- by New Deal democrat
As we come to the end of the week after the payrolls report, when typically almost nothing is reported, I wanted to follow up on several posts I wrote last week: one, revisiting the configuration of long leading indicators, and second, that Republics are very durable unless and until they are overmatched by entrenched interests that cannot be dislodged by a majority.
Let me go back to a point I made that recessions don’t happen unless there is a real setback to producers and consumers, as reflected in real corporate profits (blue) and real retail sales per capita (red):
As indicated above, to some extent, America has been economically blessed in that aside from the Giant Flaming Meteor of Death, i.e., COVID, there has been no recession in the past 17 years. That’s quite a good record!
But when one looks at the distribution of corporate profits and worker income, a more disturbing story is told. Here is what (nominal) corporate profits (blue) and aggregate nonsupervisory payrolls look like, both normed to 100 in 1987:
They began to diverge in the 1990s, then much more in the 2000s, further after the Great Recession, and then racheted further out of equilibrium after COVID. As of the first Quarter of 2026, nominally aggregate nonsupervisory payrolls have quadrupled, but corporate profits have increased 20x! Put another way, economic power has become increasingly entrenched among corporate ownership. This is reflected in another graph you may recall seeing here and/or elsewhere in the past few years, of the labor share of the economy, normed to 100 as of its generational peak at the beginning of 2000:
Labor now only takes 87% of what it did then, a new low for this series that goes all the way back to the 1940s. Although I won’t show the graph, labor share peaked in 1960. The 2000 high was 3% below that, and the current share is only 81% of the 1960 share.
This, quite simply, shows economic power becoming increasingly entrenched over time among the wealthy.
Interestingly, aside from what may be happening at present, only one of the times when the corporate share increased sharply via profits coincided with a tax cut: in the aftermath of George W. Bush’s 2001 tax cut. Perhaps surprisingly, after both recent recessions, that featured extensive stimulus programs, corporate profits surged and the labor share declined sharply. As shown below, despite both stimulus programs real median household declined through 2012 and 2022, respectively:
Which suggests that even though stimulus may be aimed at average American households, the mechanics by which it works is that those households *spend* the payments in order to get them through difficult times. Once spent, those funds wind up in the hands of producers, i.e., they become concentrated in the largest corporations - which don’t spend them, but engage in stock buybacks and soaring executive compensation. So even though they accomplish their short term goal, over the long term they wind up helping to entrench wealth, suggesting that all economic stimulus programs should come with a back end corporate tax surcharge acting to “sop up” those extra gains once the crisis has passed.
This leads to a deeper discussion of the *dynamics* of economics and politics over time; in other words, how this came to be. That discussion involves the economics of bargaining power, the psychology of attraction to gains and avoidance of losses, and how human behavior learning strategies for the same apply, which is something I have read about and studied for decades. But this post is long enough, and rather than turn it into a veritable book, that will be the subject for a follow-up later.