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Just what do America’s large multinational corporations have to do with the US economy? Very little, judging by the data.
- Item: Final sales of domestic product rose by 3.8% (without adjustment for inflation) from the second quarter of 2010 to the second quarter of 2011. Sales of S&P 500 corporations rose by 10%.
- Item: Employment in the S&P 500 corporations rose by 10.6% between 2009 and 2010, to a total of 18.666 million. Total employment in the United States rose by 0.7% over the same period, to 130.26 million. Employees of the S&P 500, that is, comprise less than 8% of total US employment, and their employment pattern bears no resemblance to the aggregate.
- Item: Profits of S&P 500 corporations rose by 19% between the second quarter of 2010 and the second quarter of 2011. Nominal GDP (gross domestic product) of the US rose by 3.7%.
- Item: 47% of S&P 500 sales are overseas.
- Item: Americans with no college-level education have an unemployment rate of 9.9% and (which is much more revealing) a labor-force participation rate of just 61%. Americans with some college education have an unemployment rate of 8.6% and a participation rate of 70%. And Americans with a bachelor’s degree or more have an unemployment rate of 5%, but a participation rate of 76%. Huge numbers of less-educated Americans, that is, don’t ”participate” in the labor force because there is nothing for them to do. But Americans with a college degree (as devalued as those degrees are) have little unemployment and a very high rate of ”participation.”
America, as I observed last week (The people’s Ponzi scheme, Asia Times Online August 15), imported $6 trillion of the world’s savings between 1998 and 2007. That great migration of capital employed an army of construction workers, mortgage bankers, retailers, lawyers and others dragged along by the tide. Real estate tax collections surged along with home prices and local governments grew fat and hired legions of workers.
And the construction boom kept less-educated Americans (and a great many immigrants) occupied. The construction industry has imploded, local governments have laid off 400,000 workers since August 2008, and countless service firms have disappeared. Nothing will bring them back.
Given the magnitude of the bubble that had to be popped, the outcome actually is encouraging. Most Americans with a college degree barely can add and subtract and compose a business letter, and most of them rode the bubble in various capacities. Yet despite the collapse of many white-collar professions, the unemployment rate of college-educated Americans remained around 5%. That testifies to the flexibility of the American economy and the resourcefulness of American job-seekers.
The other encouraging fact is that portions of the US economy that did not participate directly in the bubble – established corporations with a global presence – have done extremely well in a virtually zero-growth environment. Their 19% increase in profits came both from increased sales and better profit margins. A smidgen of the profit growth came from the falling dollar (which magnifies foreign earnings), but not too much. Corporate America managed to show strong profit growth even while the aggregate economy was dead in the water.
In short, the non-bubble portions of the US economy are doing perfectly well, thank you. The railroads and airlines are carrying more freight, the airlines are carrying more passengers, and exports are up by nearly 20% over a year ago. It is pointless and confusing to speak of overall economic performance, because there are two quite different economies to consider: one that is doing reasonably well in the world market and one that still must be scraped from the ceiling. It is just as meaningless to speak of a double-dip recession as it was to speak of a recovery a year ago. Some parts of the economy remain profoundly depressed and will languish for years if not decades, while other parts are functioning perfectly well. Which outweighs the other in the aggregate numbers is of interest to no-one but the macroeconomists.
A number of economists, including Nourel Roubini, opined a year ago that America had two economies, one of which was recovering and another that was not. But they pointed to the wrong distinction, namely between personal consumption (which then appeared to recover) and capital investment, which remained moribund. The error here, as usual, stemmed from thinking in terms of aggregates in the GDP tables. These aggregates mask a more fundamental qualitative distinction.
Perhaps we should think about America the way we think of an emerging market, except that America is submerging instead. The Chinese have warned for years that they are two countries, a First World country on the seacoast and a Fourth World country in the interior. We know that India has two economies, a small modern one and a vast backward one, and we are not particularly concerned with the GDP of impoverished rural people (if indeed we could measure it). We want to know what Tata Industries or Reliance Industries are up to.
China and India have become a dual economy because a portion of their population has clambered up into prosperity; America has become a dual economy because a portion of their population has tumbled into destitution. But the fact that larger American corporations have had a strong recovery should reassure us that America is capable of a broader recovery.
For the moment, investors will not buy an 8% earnings yield on the S&P 500 even while 10-year Treasury yields trade around 2%. They are all the more reluctant to take risks on startups, which in the past 40 years have accounted for more than two-thirds of job growth. The right combination of economic policies could revive the startup engine, albeit slowly and fitfully. Lower taxes on corporations and capital income and less oppressive regulation (especially US President Barack Obama’s health care mandates for businesses) would help. So would a rational immigration policy that favored entrepreneurs and highly skilled professionals.