Did Someone Say “Crash”?

America's Missing Investors
by MIKE WHITNEY


Guess who’s investing in America’s future?

Nobody, that’s who.

Just check out this excerpt from an article by Rex Nutting at Marketwatch and you’ll see what I mean. The article is titled “No one is investing in tomorrow’s economy”:

“The U.S. economy simply isn’t investing enough to ensure that there will be enough good paying jobs for our children and our children’s children. Net investment — the amount of capital added to our stock — remains at the lowest levels since the Great Depression. …

Net investment…measures the additional stock of buildings, factories, houses, equipment, software, and research and development — above and beyond the replacement of worn-out capital. In 2012, net fixed investment totaled $485 billion, only about half of the $1.1 trillion invested in 2006…

If businesses, consumers and governments were investing for the future at usual rate, the economy would be at least 3% larger, employing millions more people. That’s a huge hole in the economy that can’t be filled by heavily indebted consumers, especially at a time when government is handcuffed by forces of austerity.” (“No one is investing in tomorrow’s economy”, Rex Nutting, Marketwatch)

Now the author seems to believe that the lack of net investment is just a temporary phenom that will work itself out in the years ahead. But he could be wrong about that. After all, why would a company build up its capital stock for the future when the future is so uncertain? Certainly, there’s nothing in the data that would suggest that the US economy is about to shake off its five year post-recession funk and shift into high-gear again, is there? No, of course not. In fact, it looks like the economy has reset at a lower level of activity that will only get worse as the impact of budget cuts and stagnation are felt. That will further curtail consumer spending which, to this point, had been the primary driver of growth.

Bottom line: Net investment is down because there’s no demand. And there’s no demand because unemployment is high, wages are flat, incomes are falling, and households are still digging out from the Crash of ’08. At the same time, the US Congress and Team Obama continue to slash public spending wherever possible which is further dampening activity and perpetuating the low-growth, weak demand, perma-slump.

So, tell me: Why would a businessman invest in an economy where people are too broke to buy his products? He’d be better off issuing dividends to his shareholders or buying back shares in his own company to push stock prices higher.

And, guess what? That’s exactly what CEOs are doing. Check this out in the Washington Post:

“Battered by months of dis­appointing sales, networking giant Cisco needed a way to give its shareholders a pick-me-up. So the San Jose-based firm did what has become routine for many big U.S. companies in a slow-growing economy: It announced last month that it was buying back shares of its stock…..

This is what U.S. multinationals do now with their cash. Rather than tout big new investments, raise worker wages or hire more employees, companies are more likely to set aside funds to reward shareholders — a trend that took a dip during the recession but has roared back during the recovery.

The 30 companies listed on the Dow Jones industrial average have authorized $211 billion in buybacks in 2013, according to data from ­Birinyi Associates, helping to lift the benchmark stock index to heights not seen since the tech boom of the late 1990s. By comparison, the amount is nearly three times what the group spent on research and development last year, according to data from S&P Capital IQ.

Why spend so much on stock repurchasing?

When the number of shares outstanding falls, the value of each one goes up, instantly rewarding shareholders.” (“Companies turning again to stock buybacks to reward shareholders”, Washington Post)

Corporations don’t care about the future. What they care about is maximizing shareholder value, that’s the name of the game; profits. If that means boosting net fixed investment then, okay, that’s what they’ll do. But if the Fed creates incentives to do something else, like gaming the system with stock buybacks, then they can make the adjustment. And that’s what the Fed’s zero rate policy does. It’s incentivizes businesses to use their capital in a way that’s damaging to the real economy. Here’s more from the same article:

“Helping to fuel the stock market’s meteoric rise is the Federal Reserve’s stimulus program designed to lower borrowing costs. Companies are taking advantage, often by borrowing money at low rates to repurchase shares, although it’s unclear how much of the debt is being used to pay for buybacks.

“It somehow feels scarier if they borrowed the money to buy back stock than if they had some investment opportunities,” Inker said. “That somehow seems more sustainable than just levering up to reduce the share count.”

Some analysts say companies are better off repurchasing shares than pouring money into investments promising dubious payoffs, especially in a slow-growing economy.” (“Companies turning again to stock buybacks to reward shareholders”, Washington Post)

There you have it; instead of investing in R&D, factories or new technologies, (all of which produce more high-paying jobs) companies are taking advantage of the Fed’s cheap money, goosing stock prices and raking in hefty profits. That’s just the way the policy works. The only way change the outcome, is to change the incentives. But the Fed doesn’t want to do that, and neither does the Congress because, at present, they have working people right where they want them, under their bootheel.

If you are looking for proof that workers are getting shafted, just look at the condition of the US consumer who is still on the ropes 5 years after the recession ended. Now, according to the latest Fed’s Flow of Funds report, “Household net worth rose by $1.9 trillion in the last quarter” which means that everything should be hunky dory, right? It means the long period of deleveraging should be over and consumers should be ready to go on another madcap spending spree like they did up-until 2007. Unfortunately, the Fed’s report is a bunch of baloney. The $1.9 trillion merely accounts for rising asset prices that have been reflated by Bernanke’s quantitative easing boondoggle. While working people have seen some uptick in housing prices, the bulk of the gains have gone to stock and bond speculators who’ve made out like bandits. As for consumers, well, they’re still stuck in the doldrums as economist Stephen S. Roach points out in this article at Project Syndicate. Here’s a clip:

“In the 22 quarters since early 2008, real personal-consumption expenditure… has grown at an average annual rate of just 1.1%, easily the weakest period of consumer demand in the post-World War II era.” (It’s also a) “massive slowdown from the pre-crisis pace of 3.6% annual real consumption growth from 1996 to 2007.” (“Occupy QE“, Stephen S. Roach, Project Syndicate)

So, personal consumption has dropped from 3.6% to 1.1%?!?

Yep. No wonder there’s no recovery. And, keep in mind, this is no short-term deal either, mainly because Democrats and Republicans are equally committed to future budget cuts which means it will be more difficult for households to get out of the red and resume spending. More austerity means more retrenchment and hard times for consumers, households and workers. Economist William R. Emmons provides a good summary of what’s-in-store for consumers in a recent post titled “Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was”. Here’s a clip from the article:

“Lower wealth: First and foremost, U.S. household wealth took a beating during the Great Recession. …., the loss of significant amounts of wealth and the severe pressure in some households to deleverage their balance sheets (reduce debt) are likely to contribute to restrained consumer spending for some time.

Stagnant incomes: The economic recovery under way since mid-2009 has been mediocre, at best. Job growth barely matches population growth, while incomes of the typical worker are barely keeping up with inflation. …, most of the overall gains in income appear to be flowing to high-income workers.

Tight credit: Consumer lenders either have disappeared altogether or are offering credit on a much more restricted basis than before the downturn.. …

Fragile confidence: Major consumer-confidence indexes have rebounded from their lowest levels during 2009 in the immediate aftermath of the recession, but they remain below the levels that prevailed just as the recession began in late 2008 …

Looming reversal of stimulus: The Federal Reserve has explored options to “exit” its extraordinarily accommodative monetary policy, while Congress and the president agree that budget consolidation is necessary in the not-too-distant future. In both cases, a tightening of policy measures represents a withdrawal of support for household incomes and wealth and, therefore, consumer spending.”

Individually, any of the five obstacles noted above might be surmountable. But combined, these contractionary forces make the outlook for broad-based consumer spending growth challenging. To be sure, some households weathered the economic and financial storms well, but we can’t count on these fortunate few to step up their spending sufficiently to offset the lost spending caused by declines in wealth, income, access to credit, confidence and government support.” (“Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was”, William R. Emmons, The Regional Economist |via The Big Picture

Emmons offers a bleak, but realistic assessment of our present predicament. There’s really no way the US economy can rebound without a dramatic reversal in the current fiscal policy. Most Americans appear to grasp this point which is why survey after survey show that the majority think the country is “on the wrong track”. The public’s frustration with Congress -(whose public approval rating is at all-time lows) is reflected in growing pessimism which is affecting their spending habits. This is completely normal, given that most middle income working people do not expect their financial situation to improve in the next year. Lower expectations mean more penny pinching, fewer job openings, skimpy net investment, and sluggish growth. That’s the future in a nutshell.

It’s worth noting that the investor class will also pay a heavy price for the current misguided policy. Stocks have had an impressive 4-year run, but there are signs that the day of reckoning is fast approaching. Get a load of this from USA Today:

“A potential warning to stock investors: the fourth-quarter earnings pre-announcement season is shaping up to be the most negative on record. In what seems like a major disconnect, the number of profit warnings relative to upbeat guidance is the widest it has ever been — at a time when the U.S. stock market is trading near record territory. The Standard & Poor’s 500 index notched a new closing high of 1809 Monday.

For every 10 companies warning of weaker-than-expected earnings for the October-through-December period, only one has said it will top forecasts, says earnings-tracker Thomson Reuters I/B/E/S. The actual 10.4-to-1 negative-to-positive pre-announcement ratio is on track to eclipse the prior record of 6.8 warnings for every positive one back in the first quarter of 2001. The long-term ratio is 2.3 warnings for each positive one.

“This is off the charts, I’ve never seen it this high,” says Gregory Harrison, analyst at Thomson Reuters.” (“As stocks hit record highs, so do profit warnings”, USA Today)

So why is Wall Street taking such dire warnings in their stride, you ask?

It’s because investors no longer pay attention to the fundamentals. Demand doesn’t matter. Earnings don’t matter. What matters is the Fed and the Fed alone. “Is Bernanke going to keep pumping trillions in liquidity into the financial markets or not?” That’s the policy upon which all investment decisions are made.

So when Bernanke announces his plan to “taper” his asset purchases (scale-back QE), equities will adjust accordingly.

Did somebody say “crash”?

Exposed: "Small Business" Group Just a Front for "Big Business" Interests

Wednesday, September 26, 2012 by PRWatch.org
New watchdog website shows how secretly funded NFIB exploits sympathy for small business owners to push corporate-friendly agenda
by PRWatch.org


As the National Federation of Independent Business (NFIB), a little-examined business lobbying group, floods millions of dollars into this year’s elections, the Center for Media and Democracy is launching a new website (www.NFIBexposed.org) to shine a light on the group’s secret funding and partisan efforts. NFIB, the leading plaintiff in the lawsuit against the Affordable Care Act nicknamed “Obamacare,” has received $3.7 million from Karl Rove’s Crossroads GPS, and as disclosed on this new website, NFIB's legal arm received $1.15 million in 2010 from Donors Trust, a major donor to the Koch brothers’ Americans for Prosperity Foundation.

NFIB failed to disclose the sources of these and other large donations amounting to over $10 million in undisclosed six-figure donations from 2010-2011. This raises serious questions about how NFIB is representing small businesses and the true nature of the group’s agenda. www.NFIBexposed.org will be a growing resource for reporters and the public. It will include regularly updated information about NFIB's state and federal lobbying activities, its financial disclosures and political spending, and its candidate endorsements.

“Small business owners deserve to have a voice, but NFIB doesn’t speak for me or other small business owners I know,” said Rick Poore, owner of a custom screen-printing business in Lincoln, Nebraska with 33 employees. “NFIB uses the name of small business to advance an agenda that helps big corporate interests, but actually hurts the interests of real small businesses like mine.”

“With dark money exerting extraordinary influence on elections and policy, it’s crucial to pull back the curtain on groups like NFIB and help reveal what interests are pulling the strings behind the scenes,” said Lisa Graves, Executive Director of Center for Media and Democracy. “What we know about NFIB’s funding and structure shows how it serves the agenda of global corporations over the interests of the small businesses it claims to represent. We also believe an IRS investigation of NFIB’s partisan political activities is warranted.” (Last summer, CMD launched a similar transparency initiative about the American Legislative Exchange Council, connecting the dots between its corporate bankrollers and extreme agenda via ALECexposed.org.)

In the last few years, NFIB gained national recognition as the lead litigant of the multi-million dollar lawsuit against Obamacare, despite the fact that many small businesses have welcomed the new law. As disclosed on the new website, a leading Americans for Prosperity Foundation funder, Donors Trust, funneled $1.15 million to NFIB's legal arm in 2010, more than covering its reported payments for outside legal services in the ACA lawsuit and casting doubt on NFIB’s claim that the legal challenge was fueled by thousands of small donors.

“NFIB has been advancing the interests of the health insurance lobby for years, plotting against health reform under Clinton and then challenging the Affordable Care Act in the courts," said Wendell Potter, former insurance company executive and author of Deadly Spin, An Insurance Company Insider Speaks Out on How Corporate PR Is Killing Health Care and Deceiving Americans. "It makes you wonder, who's paying the bills for this work and whose interests are really being served?"

“Secrecy is not a small business value, nor is it in the interest of political integrity,”Congressman Raul Grijalva (D-AZ-7) wrote in a recent letter to the IRS requesting an investigation into NFIB’s tax-exempt status because of the partisan nature of the group’s work. “If NFIB is determined not to say where its money comes from or who its members are, we must ask what the group is hiding.” While the IRS will not confirm nor deny the existence of an investigation, facts indicate that NFIB is the focus of an inquiry.

Recent reports show that 98 percent of NFIB's PAC contributions to federal candidates in the 2012 election cycle have gone to Republicans and that the organization is spending millions of dollars this year in political advertising. This includes a $2 million ad campaign supporting eight Republican Congressional candidates in competitive races. Despite the group’s “non-partisan” claims, NFIB’s endorsements and financial backing overwhelmingly support Republican candidates, even though polling shows small businesses remain firmly divided in their political affiliations.

In nine of the last ten election cycles, NFIB has given 90 percent or more of its political contributions to Republican candidates. Furthermore, according to the Center for Responsive Politics’ “Heavy Hitters” donor list, NFIB is ranked third highest among all groups in the percentage of its contributions (93 percent) going to Republican candidates – a higher percentage even than Koch Industries (90 percent), Exxon Mobil (86 percent), and the National Rifle Association (82 percent).

More information about NFIB is available at www.NFIBexposed.org.

‘Anonymous’ hackers target The Geo Group--a private prison contractor

By Agence France-Presse

Friday, February 24, 2012

Hacker group Anonymous on Friday vandalized the website of a major US prison contractor in the latest salvo in an anti-police campaign.

Anonymous subgroup “Antisec” took credit for replacing The Geo Group website home page with a rap song dedicated in part to convicted murderer Mumia Abu-Jamal and a message condemning prisons and policing in the United States.

Mumia Abu-Jamal, whose birth name is Wesley Cook, is a former Black Panther and radio journalist serving a life sentence for the 1981 shooting death of a police officer in Philadelphia.

Activists around the world have rallied in support of the former Death Row inmate, who they contend fell prey to racism in the justice system.

“As part of our ongoing efforts to dismantle the prison industrial complex, we attacked one of the largest private prison corporations in the US - Geo Group,” Anonymous said in a message posted at the Geo Group website.

“We are acting in solidarity with all those who have ever been wrongfully profiled, arrested, brutalized, incarcerated, and have had all dignity and humanity stripped from them as they are cast into the gulags of America.” ~ Anonymous

The Geo Group manages prisons, mental health facilities, or detention centers in Australia, Britain, South Africa, and North America. The corporation reported $77.5 million in net profit on $1.6 billion in revenue last year.

Anonymous took credit Thursday for an online raid of the Los Angeles Police Canine Association and the posting of personal and potentially embarrassing information.

“Over the past three weeks, we in the cabin have been targeting law enforcement sites across the United States,” hackers said in a message atop a file at Pastebin.com containing officers’ addresses, phone numbers and more.

“Be it for injustices they have allowed through ignorance or naivety, taken part in, or to point out the fact that their insecurity failed to protect the safety of those they took an oath to serve,” the group said of its motives.

The hackers claimed to have gotten the addresses of more than 1,000 officers along with information from police warrants and court summonses as well as about informants in their weeks-long series of attacks on police computers.

Anonymous law enforcement targets in recent weeks have included the websites of the Central Intelligence Agency and the Federal Bureau of Investigation.

Nice job, fellas!--jef

Study proves many U.S. corporations pay zero taxes

By Agence France-Presse
Thursday, November 3, 2011

Dozens of US corporations paid no federal taxes in recent years, and many received government subsidies despite earning healthy profits, a new study showed Thursday.

The report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, which examined 280 US firms, found 78 of them paid no federal income tax in at least one of the last three years.

It found 30 companies enjoyed a negative income tax rate — which in some cases means getting tax rebates — over the three-year period, despite combined pre-tax profits of $160 billion.

“These 280 corporations received a total of nearly $223 billion in tax subsidies,” said the report’s lead author, Robert McIntyre, director at Citizens for Tax Justice.

“This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

The study looked at 280 corporations from the Fortune 500 list, all of which were profitable in each of the last three years and provided sufficient data to analyst profits and taxes.

It found the average effective tax rate for the 280 companies in the study over the three years period was 18.5 percent, well below the statutory rate of 35 percent.

The study concluded that 78 of the companies had at least one year in which their federal income tax was zero or less.

Thirty companies had a negative income tax rate over the entire three year period on their combined pre-tax profits of $160 billion.

The study said banking giant Wells Fargo topped the list of corporations receiving the most in tax subsidies, getting nearly $18 billion in tax breaks in the last three years.

The report comes as US lawmakers are struggling to find ways to curb a bulging US deficit and are looking at possible revenue sources, despite opposition by conservatives to any tax increases.

No Tax Holiday for Corporate Job Destroyers (2 articles)

Tuesday, October 4, 2011 by CommonDreams.org
Uncle Sam Should Support Built-to-Last Companies, Not Built-to-Loot Enterprises
by Chuck Collins

 

A powerful coalition of U.S.-based global companies is lobbying hard for a "tax holiday" on offshore profits.

Companies like Google, Apple, Pfizer, and General Electric have parked huge amounts of profits — a stash totaling more than $1.4 trillion —in offshore tax havens. They've stowed those funds abroad primarily to avoid having to pay federal taxes on that income.

But now they want to bring their treasure to the United States, albeit at a steep discount on what they owe the IRS. Instead of paying the statutory corporate income tax rate of 35 percent — or even the "effective rate," which for most global companies, is closer to 11 percent — they're urging Congress to let them do this at a tax rate that's a whisker over 5 percent.

They tell Congress they need a "tax holiday" to free up badly needed capital to invest in right here — creating jobs at a time when the U.S. economy is sputtering.

They've formed a lobby front called the WIN America coalition to make their case, spending over $50 million and hiring over 42 lobbyists that previously worked as staffers on select Congressional tax writing committees. Most GOP members would support any tax cut, even in their sleep, so WIN America has focused its lobbying firepower on Democratic members.

The coalition's corporate lobbyists argue this would be a win-win stimulus for the economy and a low-cost way to growth and jobs that both Republicans and Democrats could support.

The problem with these WIN America promises is this: Their pants are on fire. Here's how we know that: They waged the same campaign in 2004 with the same promises that they would create jobs, got their way, and created few jobs. Worse, some companies destroyed tens of thousands of jobs.

According to a new report that I co-authored, America Loses: Corporations That Tax Holidays Slash Jobs, most of the companies that claimed a tax holiday in 2004 dramatically reduced their national and global workforces.

In fact, 58 of the large corporations that took advantage of the 2004 tax holiday shed almost 600,000 workers in subsequent years. This downsizing was not a result of the economic meltdown as many of these companies prospered. Today, these 58 companies maintain combined cash reserves of more than $450 billion. There's nothing holding them back from investing in America.

These 58 giant corporations accounted for nearly 70 percent of the total repatriated funds and collectively saved an estimated $64 billion from what they otherwise would have owed in taxes. The 10 biggest "layoff leaders" were Citigroup, Hewlett-Packard, Bank of America, Pfizer, Merck, Verizon, Ford, Caterpillar, Dow Chemical, and DuPont. Unfortunately, a segment of corporate America embraces a "built to loot" business model. 

The corporate flaks will complain that these job loss numbers are exaggerated. We believe they are low, but we won't know for sure until companies that benefit from U.S. tax breaks and subsidies are required to report, in plain language, the number of U.S. employees they have.

Congress shouldn't be fooled again. Limited incentives should go to activities that will create jobs, not another tax holiday for off shore tax dodgers. These companies are not in the business of creating jobs. They are in the business of shifting as much wealth to their top managers and shareholders as possible.

There are other businesses out there — small businesses and domestic companies rooted in local communities that should be the objects of our encouragement and support.

Management guru Jim Collins (no relation) has written about the characteristics of "built to last" companies, businesses that are not "take the money and run" oriented, but are dynamic, growing, and capable of adapting to changing market environments. Built-to-last companies don't play fast and loose with their stakeholders — namely, their employees, shareholders, the communities where they operate, and Mother Earth.

Unfortunately, a segment of corporate America embraces a "built to loot" business model. They shift every possible expense off their balance sheet and squeeze their stakeholders, with the exception of top management and shareholders. They outsource and offshore jobs and engage in accounting gymnastics to game their tax bills to nothing. They mooch from the common treasury, but don't contribute.

Lawmakers should block this fiscally irresponsible and entirely undeserved tax break.

++++

Tuesday, October 4, 2011 by Reuters
Citi, BofA Cut Workers After US Tax Holiday-Report
Report singles out 10 companies for cutting jobs

 

 

Ten major U.S. corporations, including big banks Citigroup Inc and Bank of America Corp, laid off workers after enjoying a tax holiday in 2004-2005 that had been billed as a form of economic stimulus, said a report released on Tuesday.

With large multinational companies today pressing Congress for another tax holiday, the Institute for Policy Studies reported that the last one did not fulfill its rosy promises for hundreds of thousands of U.S. workers.

Fifty-eight corporations that accounted for 70 percent of overseas profits repatriated under the 2004-2005 tax break collectively saved $64 billion in taxes, then cut 600,000 jobs through layoffs, the report said.

It is the latest in a series of warring studies on whether U.S. multinationals should be allowed, for the second time, to bring home hundreds of billions of dollars in overseas profits at a bargain-basement tax rate.

Large companies are lobbying again for such a tax break, which would let them repatriate much if not all of an estimated $1.5 trillion in overseas profits for well below the full 35-percent corporate income tax rate.

Legislation in the Republican-controlled U.S. House of Representatives would let them repatriate those profits at 5.25 percent, the same tax rate given to them under a similar tax holiday during the Bush administration.

Just as they are doing now, companies six years ago said that the repatriation tax break would boost jobs and the economy. But the institute said this did not happen, as earlier academic studies have also found.

"History shows that many 'tax holiday' companies use repatriated profits to reward executives and other shareholders, then lay off workers. Corporate tax holidays have resulted in precious few U.S. jobs," said Chuck Collins, co-author of the report from the left-leaning institute.

Besides Citi and Bank of America, the report focuses on technology group Hewlett-Packard, drugmakers Pfizer Inc and Merck & Co Inc, and manufacturers Ford Motor Co and Caterpillar Inc.

Telecom giant Verizon Communications Inc and chemical makers Dow Chemical Co, and DuPont are also singled out as corporations that "benefited the most financially from the tax holiday and slashed the most jobs."

The U.S. Senate Permanent Subcommittee on Investigations is looking into the results of the 2004-2005 tax holiday as well. A report from the panel is expected within a few weeks, its chairman, Democrat Carl Levin, told Reuters last month.

In 2004-2005, 843 corporations brought home $362 billion in overseas income at a 5.25-percent tax rate. Analysts said that experience encouraged companies to park more income overseas, allowing them to postpone indefinitely paying any U.S. income tax on it, as long as the money stays abroad.

With the economy struggling and new government stimulus hard to come by, a well-financed corporate lobbying campaign -- organized under the WIN America coalition -- is arguing that another tax holiday would boost the economy.

As reported by Reuters in August, the coalition has hired dozens of former congressional tax-writing committee staffers.

The New Democrat Network, a centrist group, issued a report in August saying an overseas tax repatriation holiday would bring new net revenue into the U.S. Treasury.

At a time of soaring government deficits, the Joint Committee on Taxation, a nonpartisan congressional research arm, has estimated that a tax holiday, like the one proposed in the House and favored by WIN America, would eventually cost taxpayers about $78.7 billion over the next decade.

Rank-and-File Economics: Fighting for a Wage- and Job-Led Recovery

Wednesday, September 14, 2011 by Dollars & Sense

by Katherine Sciacchitano

 

Riddle 1: When is a recovery not a recovery?
Answer: When profits are at record levels, corporations are sitting on $1.7 trillion in cash, and unemployment is still at 16+% and rising.

Riddle 2: When is a stimulus not a stimulus?
Answer: When it’s less than one-fourth the size of the hole in the economy it is intended to fill.

Riddle 3: When will it be possible to rebuild the economy?
Answer: When the U.S. labor movement joins with community and international labor allies to demand global economic development, jobs, and rising wages.

When the U.S. housing bubble burst in 2008, putting jobs first was a no-brainer. Global unions demanded immediate action. The G-20—the group of 20 nations charged with coordinating a global response to the crisis—agreed. Governments rushed to do stimulus spending. The worst was prevented.

Then in the spring of 2010 the Greek debt crisis hit. Markets plummeted. The G-20 pulled back and told countries to cut spending. Greece, Ireland, Spain, Portugal, and the U.K. have since enacted austerity packages with drastic spending and wage cuts.

The global jobs crisis is now worse than ever. Between 2007 and 2010, 30 million workers lost their jobs worldwide. In the United States, GDP is falling, jobs have declined since the recovery started, and the unemployment rate is rising again as federal stimulus funds fade and layoffs mount in the states. The Brookings Institution estimates it will take over ten years to return to normal employment levels, even at pre-crisis growth rates. Now, real wages are falling as well.

Union reps negotiating contracts with state and local governments are on the frontlines of the resulting battles. Flanked as they are by terrified members on one side, and angry tax payers and state legislatures attacking wages, benefits, and bargaining rights on the other, their problems go far beyond what can be solved at the bargaining table.

The out-of-the-box solution would be to organize for a comprehensive program of job creation. Blueprints for jobs-based recoveries do exist. But such blueprints need “rank-and-file economists” to turn them into brick and mortar. With Democrats and Republicans actively vying to impose austerity, those rank-and-file economists—community organizers as well as union reps—must tell, not ask, our elected representatives what we need. Then they have to engage in the drawn-out battle to make what we need a reality.

A major obstacle to struggle is the widespread belief—even among many union members—that there is little that government can do besides cut spending, and that only the private sector can create jobs.

Yet the fact that so many are frustrated with government over the high unemployment is evidence that on some level people do believe government action is not only possible but necessary. A rank-and-file economics needs to channel that frustration and nurture that belief. It needs to explain why the “free market” isn’t going to create the jobs that are needed. It needs to educate people about the real causes of the crisis. And it needs to convince community and union members that a positive agenda for long-term growth still exists.

First, we have to arm ourselves by educating ourselves.

The Private Sector Can’t Do It Alone
Here in the United States, people are surrounded by the narrative that only the private sector can create jobs. Even those who acknowledge that we need to rebuild our infrastructure and that rebuilding would create jobs are likely to say that we can’t afford public investment right now. Instead, the argument goes, we should cut taxes and let corporations create the jobs and the investment we need: too much public spending got us where we are; every tax dollar spent by the government is one less dollar business could be used to create jobs.

There are three main responses to these arguments.

First, corporations already have enough cash to invest; tax cuts for corporations and the wealthy aren’t going to lead to more job creation.

The Bush tax cuts didn’t boost job creation, they didn’t boost wages, and they didn’t boost investment in the real economy. What they boosted was corporate profits and the deficit. Today businesses are sitting on record profits and $1.7 trillion in cash that they don’t want to invest. What investment is being done is aimed at boosting productivity and cutting labor costs—that is, cutting jobs. The jobs problem is not due to businesses not having enough cash to invest. Further enriching corporations with tax cuts isn’t going to fix it.

Second, the deficit didn’t cause the crisis; the crisis caused the deficit.

Calls to cut government spending in order to spur growth ignore the fact that the economic crisis we’re in has nothing to do with government spending. The deficit didn’t cause the crisis. The crisis caused the deficit. The spike in the deficit is principally due to the drop in revenues as people lost jobs and businesses lost sales. What additional spending we have done in the past three years—for the stimulus program and for TARP—was temporary. And as economist Dean Baker from the Center for Economic and Policy Research (CEPR) has calculated, in the long run the U.S. budget deficit would virtually disappear if it brought its health-care spending in line with other industrialized countries, all of which have universal health coverage.

Third, there are times when government spending is essential to help the economy over a crisis and when failure to spend will make the deficit worse.

In the short term, the best way to reduce the deficit without increasing unemployment is to recover from the crisis, not cut spending and create more joblessness while the economy is still weak. This is a lesson we should have learned from the last great global economic collapse, the Depression of the 1930s.

Before the 1930s, most economists believed that economies recovered naturally from recessions: in a downturn, either prices would fall and stimulate spending, or wages would fall and stimulate hiring, or both. But when consumers and businesses stopped spending during the Depression, falling wages and prices made the economy worse. It took the New Deal to get the economy growing. From 1933 through the end of the Depression, GDP rose and fell with government spending. By 1936 unemployment had fallen from 23% to 9%. But in 1937 unemployment rose again after Roosevelt cut the budget to reduce the deficit. After that it took massive spending for World War II to return the economy to full employment.

Stimulus Isn’t Enough Either
Given the lessons from the Depression of the 1930s, why didn’t the Obama stimulus plan work better than it did?

One reason is that the housing bubble drained nearly $1.4 trillion in annual spending, yet the Obama administration proposed a stimulus that was only $825 billion spread over several years. Congressional Republicans then reduced that number to $727 billion. They also cut proposed spending for infrastructure, green energy, and aid to states so they could increase tax cuts, even though tax cuts are known to create fewer jobs.

But the deeper reason the Obama stimulus failed is that the administration misunderstood the nature of the crisis. The country needs more than stimulus spending for recovery. It needs a sustained program for rebuilding the real economy and raising wages. The problem isn’t just that cutbacks over the past decades have left us with a shortage of over two trillion dollars in infrastructure spending. It’s that growing inequality has created too big a hole in demand.

During the boom following World War II, the United States regularly used government spending to ease recessions. The idea was that instead of waiting for unemployment to push down wages in the hopes that low wages would boost hiring, the government should boost job creation, and hence wages, by plugging holes in private consumption with public expenditures.

This worked because during the post-war boom, wages as a matter of policy rose with productivity. Recessions were due to short-term policy missteps or the “business cycle”—production temporarily getting ahead of demand. When that happened, businesses made fewer profits and investment would fall. Government spending would boost demand. And demand would spur investment.

In the current economy, stimulus spending can’t accomplish what it did in the post-war economy. Not only have we just had a massive financial crisis rather than a dip in the business cycle, but the crisis happened after decades of stagnating wages. Since the 1980s, demand has been based not on rising wages, as it was in the post-war era, but on household debt backed by the rising prices of assets such as stocks and real estate.

With the bursting of the housing bubble, 28% of homeowners are now under water. Under these circumstances, households that get a temporary bump in disposable income from a stimulus package are as likely to pay down debt as they are to increase spending. Even households that aren’t in debt may save instead of spending because of fear of unemployment. The economy may get a small boost. But businesses correctly see that demand isn’t there and hold back from investing. The economy remains in a hole unless the government embarks on a sustained program of rebuilding wages, jobs, and the real economy.

How We Unlearned Equality
To understand what it will take to rebuild the economy, we have to understand the strength of the post-war economy and how it was reversed.

The great economic lesson of the post-war era was the importance of equality for economic growth and stability. The period before the Great Depression had been marked by steep inequality, debt, and bubbles. Following World War II, the governments of the United States and most of Western Europe made commitments to full employment and rising wages in order to avoid another similar collapse. Global growth reached record rates. Inequality declined. And there were no serious global financial crises.

In the United States, real hourly wages roughly doubled during this period. The policies that made this wage growth and stability possible included corporate acceptance of collective bargaining; a strong social safety net; high quality public services; regulation of business; progressive tax systems—where corporations and the wealthy are taxed at higher rates—to help pay for public services and the cost of regulation; deficit spending to stimulate the economy during economic downturns, thereby preventing wages from falling; and a willingness to lower interest rates when unemployment rose.

Corporate tolerance for these pro-labor policies was transitory and grudging: it lasted as long as the extraordinary post-war levels of profit lasted. Once global profit rates slowed, corporations fought to reverse wage growth and restore profit rates under the guise of the policy mix that came to be known as neoliberalism. They attacked labor rights, the minimum wage, and unemployment insurance. They pushed to reduce taxes on corporations and the wealthy, shifting the tax burden to working people instead. They lobbied to privatize public services and deregulate industries—opening opportunities for profits, denigrating the role of government, and increasing the likelihood of financial crises. The rhetoric of balanced budgets and self-reliance replaced support for a strong safety net and stimulus spending to stabilize wages during recessions. And interest rate hikes were used to minimize inflation—now touted as a primary threat to living standards—by raising unemployment and keeping wages low.

There were changes in international policy as well. After World War II, U.S. trade policy had focused on opening up markets for U.S. exports, which meant not only higher profits but higher domestic employment. Under neoliberalism, boosting profits meant moving production to lower cost areas overseas and exporting back to the United States. It meant cutting jobs at home as well as and pushing down wages abroad.

In short, while the post-war strategy supported rising incomes in the United States and much of the rest of the world, the strategy from the 1980s onward was built on stagnating or falling wages for workers generally. The result was that the global rate of profit rose while hourly wages stagnated or fell, with few exceptions, throughout the globe—not just in the United States and developing countries, but in Europe as well.

To compensate for stagnating purchasing power, U.S. consumers borrowed, and the finance industry made credit more available: between 1981 and 2007, the last year of the housing bubble, household debt doubled as a percentage of GDP. The U.S. consumer became the consumer of last resort for the world. And the global economy balanced precariously on U.S. consumer debt and the dollar.

By the early 2000s, balancing on U.S. consumer debt meant balancing on the housing bubble: dollars exited the country to pay for imports and were recycled back, not as demand for U.S. exports, but as demand for investment in U.S. mortgage securities and other financial assets. The world found out how painful a balancing act this was when the U.S. housing bubble burst, homeowners defaulted on mortgages, and the banking system nearly collapsed, cutting off the supply of easy credit. Global demand plummeted. It hasn’t recovered since. Tackling Inequality Head-on In its own terms, neoliberalism worked: it increased profits, suppressed wages, and shifted tax burdens from the wealthy to lower income workers. Proponents have seized on the deficits created by the crisis to slash social spending, helping insure against future tax increases for those at the top.

The contradictions should be obvious to all: suppressing wages suppresses demand, and balancing consumer spending on debt rather than wages destabilizes the U.S. economy and the global economy. Cutting government spending before we rebuild private demand will throw the country and the world back into recession. It will keep U.S. unemployment at Depression-era levels. And it will result in larger, not smaller, deficits.

Yet the contradictions don’t register because people have a deep-seated belief that the very inequality that is crashing the system is essential to growth and jobs—that by limiting inequality we are limiting our ability to generate wealth.

To build momentum for a jobs- and wage-based recovery, the labor movement has to tackle the belief in inequality head on. It needs to show that the jobs crisis can only be addressed by rebuilding and rebalancing the national and global economies with higher wages and greater equality.

Going Global: Coordination, not Competition
Jobs debates tend to focus on national needs. We’re told repeatedly that competition is the key to a country’s economic success: increase productivity, decrease labor costs, hone our technology, and we’ll beat out the other guy to get the jobs. But the kind of development the world needs for recovery isn’t a zero-sum game. U.S. labor needs healthy manufacturing and wage growth in other countries every bit as much as we need a revival of manufacturing and wages in the United States.

Achieving the objectives proposed in this article—rising wages, demand-led growth, and global development—will require both struggle and international coordination. Labor is familiar with many of the economic tools that will be needed to achieve these core objectives, but it is used to applying them in a national context only, not advocating for their use as part of a global development agenda. Here are a few of the most familiar tools that will be needed and what labor can add by pressing for international coordination:

Fiscal and monetary policy to support employment growth. Governments need to return to wider use of fiscal and monetary policy to stimulate demand and put a floor on unemployment. But in a global economy, stimulus spending can end up “leaking” out of a country when consumers buy imports. Stimulus is most effective when countries act together so one country can’t “steal” demand from another by keeping its wages and demand low while another country raises wages and expands demand.

Labor rights and employment regulation to raise wages. Using fiscal and monetary policy to put a floor on unemployment can help keep wages from falling. But wage growth needs a vigorous commitment to collective bargaining, social benefits such as health care and pensions, minimum and living wage laws, and a strong safety net for unemployed and underemployed workers. These policies are most effective when widely adopted, both because widespread adoption raises global demand and also because it discourages low-wage competition.

Tax reform to provide adequate revenues. Tax reform is needed to ensure that the wealthy and corporations pay their share of the costs for the economic crisis, and to provide revenue for rebuilding and development. Corporate tax reform in particular needs to be coordinated to prevent corporations from gaming differences in countries’ tax rates by relocation or transfer pricing. Since the crisis began, a vigorous global movement has sprung up for a financial transaction tax, which could raise hundreds of billions globally from the finance industry.

Industrial policy to nurture high-wage manufacturing sectors. Ultimately, strong job growth is needed to support strong wage growth. Countries that have developed successfully—including the United States and Britain in their early years, Europe and Japan after World War II, the Asian Tigers in the 1980s, and now China—have done so by using industrial policies to nurture infant industries and growth. These policies have included such measures as regulation of the movement of capital in and out of the country; government investment in infrastructure, education, research and development; requirements that corporations purchase inputs locally and train local workforces; and facilitating the availability of credit for key industries and sectors. Since the eighties and nineties, neoliberal policies and trade agreements have sought to ban many of these policies and make countries dependent on transnational corporations instead. International labor campaigns to eliminate these bans will be critical for reversing this dependence and the advantage it gives corporations over labor. Freeing countries to use industrial policy will in turn be critical for the growth of green manufacturing and energy production as the world grapples with climate change.

Rebuild and Rebalance
A broad consensus is developing within the global labor movement on how this rebuilding and rebalancing needs to take place. There are three main goals:

Raise wages, raise demand. The most pressing economic problem today isn’t government debt or deficits. It’s the hole in demand left by 30 years of wage suppression, and the danger of another period of bubble-fueled growth. To be sustainable, demand has to be based on wages, not on household debt. Inequality isn’t just painful for workers. It’s destabilizing for the global economy. Correcting inequality isn’t a matter of charity. It’s a matter of economic survival.

First and foremost, rebalancing the global economy means correcting the global wage imbalance by creating jobs and raising wages. This imbalance isn’t primarily about high- versus low-income countries. It’s about the share of national incomes going to workers wages and the share going to profit. Since 1980, the share of income going to labor has fallen steadily in all regions of the world, with the possible exceptions of East and Central Asia. The decline hasn’t been due to shifts to low-wage occupations. It hasn’t been limited to low-wage countries. And it has occurred at all income levels. It’s also getting worse. In the current recovery, U.S. corporations captured a whopping 88% of the growth in national income through the beginning of 2010, while only 1% went to labor. Compare that to the recovery after the 1991 recession, when 50% of the growth in national income went to labor.

Replace growth based on low-wage exports with wage- and demand-led growth around the world. As U.S. corporations moved overseas in the eighties and nineties, the U.S. government used the carrot and the stick—as well as its powers over the IMF and the World Bank—to persuade destination countries to cut government spending, let wages fall, remove regulations on movement of foreign capital known as “capital controls,” and “devalue” currencies to artificially force down the price of exports. The result was intensified global competition and the emergence of an “export-led” model of growth: economies grew not because rising wages grow domestic demand, but because suppressed wage growth (or falling wages) pushed down the price of exports. Regardless of their income level, countries that adopt the export-led model suppress both wage growth and demand for imports. They export more than they import. And they run permanent trade surpluses while their trading partners lose jobs and run deficits.

European countries that are sharply reducing deficits to deal with the current crisis and letting wages stagnate or fall are turning to the export-led growth model in hopes of becoming “more competitive.” This kind of “competitiveness” as a primary strategy for global growth isn’t the solution for lagging incomes. It’s a recipe for an intensified race to the bottom and permanently depressed wages. It’s also impossible for a majority of the world to “export” its way out of the crisis and back to growth; for every country that exports, another must be able to import. The solution, whether in Europe or the developing world, is to trade in the model of export-led growth for one based on rising wages and domestic demand.

Create a global model for economic development and decent work. The idea of stimulus spending is that it “jumpstarts” a cycle of demand, investment, and job creation when a basically healthy economy stalls. Today, living on the “other side” of the export-led model the United States helped create, U.S. consumers are too mired in debt, corporations too addicted to outsourcing and cutting jobs and wages, and the country too far behind in infrastructure spending for this kind of stimulus to be effective. We need to rebuild, not “jumpstart,” the U.S. economy. The same is true overseas. Developing countries mired in the export-led model also suffer from a long-term lack of public investment and infrastructure.

To replace the export-led growth model unions need to demand a global agenda for decent work. This in turn requires a program for sustainable development that includes support for public services such as education and health care, funds for infrastructure, and support for sustainable manufacturing and green energy in both advanced and developing countries. The jobs and wages created by this investment will in turn build the base of demand needed for sustained demand-led growth.

Closer Than We Think

There are ways out of the current jobs crisis. Budget-cutting, austerity, and intensified wage competition aren’t among them. Unionists need to keep their eyes on the ball: The chief barrier to recovery is the lack of global demand. A main cause of the current crisis is a multi-decade, multi-pronged strategy of wage suppression across the world. And the response must include global coordination for economic development—a global New Deal.

Governments committed to neoliberal policies won’t be the prime movers behind a global New Deal. That’s labor’s job. So is forging the ties with other labor movements that will be needed to carry on the struggle both nationally and internationally (see sidebar).

This struggle must take place country by country. Over the past decade U.S. unionists have fought successful battles for living wage ordinances. They have won community benefits agreements from corporations receiving public funds, locking in pledges to create jobs and respect labor rights. They’ve renewed the battle for single-payer health care and made common cause with immigrant workers working at the margins of the U.S. economy. There is crucial organizing for a national infrastructure bank, withdrawal from Iraq and Afghanistan, putting a floor on foreclosures, and taxing the wealthy. Learning new strategies is not going to be the hard part of U.S. labor. Nor will forging international linkages with unions in other countries—a process which will deepen understanding of common problems and exponentially increase the energy and clarity of struggle.

The hard part will be unlearning the indoctrination we’ve received about the crisis, the role of government in the economy, and the free market. Once we do that, we can build successful movements at home and abroad. We’re closer than we think to the army of rank-and-file economists that we need.

Happy Corporation Day!

September 5, 2011

Faked Stats, No Jobs

by PAUL CRAIG ROBERTS

It is Labor Day, 2011, but labor has nothing to celebrate.  The jobs that once gave American workers a stake in capitalism have left and gone away.  Corporations in pursuit of near-term profits have moved labor’s jobs to China, India, Indonesia, Taiwan, South Korea and Eastern Europe.

Labor arbitrage, that is, the substitution of foreign labor that is paid less than its productivity for American labor, has enriched Wall Street, shareholders and corporate CEOs, but it has devastated American employment, household incomes, tax base, and the outlook for the US economy.

This Labor Day week-end’s job report, announced by the Bureau of Labor Statistics (BLS) on Friday, September 2, says zero net new jobs were created in August, a number 250,000 less than the amount of monthly job creation necessary to make progress in reducing America’s high rate of unemployment.

The zero figure is actually an optimistic number. As John Williams (shadowstats.com) has made clear, problems with the BLS’s seasonal adjustments and “birth-death” model during the prolonged downturn that began in December 2007 result in the BLS over-estimating new jobs and underestimating lost jobs.

Seasonal adjustments and the “birth-death” model were designed with a growing economy in mind and result in miscounts during downturns. For example, the “birth-death” model estimates new jobs that are created from new start-up companies that are not yet reporting, and it estimates the job losses from companies that have gone out of business. In a growing economy, start-ups exceed jobs losses, but the situation reverses during downturns or during periods of sub-normal job growth. For the past forty-four months, the “birth-death” model has overestimated the number of new jobs created. When the annual revisions are made to the job reports, the excess jobs are taken out, but it is seldom headline news.

The reason that nearly four years of economic stimulus, consisting of large federal budget deficits and near zero interest rates, hasn’t revived the economy is that the jobs that Americans once had have been moved offshore. Stimulus cannot put Americans back to work in jobs that have been given to foreign countries.

Post-World War II Keynesian economists, such as Paul Krugman and Robert Reich, think that if the federal government would add more stimulus by enlarging the already massive federal deficit, new jobs would somehow be created to take the place of those that have left.  This is a delusion. Not only have the supply chains necessary to support US economic activity been disrupted and broken by offshoring, but also the same incentive–excess supplies of foreign labor that produces more value than it is paid–that sent jobs abroad is still operative.

In a word, the US economy has been de-industrializing, moving from a developed to an underdeveloped economy, for the past two decades.  It has been the case for many years that when the US economy manages to eke out new jobs, they are in non-tradable domestic services, such as health care and social assistance, waitresses and bartenders, retail clerks. Non-tradable employment consists of jobs that do not produce goods and services that could be exported to reduce the large US trade deficit.

The long-term deterioration in the US economy has been covered up by “reforming” the official measures of unemployment and inflation.  The U3 measure of unemployment, the current 9.1 per cent  unemployment rate, only measures unemployment among those who are actively seeking a job. Those who have become discouraged by the inability to find a job and have ceased looking are not counted as being among the unemployed, and the U3 measure makes no adjustment for those who are forced into part-time jobs because there is no full-time employment.

The government knows that the U3 “headline” unemployment rate is seriously understated and provides a broader measure known as U6. This measure, which is seldom reported by the financial media, includes short-term discouraged workers (those who have not looked for jobs for six months or less) and an adjustment for those who wish full time employment but can only find part time work.  Currently, this measure of unemployment stands at 16.2%.

Add long-term discouraged workers. No official unemployment rate includes long-term (more than six months) discouraged workers as unemployed.  John Williams estimates this number and adds it to the U6 measure to produce a current rate of US unemployment of 22.7%, an unemployment rate 2.5 times higher than the official rate.

Similar understatement exists in the measure of inflation known as the Consumer Price Index. In order to reduce cost-of-living adjustments to Social Security checks and to hold down other inflation adjustments, the “progressive” Clinton administration accepted the Boskin Commission’s recommendation to introduce substitution into what had been a fixed, weighted, basket of goods used to measure the cost of a constant standard of living. In the new “reformed” measure, if the price of an item increases, say New York strip steak, the index assumes that consumers switch to a less expensive cut, such as round steak. Thus, the price increase doesn’t show up in the CPI.

Consumers, or a number of them, do tend to behave in this way. However, since the basket of goods comprising the CPI is no longer constant, but changes with price changes, the CPI has become a variable measure of the cost of living that reduces the inflation rate by measuring a lower standard of living.

John Williams estimates the CPI according to the previous official methodology that used a fixed basket of goods. He finds the rate of inflation to be much higher than is reported by the substitution-based methodology.

The understatement of inflation serves to boost real Gross Domestic Product growth. In order to compare how much larger (or smaller) the economy is this year compared to last year, the GDP figure has to be adjusted for inflation.  If the economy grew 5 per cent in nominal terms and inflation was 3 per cent, then GDP grew 2 per cent in real terms, that is, real goods and services, as opposed to mere price rises, increased 2 per cent over the year.

When John Williams  adjusts US GDP with the former or traditional measure of inflation, he finds that there has been no growth in real GDP for several years. In other words, during the period of “economic recovery” the economy has actually been declining.

American economic decline began with offshoring during the Clinton administration. Instead of addressing this threat, the Clinton administration launched the neoconservative program of American Empire with American and NATO aggression against Serbia, sending the Serbian leader off to be tried as a war criminal for resisting the dissolution of his country.

The Bush/Cheney regime elevated the pursuit of American Empire under cover of “the war on terror.” Based entirely on lies and falsified intelligence, Bush/Cheney launched wars against the Taliban, who were unifying Afghanistan, and against Saddam Hussein in Iraq.

In the 1980s Hussein was used by Washington to launch a war against the revolutionary government in Iran that had overthrown the American puppet government, headed by the Shah of Iran.  Ever since Washington lost its puppet rule over the Iranians, Washington has refused diplomatic relations with Iran. In the place of diplomatic relations, Washington demonizes Iran in order to set the country up for another attack a la Serbia, Afghanistan, Iraq, Libya, Somalia, Pakistan, and Yemen.  Syria is next.

Saddam Hussein’s service to Washington was overlooked when it became more important to eliminate support for Hamas and Hezbollah, two barriers to Israel’s expansion in the Middle East, than to maintain Washington’s gratitude to an Iraqi pawn.

Despite unequivocal reports from arms inspectors that Iraq had no weapons of mass destruction and most certainly had nothing whatsoever to do with 9/11, top Bush/Cheney regime officials demonized Iraq as the greatest threat to America. The imagery of mushroom clouds from nuclear weapons was evoked, A war was launched entirely on false pretexts that destroyed a country and left over one million Iraqis dead and four million displaced. What Washington did to Iraq is what the Nazis were tried and executed for at the Nuremberg Trials.

Obama was elected in order to stop the illegal and senseless wars.  Instead, Obama both continued the wars in Iraq and Afghanistan and expanded the wars into Libya, Pakistan, and Yemen. Since the deregulation of the financial system under the Bush/Cheney regime and the “war on terror,” the entire economy of the US has been sacrificed for the benefit of the financial sector and the military/security complex.

Labor Day is an anachronism. It should be renamed Corporation Day or War Day to celebrate the success of Bush/Obama in eliminating labor unions as a countervailing power to corporate power and the elevation of War as the highest goal of the American state.

Guy Fawkes = Time Warner

Guy Fawkes = Time Warner

 

It seems every time an Anonymous protester buys and wears the Guy Fawkes mask made famous by the rogue anarchist in the film V for Vendetta, massive corporate conglomerate Time-Warner - which owns the rights to the image - makes a buck or so. Oops.

Corporate Tax Holiday in Debt Ceiling Deal

Friday, July 22, 2011 by Rolling Stone
Where's the Uproar?
by Matt Taibbi
 

Have been meaning to write about this, but I’m increasingly amazed at the overall lack of an uproar about the possibility of the government approving another corporate tax repatriation holiday.

I’ve been in and out of DC a few times in recent weeks and one thing I keep hearing is that there is a growing, and real, possibility that a second “one-time tax holiday” will be approved for corporations as part of whatever sordid deal emerges from the debt-ceiling negotiations.

I passed it off as a bad joke when I first saw news of this a few weeks ago, when it was reported that Wall Street whipping boy Chuck Schumer was seriously considering the idea. Then I read later on that other Senators were jumping on the bandwagon, including North Carolina’s Kay Hagan.

This is what Hagan’s spokesperson said:

Senator Hagan is looking closely at any creative, short-term measures that can get bipartisan support and put people back to work. One such potential initiative is a well-crafted and temporary change to the tax code that encourages American companies to bring money home and put it towards capital, investment, and–most importantly–American jobs.

For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.

Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it.

Think of it as a gigantic global IRA. Companies that put their profits in the offshore IRA can leave them there indefinitely with no tax consequence. Then, when they cash out, they pay the tax.

Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.

Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. Some of those companies promising waves of new hires have already committed to massive layoffs.

It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday.

Companies used dozens of fiendish methods to keep profits overseas, including such scams as “transfer pricing,” a technique in which profits are shifted to overseas subsidiaries. A typical example might involve a pharmaceutical company that licenses the rights or the patent to one of its more successful drugs to a foreign affiliate, which in turn manufactures the product and sells it back to the U.S. branch, thereby shifting the profits overseas.

Companies have been doing this for years, to incredible effect. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. Add that to the already rampant system of loopholes and what you have is a completely broken corporate tax system.

And the whole thing is predicated on that dirty little secret – the notion, long known to all would-be major corporate taxpayers, that there would come a day when there would be another tax holiday.

That time, they hope, is now. According to Drucker, lobbyists met with President Obama last December to ask for another holiday. And now the drumbeats are rolling on the Hill for a new holiday to be included in the debt-ceiling deal.

Senator Carl Levin of Michigan, the same Senator who produced the damning report of corruption on Wall Street, has been trying to fight the problem, introducing a measure that would prevent companies from accessing offshored money through correspondent accounts and branches of offshore banks.

Levin’s Permanent Subcommittee on Investigations has also been investigating how companies might use the cash they save from a tax holiday, surveying companies like DuPont, presumably to find out just how many of these firms really intend to create new jobs with their tax savings.

I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?

Imagine the uproar if Barack Obama, in the middle of this historic revenue crunch and "We're so broke the world is going to end tomorrow!" debt-ceiling hystgeria, decided to declare a second “one-time tax holiday” for, say, unwed single mothers, or recipients of public assistance? Middle America would be running through the streets, firing shotguns out its truck window, waving chainsaws in mall lobbies, etc.

As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance.  Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.

We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all, but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?

ALEC Exposed: How Corporations Are Taking Over Our Democracy

Thursday, July 14, 2011 by The Progressive
by Ruth Conniff

Today the Center for Media and Democracy rolled out a new web site, ALEC Exposed, based on a massive leak of information from the American Legislative Exchange Council, the powerful coalition of corporations, right-wing foundations, and state legislators who have been literally writing the laws at the state level to push their pro-business, anti- democracy agenda.

For many years, big corporations, including Kraft, Pfizer, WalMart, and AT&T, to name a few, have been paying hefty dues to belong to a group that gives them access to state legislators. The legislators, for a much smaller fee, get to attend annual conferences, receive briefings from ALEC, and get the honor of putting their names on boilerplate legislation the groups drafts.

One of the many new pieces of information to emerge from the impressive ALEC Exposed project is that the corporate members of this group vote these bills out of their own, corporate committees before passing them on to their pet legislators.

"We've discovered through a whistleblower that these corporations actually vote on these bills behind closed doors, before legislators or the people they represent even hear about them," Lisa Graves, the director of the Center for Media and Democracy said today.

If you live in a state like Wisconsin, the results of this coordinated assault on democracy are all too evident.

Much of the group's legislation--privatizing the public schools, taking away collective bargaining rights, loosening environmental regulation, even suppressing the vote--got a huge boost when ALEC foot soldiers, including Governor Scott Walker and the heads of both of Wisconsin's legislative chambers, took power. The group's hard work and careful planning for just such an opportunity over the last two decades accounts for the head-spinning all-fronts attack ordinary citizens are currently enduring in Wisconsin.

State representative (and Progressive magazine blogger) Mark Pocan went "behind enemy lines" to write a piece about attending an ALEC conference for The Progressive Magazine back in March 2008, in a darkly comic piece titled "Through the Corporate Looking Glass".

That piece is more relevant--and less funny--now that ALEC has become even more powerful.

A big controversy erupted when Professor William Cronon at the University of Wisconsin-Madison, blogged about ALEC's corporate takeover of the state and became the target of Republican attacks and had his emails seized by Governor Scott Walker's administration.

Walker and Co. will be even less pleased when they see ALEC Exposed.

The site, which posts and analyzes more than 800 bills produced by ALEC, is a treasure trove of information, including never-released text of the actual ALEC bills broken down and organized by topic, information about the corporate membership of ALEC's task forces on particular issues, the names of ALEC's state chairmen, and the effects of the bills: on working people, schools, the environment, consumer rights, and our democracy.

"We know that we are standing on the shoulders of some tremendous investigative work," Lisa Graves said in a press conference on the roll-out, "But we believe this is a special contribution."

Reporters and citizens can now look at bills that were introduced in their states under the names of their elected officials, and trace the actual, corporate origins of these profoundly anti-democratic efforts.

"We know, for example, that Kraft has been the head of the task force for ALEC responsible for anti-union bills," Graves said.

On the schools issue, which I wrote about in a Progressive cover story a couple of months ago, it turns out that Connections Academy, the company that runs Wisconsin's virtual charter schools, which are poised to displace bricks-and-mortar public schools throughout the rural parts of the state under a Republican proposal, is the head of ALEC's task force on education.

The Center for Media and Democracy deserves a lot of credit for this tremendous addition to our understanding of what is happening to our states. Now, as ALEC Exposed puts it, it's up to us to dig in and spread the word.

When Sports Loses Its Soul

A League of Fans
By RALPH NADER

Why do many serious readers of newspapers go first to the Sports section? Maybe because they want to read about teams playing fun games by sports journalists and columnists, who have more freedom to use imaginative words and phrases than others in their craft.

The trouble is that ever-more organized and commercialized sports are squeezing the fun out of the games. I'm not just referring to struggles between multimillionaire players against billionaire owners--as in the current NFL lockout and the looming NBA imbroglio. I am referring to what our League of Fans Sports Policy Director, Ken Reed, calls the "win-at-all-costs (WAAC) and profit-at-all-costs (PAAC) mentalities, policies and decisions that are resulting in a variety of abuses from the pros all the way to Little League." When WAAC and PAAC run amok--and what's best for the players, the fans and the game are shoved aside--"sport begins to lose its soul."

In his first of ten "League of Fans" reports, Reed makes the case against this "soul sickness" in a 27 page Sports Manifesto (www.leagueoffans.org). The range of endemic and often worsening problems is startling for how often they have been exposed without anything significantly being done about them.

Here is a list of Reed's choices for civic action:

• Academic corruption in college and high school athletic programs.

• Rampant commercialization from the pros to our little leagues.

• Publicly-financed stadiums for wealthy owners.

• The perversity of forcing loyal fans to purchase personal seat licenses (PSLs) in pro and college football just to have the right to buy season tickets.

• The sports cartel in Division I football known as the Bowl Championship Series (BCS)--which limits revenues and opportunities (e.g., a legitimate chance at a national championship) for the conferences and schools left on the outside.

• Work stoppages in the professional sports leagues in which fans have no voice.

• Exorbitant ticket and concession prices at taxpayer-funded stadiums (where most, if not all, ticket, concession, merchandise and parking revenues typically go to the franchise owners). In addition, there are also television blackouts from these taxpayer-financed stadiums.

• A focus on elite athletic teams in high schools and middle schools at the expense of diminishing intramural programs and physical education classes for all students.

• The practice of requiring college athletes to pay their own medical bills, even though they were injured while playing for their university.

• Disparities in opportunities for females, disabled individuals, and people of color despite Title IX and other civil rights advances.

• The proliferation of youth club sports organizations that have a financial vs. an educational mission.

• The specialization and professionalization of young athletes at earlier and earlier ages.

• The increasing use of performance-enhancing drugs at all ages, by both males and females.

• The erosion of the core ideals, values and ethics of sports, resulting in escalating incidents of poor sportsmanship.

• An increase in sports injuries, most alarmingly concussions.

• A shocking increase in obesity, accompanied by a decline in physical fitness--especially among our youth.

• Dehumanizing coaches at all levels, most disturbingly, at the youth level.

As a college varsity player, a coach, marketer, teacher and author, Reed is in touch with many worried and upset sports lovers. They include parents, current and retired players, leading analysts, academics, educators, physicians, reporters and civil rights advocates. League of Fans, which I started, wants to build a strong and growing reform movement not just to curb the "excesses of the monied interests," to use a Jeffersonian phrase, but to open up opportunities for more participatory sports right down to the neighborhood levels. We have too few players and too many spectators--a reality that sports journalism should pay more attention to regularly.

There is a problem afflicting sports journalism and its comparatively immense space and time devoted to professional sports. It goes beyond a largely indifferent attitude toward this imbalance between spectators and participatory sports. Even though the concerns of many sports-lovers are based on the occasional investigatory reports or columns documenting abuses, when people acting as citizens try to do something about them, their efforts receive little, if any media coverage.

So what's the point to these exposes other than to make readers and viewers angry, cynical or frustrated, if when the readers use this information to follow up and sound the alarm to do something, the sports media looks the other way and gives the space to some athlete who is pouting or showing up late for practice?

Sports journalism has to introspect a little about a larger view of newsworthiness. Otherwise they continue to uncritically cover the big league sports business that, with few exceptions, knows few restraints to its greed and insensitivity toward fans whom they are increasingly turning off.

How can corporate profits be so high?

How can corporate profits be so high?
Jim O'Reilly

Economist Michal Kalecki famously observed that workers spend what they earn and capitalists earn what they spend.  Workers are paid less than the price of the products they produce and therefore cannot be the source of system wide profit.  This being the case, how can profits arise?  Where does the extra purchasing power come from?  There are only a few possibilities: increases in worker debt, government deficits, or capitalist spending through either investment or consumption.  As we clearly know, rising worker debt is not an option, and the level of government debt is ultimately constricted by our misguided notions of sound money.

 If we assume capitalists could not possibly use their massive hoards for consumption, we are left with: profits = private investment, an equality that Hyman Minsky thought a profound insight into the nature of capitalism.

But given the extremely depressed level of global investment, how can we explain today’s record high corporate profitability?  The explanations we often hear cannot really be true or, if there’s a kernel of truth, they’re rife with contradictions.  Let’s look at some of the explanations for high corporate profits in a world with little private investment.  I don’t think too much light is actually being shed here but I at least found the exercise somewhat interesting.

1.  Increased margins from labor arbitrage  (Cannot really be true)  Transnational corporations are able to produce goods in cheap labor markets, sell in higher income markets, and pocket the expanded margins.  This is one of the principle dynamics of globalization but, counter-intuitively, it doesn’t explain increased profits.  Global aggregate wages may be declining but workers can never provide the demand for profits.  Even if the mega corporations were able to outsource to a supply of free slave labor, profits could only arise from non-worker spending i.e. from government deficits or private investment.
2.  Increased margins from oligopoly and reduced power of labor (Cannot be true) Yes, corporations have oligopoly pricing power and labor is much diminished, but the argument from above still holds.  Profits do not arise from oligopoly power and are not, within the strict logic of neoliberal capitalism, directly related to labor power.
3. Financial profits on consumer debt  (Can be true only in the short run) As our current crisis demonstrates, there are very tight limits here given that the ultimate source of repayment is the wage itself.  If profits cannot arise from workers, then, in the long run, profits cannot arise from loans to workers.
4. Government deficit spending (Contradictory) There can be no doubt that this is a, if not the, major source of corporate profits.  How can it be that this critical prop to corporate profits is opposed by nearly everyone in the corporate world?  I think the very same Kalecki gave us an excellent answer – it’s ultimately about power, not profits.  Within our dominant and misguided paradigm of sound money, there are also strict limits on the extent the government can finance corporate profits and we appear to be butting against those limits today.
5. Creative accounting  (Contradictory) A very high percentage of sales in the world are between subsidiaries or quasi independent companies that compose supply chains for the largest firms.  The opportunities for creative accounting are huge and I’d think a creative accounting bubble could soon burst.  Ultimately, profits can only come from government spending and investment.
6. Speculation (Contradictory) Speculation on commodity prices, interest rate spreads, currencies, credit default swaps, and the near infinite variety of other games can add to short term profits.  But the global casino is ultimately zero sum.

What’s the conclusion?  Other than “investment” in past real estate bubbles, the dot com bubble of the late 90′s, and a few rising technology industries, there’s been very little real private investment for decades.  To a great extent the corporate world is today living off government spending as in the past it was living off rising worker debt.  That record corporate profits can arise from public spending should strike the average citizen as wrong.  But such is the lack of consciousness in our neoliberal world.  I noted yesterday that Barak Obama believes the private sector and not the government is responsible for jobs.  That’s not a very consistent philosophy though given that his government appears to be the major source of private sector profits.  Regardless, I don’t see how profits can be maintained at these levels given the limits of our monetary paradigm and the lack of any foreseeably significant investment opportunities.  I wouldn’t be too long the stock market these days.

++++

Tables from Biz Stats will show you the comparison. These are industry income/expense statements

First, the Manufacturing sector

Manufacturing
Corp Annual Average Sales, Income & Expense     2007
Sales           100.00%
Cost of Sales     66.67%
Gross Profit     33.33%
Officers Comp.     0.65%
Salary-Wages     5.38%
Rent                     0.45%
Taxes             1.55%
Interest paid     3.82%
Amort. & Dep.     2.68%
Advertising             1.11%
Benefits-Pension     1.78%
Other SG&A Exp.     7.80%
Net Profit             8.11%

All very reasonable - maybe profits are a little bit high compared to labor, but - what the bleep - this is a capitalist country.

Now let us look at the FIRE sector

Finance-Insurance
Corp Annual Average Sales, Income & Expense     2007
Sales           100.00%
Cost of Sales      1.06%
Gross Profit     98.94%
Officers Comp.      0.03%
Salary-Wages      0.25%
Rent                   0.01%
Taxes              0.04%
Interest paid      0.51%
Amort. & Dep.      0.05%
Advertising              0.02%
Benefits-Pension      0.04%
Other SG&A Exp.      0.69%
Net Profit             97.32%

What is it that has kept the profits at this level? What cornucopia have the owners of this FIRE acquired?

This is a topic that should be discussed by anybody who even vaguest interest in the current financial crisis and regulatory capture