Tuesday, January 9, 2024

What's the Source of the Astounding 50% Boost in Corporate Profits? CHARLES HUGH SMITH

No wonder Corporate America added $1.2 trillion in profits to be distributed to the elites of America: everything is diminished, stripped of quality and rendered miserable.

One of the most extraordinary economic marvels of the past decade is the astounding 50% leap in corporate profits, from $2.4 trillion (pre-tax) pre-pandemic lockdown to $3.6 trillion (pre-tax) in the years since the lockdown ended.

Strangely, few seem to ask the source of this astounding 50% leap. Wall Street has certainly cheered this vast increase, but few analysts ponder the source, or ask if the source is a net plus for the economy and nation.

As shockingly heretical as it sounds, the interests of corporate America often diverge from the interests of the citizenry, overall economy and the nation. For example, the wholesale gutting of the US industrial base in the mad rush to lower costs and quality by shipping entire supply chains to China.

As I've often pointed out, the meagre savings that trickled down to the consumer were more than offset by the collapse of quality and durability in the globalized goods that now line the shelves of every retailer in the US.

Corporate PR and its well-paid army of toady analysts and pundits would have us believe this is "capitalism" busily at work as pent-up consumer demand naturally pushed prices higher, and corporations were--sadly--forced to pass along these higher costs to consumers.

Recall that "higher costs" don't show up as higher profits. If the "cost of goods" is $1, and I charge the consumer $2, I reap $1 profit. If my costs double to $2 and I charge the consumer $3, I reap the same $1 profit as I did before the cost spike pushed my production costs up.

The higher corporate profits are the direct result of profiteering and price-gougingOh boo-hoo, our costs went up and we were forced to pass them along was simply the cover story. If the cost of a $1 item went up $1 to $2, Corporate America merrily doubled its profit margin from $1 to $2.

This is what happens when you allow your economy to be dominated by quasi-monopolies and cartels. They all raise prices and diminish quality as a unified concentration of financial and political power.

The other source of sharply higher corporate profits is shrinkflation, the relentless reduction in the quantity of product in the packaging. One wonders how thin the can of tuna will eventually be--the thickness of a pancake? Or how thin can they make the box of cereal before the container can no longer stand upright?

The reduction of the quality of goods and services, a.k.a. crapification, is a key source of soaring corporate profits. As the unhappy buyer of three replacement appliances this year alone, all replacements for failed name-brand appliances that lasted 7 years or less--I can attest that crapification / planned obsolescence is a core source of higher profits.

Design the product to fail, or default to the lowest cost components, i.e. failure by default, and consumers are forced to replace appliances every few years that once routinely lasted decades. This conveyor belt of products to the Landfill is highly profitable.

Lastly, there's the immiseration of services, making standard service so miserable that consumers are forced to either endure wretched, incompetent, unreliable service, or pay extra for a "premium" service which is actually of poorer quality than the old standard of service.

We're adding adverts to all the films and TV programs you're already paying for. If you want to watch ad-free content, that will now cost you another $2.99 a month.

As Darth Vader would summarize this immiseration: "Pray I don't alter the deal any further." No wonder Corporate America added $1.2 trillion in profits to be distributed to the elites of America: everything is diminished, stripped of quality and rendered miserable. Too bad there's no real competition left in the US economy.

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