Classless warfare escalates
Alan Reynolds
It is a familiar complaint that newspapers
only report the bad news. But that
applies to economic news,
too -- particularly with a presidential year coming
up. By all objective
indicators, the news about the American economy has been
remarkably good since the
summer. But what is good news for ordinary people can
be bad news for
politicians, just as good health is bad news for morticians.
For some strange reason, recent Democratic
candidates have been looking for the
dark cloud behind every
silver lining. They seem to think voters always want to
hear that the
conditions that can only be
remedied by making even more people even more
dependent on taxes extracted
from someone else.
This has created a demand The New York
Times has long been eager to fill by
making up new facts.
Loyal Lou Uchitelle took up this task once again with
"A
Recovery for
Profits, but Not for Workers."
"Profits, it turns out, never stopped
rising as a share of national income all
through the 2001 recession
and in the months afterward of weak economic growth,"
Uchitelle
reports. "New data from the Bureau of Economic Analysis erases
all
doubt on this
point." If it`s blues, it`s
news. Uchitelle alludes to "pretax
profits," yet that
new data show pretax profits falling by as much as 9.9
percent in 2001. Even
after making some adjustments for depreciation and
inventory, profits fell from
$833 billion in the second quarter of 2000 to
$713.6 billion in
the fourth quarter of 2001. Perhaps not as deep a decline as
Uchitelle would have liked,
but down just the same.
Employee compensation rose from $5.78
trillion in 2000 to $5.9 trillion in 2001
and $6 trillion in
2002. After adjusting for inflation, real compensation per
hour rose by 3.6
percent in 2000, but by only 0.8 percent in 2001 and 1.2
percent in 2002. The gains
were fairly weak in 2001-2002, but so was the
economy. Real wages and
benefits rose at a 3 percent rate in the second quarter
of this year, but the
preliminary third quarter figure shows only a 0.7 percent
rise. Looking at the
volatile second and third quarters together, it would be
distinctly unkind to claim,
as Uchitelle does, that "the economic recovery
is
distinctly unkind to
workers."
Uchitelle could not and did
not claim the new data "erase all doubt" about
profits not falling. On
the contrary, they prove profits fell. What he said was
that profits did not
fall as a share of national income. Labor failed to grab a
larger share of the pie
when the economy stumbled. Even if that were true (it
isn`t), that certainly
would not mean "labor`s share is
shrinking."
The new data show that profits fell in 2001
while labor income rose, so how
could even The New York
Times claim workers got a smaller share? The trick is to
first cite the Bureau of
Economic Analysis for authority but then completely
ignore the official
figures and fabricate an entirely novel definition of
profits. Uchitelle cites Ed Wolff of
"profit"
to include "profit from self-employment, rent and interest." If
defining profit to include
even self-employment is evidence of anything, it is
evidence that professors
should never get tenure. What on earth do "profits"
from self-employment
have to with wages? Self-employed people neither pay nor
receive wages.
An enterprising young cousin of mine, laid
off by United Airlines, is starting a
franchise to sell home
blinds. He used to earn "labor`s share" in Wolff`s
old-fashioned Marxist sense --
meaning, income from working for capitalists
(stockholders) who
owned the airplanes. But any income my cousin can now pay
himself from the franchise
is to be melded with United Airlines` famously
invisible profits, according
to Uchitelle and Wolff.
My wife`s
industrious stepmother, now well into her 90s, pays for her own
long-term care from rental
properties she actively managed until recently.
According to this proposed new definition,
she never worked a day in her life.
It was all just profit.
Interest income and rental income are
returns on invested capital, and so is
some portion of the
income of self-employed people (e.g., profit from investing
in a computer). But
most of us work hard to acquire such investments, and it is
extremely misleading to lump
it all together as profits just to give the false
impression that profits of
corporations have been much larger and less cyclical
than they were.
Even the Bureau of Economic Analysis
figures on profits can mislead, because
they count thousands of
privately held corporations, including professionals and
farmers. Profits of the
S&P 500 firms, by contrast, fell from $13.71 a share at
the end of the third quarter
of 2000 to $3 a share by the end of 2002. Stocks,
of course, collapsed,
too. By the third quarter of 2003, however, profits had
indeed almost recovered
their pre-recession level, reaching $12.60 a share. If
that recovery of
profits bothers you, remember what it was like before profits
recovered.
The phrase "class warfare" has
been overused to mean merely resentment of people
who earn high salaries
by managing complicated businesses, rather than by
singing, acting or playing
golf. In its original meaning, courtesy of Karl Marx,
class warfare meant a
serious conflict of interest between two supposedly
distinct groups of people
-- those who receive income from owning physical
capital (such as a hammer
or a sickle) and those who earn their income from
physical labor. That is why
frugal people were accused of having "unearned
income" during the
1972 presidential race. And it may explain why New York Times
Democrats are still trying to revive that
old excitement about the investing
class profiting unfairly
at expense of "working families."
In reality, the hardest working families in
hard to be successful
investors so they can send their kids to college and
finance their own old age.
And they just suffered a starting setback in
2001-2002, when profits of large, publicly
traded corporations almost vanished.
The New York Times just escalated next year`s rhetoric to authentic class
warfare, not mere income
envy. Somebody is hoping to pit everyone with an IRA,
mutual fund or 401k
against everyone else. This is dismal economics and
disastrous politics. When
nice guys like Democratic candidate Dick Gephardt
insist on excluding me,
my children and most of my relatives from their manta
about "working
families," I doubt they have any idea how offensive that is.
Class warfare has no class at all.
©2003 Creators Syndicate
All contents (c) 2000-2003 Wanniski.com
Source: http://www.wanniski.com/
(posted: