You've heard the old joke about the stockbroker showing a friend all the luxuries he's bought with the commissions paid by his customers -- big house, big car, big yacht. And the friend asks, "But where are the customers' yachts?"
The joke needs updating. With the Dow Jones industrial average hitting a record, as it did Tuesday, the question is "Where's the workers' payoff?"
The Dow's record, in and of itself, doesn't mean much. It's a narrow measure of the stock market's health, viewed through the prism of a basket of 30 stocks. The Standard & Poor's 500 index, a broader gauge, isn't at a record, though it's been getting closer. And don't forget that a few days or weeks or months from now the whole bull surge could turn into a quaint memory.
But this milestone provides as good an opportunity as any to check how corporate financial health has diverged from that of the average American household -- you know, the people whose spending is supposed to keep corporate profits aloft.
The most succinct way to measure how corporate earnings have fared vs. workers' wages is to examine their share of the U.S. economy -- that is, gross domestic product. From 1950 through the 1970s, corporate profits hovered in the range of 5% to 7% of GDP. They dipped as low as 3% in 1986, but since then have staged a long-term ascent that has brought them to 11% today, their highest level since World War II. (That's as far back as Federal Reserve figures go.)
Meanwhile, the average worker's share of those profits has been on a long-term schneid. Wages peaked at nearly 53% of GDP in 1970, but they never saw that number again. Through expansions and recessions that percentage has fallen almost without surcease. As of the end of last year, it was below 44%.
Where do all those corporate profits go? Chiefly to upper management and shareholders. That's what accounts for the consistent increase in income and wealth inequality among Americans. From 1993 through 2010, according to UC Berkeley economist Emmanuel Saez, the top 1% of income earners captured 52% of all real income growth. During the latest recovery, which corresponds to the post-2008 bull market, that figure was 93% through 2010 -- obviously, through stock gains and corporate dividends.
Try to find a statistical measure that shows the middle class and working class keeping up with growth in corporate wealth and affluence at the top reaches of the income scale. Viewed in isolation, of course, growth in corporate wealth would be a good thing for everybody. But the figures show that the people most responsible for this growth -- the workers who contribute their sweat and brainpower -- are being mulcted of their fair share.
Here are a few markers. Since the stock market bottomed out in March 2009, the Dow has gained 117% and the S&P 500 has gained 127%. Average hourly earnings have risen less than one-third. If you count inflation, the gain is less than 20%.
Is there a working stiff in America who doesn't feel the impact of these statistical trends in his or her bones? You can see it in the rate of employer-provided health insurance coverage -- from 1979 through 2010, that was down by 12.5% for white workers, 13.6% for blacks and 24.1% for Hispanics. (And all groups were expected to shoulder an ever-increasing share of the premiums.) Employer-provided pensions? The proportion of covered male employees in the private sector has fallen from nearly 57% to less than 44% in that period. Coverage for women has risen slightly, but it's provided to an even smaller percentage of women than men (less than 42% in 2010).
It should go without saying that the economic segment feeling this squeeze the worst is the middle class. Adjusted for inflation, the purchasing power of the median U.S. household fell 9% from 1999 to 2011.
One phenomenon that has tracked the inexorable rise of the Dow average since 2009 is the shamelessness of the market's beneficiaries and their courtiers. "There is no sustainable way to make the poor richer by making the rich poorer," declared Richard Epstein, a law professor at NYU, in a recent essay published by the Hoover Institution. The piece was titled "In Praise of Income Inequality."
Epstein professed to be perplexed that people couldn't see that it's all right for the top 1% to increase their income as long as the bottom 99% get a taste. Let's say the top 1% has an income of $100 and the bottom 99% have $10. If the top 1% increase their income to $130 and the rest get a raise to $12, he posited, isn't everyone better off? What's your beef, as long as the top isn't "taking" from the bottom?
The obvious flaw in Epstein's reasoning is that the 1% is taking from the 99% -- they're taking an outsized share of the entire gain. (You may have to be a Hoover Institution fellow, like Epstein, not to see this.)