The terrible jobs report should be matched with another set of data to point out that this is the economy that corporate executives have wanted for a long time. Because they are not suffering in a time of weak demand. They’re actually thriving. Corporate profits are soaring. The chart above shows corporate profits as a percentage of GDP, and you can see that they are now back above pre-recession levels, well over 10%. Felix Salmon notes that this has never happened before.
The decoupling of productivity and wage growth around 1980 was the most significant moment for corporate America. They recognized that they didn’t have to pass the benefits of productivity and profits onto their workers anymore. The workers weren’t organized to a sufficient degree to demand that. The high corporate earnings, therefore, have not been channeled back into investment in the economy.
To spell this out: high corporate profits and low levels of job growth are two sides of the same coin. If things were working properly right now, companies would take their excess revenues and use them to hire more people. Instead, they’re basically just letting those excess revenues sit on their balance sheets as cash because they’re scared to invest in themselves. It’s frankly pathetic.
Corporations figured out that they can lowball their labor costs and reap maximum profits through a variety of means. And they are just stuffing that money into their pockets.
This is an institutional failure, Brad DeLong says. Government has the capacity to borrow at microscopic interest rates, real negative interest rates if you factor in inflation. They should do so and bring the kind of investment the economy needs. You could transform our crippling infrastructure, you could engage in direct hiring of hundreds of thousands of people, you could parcel out free money for all it matters. You can, in sum, fill the demand gap and put the rest of the country on the same relative footing as those corporate executives sitting on massive profits. But nobody has any expectation that government will do that. The President is afraid to say anything that even sounds like a stimulative economic measure; he’s too busy trying to prove that he’s a paragon of austerity. The Federal Reserve has completely failed in its mission to maximize employment, and they are too frightened by the possibility of non-existent inflation to change course.
It would be funny if it weren’t so sad, and didn’t have such consequence for millions of people being poorly served by their government.