Serious Implications

Do corporations even need us anymore?

It’s been called a “jobless recovery” and Califia Beach Pundit offers this graph that shows corporations are doing quite well, thank you very much. Wages for the middle class may be stagnant or falling, and unemployment is still about 9.5%, but corporate profits are up 25% over the past year.

Does it pay to buy stock or mutual funds anymore? Despite the fact that profits have doubled since 1998, the S&P 500 Index, on average, has been flat over the past 12 years. Higher profits used to mean stocks went up. Not anymore.

Read more…

According to presidential approval records kept at Gallup Poll, after 578 days in office, President Obama’s approval numbers are only slightly better than Ronald Reagan’s at the same point in his presidency. Eventually, Reagan’s approval bottomed out at 35%. Will Obama’s go that low?

As Republicans attack the 14th Amendment of the Constitution and call on Americans to “restore honor,” it’s hard to imagine what kind of “honor” they’d like to restore, given the chance.

Obama needs to paint a picture for America, one that makes clear his vision for our future and how his policies are designed to get us there. He did this once during the 2008 campaign, but the Right Wing Propaganda Machine (RWPM) has a well-funded and persistent campaign to obsure and distort it.

The good news for Obama is that Reagan turned his lousy numbers around, and so can he. And, of three potential challengers in 2012: Palin, Romney and Huckabee, none of them have favorability ratings nearly as good as Obama’s.

When people lose their jobs because companies find ways to squeeze more work out of fewer workers it’s called “higher productivity.” When health reform finds ways to deliver health care with fewer insurance middle men, it’s called “victimization.” In this article at Time Magazine with the ominous title The First Victims of Health Care Reform the problem isn’t patient care, it’s about insurance agents becoming redundant. Here’s an excerpt:

Agents and brokers are so concerned they will be viewed as redundant under the new law that they successfully lobbied to get state insurance commissioners to publicly acknowledge their importance. At a meeting of the powerful National Association of Insurance Commissioners (NAIC) last week in Seattle, 25 commissioners sponsored a resolution stating that implementation of health reform should “recognize and protect the indispensable role that licensed insurance professionals play in serving consumers.”

The insurance companies are worried about new regulations limiting their profits to a lousy 15 or 20 percent. Chump change, right? Again, from Time

Under the Affordable Care Act, beginning in January, plans sold to individuals and small groups must spend 80% of premiums on actual medical care (as opposed to administrative costs); the figure is 85% for large group plans. Plans that spend less will be required to send rebates to customers.

Another part of health reform giving them fits is the part where state insurance exchanges put plans online so individuals and small groups can compare the plans themselves and pick the ones they like instead of hiring a middle man to help them with the secret documents because only they know the secret handshake.

Workers associated with agriculture and manufacturing are used to being told they’re redundant. They’ve heard all about how they need to update their skills to be competitive in the new economy. They’ve heard about it for years. Maybe it’s about time the heros of the FIRE economy (Financials, Insurance and Real Estate) found out what it’s like.

Sorry guys, things are tough all over.

Do companies relocate to avoid the hassle of dealing with union-organized workers? Do union contracts with typically higher wages contribute to higher unemployment by discouraging companies from hiring more workers?

The figure below is BLS data on unemployment by state (July 2010) plotted against percentage of the wage and salary workers represented by unions (2009) in the 50 states.

The coefficient of correlation for the two variables is 0.17, which is weak. If greater unionization corresponded to higher unemployment, the data points would form a line rising from left to right. If the two variables were unrelated, the points would form a random scatter plot.

It’s interesting that the four states with the highest percentages of worker union representation: New York (27.2%), Hawaii (24.3%), Alaska (23.6%), and Washington (21.5%) all have unemployment rates below the national average.

“The most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income.” – Goldman Sachs Report, quoted in the Washington Post, 2006

In 2006, the U.S. Congress was dominated by Republicans and we had a Republican President. Wages were at their lowest share of GDP on record. Corporate profits were at their highest rate since the 1960s. Speculators were about to drive fuel prices through the roof. The housing bubble, despite warnings, would continue to grow and finally burst. The Dollar Index was on track to reach its lowest level in history.

According to this New York Times article written four years ago

In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132 billion.

Do the math and we find between 1970 and 2006, over $1.095 trillion of GDP shifted away from wages to corporate profits, which is in line with the Goldman Sachs statement, above. It should come as no surprise that the big problem in the economy today is lack of demand.

A hundred years ago, Henry Ford started his car factory and offered twice the going wage for new hires. His competition was furious. Ford hired all the best mechanics, craftsmen, and clerical staff away from other firms. When asked why Ford offered such high wages, he replied, “if you don’t pay the people, they can’t afford the cars.” This was a brilliant statement that recognized the relationship between the producer and the consumer.

I’m not anti-corporation or anti-profit but, like Ford, think the benefits of corporate success need to be distributed to the workers, or else the economy will suffer from a fall-off in demand.

Republicans, for the most part, have opposed mechanisms that have lifted wages for Americans. They have a record of blocking and busting unions and opposing hikes in the minimum wage. During the 36 years from 1970 to 2006, the time of falling wage share of GDP, Republicans held the White House 24 years, to the Democrats 12. They had some help from the other side, but it’s been primarily Republicans that set up the policies that have mostly benefited corporations at the expense of bottom 90 percent of American workers.

The pace of economic recovery has been slow and voters are understandably frustrated, but electing a GOP-controlled Congress this year will only make things worse.

This is Colin Powell speaking in October 2008 in response to charges from some Republicans that candidate Obama was a Muslim. It seems appropriate today, as polls show a majority of Americans opposing the construction of a Muslim cultural center two blocks from Ground Zero.

If wrong-headed Americans succeed in stopping the project, we then have to ask ourselves: what did this soldier, US Army Cpl Kareem Rashad Sultan Khan, fight and die for?

If they’re not conservatives, what are they?

Newt Gingrich and Sarah Palin have been voicing strong opposition to building a mosque and Muslim community center two blocks from “Ground Zero,” the former site of the World Trade Center. Despite the Jewish mayor Michael Bloomberg’s support for the mosque, Gingrich and Palin want the state or federal government to intervene to stop the deal.

Understand this: Palin and Gingrich want the state or federal government to intervene in a private business deal between a willing buyer and a willing seller. They want the buyer to be investigated despite the fact that here is no probable cause to justify an investigation.

So, if Palin and Gingrich are not conservatives, not liberals, and not moderates, what are they? In my opinion, the garbage they’re peddling is pure McCarthyism.

Joe McCarthy would be proud.

Related article: My Take: No conservatism in Gingrich’s attack on the ground zero mosque

Contrary to the propaganda, immigration, legal and illegal, is on the decline.

Peggy Noonan, who’s one of the more talented writers in the Rupert Murdoch Media Empire, writes today about an America at risk of boiling over. The argument, 1,200 words or so, is pretty simple: Americans are dissatisfied, the government doesn’t get it, and it’s the worst she’s ever seen. The “boiling over” part is a subtle threat of violence. The purpose of the article, it seems, is to hammer home the idea that our elected government is out of touch with the voters, can’t function, and riots could start any day now. I assume Noonan and Murdoch want to continue with a domocratic, constitutional form of government, but I really don’t know.

Noonan’s article tries to re-inforce anger and dissatisfaction with the Democratic-led Congress and weaken President Obama. Aside from that Noonan:

1. Presents no data or reputable sources to bolster her arguments,

2. Offers no solutions other than to seal the Mexican border so that “those here would be absorbed, and everyone in the country would come to see the benefit of integrating them fully into the tax system.”

3. Never mentions the economic policies put forth by Reagan are largely to blame for the current mess we’re in.

Sure, Peggy, just seal the border and we’ll all become friends and sing “kumbayah.” Just seal the border, something your old boss Ronald Reagan, George H.W. Bush and George W. Bush never tried or took seriously. Just seal the 2,000-mile border, like the Soviets did with the Berlin Wall, only longer. Just seal the border and don’t tell anyone that illegal immigration is actually on the decline. Just seal the border, so the President alienates Hispanic voters.

Noonan, despite some clever weasel words to make us think she’s generous to immigrants, is playing gutter politics: stoking xenophobic fear and promoting economic scapegoating of poor people trying to make a decent living.

At Murdoch’s Wall Street Journal, she makes a good living at it.

Related satire

Airlines fined for violating anti-trust laws. Who else is fixing prices?

This week, Associated Press reported Delta Air Lines was fined $38 million for price fixing. Delta, which recently merged with Northwest Airlines, met with other airline companies in Japan from 2004 to 2006 to set prices for air cargo business. Why does this matter?

Markets only work when companies are free to compete. The problem is, for the companies themselves, competition can be tough. It’s hard work. Here’s the ‘Lectric Law Library

In a freely competitive market, each competing business generally will try to attract consumers by cutting its prices and increasing the quality of its product or services. Competition and the profit opportunities it brings also stimulate businesses to find new, innovative and more efficient methods of production.

Consumers benefit from competition through lower prices, better products and services. Inefficient firms or companies that fail to understand or react to consumer needs may soon find themselves losing out in the competitive battle.

When competitors agree to fix prices, rig bids, or allocate customers, consumers lose the benefits of competition. The prices that result when competitors agree in these ways are artificially high; such prices do not accurately reflect cost and therefore distort the allocation of society’s resources. The result is a loss not only to U.S. consumers and taxpayers, but also the U.S. economy.

When we ask for clean energy, we’re told it costs too much. When we ask for universal health care, we’re told the nation can’t afford it. When we ask for food to be grown organically and sustainably, for livestock to be raised in humane conditions, we’re told it will cost too much. Schools go without needed updates, teachers are being laid off, because we can’t afford any more school expenses. We’re “taxed enough, already,” according to the TEA Party mantra.

Why can’t we afford the things that would make this a better country? Why can’t we find the money? Who else besides the airlines are ripping us off?

Annotated BEA Graph

Fox News nincompoop Sean Hannity was on tonight expressing deep dissatisfaction with the reported 2.4 percent gain in GDP for the second quarter of this year. GDP slipped from the first quarter level of 3.7. This is the fourth consecutive quarter of positive GDP, a trend we haven’t seen since 2007.

Of course, Hannity never mentioned the -6.7 GDP for the last full quarter of the Bush Administration. But, if he had, he would have been “fair and balanced.” Fat chance of that ever happening.

According to Triune brain theory, our brains have three parts, the primative reptilian brain, which we share with snakes and lizards, the mammalian brain that we share with dogs, horses, and other mammals that display moods and feelings, and the neocortex, where intelligence and language are centered.

The reptilian brain is the center of strong, primitive “gut level” survival concerns (emphasis added): “just the basics: hunger, temperature control, fight-or-flight fear responses, defending territory, keeping safe – that kind of thing.”

The reptilian brain is often the target when someone wants to sell us something or present a political viewpoint. Whenever the race card is used by political operatives, the reptilian brain is the target.

This past week, the big Tea Party blog Biggovernment.com‘s Andrew Breitbart and Fox News caused a fiasco by playing a small portion of a tape where USDA official Shirley Sherrod described her own journey of racial reconciliation. The portion ripped from its all-important context had Sherrod talking about the time when her attitudes toward white farmers were less than charitable. Her father had been murdered and no one was ever tried for the crime.

The video presented by Breitbart was hot stuff, dominating the week’s news. I believe it grabbed so much attention because it was aimed strait at the reptilian brain. The Tea Party and others, like Karl Rove and Fox News President Roger Ailes are masters at pitching to the lowest common denominator. Here’s an anonymous lobbyist writing about his work for the Tea Party:

We’re playing to the reptilian brain rather than the logic centers, so we look for key words and images to leverage the intense rage and anxiety of white working-class conservatives. In other words, I talk to the same part of your brain that causes road rage. Ross Perot’s big mistake was his failure to connect his pie charts with the primordial brain. Two years after Perot’s first White House run the GOP figured this out, and thus was born the “angry white man” and with him a 54-seat swing in the House of Representatives.

Short term, I think Breitbart and Fox News win with the Sherrod fiasco. Even though it’s now clear that the edited video was a trick and low-rent propaganda, politics is like a street fight. The guy who lands the first punch usually wins – but not always.

The antidote to this kind of dummed-down reptilian brain national discourse is patience, thoughtfulness, and a citizen ethos that compels all of us to make an effort to understand the facts, not just react to alarm bells.

Related to the previous post, the estimable economist Martin Wolf is calling for heading off deflation by printing more money, expanding the money supply, and creating more demand. From this article in the Financial Times:

…if governments need to run deficits, to support demand at a time of private sector weakness, they can always borrow from central banks. Yes, this is “printing money”. It is also an insanely radical policy recommended by no less insane a radical than Milton Friedman, back in 1948. His view was that the government could expand the money supply during recessions and contract it in the subsequent booms. A country with a fiat currency and a floating currency could, thus, stabilise the economy without destabilising credit markets. The neat thing about this proposal is that one does not have to decide whether fiscal policy or monetary policy is doing the heavy lifting: they are two sides of one coin.

I suspect the main opposition to to this approach is coming from those who want to delay the economic recovery until after the November election.

What’s Wrong with “Musgrave’s Law?”

Ralph has a simple and elegant solution to solving our national debt problem, which seems to make some people nervous.

The problem. Deficits and / or national debts allegedly need reducing. The conventional wisdom is that they are reduced by raising taxes and / or cutting government spending, which in turn produces the money with which to repay the debt. But raised taxes or spending cuts destroy jobs: exactly what we don’t want. A quandary.

The solution. The national debt can be reduced at any speed and without austerity as follows. Buy the debt back, obtaining the necessary funds from two sources: A, printing money, and B, increasing tax and/or reduced government spending. A is inflationary and B is deflationary. A and B can be altered to give almost any outcome desired. For example for a faster rate of buy back, apply more of A than B. Or for more deflation while buying back, apply more of B relative to A.

The original post contains several questions raising concerns about printing lots of money. For example, doesn’t printing money cause hyperinflation? Not necessarily. The U.S. has recently increased its money supply enormously without inflation. Despite the massive fiscal stimulus, money supply actually shrank over the first part of 2010.

“Eaton required its 70,000 workers to take furloughs equal to a month of unpaid leave last year. Its cash and short-term investments rose 46 percent from a year earlier to $773 million.”

Psychiatrist and full-time right-wing pundit Charles Krauthammer announced this week that we are having a “capital strike.” Corporations are sitting on a lot of cash. Here’s some of what he had to say:

There are three major areas a corporation, small or large, has to worry about: health care costs, energy costs and the cost of money. In each of these, the administration either has or is planning regulations worth thousands of pages which (a) are going to raise costs, as we know, but also are going to interact in ways that nobody understands and are going to create uncertainty. If you’re trying to figure out who you’re going to hire and how many, and you have no idea if you’re going to be able to afford the extra health care costs, you’re not going to hire.

Uncertainty? Have corporations never faced uncertainty before? Are things different now? I believe Krauthammer needs his head examined for the following reasons:

1. Health care costs have been rising much faster than inflation for years, but the annual increases have fluctuated significantly. Over the past ten years, health insurance premiums have increased between about 4 percent to over 12 percent per year. What’s so uncertain? Premiums are going up either a lot, or a whole lot. Futhermore, companies have adapted to rising insurance costs by purchasing policies with diminished coverage or dropped health benefits all together. The timetable for phasing in the new rules is available for corporations to make their plans.

2. Energy costs have fluctuated for years, especially during the last administration, and are subject to the effects of speculative trading on the commodities exchanges. There is a way for corporations to avoid fluctuating energy costs: it’s called a futures contract. With oil being “probably the most tactical and political product in the world.” One would think highly paid corporate CEOs would understand energy prices are a risk factor now, and have been for years. That’s why there are futures contracts.

3. Cost of money is a problem for small businesses. Corporations in the S&P 500 are sitting on a $1.18 trillion mountain of cash, which is the “capital strike” Krauthammer refers to. Big companies have their own cash to invest. Small companies need banks to lend. The reluctance of banks to lend is not the fault of the Obama adminstration. Here’s Obama:

“But given the difficulty business people are having as lending has declined and given the exceptional assistance banks received to get them through a difficult time,” he said, “we expect them to explore every responsible way to help get our economy moving again.”

It’s normal for an incumbant administration to be rightly or wrongly blamed for bad economic times. But with the “capital strike,” corporate leaders appear to be the culprits. Any corporate leader who would deliberately obstruct economic growth at a time of national crisis is no patriot.

According to this Gallup interactive graph, at 536 days into each of their presidencies approval ratings look like this:

Obama 46%
Reagan 42%

Reagan’s approval numbers eventually bottomed out at 35%. As we know, Reagan went on to win re-election and politically survive the Iran-Contra scandal.

As the economy improves at a painfully slow pace, it will be interesting to see if Obama is ultimately blamed for the economy in shambles he inherited, or credited for saving the country from another Great Depression.