Being Smart About Picture of Numbs — the Corporations-are-People-My-Friend Edition

Tuesday, December 4, 2012 at 11am
By John Friedman

Many years ago, during a client meeting, I learned anew that there are many kinds of intelligences — that any given person can possess high intelligence of one sort while simultaneously possessing low intelligence of another sort. Since then I’ve come to know in a much deeper way that, in the middle of the bell curve, each of us is very smart in some ways and very not-smart in other ways, all at the same time.

The particular coupling I witnessed first-hand that day many years ago was present within a terrifically successful business person who, though wicked smart in doing business, simply didn’t do well when looking at graphs. The information flowed from the graph to the client, surely, but the knowledge borne by that information was, at best, slow to arise after the information arrived, and sometimes failed to arise altogether.

*  *  *

Here’s an interesting graph which appeared this morning within the progressives-friendly, astutely-political Daily Kos, nestled within a piece by Laura Clawson entitled, Corporate Profits are Highest-Ever Share of GDP, While Wages are Lowest-Ever:

 


Laura Clawson’s corporate profits (red) vs. wages (blue) graph

 

Looking at this graph, financial wonks and readers of good financial wonkery the world over will well-recognize the . . . let’s call it trade dress . . . of FRED — the light blue frame, the gray verticals showing periods of recession, etc. — which is the Federal Reserve Economic Data site and uber graph-making tool operated by the St. Louis Fed. As a tool held in high esteem by many in the profession and derided by, as best I can tell, no one, FRED is also a testament to the ability of government’y sorts of entities to do good to great work.

So what’d’ya see?

First, notice that Laura had to do some graph-building here. She wanted to show relative values — the percentage of GDP for which corporate profits and wages each accounted. To do that she had to find the data set for corporate profits (called CP in the FRED database) and for wages (called WASCUR in the FRED database), and then she had to tell FRED to divide those data by GDP data (called, simply and thankfully, GDP in the FRED database) . That’s what’s shown in the legend box in the lower right-hand corner of the FRED graph.

Second, she had to get the lines to somewhat overlap so you could compare what they’ve done vis a vis each other. To do this she had to tell FRED to use one percentage-based scale for the corporate profits (shown as decimals on the left-hand axis, and ranging from a 12% maximum to a 2% minimum) and a different percentage for wages (shown on the right-hand axis, ranging from 62% to 42%). This, too, is shown in that legend box in the lower right-hand corner of the graph, via the left and right labels.

I can pretty much promise you that, until Laura dialed in those graph-design parameters and told FRED to re-draw the picture, she wasn’t certain what the graph would look like. She probably had an idea, but, with the pleasure of creation and new illumination, after generating the graph she probably sat there for a few moments and let the information so-delivered coagulate into knowledge so-gleaned. Such is the fun of drawing pictures with numbers!

*  *  *

Now onto some comments.

    1. Smart-Graph-Viewers Look at the Axes and the Labels. When people want to snow you with a graph, one of the ways they’ll do it is to do something funny with the scales they use for axes (that’s the plural of axis, not the thing the TinMan holds up). Oftentimes they’ll chop off the lower part to make a very small change look big, i.e., if a scale goes from 0% to 100% and the data is showing a change from 60% to 62% within that scale, then you won’t see much of the change, but if the scale goes from 55% to 65%, you surely will. So always look at how things are labeled (and, graph-designers, if you want your work to be taken seriously, you should do the same thing as well).

Here that means that it’s easy to overlook the fact that, as shown in the graph, wages are huge relative to corporate profits. Currently, with both measures residing at their extremes, wages represent 44% of GDP while corporate profits represent a mere (a mirror?) 11% of GDP (not the 60% they would appear to be if you incorrectly used the right-hand scale of the graph for both figures). There’s a lot of people in this country of ours, and a lot of ’em are wage-earners. And no doubt there’s a lot of that a lot, as well as many non-wage-earners, who would use the numbers on the right-hand axis to understand both the red line and the blue line, and, gosh a’mighty, would they ever end up with the wrong idea.

 

    2. Smart-Graph-Viewers Look at the Narrative but Draw Their Own Conclusions. Pictures of numbers are often accompanied by some narrative. Here, Laura’s main narrative is encapsulated in this two-sentence chunk:

After-tax corporate profits were a record share of the gross domestic product in the third quarter of 2012. Wages were the smallest share of GDP they’ve ever been.

 

The link in Laura’s text is to CNNMoney, which is a good way to say, I’m not making this stuff up, since CNN is seen by many as the most neutral mainstream arbiter of facts, poised as the anti-Fox/anti-MSNBC entrant in the true/not-true realm.

If you click on that link, you’ll see an article by Chris Isidore (no link to his bio here because there’s no link in the article to his bio) (bad CNN, bad). Chris’s article has much the same take on things as Laura’s narrative. Nicely enough, Chris also includes a quote from Robert Brusca, widely known (by me, anyway) as the guy who was in the World Trade Center and caught live, on camera, giving an interview when the truck bomb went off in the basement during the first World Trade Center terrorist attack, at which point Robert, feeling that not-then-departed but now very-dearly-departed building take a jolt in a way that made absolutely no sense whatsoever and had never happened before, had the presence of mind, and the good manners and clean-language personality to say something entirely broadcastable, along the lines of, Gosh, what was that?

So here’s Chris’s rendering of Robert’s take on the numbs, coming into view as a result of Laura’s blog posting this morning:

“That’s how it works,” said Robert Brusca, economist with FAO Research in New York, who said there is a natural tension between profits and the cost of labor. “If one gets bigger, the other gets smaller.”

 

What do you think? Does that explain the graph well?

I’d say that it does so only in part. Do you see why?

 

    3. Smart-Graph-Viewers Decide for Themselves What’s What. So what do you think? Every picture tells a story, yes? So what’s the story here?

 We begin with a reprise of the graph, to allow for small screens and such:

 

 

What’dy’a see? What’s the story being told here?

First, note that wages (the blue line using the right-hand scale) have fallen from a high of ~53% of GDP in the late 60s to a low of ~44% currently. Remember: you have to look at the scale on the right-hand side of the graph to find the correct numbers to match up with the line.

Second, note that corporate profits have risen from a low of ~3% in the mid-80s to ~11% currently. Again, please remember: you need to look at the left-hand axis to get the correct figures for corporate profits. Note also that corporate profits have been all over the place, especially lately.

And here is the one thing I would do differently if I were the person doing the FRED-surfing today. I think I would compare wages to corporate revenues rather than corporate profits because, in an apples-to-apples fashion, I’d like to track what I call Money-In for both people and corporations, while this graph is looking at something akin to corporate savings (i.e., Money-In minus Money-Out a/k/a profits) and comparing it to personal Money-In alone — a bit apples-to-oranges, that.

Perhaps FRED doesn’t have corp revs?

*  *  *

And what do I really make of this chart?

I’ve talked a lot in here about capital vs. labor, and how, over the past thirty years, our tax code has strongly favored capital over labor. So when Mitt Romney equated corporations with people, I, like many others, criticized him for doing so because the “people” to whom he was referring are few and far between. Most of us do not feel like those corporations are us. They are other; they are them. Their money is not our money.

In fact, it’s kinda the opposite: their money is our not-money. Better still, their money is our (money).

But I think all of that misses the point. I think the graph works just as well — better in some ways — with simply the blue line, leaving the red line out entirely and, with it, leaving the whole labor vs capital thing aside for the time being.

That blue line in the graph, all by its lonesome, shows that the wages of people — biological, living, breathing human beings — currently represent a smaller part of our overall economy than during any other period since the beginning of FRED-time, which is 1944. What’s more is that, with a happy exception of an interlude in the late 90s (the beginning of the mass commercialization of the Internet be thy name), wages of people as a percentage of the overall economy have been falling quite consistently since the late 60s.

Why, for many of us, that’s our entire friggin’ life! The whole thing. Yikes.

And for those of us quite a bit older, it’s our entire working life. Sheesh.

What we see here, then, is a very long-term, not-at-all-happy trend — if, that is, you, my friend, are a human being earning wages.

*  *  *

So who’s gonna buy the goods and services the corporations produce? Sure, the B2B part of the economy — with B2B standing for business to business and the B2B part of the economy being the part of the economy in which businesses buy from and sell to other businesses — is a big part of our economy. But so, too, is the B2BLBHB part of our economy — standing for business to biological, living, breathing human beings.

The buying that all us biological, living, breathing human beings — us BLBHBs — do at WalMart, for instance, constitutes a sizable, 1.7% chunk of the overall economy (the data and the arithmetic are that, in 2010, WalMart’s revenues in the U.S. consituted a bit more than a quarter of a trillion dollars which, in a bit less than a $15 trillion economy, amounted to about one-sixtieth of the economy, or nearly 1.7%).

In turn, WalMart paid some of that money out to other businesses in the B2B world, but also to every last one of its 1.4 million U.S. employees as wages. All of those employees, presumably, bought from WalMart using their employee discount and spent lots of money elsewhere as well.

The wages those employees receive from WalMart in exchange for their labor are, as is often reported, at the low end of the scale, as WalMart has slaked the thirst present in most everyone (but by no means everyone) to pay as little as possible for every single thing they buy and, in doing so, put together a truly gargantuan business which, at its heart, pays as little for everything as it possibly can — and then, seemingly, pays a bit less even than that.

So you can find WalMart on both sides of the B2BLBHB span: its revenues are the B side of the B2BLBHB part of the economy, and the wages it pays out to its employees are on the BLBHB side.

One side, though, has grown like all get out for decades, and the other has shrunk. Their relative pieces of pie have changed a lot.

And one side is calling the shots, and the other not so much. Thus to the victors the spoils of capitalism do go. But has it gone too far? That is a topic for a day other than today. The graph, though, has something to say about it.

*  *  *

All in all, then, and as shown via FRED, in whose data we do most sincerely trust, and as guided by the very capable FRED-turning of Laura Clawson, it’s clear that us BLBHBs — all of us biological, living, breathing human beings — have, relatively and piece-of-the-pie speaking, a whole lot less money coming in via our day-to-day endeavoring than we used to, while the Bs have been, by and large, and with some fairly short-lived exceptions, doing just fine, thank you very much.

At some point those sorts of machinations and tightenings-of-the-screw create problems and then rupture. You can call it The Great Recession or The Lesser Depression or The Decimation of the Middle Class or The Election of 2012 if you like, or, maybe, just maybe, somewhere out there in the future we’ll know that the real rupture had yet to come and we’ll have a name for that which awaits us out there.

For now, though, we can see with some clarity and say with some factyness that during the last five years the Bs as well as the BLBHBs suffered, but one much more so than the other, while one, if you believe my dear friend FRED, seems to have been doing worse for the better part of all of our lives.

All, of course, relatively speaking . . .

 

About 2300 words (less than a twenty-five minute read sans links)

◄ Back to Blog
Categories:
Tags:

Leave a Comment

Name
Email
Website
Message