Here's Why American Companies Are Making A Killing While The Economy Goes Down The Drain


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One of the paradoxes that has economists scratching their heads these days is the discrepancy between American corporations flush with cash and millions of American workers unable to find work.

Steven Pearlstein at The Washington Post thinks he might have the answer.

American multinationals are growing at a faster pace abroad than they are at home, Pearlstein writes. Many of the companies listed on the Dow or the S&P 500 do more than half their business in other countries. This complicates economists’ attempts to accurately measure the health of the American economy.

“Most of the large companies reflected in those indexes have transformed themselves into global enterprises with global supply chains, global sales, global workforces and global sources of capital,” Pearlstein writes. “That their shares are listed on a U.S. stock exchange is something of an historical artifact.”

Foreign presence in the American economy also suppresses the Federal Reserve’s ability to accelerate the recovery and overemphasizes the rate at which American workers’ productivity has increased. Pearlstein writes:

“Economists also are discovering how the globalized supply chains of U.S. based-companies have led government statistical agencies to overstate the size and growth of the U.S. economy — and, along with it, the growth in labour productivity, particularly in manufacturing. The implication of this mismeasurement is that the decline in GDP during the recession was greater than originally thought

Pearlstein thinks this disconnect helps explain some weird economic behaviour, like increasing corporate profits coupled with a sluggish job market. He argues that our entire conception of economic dynamics has not yet adequately responded to changing global realities.

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