Robert Reich on why there is a bull market in the US

Posted Mar 6, 2013 by Ken Hanly
On his blog, Robert Reich has an article entitled: "Why There's a Bull Market for Stocks and Bear Market for Workers." The article gives some of the reasons for the contrast between the performance of stocks versus that of wages.
Robert Bernard Reich is an American political economist  professor  author  and political commentato...
Robert Bernard Reich is an American political economist, professor, author, and political commentator
Mike Edrington
Robert Reich notes that the Dow Jones Index hit a high on March 5, that regained the 54% it had lost between 2007 and 2009. While stocks are near what they were in 2000, corporate earnings are double what they were then. Wages have not kept up with these profit increases. The real median wage is actually now 8% less than what it was in 2000. Reich lists four different factors that have led to this situation.
First, corporations have made substantial productivity gains since 2000. Corporations have invested in new technology. Companies receive tax credits and deductions for these investments. Investments in improving worker skills do not yield any tax benefits. Reich might also have noted that many productivity gains involve using technology, such as robots, that actually replace workers. This can lead to increased unemployment and lower labor costs. Reich perhaps implies this when he notes that productivity gains allow companies to produce the same amount with fewer workers, thus increasing profits.
The second factor Reich mentions is high unemployment. The reserve army of the unemployed, as Marx called it, ensures that most workers have little bargaining power. Corporations are able to keep labor costs low and thus increase profits. Instead of immediately launching large projects to hire the unemployed and investing in projects that will improve the US crumbling infrastructure, austerity measures are adopted. Reich says this too will make profits greater as wage costs remain deflated.
A third factor in the increase in corporate profits is globalization. Corporations can shift capital to where markets are growing fastest or where labor costs are lowest even when the US economy is not doing that well. Reich could note that with globalization US labor is competing with cheaper labor in other countries and is often at a disadvantage.
The final factor that Reich mentions is what he calls the Fed's easy money policies. The result of these policies has been to reduce bond yields to such an extent that investors are driven into the equity market even if they think it is risky.
This surge in corporate profits, while wages decline, explains why inequality is increasing in the United States. Corporate profits represent the largest share of national income now than at any other time during the last 60 years. On the other hand, the share of income going to employees is close to its lowest since 1966. I append a You Tube video about the inequality of wealth distribution in the US showing what Americans think the ideal is, what they think it actually is and the actual distribution.
Between 2009 and 2011 all economic gains went to the richest 1% of Americans, the bottom 99 per cent continued to lose ground. Reich claims that sequestration cuts will make the situation worse--or perhaps better for capital--in that the economy will grow more slowly and unemployment will remain higher than it would be otherwise.
Among the cuts will be some $1.9 billion in low income rental subsidies. Cuts in the Department of Agriculture will eliminate rental assistance for a further 10,000 low income people in rural areas. The more than 3.8 million Americans who receive long-term unemployment will see their monthly payments decline by as much as 9.4%. Another $715 million is to be cut from the Department of Education Title 1 program that helps schools serve a million disadvantaged students. $400 million will also come from Head Start a preschool program for poor children.
While measured by stock market or profit gains the US economy may appear relatively healthy but in terms of people having jobs and receiving good wages the US economy has a long way to go to be healthy.