Where Did the Money Go?

Ever since I learned about the Law of Diminishing Marginal Returns in Economics 101 at Rockford College, I've been trying to understand the economy — with only occasional success.

For instance, I often indulge in Robert J. Samuelson, hoping he'll write something that reminds me of the work of his father, Paul, the 1970 Nobel laureate in Economics. Alas, Robert thinks conventionally and writes dully. I find more gratifying the fiery prose of Joseph Stiglitz, and the gutsy campaign, by Paul Krugman to battle almost singlehandedly against the onslaughts of Lafferism, Gilderism, Thatcherism, Hayekism, Social Darwinism, and other ruthless forms of dog-eat-dog economics that threaten to turn the Golden Rule into a sarcastic epitaph on the gravestone of the American middle class.

But though I admire Stiglitz and Krugman, both Nobel laureates, I find it hard to translate their analyses for people who've been either dazzled or numbed by the austerity fad and trickle-down drivel that have trapped America's political class in an oxymoronic spiral of Puritan plutocracy.

However, there is relief from economic abstruseness — in Harold Meyerson, who writes about economics, without a Nobel Prize, for The Washington Post. Regularly, Meyerson unearths nuggets of data that illustrate starkly and often without need of elaboration, the problems and prospects of our economic status.

Last month, Meyerson cited a Wall Street Journal report noting that among Standard & Poor's top 500 companies, cash reserves have increased 49 percent since 2007, “in large part because they're neither hiring in the United States nor boosting their workers' incomes.” But here's the number that kicks you in the teeth. Meyerson quotes the WSJ:

    In 2007, the companies generated an average of $378,000 in revenue for every employee on their payrolls. Last year, that figure rose to $420,000. But workers are seeing none of that increase in their pay.

Now, of course, among the S&P 500 are such companies as Walmart and Tyson Foods, whose rank-and-file wage-earners, scraping by at $9 an hour, aren't close to running up $420K each in productivity. But the list also includes high-tech companies like {complink 4505|Qualcomm Inc.} and {complink 4092|Oracle Corp.}, energy giants, and the cream of the financial industries. Here, surely are legions of white-collar professionals who've contributed to that 38 percent productivity leap without seeing anything close to a 38 percent boost in income.

Indeed, as Ed Schultz, another of my favorite non-economists notes every week, the inflation-adjusted growth in income for most American workers making less than $250,000 a year, has flat-lined since 1980. By contrast, the latest figures show that the average corporate CEO today makes 343 times as much as the average US worker. The disparity in 1980 was only 42.

Presumably, some of this expanded productivity not going back to the actual flesh-and-blood “producers” is getting doled out to a vast underworld of shadowy kvetchers called “shareholders” — who are frequently invoked by CEOs, who… wait a minute! Don't CEOs often get extra pay in the form of shares?

Luckily, one answer to “Where's the money?” emerged from last week's $2 billion fiasco at {complink 7018|JPMorganChase}. We've heard that big companies, instead of investing in growth and hiring workers, are “sitting” on trillions of dollars. Well, as it turns out, these companies have been squirreling this cash away at joints like JPMorgan, turning too-big-to-fail banks into the equivalent of a coffee can buried in the garden.

However, rather than just “hold” these trillions — the fruit of American workers' unparalleled productivity — for all those S&P 500 Scrooges, Jamie Dimon's minions at JPMorgan decided to, well, roll a few dice and spin a few wheels. I'll quote Felix Salmon, another non-Nobel financial analyst whose insights are easy to grasp:

    Rather than lending out that money and boosting the economy, Jamie Dimon decided to simply play with it in financial markets, just as a hedge fund would… And the $2 billion loss is really just a symptom of what happens when banks get too much money, and don't really know what to do with it all.

So there, fellow workers, is where the money went — and where it's gonna keep going.

10 comments on “Where Did the Money Go?

  1. Ariella
    May 15, 2012

    and where it's gonna keep going.” So you're feeling really optimistic about the future, aren't you?

  2. David Benjamin
    May 15, 2012

    Ariella, let's just say I have little faith in the Congress' inclination to bite the hand that feeds it. Benjamin

  3. bolaji ojo
    May 15, 2012

    The hand is still feeding and Congress appears to be a real hog. A recently passed law would have tamped down on the type of trading that resulted in JPMorgan's huge loss but apparently, lobbyists managed to put off the implementation day. They fully plan to kill it or water it down eventually.

    I recommend NY Times' Joe Nocera's latest op-ed on the same subject. You share the same sentiments. See: Make Banking Boring.

  4. bolaji ojo
    May 15, 2012

    Ariella, I know David. He is really a very optimistic kind of guy — kind of. 🙂

  5. Ariella
    May 15, 2012

    @Bolaji, I'll have to take your word for it!

  6. Nemos
    May 15, 2012

    It is very depressing to have the feeling that something like that is going on. It is very sad when you read about it, and you have the confirmation that the situation is as you suspected   it could be . A very sad story indeed , “Last year, that figure rose to $420,000. But workers are seeing none of that increase in their pay.”

  7. _hm
    May 16, 2012

    Yes, it looks quite discouraging. What will make these organizations do more hiring in USA?


  8. Mr. Roques
    May 18, 2012

    They have it on bank accounts? international banks? I know that Apple has it abroad (mainly because of taxes), you can see what Mark Zuckerbeg did with his American Citizenship (taxes as well)… so maybe the POTUS and the US Government should find ways for those companies to re-invest that capital in the US, and give them certian tax breaks.


  9. SunitaT
    May 19, 2012

    In 2007, the companies generated an average of $378,000 in revenue for every employee on their payrolls. Last year, that figure rose to $420,000. But workers are seeing none of that increase in their pay.

    @David, companies have used this recession as a tool to exploit the emoloyees. Employees are forced to work for extra hours and sometimes on weekends too. Employees are more worried about loosing their job rather than pay. I really hope this increase in revenue reaches the employees too.

  10. itguyphil
    May 19, 2012

    I know this may be a bit unrelaistic BUT how about legislation that reigns in just how much lobbyists can have influence over legislation. Does that make sense?

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