There are many ways that corporations earn money. They manufacture goods and services, for example. However, there are other ways, as well. For example, they use their political clout to redistribute income from the 99 to the 1 percent.
Notice from the graph above that corporate profits as a percentage of GNP dropped from the mid 1960′s to the early 1980s. So did the taxes they paid. After the 1 percent began to take complete control of the US government in 1980, which was called the Reagan Revolution and rightly so, the off shoring of American jobs accelerated. Corporations increased profits because of the difference between the old US wages and the new lower wages overseas, as well as the differences in salaries, benefits and environmental costs.
That’s one of the major reasons corporate profits are rising higher and higher, during this time of weak demand, breaking record after record. Every year, one to three million jobs are exported. Because free trade treaties pave the way, millions of other potential American jobs are created by US companies in foreign nations. Without those treaties, it wouldn’t be possible for corporations to do this. Those jobs would be created in the US in the absence of those treaties.
As those jobs are shipped or created overseas, our roads, bridges, schools and social safety nets have been in a slow motion thirty-year collapse because much of our tax base has been shipped or created overseas.
Under President Ronald Reagan, the 1 percent and their tools known as corporations began to receive tax cuts and more and more tax loop holes with which to avoid the payment of taxes. New overseas tax havens allowed the rich and corporations to avoid paying bazillions of dollars in US taxes. That’s another one of the reasons why our roads, bridges and schools are crumbling. Our tax base has been weakened.
Pushing corporate after-tax profits higher and higher is one of the primary goals of Wall Street. This keeps stock and corporate bond prices rising. If profits sink, especially in the long-term, rich investors (such as hedge funds) are likely to sell their stocks and bonds, which sinks the price of corporate shares and weakens the ability of corporations to issue bonds.
Corporations also create profits by jacking up prices. We’ve been brainwashed to believe that only an increase in the supply of money creates inflation. To some degree, that’s true. Post-World War I Germany is a prime example. However, in that case, the excess printed money made its way down to the people, who bid up the price of goods. That’s not happening now. The Federal Reserve has been printing up tens of trillions dollars for several years now and inflation is relatively in check because that money has gone to rich investors, hedge funds and banks, rather than to the people.
However, that hasn’t stopped US corporations from simply jacking up prices for working folks. Look at the graph below. Notice how closely the real inflation rate has mirrored the rise in corporate profits. This suggests that market after market is largely controlled by a few major corporations that control their prices.
Typically, a major corporate player in any market will jack up prices, which will be announced in the corporate press. If its rivals follow, then the increased prices will stick. If the so-called rivals refuse to jack up their prices, the company that jacked up its prices will retract the price increase. This phenomenon was first noticed by the economist John Kenneth Galbraith in his book Economics and the Public Purpose. I studied it and noticed how correct he was.
Here’s the real bitter part of this truth. The US government has changed how it measures inflation twenty times since 1980. This allows corporations to jack-up prices in hundreds of markets without anybody knowing. Sure, people notice price increases in the number of products and services they purchase. However, most people don’t have any idea how pervasive this income redistribution scam is. The US government is a partner is this coverup.
Simply raising prices allows corporations to increase profits. So the money you pay for something goes into the pockets of the rich via higher corporate earnings, dividends and share prices.
The graph below measures inflation the way it used to be measured by the government and shows how the modern and official government statistics for inflation differ from what they would’ve been had the government continued to measure inflation the way it did back in 1980.