The USA is the bastion of free market or so we are told. The animal spirit of capitalism encourages innovation and improves standard of living of ordinary people. or so we are told. So we cheer when the profits of the big companies go up and S&P 500 goes higher. ( Forget the small business, they do not have money to spare for lobbying to Congress). Will it be surprising then to note that in this era of super growth of corporate profits, the share of wages in GDP is the lowest?
Unfortunately the chart shows that most of the profit growth has come at the expense of wages. But wait, if there is no wage growth, how come people are buying stuff? Sale of ipods and ipads are going through the roof even when food stamp usage is at record number. Where the money is coming from? Well, apart from not paying the mortgage, most of the money is coming from Government transfer payments:
In fact, 22% of every dollar of the US personal consumption is coming from Uncle Sam. So in effect, The government transfer payments are keeping the corporate profits healthy. Capitalism for the mass indeed.
Have you ever wondered, why the Government and the Fed are so keen to keep the asset values ( read stock markets) high? May be the following chart will help in understanding.
Do we still need more narratives?
Have you ever wondered, why the Government and the Fed are so keen to keep the asset values ( read stock markets) high? May be the following chart will help in understanding.
