about America.
