By Peter S. Goodman
Happy days are back! During the summer months, corporations logged their biggest profits since the government started counting way back in the age of Elvis, and the economy expanded at a slightly faster pace than previously thought. Surely, when Caterpillar and Morgan Stanley are swimming in lucre, life must be getting more wonderful for everyone.
Alas, no. Word that American businesses sucked in profits at an annualized pace of $1.66 trillion between July and September is certainly better than the alternative. Ditto, the wholly expected news that the economy grew faster than an initially reported 2 percent annual rate, reaching a still modest 2.5 percent. But none of this has translated into the sort of job growth that will be required to cut into an unemployment rate stuck at 9.6 percent. Worse, there is little reason to suspect it will anytime soon.
We have been hearing for so long now that, once companies start making real money, they will feel the urge to expand. Then, they will hire lots of people, and we can stop worrying and resume shopping. Yet so far–this most recent quarter included–all we have gotten is an extended lesson in the modern workings of a stubbornly lean job market and a display of what now stands as American management’s core competency: How to rack up profits and reward shareholders while keeping the cubicles empty.
At the corporate level, the Great Recession is a memory. After plunging during the last three months of 2008, when the world was recoiling at the prospect of a full-blown financial meltdown, profits have expanded snappily every quarter since, according to data compiled by Moody’s Analytics. But at the household level — the realm of mortgages, credit card balances, doctor bills and soon-to-expire unemployment benefits — the worst economic downturn since the Depression remains a defining force.
We taxpayers have handed hundreds of billions of dollars to the same mortgage and insurance industry that started all the trouble with its reckless gambling. We have bailed out General Motors. We have distributed tax cuts to businesses that were supposed to use this lubrication to expand and hire.
For our dollars, we have been rewarded with the staving off of potential financial Armageddon and the stabilizing of a real economy that was teetering dangerously toward the abyss. That certainly is something, but it falls far short of the only thing that can end this disaster on a meaningful scale: large numbers of quality paychecks.
Success for large companies has yet to trickle down. Since the end of 2008, when corporate America began enjoying the resumption of growth, profits have swelled from an annualized pace of $995 billion to the current $1.66 trillion as of the end of September. Over the same period, the number of non-farm jobs counted by the Labor Department has slipped from 13.4 million to 13 million.
The mega-banks have been emboldened to resume the dispensing of handsome bonus checks. Publicly traded companies have rewarded shareholders with dividends. But working people — or would-be working people — are still waiting for a slice of the spoils, confronting a bleak job market. Hiring remains scarce.
“Businesses remain very nervous,” says Mark Zandi, chief economist at Moody’s Analytics. “Many are having a hard time shaking the nightmare of the past several years. Other are very anxious over all of the economic and policy decisions that have been and will be made.”
Yet amid the anxiety, corporate America has evinced an impressive ability to make money. Economists celebrate this as an increase in productivity — making more stuff with less labor. Such is traditionally a harbinger of fresh economic growth and hiring. As bad times give way to better, businesses secure fresh sales by squeezing more production out of existing workers. When they run out of potential squeezes, they add more labor, and the lucky new hires scatter their paychecks at other businesses that themselves must add workers to exploit the potential of suddenly bounteous days.
That story currently seems relegated to your college economics textbook. Business has become extraordinarily sophisticated at finding ways to boost production and sales without adding to payrolls.
Manufacturing and white-collar work alike can be shifted to Asia, Latin America and Eastern Europe, where costs are lower, enabling businesses to rack up extra sales without having to bother themselves with hiring American workers. Companies can add machinery instead of bodies and achieve the same result. When pressed, they can take on temporary workers –something now happening — and still retain the flexibility to cut people loose should happy times fail to emerge.
We are stuck in an unfortunate feedback loop: The lack of hiring is crimping spending power and economic growth, making the people running businesses even less inclined to hire.
As American business leaders understand, they can only sell product if people are walking around with money, and that is dependent upon people having secure, decent-paying jobs.
For too many years, spending was enabled by borrowing against the value of homes that are currently worth less than the raw materials used in their construction. Consumers availed themselves of credit cards that landed in the mail more frequently than come-ons from Ed McMahon. For many a battered household, those days are over. Meaningful recovery is dependent upon the only factor worth repeating ad nauseum: quality paychecks.
We have long since reached the point at which the economy needs a serious jolt from the government, a concentrated focus on long-term job creation that will embolden private money to start moving again, launching new businesses that can yield lasting growth. Yet, distressingly, little appears on the way to spur this process.
The $800 billion stimulus bill unleashed at the beginning of the Obama presidency — a mish-mash of unfortunate political compromise and real economic strategy — has largely run its course. Our political leaders, who ought to be engaged in a crusade to get people back to work, are instead hunkered down on the sidelines, with both major parties staking out positions for a Presidential race still two years off.
Congress cannot even manage to extend unemployment benefits for formerly working people now acquainting themselves with the culinary offerings of trash dumpsters, let alone pursue an ambitious jobs program focused on more promising areas of the economy, such as renewable energy.
The Republicans who are about to control the House have placed their bets on perpetuating economic misery as the clearest path back to the White House. The Democrats who are still in charge are mostly engaged in figuring out how to make it seem like they can cut the federal budget deficit, as if it were possible to save our way back to prosperity.
Another quarter of meager economic growth has changed nothing. Another surge of corporate profits merely underscores how easily high finance can prosper even as most of the country suffers.
Your college econ professor would have pointed to today’s data and told you that it reaffirms the recovery. The economy works like the seasons. The spring may be unseasonably cool and summer long in coming, but it must be on the way, because that is how the economy works.
Yet the times keep straining that faith, while the people who are supposed to be leading the pursuit a fix engage in the only industry that has never been in recession: going on cable television and blaming the other guys.