Swim by the Bait

Nearly always good advice.  A week later, and that bait is still attracting me, however. I basically didn’t take the bait last Thursday, but I can’t help myself now.

At a college friend’s house for Thanksgiving, I was definitely hanging with the 1% that the OWS crowd rails against.  I was surprised to hear my dear friend, a highly educated and intelligent man, repeating nonsense that political propagandists have been using as a mantra these past three years.

The facts say otherwise.

In short form, my host was saying the Obama administration is anti-business.  It was kind of strange to hear that from a friend who owes most of his livelihood to suing malfeasant Wall Street firms and banks.  It’s not as if he doesn’t know that ordinary people and savers of all stripes haven’t been regularly and thoroughly screwed by our financial mega-minds. We can only hope for the wonderfully absurd conversion that cartoon villain underwent to become the hero.  Will Wall Street’s and corporate America’s power elite spontaneously recognize that they need to adjust their expectations and behavior?

The day after that wonderful afternoon dinner, I saw some graphs that show just how divorced from reality my friends and colleagues are when they rant against the Administration for being “anti-business.”  The graphs show the results that businesses are getting, and contrasts that with the results that our citizens are getting.  Shifts like this can’t simply be the result of people making bad personal choices.  They are the result of policies.

The headline in the Floyd Norris graphs last Friday kind of says it all:  Profits Are High, Wages Are Low and Taxes Are Below Average

In his analysis over the holiday weekend, Steve Benen added some heft to the argument that we are dangerously out of balance.  One factoid should suffice:

“The previous record for corporate profits as a share of GDP was 8.98% — set in 1929. Last year, it was over 9.5%. This year, it’s over 10%.”

I know a big part of the problem is what we’ve all come to accept at least 10% profit growth as “normal” returns on investment, and how we’ve turned our international economic system toward making those expectations a reality.

Put in short form, we’ve somehow come to agree that capital “deserves” double digit annual returns, while the world economy can only grow at a single digit rate.  Basic math says this can’t go on.

I recall in the late 90s when I shared the absurdity of Wall Street equity analysts’ projections for venerable brand champion Coca-Cola.  Even Warren Buffet seemed willing to believe that Coke could continue to grow its profits by more than 10% per year, even though sales were only growing in the low to mid single digit range.  I pointed out to my Colorado Longwaves  colleagues that in less than ten years, if you believed those projections, Coke would somehow be making more profit than it had in sales.

As a global economy, that’s where we are.  Resource extraction, automation, outsourcing, tax avoidance and every other income-shifting trick in the book simply can’t change the immutable laws of arithmetic.  If you have two exponential curves, the curve defined by the higher growth rate will always end up surpassing the curve with the lower growth rate.  Always.

It doesn’t matter how low the higher growth curve (corporate profits) starts out.  Given enough time, profits can grow no larger, nor faster, than the underlying economy.

We already have profits and wealth concentration that exceed the portion of our economy that marked the Gilded Age and the pre-Depression Roaring Twenties.  By some measures, things are more unequal today than they were in France before Dr. Guillotin’s “humane” invention got such a workout.  But for some reason, too many of my friends and former colleagues want our nation and policy-makers everywhere to say “Let them eat cake.”

For what it’s worth, what I hear from most of the formerly enthusiastic Obama supporters I know is how disappointed they are with his “sellout” to the moneyed interests, at the expense of those who work for a living.  With corporate profits at an all-time record, poverty in the US higher than any time since the Depression, and corporate taxes roughly half the level (vs. profits) they were fifty years ago, I’d say the disappointed working class have more reason to complain than the investor class.

What the lefties fail to recognize is that “selling out” is an essential first step toward getting elected in America.  It only got worse when the Supremes compounded their essential mistake of a hundred years ago with the Citizen’s United decision.  The original mistake turned corporations into non-human “people” with civil rights.  They should have property rights, because they are owned by human beings.  Not political “free speech” rights – those should be reserved for living breathing humans.   Allowing people (or corporations or labor unions) to make contributions to politicians or political causes without disclosing who’s paying is a clear invitation to corruption.  While we’re at it, anyone making political money contributions should disclose those contributions within five days of doing so.  And only voters in a given district or state should be allowed to spend money on local elections in that district or state.

Today our government goes to the highest bidder or the biggest megaphone, and the cost is paid by all of us in no-bid contracts, sweetheart deals, tax incentives and other ways of making working and saving human beings overpay for security, energy, aged care and every other thing that a company can do while being paid by taxpayers.  Maybe I’m the only one who noticed that Halliburton staffed the mess halls in Iraq at a per-head cost over $250K per year when our military used to feed itself with privates and corporals getting paid a fraction of that.  By the way, those noncoms in the mess halls would also pick up a rifle and defend the unit, all at a fraction of the cost of our privatized modern-day contractors.

My personal problem with our current political/economic situation is that the surplus of payroll taxes collected since the 1980’s has been borrowed to fund multi-trillion dollar giveaways to the corporations and their owners/managers.

We’re all angry about the out-of-control spending and borrowing.  But the blame should go where it belongs — to those who get the money and make the political contributions.  By far the bulk of the money goes to non-human entities.  Even when we do try to help living breathing people who need it (like Medicare for the aged), half the money goes to the corporate tax collectors we call insurance companies, medical care management companies, etc.

Just in case you’re wondering what this economic system is called, let me break the news to you — it isn’t free market capitalism.  Mussolini named it quite appropriately “corporatism” when he paid off his backers with government contracts.  But the trains did run on time.

The internal inconsistency of our investor class is truly breathtaking as they insist younger generations and middle class public employees should bear the burden of paying for the extreme redistribution of national wealth that has gone on since 1980, all while complaining about unfairness.

Why?

hh

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8 Responses to Swim by the Bait

  1. Bob Boyd says:

    Why indeed! But how to change the current structure where if you don’t have at least $20,000,000 behind you it is impossible to run for congress. Where does that money come from? Lobbyists, hedge funds, large corporations, and the 1% crowd, are the ones footing the bill, and they aren’t likely to stop “guiding” our congress. It would be a good start if every donation, be it from individuals, corporate, PAC or whatever over $5000, be published on the internet so that everyone could see who is being supported by whom, and where the money is coming from. Secondly term limits would eliminate the current “legislative class” that seems to be a unique group that not only makes the law, but is above the law that ordinary citizens must abide by. . . insider trading as an example. While I’m at it, this current elite class should have their special retirement and healthcare benefits reduced to the same programs that ordinary citizens have.

    As long as the fox is in the hen house, it is unlikely that the hens are going to be very productive.

    Cheers!
    Bob

  2. Katie says:

    Great post, Howard. Feelings aren’t facts; it’s good to see you talk about the numbers. I’d love to see more numerical analysis of the issues of the day. I can’t be the only one who thinks, when I hear that the unemployment numbers are down, that they re-set the prior balance to zero.

  3. Marc says:

    Green thumbs all around!

  4. Cy Berlowitz says:

    Howard, a masterful look at the situation we poor slobs of the 99% face. With your permission I’d like to post it on VF. Be ready to dodge arrows. PM or e-Mail me.

    Cy

  5. Conscience of a Conservative says:

    When you look at the high profitability of u.s. companies one can’t but help to form a bearish opinion on the future. It’s not sustainable. Jeremy Grantham argues reversion to the mean and I agree. Here are a few reasons.
    1) Future savings from outsourcing to China are not repeatable. Chinese labor costs are rising and the Yuan is more likely to rise than stay flat
    2) Companies have exhausted the low lying fruit of cutting costs in their businesses
    3) World economy is slowing
    4) Interests costs can only rise since they are currently at zero.
    5) Taxes are more likely to rise than fall

  6. Excellent piece. Thank you.

  7. Fishhead says:

    Where’s Corzine?

  8. hhill51 says:

    This billionaire has it right. After having a hand in starting 20 companies, he shows where the job creators really are. Spoiler alert: Even rich guys like him that start new companies and make major capital investments don’t drive the jobs engine.
    .
    http://www.bloomberg.com/news/2011-12-01/raise-taxes-on-the-rich-to-reward-job-creators-commentary-by-nick-hanauer.html

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