For people facing joblessness, foreclosure and destitution, it’s still a serious recession.
For many large corporations, it’s not.
According to economist Robert Reich, the largest businesses have regained nearly 90 percent of what they lost in the crash of 2007.
“Second-quarter earnings this year were good,” Reich notes. “The 500 largest non-financial firms held almost a trillion dollars in the second quarter, and that money pile is growing larger this quarter.”
But, says Reich, the electronic equivalent of ringing cash registers at the nation’s leading companies will likely not translate into more jobs—at least not large numbers of jobs.
Why have corporate profits become “decoupled” from job creation?
First, because a lot of the profit is coming from overseas. That’s where our companies are hiring people and even opening tech research centers. Reich points to General Motors, which today, he explains, “sells more cars in China than it does in the U.S., but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States.” That’s down from nearly half a million in the U.S. 40 years ago.
Second, because corporations are investing their profits in labor-saving devices, not people. That’s one reason rises in productivity don’t necessarily translate into larger numbers of jobs.
Finally, Reich points out, corporations are using their profits to pay dividends, buy back their stock and raise share prices, not to hire.
In the end, Reich says, there’s a vicious cycle: companies won’t hire until they’re sure consumers will buy what they’re selling, and consumers won’t buy until they have paychecks.
And cheap money (read low interest rates) isn’t helping the situation, Reich adds, partly for the reasons given above and partly because cheap money often contributes to merger and acquisition sprees that are followed by staff downsizing. “When consumers and small businesses can’t and won’t borrow more, big businesses use cheap money to bid up the prices of corporate assets and cut payrolls,” he notes.
Americans may not be able to explain the cul de sac we’re in as well as professional economists like Reich, but they know we’re stuck. So besides not buying things, they’re exhibiting the ultimate sign of lack of economic confidence: not having children. The birth rate, which was very high in 2007, dropped sharply in 2008 and 2009, falling lowest in states with the most severe economic problems.
