Bernie Sanders relishes the disdain of America’s business elite, proudly displaying on his campaign website his anti-endorsements from corporate titans and their apologists. It’s theme he has championed his entire career — and it appears to be gaining purchase on both sides of the aisle.
Fox News host Tucker Carlson calls corporate America the biggest threat to liberty in America. Senator Marco Rubio has a plan to ban stock buybacks and force companies to invest more in U.S. workers. And don’t forget Sanders’s Democratic colleague and rival Elizabeth Warren, with her many anti-big-business proposals.
There’s only one problem with all these proposals, apart from their wrong-headedness: The corporate greed they are meant to combat is hard to find in the data. In terms of profitability, corporate America has been stagnant since 2012, despite receiving a huge tax cut in 2017.
How about before-tax profits as a percentage of gross domestic product? That’s a more consistent measure of corporate power over time. It surged in the early 2000s as the technology sector recovered rapidly from the dot-com bust and became hugely profitable, even as the rest of the economy floundered. That surge, however, has been in the process of unwinding for some time. With the exception of a few brief upticks, profits as a share of the economy have been declining for seven years and are now almost exactly equal to the average since 1947.
Finally, there is the question about profits and wages. In profitable times, do corporations tend to keep more for themselves and share less with workers? To the contrary: Strong profits tend to be good for workers. The sustained fall in profits as a share of GDP that began in the late 1970s corresponds with a period of declining wage growth for the working class. The 1950s and ‘60s, on the other hand, saw a profit share similar to where they are today.
The most recent surge in profits, in the 2000s, wasn’t a sign of excessive corporate greed or of companies “giving up” on workers. Instead, it reflected a technological revolution that created both rising profits for tech companies and rising incomes for highly skilled workers.
That revolution is now maturing, and corporate profit’s share of GDP is now returning to normal. Wages for low-skilled workers are growing nearly as fast as those for high-skilled. If the U.S. is able to keep the economic expansion going, that gap is likely to close further.
So much for the data. As for the policy: Sanders, Warren and the like shouldn’t be disparaging corporate profits. When they are rising as a share of the economy, it means the economy is doing well; they begin to fall just before a recession.
In a sense, all the rhetoric around corporate greed is understandable: Politics always lags reality. Wage stagnation, and the surge in inequality that accompanies it, is the product of a process that began nearly two decades ago and is already playing itself out. Efforts to rein in corporate profits or break up big tech amount to fighting the last war.
What the U.S. needs are pro-growth policies that keep demand for workers high — and wages for the least skilled on an upward trajectory. That means free trade, an internationally competitive tax structure, dovish monetary policy and regulatory policy that allows companies to choose how best to invest in their workers and their businesses.