While the U.S. economy staggers through one of its slowest recoveries since the Great Depression, American companies are poised to report strong earnings for the second quarter—exposing a dichotomy between corporate performance and the overall health of the economy.
Two years after the official end of the recession, a range of indicators show that the economic recovery has been the worst, or one of the worst, since the government began tracking such data after World War II: Unemployment is too high, bank lending necessary to spur spending is too low, home prices are depressed while household expectations for financial well-being are near record low levels. Many economists predict the sluggish rebound may continue for years.
Against this backdrop, many U.S. companies are expecting to report surprisingly robust profits when second-quarter earnings are announced later this month. Combined earnings of companies in the Standard & Poor's 500-stock index are projected to rise 13.6% from a year ago for the second quarter, according to an analysis of Wall Street forecasts by Brown Brothers Harriman.
Corporate taxes as a percentage of GDP are at modern lows. GDP is higher now than it was prior to the recession and yet growth in wages during our recovery account for just 1% of growth in national income, while corporate profits account for 88% of that growth.
And we're supposed to believe people like Paul Ryan when they say the problem is that we're not doing enough to help those who create the jobs?
Supply-side economics is a tenuous theory at best, but it's an especially bad theory if corporations aren't interested in sharing their remarkable gains with their U.S. workers who are trying to buy their products, pay for their homes, and send their kids to college.
I'm not saying the answer to this conundrum is more government spending. But it's downright naive to pretend that giving more tax breaks to corporations is going to unleash a waterfall of wealth that will help everyday workers. Corporations have taken their existing tax breaks, built a giant dam ahead of the waterfall, and are diverting all the water into their swimming pools. Why would anyone be dumb enough to think that behavior will change if we give them more water?