Bizweak

Dennis Robert Redmond dredmond at efn.org
Fri Apr 12 18:33:04 PDT 2002


(This is a long riposte, but it's important to get the details right.) Bizweak scribe Michael J. Mandel <http://www.businessweek.com/magazine/content/02_13/b3776001.htm> writes:


> '80s. Adjusted for inflation and including dividends, average annual
> returns on the S&P-500 index from March, 1991, to the end of 2001 were
> 11.1%, compared with 12.8% in the previous business cycle. Bondholders
> and small savers saw their returns drop even more in the '90s. The real
> return on six-month certificates of deposit, for example, was only 3.1%
> over the past decade, compared with 4.7% in the '80s.

Will Bizweak *ever* learn to count? Capital gains get taxed, and there are always admin fees of various kinds, so 11.1% is a theoretical maximum, not a practical goal for anyone counting on their 401K; many bonds have tax-free returns of 6-7%. Real estate saw the biggest and best returns of them all.


> Overall, BusinessWeek calculates that workers received 99% of the gains
> from faster productivity growth in the 1990s at nonfinancial
> corporations. Corporate profits did rise sharply, but much of that gain
> was fueled by lower interest rates rather than increased productivity

Some, but not all or even most. Real interest rates were mildly positive during the 1990s, a mild help early in the expansion, but not much help later on.


> To the dismay of tech investors, the hundreds of billions poured into
> Internet ventures and new telecom equipment ended up lowering prices for
> users, not raising profits for corporations

Which prices were these? The time it took to download Quake 2 mods? Prices sure didn't drop for cars or healthcare or education or videogames or anything else. Yes, the price of transmitting data dropped, which resulted in the telecom bust, but no generalized deflation occurred.


> Labor costs now absorb almost 87% of the output of nonfinancial
> corporations, the highest level ever, and way above what companies were
> paying out at the end of the last recession.

This number is inexplicable. Labor costs for firms have gone down over time, not up, as mechanization and computerization have advanced. The most labor-intensive businesses like education may have a wage bill equal to 45% of operating expenses, but that's at the high end.


> for the slow growth in the early part of the 1990s. All told, real wages
> for the average private-sector worker rose by about 14% in the 1990s
> business cycle, measured by the Labor Dept.'s employment cost index.

The richest 5% saw their incomes rise something like 10% *per year* during the 1990s. Also, the article completely ignores the phenomenon of total wealth: the rich were seeing the value of their stocks/bonds skyrocket, while the average consumer went deeper and deeper into debt. Net wealth (assets minus debts) is atrociously polarized in the US, and personal bankruptcies hit all-time highs in 2001.


> In 1991, the hourly compensation for U.S. factory workers was 17% higher
> than the average for foreign workers, measured in U.S. dollars. By 2000,
> the difference had increased to 31%, as high-tech, high-wage
> manufacturing industries expanded and low-wage industries shrank.

Incredibly bogus statistics. Which foreign workers? Switzerland or Finland? Japan or France? Also, (1) the US dollar is hugely overvalued right now, based on very orthodox measures like trade and current account deficits, meaning that direct currency comparison are less significant than overall levels of productivity, and (2) US workers work way more hours per year than their European comrades. In terms of per hour output, Central Europe is the true productivity miracle of the 1990s.


> But this litany of good news raises a question: If workers prospered in
> the 1990s, why didn't investors get their fair share of the gains?

How annoying, these post-dotcom whiners. Dividend payouts are at an all-time high relative to profits, and profits increased significantly as a % of GDP; the stock market is still larger as a % of US GDP than it was in 1990.


> Out of that sum, an astounding $806 billion--or 99%--went to
> workers in the form of more jobs and higher compensation, including
> exercised stock options.

Bingo: we're dealing with an ex-dotcom screed. Most workers received few or no stock options in the 1990s. But if you classify Bill Gates and Jeff Bezos as workers, and forget all about debt burdens (including the 2 trillion EUR the US owes the new metropoles) then the 1990s were quite a party, weren't they!

-- Dennis



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