I seem to recall that one of the selling points for the government bailouts in the wake of the Panic of 2008 was that the private sector had to be saved if we were ever going to create jobs again in this country. It was sold as that we weren’t so much bailout out a bunch of private players that wreaked havoc with the economy so much as we were preserving a system that would help repair the damage done to the citizenry. That we were, in effect, bailing out ourselves.
I think we can close the book on that one as a big fat lie. The private sector has done very little, especially considering how much they were given, to get the jobs market back to health. Hiring’s going nowhere and wages are going nowhere. But corporate profits have soared. Meanwhile, with the government picking up the slack for what the private sector isn’t doing, federal debt has soared. But GE can work the tax code to the point where it effectively pays no corporate tax.
Gluskin Sheff’s David Rosenberg lays it out for you:
The U.S. corporate sector gets bailed out by the taxpayer in unprecedented fashion, to only then see said corporate sector experience a surge in profits without having to increase the size of the workforce very much, if at all, or increase pay to their staff so they can share in the spoils, for that matter. What the government then does is replace the business sector’s role in doling out wage increases to the working class to the point where a record 20% of personal income is now derived from federal transfers.
This is the principal cause of the U.S. deficit soaring to unprecedented heights of $1.5 trillion and it is so obvious from the latest White House budget that there is no realistic plan to redress the rising tide of fiscal red ink. But the major point here is Uncle Sam’s generosity has given the proletariat the leeway to spend, thereby helping support volume growth in the corporate sector and further widening out profit margins, which were already underpinned by declining unit labour costs. And the stock market rallies to new cycle highs. What an economy! What a market! Boom times with a 9%+ unemployment rate and a 16%+ underemployment rate.
(Photo: Library of Congress)