Middle Class Demise By Wealthy Biased Capitalism

Middle Class Demise By Wealthy Biased Capitalism

Many who believe in unfettered, unregulated, and unadulterated capitalism where the “free” market dictates all aspect of our lives believe that the markets in the long run balances out the distribution of capital in such a manner that excesses are penalized and society somehow does well based on the individuals desire to work or succeed. This tenet has been disproven given the evidence of what has occurred to the American middle class over the last 30 years coincident with a more unregulated and lower upper income tax rate. Their income and wealth has declined while the excesses of the titans of finance have been rewarded with tax payer dollars and the unmitigated expansion of our money supply.

While many of us have discussed the plight of the middle class in many articles, after-all it does not require accounting degrees online, the New York Times article The Wageless, Profitable Recovery provides numerical details of what has actually occurred to the middle class wage earner. While not explicit, it is not hard to infer that the mechanics of our form of capitalism is not self-correcting. In fact it follows the basic mathematical principles of wealth growth; he/she who has the most wealth has the ability to accumulate more of it. Moreover, if the wealth of the rich is growing at a higher rate than the wealth of the middle class then mathematically speaking the rich is taking away potential wealth from the middle class.

Classic examples abound.

  1. Large businesses (e.g., Wal-Mart, Target, etc.) purchase products in large quantities and awarded lower prices because they have the wealth/money to do so. As such their marginal profits are larger than the mom and pop store. Mom and pop ultimately gets priced out of existence.
  2. Those who have more money to invest in savings accounts get a higher interest rate than those with less money. As such the rich command a larger percentage of the capital growth.
  3. Those who work for a wage can pay up to 35% in taxes on their income. The rich who gets substantial income from capital gains pay 15% in taxes only on their realized gains.
  4. While the middle class pays social security on all their income (maximum earnings subject to Social Security is $106,800), the rich does not. As such the rich can invest proportionally more to build wealth.
  5. While the natural resources on public land should be owned by all Americans only those with the capital to mine it can take advantage of profits it generates. Moreover those who mine it can get further tax breaks (the depletion allowance). After the capital investments by corporations are recovered would it not make sense that all profits less operating cost and corporate royalty be paid into government (WE THE PEOPLE) coffers?

It is imperative that Americans be given the facts of what really ails our economy so that they can start voting their financial interest instead of the interest of the top 1%. A Right Wing Media Echo chamber and a timid mainstream media cannot and will not inform Americans appropriately. It is incumbent upon those in the grassroots who have the wherewithal to step up to the plate and get the message out. Only then can the middle class begin its recovery.


The Wageless, Profitable Recovery

June 30, 2011, 10:44 am By STEVEN GREENHOUSE

Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.

In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.

The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

According to the study, between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.
The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

“The lack of any net job growth in the current recovery combined with stagnant real hourly and weekly wages is responsible for this unique, devastating outcome,” wrote the report’s authors, Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma.

According to the Bureau of Labor Statistics, average real hourly earnings for all employees actually declined by 1.1 percent from June 2009, when the recovery began, to May 2011, the month for which the most recent earnings numbers are available.

The authors said another factor explaining the weak performance for aggregate wages and salaries was the slow growth in weekly hours during the recovery. At the same time, worker productivity has grown just under 6 percent since the recovery began, helping to keep employment down while lifting corporate profits, the study said.

Professor Sum noted that the aggregate wage and salary figures exclude employer contributions to benefits and payroll taxes, while they include bonuses, overtime, commissions and tips.

He said that nonwage
benefits rose in real terms by $27 billion during the first seven quarters of the recovery. “These small gains were exactly offset by a similar $27 billion loss in real wages and salaries over the same time period based on newly released data from the Bureau of Economic Analysis,” he said. “It was a wageless and jobless recovery.”

The study called that $27 billion loss in aggregate wages and salaries during the seven quarters after the recovery began “the first ever such decline in any post-World War II recovery.”