The stock market has surged past its former high recorded in October 2007, before the financial crash and Great Recession.
“With the Dow Jones Industrial average [at] a record high,” writes a columnist in a front page article in the New York Times, “the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold”.
“That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.
“With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them in increase sales without adding workers.”
This assessment comes from the foremost capitalist newspaper in the US, not from a Marxist publication.
The stock market rally is one indication of how the capitalist class is making out like bandits while working people keep losing ground.
Another indication is corporate earnings. Since 2008, from the depths of the Great Recession, they have risen at an annualised rate of 20.1%.
Corporate profits in 2012 amounted to 14.2% of national income, the highest in over 60 years, while the percentage that went to employees was at its lowest point since 1966.
The recovery after the Great Recession has been anemic. Unemployment dropped slowly, but it is still officially around 8%. This figure, however, doesn’t reflect the reality workers face.
It doesn’t take into account the fact that many workers are no longer counted as part of the labor force because they have become long term unemployed. Nor does it take into account many workers forced into part time work, but are counted as employed.
With high persistent unemployment and underemployment, wages have dropped. Lower wages translate into higher profits, one of the reasons why the capitalists’ share is rising.
Another is the fact that under the lash of high unemployment the capitalists are driving the workforce to work harder. The resulting increase in labor productivity is going exclusively to profits, not to wages.
The NYT columnist singled out one company to illustrate the point: “The path charted by United Technologies, an industrial giant based in Hartford [Connecticut] that is one of 30 companies in the Dow, underscores why corporate profits and share prices continue to rise in a lackluster economy and a stagnant job market.
“Simply put, United Technologies does not need as many workers as it once did to churn out higher sales and profits.
“Right now, CEOs are saying, ‘I don’t really need to hire because of the productivity gains of the last few years,’ said Robert E. Moritz, chairperson of the accounting giant Pricewaterhouse-Coopers.
“At 218,300 employees, United Technologies’ work force is virtually unchanged from seven years ago, even though annual revenue soared to [US]$57.7 billion in 2012 from $42.7 billion in 2005.
“The relentless focus on maintaining margins continues, even though profit and revenue have never been higher; four days after the company’s shares soared past $90 to a record high last month, United Technologies confirmed it would eliminate an additional 3,000 workers this year, on top of 4,000 let go in 2012 as part of a broader restructuring effort.”
United Technologies’ chief executive said: “There’s no doubt we will continue to drive productivity year after year.”
The Federal Reserve Bank’s policies have also worked to raise profits while doing nothing to fight unemployment, whatever the Fed’s chairman Bernanke claims to the contrary. Its policy of keeping interest rates very low and buying up the safest assets of banks means capitalists are willing to take on more risk in search of better returns.
“Hence the buoyancy on Wall Street amid the austerity in Washington and gloom on Main street,” wrote the NYT.
The Great Recession and the following very slow recovery are having long-term negative effects on sections of the working class that will linger even if there is an accelerated recovery.
One sector so affected is the long-term unemployed. The percentage of such workers is considerably higher than in past recoveries. Many have become unemployable, as the capitalists tend not to want to hire people who have not worked for some time.
Many older workers are in this predicament, as are many African Americans and Latinos.
Prolonged unemployment and underemployment of Black youth, which holds steady at nearly 50%, will mean they will have difficulty in the labor market for some time. This contributes to despair among such youth, who have very dim prospects indeed.
The gap in wealth between whites and Blacks has also widened since 2007. One factor is that Black families were hit hard in the collapse of the housing bubble. Homes account for most accumulated wealth among workers.
Of course, tens of millions of white workers also face dire prospects. I live in a city, San Francisco, that includes many Latinos, Blacks and whites. At the grocery store I see all colors of people using the food stamps the government provides the very poor.
In this situation of wage losses for all workers, one would think that the government would be increasing the social wage. There has been some help for the unemployed, but policy is moving in the opposite direction ・ towards austerity.
The continuing soap opera between the Democrats and Republicans is over how much to cut the social wage, not whether to cut it.
Obama has already stated that any deal he reaches with the Republicans will cut 兎ntitlements・ ・ a word used to imply that the social wage to help the elderly and the poor is somehow undeserved.
The two biggest programs up for cuts are Social Security and Medicare for the elderly, and Medicaid to help the very poor with meager medical insurance.
One proposed way to cut Medicare is to raise the age of eligibility to qualify for this already inadequate government insurance program. This in the face of rapidly rising medical costs, as the capitalists in the insurance racket, in big pharmaceuticals , and in the hospitals are partaking of the general rise in profits.
The eligibility age for Medicare should be lowered, not raised.
As the two capitalist parties continue their negotiations over how much to slash the social wage, already the automatic cuts called the “sequester” they both agreed to are taking effect.
The NYT columnist noted: “With $85 billion in automatic cuts taking effect between now and September 30 … some experts warn that economic growth will be reduced by at least half a percentage point.
釘ut although experts estimate that sequestration could cost the country about 700,000 jobs, Wall Street does not expect the cuts to substantially reduce corporate profits ・ or seriously threaten the recent rally in the stock markets.
“‘It’s minimal,’ said Savita Subramanian, head of US equity and quantitative strategy at Bank of America Merrill Lynch. Over all, the sequester could reduce earnings at the biggest companies by just over one percent, she said, adding, ‘the market wants more austerity.’”
“The market” has no wants, of course. What she means is that the capitalists want more austerity for the workers.
[Barry Sheppard was a long-time leader of the US Socialist Workers Party and the Fourth International. He recounts his experience in the SWP in a two-volume book, The Party — the Socialist Workers Party 1960-1988, available from Resistance Books. Read more of Sheppard's articles.]