Who Has Actually Recovered in this Recovery?

Jul 6, 2011Bryce Covert

Money is flowing again, but it's not going to workers or household incomes.

This week's credit check: Corporate profits have taken in 88% of the raise in national income since the recovery began, while household incomes only took in 1%.

Whether or not this feels like a recovery, we're technically in one. And it's true that some money is flowing again. But where exactly is that money going? Not necessarily to those who need it.

It's going to corporations. The recovery began in the second quarter of 2009, and between then and the fourth quarter of 2010 national income rose by $528 billion -- and $464 billion of that, or 88%, went to pretax corporate profits, according to economists at Northeastern University. In fact, corporate profits have been growing quite rapidly in the post-crash period. The NYTimes reported in November of 2010, "Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history." In the third quarter of 2010, they grew at an annual rate of $1.659 trillion, the highest figure recorded in noninflation-adjusted terms.

It's going to the pocketbooks of the richest of the rich. The Guardian reports: "The globe's richest have now recouped the losses they suffered after the 2008 banking crisis. They are richer than ever, and there are more of them -- nearly 11 million -- than before the recession struck." According to the annual world wealth report by Merrill Lynch and Capgemini, the wealth of high net worth individuals -- those who have more than $1 million in free cash -- rose nearly 10% last year and surpassed 2007's peak of $40.7 trillion, topping out at $42.7 trillion. It was even better for "ultra-high net worth individuals," those with $30 million to spare, as their numbers surged by 10% and the total value of their investments rose by 11.5% to $15 trillion.

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Where is it not going? To wages and salaries. As compared to corporate profits, household incomes only saw 1% of the $528 billion in national income growth, or $7 billion. The NYTimes reports, "The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades." In fact, the Bureau of Labor Statistics reports that average real hourly earnings declined by 1.1% percent from the beginning of the recovery to May 2011. This comes on top of the fact that real wages have been faring worse in the last ten years than during the Great Depression -- incomes fell by almost five percent and wages barely budged. These facts don't escape the public. In a recent poll by Democracy Corp, 43% of likely voters said that either they or someone in their family had experienced "reduced wages, hours or benefits at work" in the last year.

As I've pointed out before, when wages fall or stagnate for the average worker, it only leads to an increased need to take on debt. The typical family spends more today on the unavoidables -- energy, housing, health care, etc. -- than a generation ago, and have taken on debt to finance it. In 2007, the typical American owed 138% of their after-tax income. Our total revolving debt now comes to $796.1 billion, and that number will only rise as less money comes into households in real wages.

Bryce Covert is Assistant Editor at New Deal 2.0.

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