This is the growing opinion of people around the country.

Good news: Profits are up. Bad news: Nothing else is
By The St. Louis Post-Dispatch
Jul 11, 2011 12:00 am

The following editorial appeared in the St. Louis Post-Dispatch on July 7:

In ordinary times, news that corporate profits were up 13.6 percent over the previous year would be unalloyed good news.

Banks would be lending on the tide of rising expectations. Businesses would be expanding and hiring. The political party in power would be jubilant, eager to take credit. Calvin Coolidge would be invoked: "The business of America is business," and business would be good.

Today there is a strange and troubling disconnect between the fortunes of large parts of corporate America and the fortunes of large parts of the rest of America.

So when The Wall Street Journal, citing the boutique investment bank Brown Brothers Harriman, reported Monday that the combined second-quarter profits of S&P 500 firms are expected to be up 13.6 percent over a year ago, Americans have a right to be puzzled.

And if they are among the 16.1 million Americans who either are unemployed or so discouraged that they've stopped looking for work, they should be either angry or worried. Maybe both.

The "jobless recovery" has gone on long enough now that some economists worry that it is a permanent condition. That millions of jobs in the manufacturing and retail sectors have been lost permanently to free trade and the Internet is no secret. That many American firms kept the profits from globalization instead of reinvesting them in new enterprises is no secret, either.

That is part of the rubric of "structural change" to the economy. Now comes the downsizing of the public-sector workforce — teachers and other state and local workers — because of shrinking state budgets. With state governments in a no-new-taxes mode, and Congress and the president now arguing not whether to cut spending but by how much, it's evident that most public-sector jobs won't be coming back either.

The government must deal with its debt. Doing so without increasing revenue will only magnify structural problems.

As troubling as a 13.6 percent increase in profits is amid 9.1 percent unemployment, consider that this really is not new. What is new is that it has reached a point at which it truly could undermine the American economy.

The British newsmagazine The Economist reports that BCA Research, a global investment strategy firm, has found that since 1990, domestic corporate profits in America have risen 200 percent. In the meantime, corporate employee compensation rose only 20 percent. And median family income is up just 2 percent. All figures are inflation-adjusted.

Since 2000, corporate profits are up 80 percent. Employee compensation is up 8 percent and median family income is down 5 percent. Meanwhile, in the non-financial sector, profits are as high today as they have been at any point in the last 50 years.

During the 1990s and 2000s, cheap credit (fueled by the housing bubble) masked the problems caused by the disconnect between profits and income. That's not an option any more.

An ever-increasing number of Americans no longer will be able to afford the goods and services that America produces. It's already happening. Corporations are sitting on a record $2 trillion in cash, not because—as the Republican talking point goes — they are afraid of regulation. It's because of low consumer demand.

As working-class Americans discover what has been done to them, they will become increasingly angry. This is not a structural problem with the economy. It is a foundational problem.

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