A recent Wall Street Journal article reported that corporate CFOs expect capital investment to increase to 9.3 percent of gross domestic product over the next year. This compares with 5.2 percent of GDP during the past five years, which was lower than the average of 6.5 percent in the past half century and resulted in 1 percent lower productivity growth than normal. Economists agree productivity growth is indispensable to economic growth and increasing people's standard of living.
So where have the $7.48 trillion of corporate profits gone that have grown by 84 percent during the past five years as a result of lower capital investment expenditures, limited wage growth and the economic recovery? Unnoticed by most is the $500 billion per year in corporate stock buybacks ($600 billion last year) that have helped to increase the yearly S&P 500 stock market growth to 16.7 percent over this period. The primary beneficiaries of this growth are the rich and to some extent the more highly educated middle class who invest. The middle-class family's standard of living has declined significantly in this century.
The estimated cost of increasing the minimum wage by $3 to $5 per hour is equivalent to 11 to 18 percent of corporate stock buybacks, or less than 1 percent of overall GDP.
Increasing corporate capital investment will benefit us all, but can't our corporations help our middle class workers like they already have the rich?
Hilton Head Island