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OpEdNews Op Eds    H2'ed 12/16/16

Brace For the Worst

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As the president-elect shapes up his gang, and as the Congress prepares its first round of legislation, we should be alarmed. You can bet that corporatism on steroids will soon catapult economic inequality to a level beyond anything ever before seen in the United States.

The value of the companies in the S&P 500 is about 26 times their annual earnings today. That's the price-to-earnings ratio - the PE - and it reflects investors' expectations of future earnings. The historical PE ratio is only about 15 - this suggests that investors expect corporate profits to increase by about 75% in the foreseeable future.

But wait. Corporate profits approaching $1.7 trillion [1], in round numbers, already account for nearly 10% of an $18 trillion Gross Domestic Product - GDP. But it gets much worse when you look closer.

If corporations accounted for their income the same way the rest of the economy does, we'd need to look at revenues instead of profits. You and I are counted in GDP calculations when we earn money - wages, salaries, rents, interest, dividends and more. All kinds of revenue count, no matter what it costs to earn that income or run our family. Corporations are counted in GDP quite differently - their slice of the pie equals revenues after subtracting costs, expenses, and taxes.

So if corporations counted their income like you and I do, they would show about $25 trillion a year in income instead of just $1.7 trillion. The GDP would be $41 trillion instead of just $18 trillion. [2] This gives us a much clearer picture of the influence corporations can exert on our public policy - they make up 60% of our economy instead of just 10%!

Let's look at it from the other side. If you and I counted our income like corporations do - after deducting costs, expenses, and taxes - we would be earning about $2.4 trillion a year, or the average annual increase in wealth over the past decade. The GDP would be only $4.1 trillion instead of $18 trillion. And individuals would account for nearly 60% of the economy. But there's a problem with this - the lion's share of net income reverse-gravitates to the top 1% of earners. The capacity to generate and retain wealth is concentrated at the very top. This gives us a much clearer picture of the influence that very wealthy people can exert on our public policy - they control $45 trillion in personal wealth, or about 50% of the total. [3]

So if you've wondered how corporations became so powerful while only making up 10% of GDP, this analysis might help. And if you've wondered why the rich keep getting richer, it might make a little more sense now. And if you've wondered what kinds of public policies create inequality, just watch Trump's cabinet selections and the legislation he'll sign on day one.

Money as power? Runaway inequality? You ain't seen nuthin' yet!

[1] click here

[2] click here



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Thirty five years as a small business consultant, CFO, and university educator specializing in quantitative business and economic modeling - a suite of experience now focused on economic inequality. Carefully attributed data, thoughtful (more...)

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