You may have noticed that we here at The Hot Screen like to talk about economics a lot. This might lead you to think that we actually like economics, but the truth, as they say, is a bit more complicated than that. We certainly like economics more than we used to, though this realization feels a bit shameful, like confessing to a guilty pleasure that reveals your true character to be a lot duller than you’d like everyone to think. But our attraction to learning more about economics, apart from the at-this-point undeniable fact that we find it sort of interesting, has also been driven by a gradual awareness that something boring and basic and in plain view for all to see is actually a lot more central to our lives, our society, and our politics than most of us fully grasp. This has been my experience, anyway. It’s got a decoder-ring appeal.
Then along came Trump, with his combination of faux populism bound up with authoritarianism, as if to provide us all with an object lesson about being economically ignorant at our collective political peril — because perhaps the most terrifying thing about his presidency is his desire to push for policies that will make most of us poorer, and not incidentally create even more people resentful and angry enough to fall for his racist, misogynist snake-oil cures for our ills.
So two recent articles in The New York Times have grabbed our attention, in that they’re both about issues central to our well-being and relate directly to gibberish the president frequently spouts — a real two-fer, in The Hot Screen’s book! First, Eduardor Porter’s “Big Profits Drove a Stock Boom. Did the Economy Pay a Price?” hits on a topic near and dear to the president’s heart — the idea that the rising stock market provides infallible proof that all is right with the universe. Well, it may surprise you to learn that this proof may not be infallible after all! Porter highlights how the large corporate profits that are helping drive stock prices are accompanied by lower rates of investment by companies. This lack of investment contradicts mainstream economic theories, which would indicate a ripe environment for such investment given where interest rates (and thus borrowing costs) have been for a good long while.
He zeroes in on one particular theory as to why this disjunction may be occurring — the fact that many major corporations no longer have true competition. This means that they don’t need to worry so much about investing — why bother improving products when no one’s nipping at your heels to take away market share? — and that they can squeeze both customers and workers as they wish. (The economics profession, dedicated to obscuring as much as possible in order to maintain its claim as a high-falutin’ field that the hoi-polloi need them to interpret, confusingly refers to these high returns gained through uncompetitive practices as “rents,” rather than a more accurate and helpful term like “margin of rip-off” or “magical profit in defiance of poorly conceived economic theories.”) Donald Trump can point to the rising stock market as a growing source of wealth for those actually invested in the stock market; but the same factors that make the stock market a great investment mean that the people with lower incomes who could benefit the most don’t have money to invest in the first place, for the very reasons that the stock market is doing so well in the first place.
The article concludes with the observation that this trend looks likely to continue, although “This is not the kind of economy proposed by classical economic theory.” Apart from being yet another example of the sort of wizened fatalism that we’ve grown to expect from mainstream news sources (nothing will ever change, even though we’ve just told you about why it really should!), we’re also left with the question of why something as intrinsically obvious as big corporations preferring monopolistic powers over actual competition is somehow in defiance of “classical economic theory.”
The quick answer is that, just as economics has been left out of politics for a whole bunch of bad reasons, politics has in turn been left out of economics. Big companies end up re-writing the rules of the game, up to and including exerting influence over the government in the form of lobbying dollars and other forms of power, to help preserve and protect the lack of competition that pads their profits. I feel comfortable making this observation because the topic that Porter touches on — the role of monopolies in the U.S. economy — has been the focus of a growing movement in U.S. economics, perhaps most notably by economists like Barry Lynn and his Open Markets Institute. Lynn and others have been writing about these ideas, and influencing progressive politicians in what can be seen as a sort of rational, fact-based effort to right the misdirection of the U.S. economy, against the hate-mongering and cronyism that the right would offer instead. We're hoping to talk more about his ideas soon.
Bookending Porter’s piece on the stock market, “Where Did Your Pay Raise Go? It May Have Become a Bonus” by Patricia Cohen lays out evidence that over the last two decades, businesses have increasingly turned to bonuses rather than pay raises to reward their workers. The major downside here is that the bonuses have not nearly compensated for the lack of wage increases; in effect, they’ve given businesses the flexibility to reward and retain workers while also allowing them to gradually stop increasing workers’ wages as much as our frenemy, traditional economics, would expect as the labor market tightens. This trend had already started before the Great Recession, but the economic downturn only reinforced it, as companies learned that they would be more likely to survive by cutting costs in anticipation of an inevitable future slowdown. In other words, expectations of the next bust in our boom-bust economy seem to have finally hammered home the message to employers that they really can’t afford to pay workers more.
You can’t read about this and not be struck by the ignorance and opportunism of Donald Trump’s praise for all the businesses giving out one-time bonuses attributable to the Republican tax cut plan. Forget about the lack of presidential pressure for companies to give their workers permanent raises — crediting businesses for bonuses that excuse them from permanent wage gains is to actively participate in a cycle that’s increasing inequality and ripping off employees. And when businesses curry favor with this administration by referencing the tax bill as justification for handing out bonuses, you see more than an inkling of how politicians and the ownership class mutually support each other at the expense of the people actually doing America’s work.
