Category: economy

The Job Creators – Who Are They? The Rich, Really?

In recent years a standard bit of political rhetoric in the US has included references to “the job creators”. This most usually  flows along the lines of higher taxes on the wealthy will injure the job creators. Or, government regulation is crushing the job creators. The presumption of course is that the wealthy, the 1% in the current rhetoric, create jobs (and those not created by the wealthy are created by small business – this being another, long term part of our political discourse). Thus, government must do nothing that will upset the wealthy.

It must be noted that we have already had a large experiment with the obverse of this “don’t disturb the wealthy” policy. What if we made the wealthy even richer by lowering their tax rates? By simple logical deduction, this would incent them to invest more and create more jobs. Well, the Bush II years proved that this does not happen. Despite the largest tax reductions  on the wealthy in US history, job creation under Bush II was worse than in any presidency back to Hoover.

At some level believing the wealthy to be the job creators seems natural enough. They have lots of money to invest and in their desire for more they will be out investing in new projects that per force must create jobs. Without the aid of real analysis, I have always been a bit suspicious of this idea. Wealthy people have their money managed for them by large financial institutions and financial specialists. Very few of them are directly involved in any business other than the business of worrying about whether their financial advisors are ripping them off or doing stupid things. Why do real work when you can have your advisors leverage the vast scale of your wealth to get special deals on bundled high return financial instruments.

Nick Hanauer TED TalkAlong comes a wealthy guy, Nick Hanauer,1 with a five minute TED Talk debunking this job creator mythology that is more soundly thought out than my ramblings.

BTW – Hanauer’s analysis is straight forward Keynesian economics. We have a demand problem. US corporations have record sums of cash on the balance sheets. Yet they are not investing it. The answer is lack of demand, increased sales to generate the virtuous cycle of profits  followed by jobs. Though both the US and Europe are busy proving again that our economic problems are not going to be solved by austerity, debt reduction policies, other countries, like South Korea,  have proved anew the merits of Keynesian remedies. Unfortunately, we have no one in the elites who have the political will to do what has worked before very reliably. They used to call it “pump priming”. Now our pump is dry, unemployment and underemployment  is perniciously eating away at our society. 

  1. he was an early investor in Amazon []

Economic Inequality – Does It Matter?

It is fairly widely known that income and wealth inequality in the US is as high or higher than at any time except perhaps the Robber Baron period at the end of the 19th century. Lots of articles and books explain how this has come about over the last 30 years. In a recent NYTimes Magazine article, “The Purpose of Spectacular Wealth, According to a Spectacularly Wealthy Guy” by Adam Davidson, we are even offered an affirmative defense of this by a buddy of Mitt Romney from Bain Capital Edward Conrad.

Conrad… “aggressively argues that the enormous and growing income inequality in the United States is not a sign that the system is rigged. On the contrary, Conrad writes, it is a sign that our economy is working. And if we had a little more of it, then everyone, particularly the 99 percent, would be better off.”

But, leaving aside the obvious disconnect between any rational measure of value add by the wealthy and their incomes and holdings, does economic inequality really matter? Is it just that those of us in the not wealthy class, now branded The 99%, are jealous of all the toys of the wealthy? Their four or five houses, countless cars, airplanes, and all the rest?

Are their some measurable consequences to economic inequality?

High Frequency Trading and Deeper Questions about Capitalism

A recent PBS Newshour report by Paul Solman on Thursday 3/15/12 in his series “Making Sense of Financial News” gave pause concerning the role of high frequency traders (HFT) on Wall St. (and doubtless on other markets around the world). First, you might ask what are HFTs? These are traders who use computer-based algorithms to select, buy, and sell shares on the markets. The speed of these transactions and the “thinking” that is performed is driving the HFTs to locate in lower Manhattan as close as possible to the main Internet port in the city. The few microseconds saved by not being a half mile away on Wall St. turns out to have great significance to HFTs.

The existence of HFTs first came to public notice when the great “flash crash” took place. On May 6, 2010 at 2:42 pm the Dow Jones industrial average, already down by 300 points that day, suddently lost more than 600 poijts in 5 minutes. 20 minutes later the market had regained the 600 point loss. Investigations pointed to the role of HFTs in these events. Since then there has been a lot of discussion of the stability of financial markets and the potential role of HFTs.

 

The Solman report noted that HFTs represent 2% of all the firms trading on Wall St., but conduct over 75% of the transactions. So, when you here that volume of the Big Board today was 3.56 billion shares (3/26/12) 2.67 billion were traded by HFTS. Solman also noted that the average time a share is held is 22 seconds.

What seems strange is that the question of the function and utility of HFTs is never examined beyond economists trotting out the well worn explanation that they are providing liquidiity to the market. By liquidity they mean the presence of buyers and sellers in the marketplace when someone wants to make a transaction. But is this a serious claim in favor of HFTs? Does this incredible display of computing power really mean anything more than people gambling on a fractional move within a few seconds?

"Capitalism works for me! true/false" by Steve Lambert 2011

Now an aside. In a video presentation1 by Steve Lambert about his work, “Capitalism Works For Me! True/False” he notes that people seem perfectly at ease thinking about global warming and the need to undertake massive changes in the fundamental underpinnings of our world, but when it comes to our economy we engage in endless euphemisms and obfuscations. From his website he says:

“For 50 years it has been unacceptable, politically, in the United States to ask what is basically a straightforward question. We have a particular economic system, it’s called capitalism. We have every right as a society to ask of that system, is it working? Is it working for us? Do the benefits and the costs balance themselves out in a way that says, do we want to keep this system? Or that says, we want to change this system? Or that says, we ought to look at an alternative system. We’ve been afraid to ask that question. We’ve been afraid to have public debates—that’s the legacy of the cold war. We can’t afford anymore to not do that. We have to raise the question.”

To turn back to HFTs, why do we need this kind of transaction? How do they contribute to economic growth? These activities are by definition a zero sum game. They are like every other form of gambling a zero sum game. There are winners and losers, but no incremental gain for the economy. Other than enriching the HFTs at cost to others with smaller computers and fewer PhDs on staff what do we get for allowing these activities? Potentially catastrophic destabilization of financial markets? Where is the upside for society as a whole? Isn’t  a primary purpose of any economy to increase the size of the pie, not just to redistribute existing wealth?

 

  1. I saw this at the the de Cordova Sculpture Garden and Museum in Lincoln MA []

Lands’ End – deceptive advertising

Made In The USA – Sham

LandsEnd Made-in-USA catalog February 2012

This catalog showed up last week. Wow, I thought. Lands’ End is offering a whole bunch of US manufactured clothing. This should be interesting.

After turning the cover, there were two more pages of puff about the wonder’s of “Made in the USA”. A two page spread followed of a sweat shirt and two more pages of gym ware – “Made in the USA”.

Then, for the next 60 pages (excepting one page in them middle of “Made in the USA” wool socks) not another US manufactured item appears. Every page included the word “Imported”. Undoubtedly the good durable clothing I expect from Lands’ End, but NOT “Made in the USA”.

Charts from Mother Jones Illustrate That the Rich Have Won the Class War

I came on a set of graphics in Mother Jones, “It’s the Inequality, Stupid: Eleven charts that explain what’s wrong with America” that illustrate what you probably already know. But, a simple refresher course in some of the reasons why the rich are rich. The 99% already have this base covered.

Here are some of the charts I liked. Read the whole article at the Mother Jones website.

Income (constant dollars)

Note that if median family income had simply kept up with inflation over this period it would have grown to $92,000 instead of $50,000.

Change in income-since-1979-2010

 

 

 

 

 

 

 

 

 

 

 

 

Are Corporations Over Taxed?

Mother Jones does not make it clear that the Payroll Tax is also a tax on individuals. To add insult to injury the Payroll Tax is not levied beyond the first %106,800 of income.

Share of Federal Tax Revenue - Mother Jones

 

 

 

 

 

 

 

 

 

 

 

 

 

How Are The Richest of the Rich Doing?

Top Incomes asTax Payers - Mother Jones

Economics Explained for 6th Graders

I ran across this somewhat longish article at NakedCapitalism.com. Even if you are not a 6th grader you will find this interesting. In part, Andrew Dittmer, who in fact has taught 6th graders, our author,  points out that modern economics is based on certain assumptions that render  much of the application of advanced mathematics in economics false, misleading, yet amazingly resistant to criticism by non-economists exactly because of the use of obscurantist fog of mathematics.

One of these assumptions is that players in a market have “perfect information” – this is summed up in action by Wikipedia as “Perfect information would practically mean that all consumers know all things, about all products, at all times (including knowing the probabilistic outcome of all future events) , and therefore always make the best decision regarding purchases.”  There has been plenty of criticism of this concept even by economists, yet this concept is still embedded. Another assumption is that people will be rational and strive to achieve well-being. Again borrowing from Wikipedia, “well-being as defined by the utility function is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of “rationality” does not say that the individual’s actual goals are “rational” in some larger ethical, social, or human sense, only that he tries to attain them at minimal cost.”

Dittmer devotes most of his attention to Samuelson’s assumption “ergodicity”. As near as I can make it out this asserts that no matter what happens in the world, everything will reach a point at which things stop changing. This is the equilibrium point.  Kind of amazing. I will let you delve into Dittmer’s discussion. He is aiming at 6th graders so I only had to read through his article three times to get the gist. Maybe you will be quicker about it. Just keep in mind that these underlying assumptions are contributing to our current malaise. They have become the armamentarium of Wall St. and government bureaucrats.

Economics Debunked: Chapter Two for Sixth Graders

Job Creation – A Pliable (Fraudulent) Rhetoric in the Current Debate over Debt and Debt Ceilings

When it comes to job creation both Democrats and Republicans reflexively trot out small business as the engine of growth. These flights of breathy admiration for plucky small business owners are part of our national myth, right up there with cowboys. There probably is some truth in this myth as long as you accept the other side of the equation which includes the fact that jobs in small businesses are lower paying and less stable than those in the middle and big size companies.

But to demonstrate the extent to which today’s political environment has lost any sense of consistency, we now have the Republicans saying that any tax increases on the wealthy and corporations are “job killers”.

Since when have wealthy individuals created jobs? They don’t start new entrepreneurial ventures. They do buy extra vacation homes and fly to Vermont and Colorado and Switzerland more frequently in their private jets for skiing and apres ski fun. Much of this extravagance also occurs outside of the US. It is well known that unlike poor and middle class people, wealthy people do not spend incremental income. They save a large portion of it. Poor and middle class must spend every dollar to keep up. I defy you to find data that supports the wealthy as a source of new job creation.

As for big corporations, they are sitting on huge pools of cash and not creating jobs now. 

Companies had a record $ 1.91 trillion in cash and other liquid assets at the end of the first quarter, the report also showed, up from $ 1.86 trillion in the prior three months. Six consecutive quarters of profit growth helped fuel a 96 percent jump in the Standard & Poor’s 500 Index from its recession-low in March 2009 through March 2011.  ((http://www.businessweek.com/news/2011-06-09/household-worth-in-u-s-increases-by-943-billion-fed-says.html))

There has been consternation that though corporate profits and productivity have soared since the 2008 meltdown, corporations are not investing in the US economy. To some extent this may merely be a symptom that big corporations are not beholden to any nation state. Just because IBM has headquarters in Armonk, NY does not mean that it is primarily US-centric in its business activities and future plans. IBM’s 2010 Annual Report reported sales as follows:  Americas $42,044 billion; Europe/Middle East/Africa $31,866 billion; Asia Pacific $23,150 billion. The report further glows about the opportunities in the emerging boom economies of India and China. The US (not even reported separately, just as part of the “Americas”) is not a high growth region.

To satisfy you own curiosity about how widespread this global phenomenon is look up some recent annual reports for companies like GE, Walmart, Caterpillar, or just choose your favorite large company that has headquarters in the US.

Returning to wealthy individuals, it would not be surprising if one could look into their portfolios to discover that they reflect the same global thinking as found in the IBM example.

A final note must be made that during the 1950’s and into the 1960’s and again in the 1990’s Federal taxes on wealthy individuals and corporations were significantly higher than they are today. Yet, those periods are marked by higher than average job creation. George Bush’s huge tax give aways tot he wealthy (really a transfer of Chinese liquidity to the US wealthy through the Federal tax system) in the 2000’s coincided with the lowest job creation period in US history dating all the way back to Hervet Hoover.

Where, Oh, Where Did Our National Debt Come From?

The political rhetoric of the current moment, chiefly flowing from Republicans, but barely challenged by the Democrats, describes tales of profligate over-spending by the Federal government matched with burdensome taxation. While it is true that Federal spending is higher proportionately than post-WWII norms, social programs are not the source of this over spending. One only has to look back to George Bush’s two terms to see the true sources of the debt. 

Impact of Bush Policies, economy and wars on budget deficits

War, Wars, More Wars

First up are our profligate wars. A recent study at Brown University’s Watson Institute for International Studies finds that since 2001 we have spent between $2.3 and $2.7 trillion on our adventures in Iraq and Afghanistan.All of these dollars are deficit dollars. George Bush did not ask for increased taxes to fund his wars. Barack Obama has not asked for increased taxes to fund his continuation of the Bush wars and now his new war in Libya. The final bills for these wars will reach $3.7 to $4.4 trillion.1 We are fighting these wars on the backs of our grandchildren and, as is becoming obvious from the disgusting collusion between Obama and the Republicans, on the backs of the poor and the rapidly disappearing middle class. You might think that since these wars are in our national security interests (the rhetoric of all recent Presidents) they would feel it right to ask the American people to sacrifice more than just our mercenary military but also take money out of their pockets. It has been too easy to have the Chinese pay the bill.

Pills, Pills, Drug Companies and the Health Industry

President Bush, aided by the drug industry and health insurance industry, pushed through a new Part D Drug Benefit for Medicare. This was unfunded by new tax revenues. The estimate for 2009 to 2018 is an additional $727 billion

Tax Breaks Everywhere – The Gully Swamper of Them All

Part of the religion of the right is that cutting taxes will increase economic activity and in the end generate higher tax revenues. History has proven this theory to be nonsense. George Bush, aided by members of Congress, both Republican and Democrat, passed enormous tax decreases. These bills with their charming titles,  Economic Growth and Tax Relief Reconciliation Act of 2001 and Jobs and Growth Tax Relief Reconciliation Act of 2003, created an enormous windfall for the rich and have not produced any job growth. In fact George Bush’s presidency is marked with the lowest job growth record of any president back to Herbert Hoover2. As is demonstrated by the graphic from the Center for Budget and Policy Priorities the tax cuts of the Bush years are the largets single source of debt.

federal_outlays_and_revenues_as_percent_gdp

Under Tax – But Are We Over Spending?

With all of the Bush tax cuts (and the extensions by Obama and the Democrats) Federal tax revenues are now 14.9% of GDP. This is roughly  16% lower than the share typical during the post WWII era while Federal expenditures are 24% of GDP.  The chart from the National Priorities Project “Federal Outlays and Revenues, 1930-2015” shows the historical trends of revenues versus spending. Note that the projected increases in revenue for 2011 to 2014 are the result of the projected lapsing of the Bush tax cuts. As demonstrated by Obama and the Democrats at the end of 2010, it is hardly a forgone conclusion that this enormous giveaway will not be continued. 

The chart clearly shows that overall Federal spending is higher than the post WWII norm.  Despite the political rhetoric of the moment, it is hardly shockingly high. This is especially true if you take into account the war spending and outlays for economic recovery during what is now obviously the most serious economic slump since the Great Depression.

 


  1. I won’t go into the costs of these wars in lost lives and displaced persons not the enormous moral costs. The Watson Institute website has information on those aspects. []
  2. see Wikipedia article here http://en.wikipedia.org/wiki/Jobs_created_during_U.S._presidential_terms []

More Thinking about the Defence Budget and US “Security” – a letter to the editor

Submitted Today to Hudson’s Register Star

Letter to the Editor

May 6, 2011

As our politicians and the media continue the “debate” about our public budgets, Federal and state, we need to continue to ask that they have a debate that includes all aspects of income and expenditures.

I want to focus here on our spending in the Dept. of Defense. Let’s just focus on the more than 750 military bases outside of the US for a moment.  Why do we continue to support military bases throughout Western Europe in nine countries (77,379 personnel in 14,706 buildings with 629 acres of floor space). Germany alone has 167 US military bases. Japan houses 91 US military bases (41,512 personnel in 8,703 buildings with 731 acres of floor space).  The costs are a bit less clear since the Pentagon provides no reports broken down along these lines. But, we can guesstimate. DOD spending last year ( including Iraq and Afghanistan) was $696 billion and the personnel deployed in Europe and Japan are 8% of total active personnel.  You can easily guess that the costs are very big particularly factoring in the support services provided from the US.

Can we say that all of this is really necessary to our security?

While we are thinking about “security”, is our security to be found overseas guarding other countries? Or, should we be thinking about our security as a nation as perhaps better identified by the health of our society. Do we have reasonable access to jobs paying living wages, housing, education, healthcare, and transportation? Are we doing a good job raising our children and insuring that they have opportunities to reach their individual potentials? Are the vast majority of the population living on the same old wages for the past thirty years while a tiny minority become richer to ever more absurd extremes?

This sense of security is obviously a subject of debate and the answers involve us as individuals, families, local government and non-profits as well as state and Federal resources in a complicated mix. But, can we afford to continue the Cold War empire of a vast military? Is our security to be found in such distant places?

Let’s Talk About The Defense Budget – a letter to the editor

(This was submitted to the Letters to the Editor section of the Register Star here in Hudson. Not clear at the moment whether it will be published.)

Discussions of the Federal budget almost never mention the defense department.  Both political parties continue in the thrall of what President Eisenhower called the “military-industrial complex”. The defense budget is off limits.

But, can we afford this military establishment? The US, with just 4.5% of the world’s population, supports almost 50% of the world’s expenditures on war. The US has over 700 military bases outside of the country ( Base Structure Report 2010 – downloads a PDF file). According to a 2010 DOD report there are 369,000 military personnel overseas plus the 140,000 +/- in Iraq and Afghanistan. 52,440 are in Germany, 35,688 in Japan, 28,500 in Republic of Korea, and 9,660 in Italy to name just a few countries.

Do you feel safer or more prosperous as a result of this global military presence? Is all of this military really making us more secure or is it contributing to a sense of occupation and external threat around the world. The US is not universally viewed benevolently. The current uprisings in North Africa and the Middle East all involve regimes (excepting Syria) that have been direct recipients of US support, even our current evil-empire candidate Qaddafi.

How would you feel if foreign troops were stationed in Columbia County?

Whether you see this military might protecting democracy and our values around the world, or, to pick a polar opposite view, as an occupying force sustaining our global empire, you have to ask, can we afford it?

We all recognize that the US is no longer the preeminent economy in the world. We are just the biggest, but no longer the most dynamic. Can we afford to expend 20% of the Federal budget on defense and security when our competitors are spending just a fraction of that?  On a per capita basis other countries spend much less. China 4%, Japan 19%, South Korea 23%, Canada 26%, Germany 26%, France 46% and UK 44% (Wikipedia: military expenditures per capita)

What could we do with the hundreds of $billions we currently spend projecting our military outside of the US? Fix our crumbling interstate highway system, build a modern air traffic control system, build high speed trains in the megalopolises, or fund universal daycare and HeadStart. I am sure that you could come up with other ideas. I bet we could retire the national debt and reduce taxes all at the same time.