Graph of the day: Not exactly trickling down


All right, we’ve had a few days of pretty intense graphs about income inequality and employment, so today we’ll dial things back a bit by introducing one of our old friends (corporate profits) to our new friend (income).

Let’s go to the graph.

(Income data from U.S. Census; corporate data from St. Louis Fed)

You may remember that yellow line, corporate profits as a percentage of GDP, from some of our first Graphs of the Day. As a refresher, that’s the share of the economy that’s sitting in corporate accounts after they’ve paid everyone they’re going to pay, hired everyone they’re going to hire, bought everything they’re going to buy, and built everything they’re going to build. In other words, money that enriches corporations but doesn’t do much for the rest of us.

The blue line is simpler; that’s the income for households exactly halfway up the U.S. income ladder, the people who should be the definition of middle class.

We’ve looked at how corporate profits don’t lead directly to job creation, but could they help the middle class some other way? Maybe more money at the top trickles down, and those companies made so much money that they were able to pay all their employees a lot and still report those growing profits.

Unfortunately, that doesn’t seem to be the case. In particular, I want to call your attention to the mid-1980’s, after corporate-friendly conservative policies were well and truly underway under the Reagan administration. Notice how the graph trends sharply upward? It’s been a good time to be a corporation in the U.S. since conservatives started injecting government with supply-side economic theory.

The middle class have lived a different story. Sure, middle class incomes have gone up a bit, but they’ve been much flatter than corporate profits. And it’s not getting better; take a look at the current recession. Corporate profits take a short-term hit, but they’ve already recovered almost to where they were before the crash. The middle class, however, has seen its income decline with no sign of recovery.

It’s time to reevaluate the conservative notion that what’s good for corporations is good for the middle class. Yesterday’s graph examining employment suggested that public investment to boost demand could grow our economy better than continuing to help big businesses profit in the hope that they’ll share with the rest of us. Let’s invest directly in the middle class rather than enabling corporate greed.