When President Obama took office in 2009, many friends of capitalism were concerned that he would socialize our economy. Yet corporate profits have hit record heights during his presidency. For example, one report argues that the profit growth rate under Obama is far any away the most significant of any administration since 1900, outpacing second-place Harding by a factor of five. Bloomberg reports that after-tax corporate profits have increased by 171% since Obama took office twice as high as they were during their peak under Reagan. (Note: if you use January 2008 instead of January 2009 as the starting point the numbers change dramatically.)
Part of the record profits stems from the fact that wages have hit a 70-year low.
While the majority of new jobs pay low wages, workers in established jobs have seen a flatlining of their wages. Worker incomes are now $3,850 a year lower than they were when Obama took office. Median wages for men between the ages of 19 and 64 dropped 19% between 1971 and 2011.
The persistence of claims that Obama is a socialist receives an interesting rebuttal from this article, which argues that Obama is a capitalist of a different stripe. Rather than favoring the old productive economy, where wealth is drawn from the soil and manufacturing – the economy of banks, corporations, energy companies, and agribusiness – Obama has shifted economic support to the professional and technical classes. This would explain the massive financial and electoral support he received from entertainment moguls, people in the news media, the tech and computer sector, academics, and government workers. This new class, Kotkin argues, forms a clerisy more interested in shaping opinion than in wielding economic power. They believe in elite rule and using social institutions and media to buttress that rule. And it also helps to explain the contentious nature of our politics. Says Kotkin:
“More disturbing still may be the clerisy’s regal disregard for democratic give and take. Both traditional hierarchies, or new ones like the Bolsheviks after the 1917 revolution, disdain popular will as intrinsically lacking in scientific judgment and societal wisdom. Some leading figures in the clerisy, such as former Obama budget advisor Peter Orszag, openly argue for shifting power from naturally contentious elected bodies to credentialed “experts” operating in places Washington, Brussels or the United Nations.”
Kotkin’s essay is an interesting one, but he seems to misunderstand the persistent power of our largest banks. A fascinating report recently released by the Dallas Fed demonstrates the continued persistent effects of the Too Big to Fail program. According to the author, community banks consistently deliver superior performance, and the reason for this is they are more easily regulated and are subjected to the market disciplines of bankruptcy and failure. They don’t take stupid risks because they can’t afford to. While 98.6% of all banks are community banks, they only hold 12% of all commercial banking assets. Meanwhile, 69% of all commercial banking assets are held by the largest banks, which comprise 0.2% of all banks.
Regulation has skewed the playing field even more in the favor of the five largest banks. The complex regulations of the Dodd-Frank reforms have placed tremendous burdens on the smaller banks that weren’t part of the problem to begin with. In order for Dodd-Frank to be properly enacted over two-and-a-quarter million labor hours a year would be required to insure compliance. In the meantime, the largest banks have received significant financial benefits resulting from an artificial uplifting of their credit rating from unsecured creditors.
Indeed, the Washington Post reports that the five largest banks are now making big money on mortgages, particularly refinances. JP Morgan Chase reported $418 billion in profits from the mortgage business in the 2012 calendar year. A good deal of the profits enjoyed by these banks result from the President’s Home Affordable Refinance Program.
None of this should be surprising given the revolving door that has existed between Wall Street and Obama’s White House. Jacob Lew, the Treasury Secretary designate, oversaw the $45 billion Citigroup bailout, where he was the Chief Operating Officer in the “alternative investments unit.” He got paid handsomely for his trouble, to the tune of over $2 million a year. In the meantime, of course, the Obama administration continues every month to purchase $40 billion in mortgage-backed bonds from the largest banks.
On the other side of the scale, small businesses and financial institutions must face the squeeze put on them by excessive regulation, burdensome taxes, and the impending costs of the Affordable Care Act. For reasons I’ll go into in my next post, the government has done a poor job calculating the total costs of the ACA.
While nothing suggests Obama is a socialist, those of us who have read our Marx may see in him features of late capitalism: concentration of wealth, cooperation between the state and owners, greater wealth inequality. The American worker may not have experienced the sort of immiseration Marx predicted for him, but things don’t seem to be getting any better. More than ever, as the report of the Dallas Fed reminds us, the questions of politics and economics are fundamentally questions about size, scope, and scale. Sadly, neither of our two major parties get this. Next week I’ll be giving further evidence of this as we consider the debt ceiling problem.