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The "Bankization" of America

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The Federal Reserve's data on corporate profits were helpfully compiled by a contributor to the investment site The Motley Fool, who notes that financial profits were 11 percent of total corporate profits in the U.S. back in 1947, the first year these numbers were compiled.

These profits soared in the first decade of the 21st century. After taking a hit in the crisis of 2008 -- a crisis which the banking industry caused -- they rose again and are now at record highs. Their share of total corporate profits has risen from 11 percent to 42 percent, as of the latest report, and the Fed expects them to keep rising.

Here's how that looks:


The money nowadays isn't in manufacturing, or retail, or any of the other traditionally jobs-producing industries. The money now is in money.

How did this happen?

A series of policy decisions enabled this explosive growth, including the deregulation of Wall Street; the repeal of Glass-Steagall, which separated bank customers' money from money which the bank could invest for its own profit; runaway banker salaries and bonuses, which prompted the "best and the brightest" to flock to Wall Street and apply their ingenuity to flouting the rules; and government's increasing unwillingness to indict bankers for criminal behavior.

And then, when banker criminality and incompetence created the crisis of 2008, they were rescued by the government without being held financially or legally accountable for their wrongdoing.

The Federal Reserve continues to pursue stimulus policies that moderately help the economy as a whole, but which emphasize the economic health of banks and publicly-traded corporations over that of companies that hire workers -- and therefore increase the consumption of consumer goods.

Profit by the slice ...

Banks have a bigger share of the corporate-profit pie -- and that pie's bigger than ever. As Floyd Norris notes in the New York Times, the government's revised estimate of wage and salary income is 42.6 percent of GDP, which matches the 2010 figure as the lowest percentage since this data was first captured in 1929.

Using the latest revisions to the national income and product account (NIPA) data produced by the Bureau of Economic Analysis, Norris also notes that corporate profits are now 9.6 percent of GDP. That's the highest since these figures were first captured.

As Norris also notes, corporate taxes rose slightly in 2012 as a percentage of GDP but are still well below their historical averages. That's not an accident either.

Meanwhile, as this chart shows, unemployment remains horrendous:

(via Bill McBride, Calculated Risk)

Wages actually fell for most people after the 2008 crisis, as high-income individuals (the top 1 percent) captured all of the economic gains created by the government-sponsored recovery -- and even enlarged their share, capturing 121 percent of the recovery as the rest of the country fell behind.


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Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future
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US production for domestic consumption and export ... by Daniel Vasey on Sunday, Aug 18, 2013 at 12:38:40 AM
".. Many who have been vociferous in critici... by Lance Brofman on Sunday, Aug 18, 2013 at 10:27:31 AM