How Wall Street Stole Main Street

May 14th, 2013

This graph speaks volumes:

Profits as a Percent of GDP: Financial Corporations vs. Nonfinancial Corporations

We saw a big decline in real businesses’ profit share in the 40s, then a slower semi-steady decline through the 70s, as wages constituted a larger share of GDP. Financial corps doubled, expanding and increasing profits, but they remained small in the big picture.

Then post-80, we saw two big moves: a dive in real business profit share below any historical norm, and the beginning of the long secular rise in financial corp profits share (quadrupling between 1980 and 2010).

How did financial corps achieve this? Simple: they’re licensed to print money, and they devoted that money to paying off the managers of real businesses to hand over those businesses’ profits. The C suite of America’s corporations went from being managers of real businesses creating real value, to being financial prestidigitators. And those individuals were handsomely rewarded for their obeisance to the financial corps.

The people who work for those real companies, of course — the vast pyramid of sub-C-suite toilers who don’t get a share of the kickbacks…haven’t gotten a share of the kickbacks.

Compensation of Employees/GDP

That 4% or 5% of GDP income flow — remember, that’s every year — was transferred from households to financial corporations, courtesy of bought-and-paid-for real-corp CEOs.

Got incentives?

Cross-posted at Angry Bear.

  1. The Arthurian
    May 15th, 2013 at 00:56 | #1

    “How did financial corps achieve this?”

    An important question, and it is important to get the answer right. For me, the doubling of financial profits in the first half of your first graph is the source problem. The discontent that put Reagan into office in 1980 is evidence enough that problems existed in the 1970s.

    Two components of corporate cost

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