Below is the full text of an article by Harold Meyerson, writer for the Washington Post and vice-chair of the Democratic Socialists of America. This is why socialists can't be taken seriously when it comes to economics. All items in parentheses are annotations by me except those italicized, those are from the original piece. There is a footnote (*) by me on the first of Meyerson's parenthetical asides.
The job machine grinds to a halt
By Harold Meyerson
Wednesday, July 28, 2010; A15
Ain't no hiring. And ain't likely to be any for a good long time. (Speculative and grammatically abhorrent)
The problem isn't merely the greatest downturn since the Great Depression. (By any and all indicators, the current recession isn't worse than the one in the early 80s. By repeating the meme "the worst since," the administration can claim all the more credit for any inevitable recovery). It's also that big business has found a way to make big money (bastards) without restoring the jobs it cut the past two years, or increasing its investments or even its sales, at least domestically.
In the mildly halcyon days before the 2008 crash, the one economic outlier was wages. Profit, revenue and GDP all increased; only ordinary Americans' incomes lagged behind (Left unmentioned is that prices also "lagged behind." Disparities between prices and wages can be troublesome, but, in a dynamic economy, unavoidable and usually temporary. Further, there is no direct correlation between profit, revenue and GDP with prices and wages, they measure and are indicative of completely different things). Today, wages are still down, employment remains low and sales revenue isn't up much, either. But profits are the outlier. They're positively soaring. (This is a bad thing why?)
Among the 175 companies in the Standard & Poor's 500-stock index that have released their second-quarter reports, the New York Times reported Sunday, revenue rose by a tidy 6.9 percent, but profits soared by a stunning 42.3 percent. Profits, that is, are increasing seven times faster than revenue. The mind, as it should, boggles. (Not if it contains any sense. If empty, however...)
How can America's corporations so defy gravity? Ever adaptive, they have evolved a business model that enables them to make money even while the strapped American consumer has cut back on purchasing. (They have innovated and increased efficiency. Beyond the realm of Democratic Socialists, these are generally considered good things as they help keep things like prices down so people with stagnant wages can keep paying for them). For one thing, they are increasingly selling and producing overseas. (Helping our balance of trade which keeps things like interest rates in check). General Motors is going like gangbusters in China, where it now sells more cars than it does in the United States. In China, GM employs 32,000 assembly-line workers; that's just 20,000 fewer than the number of such workers it has in the States. And those American workers aren't making what they used to; new hires get $14 an hour, roughly half of what veterans pull down. (Young, unskilled laborers getting paid $14/hour to start is a bad thing? Maybe the wage being paid is the one they are willing to take. Wages are no different than prices in a market. The price (wage) is set by producers (workers) and consumers (firms) on the open market. Prices (wages) cannot be set by ideology).
The GM model typifies that of post-crash American business: massive layoffs, productivity increases, wage reductions (due in part to the weakness of unions*), and reduced sales at home; increased hiring and booming sales abroad (If it is cheaper for a firm to produce something elsewhere, the firm is derelict if it doesn't produce that something elsewhere). Another part of that model is cash retention. A Federal Reserve report last month estimated that American corporations are sitting on a record $1.8 trillion in cash reserves. As a share of corporate assets, that's the highest level since 1964. (In times of uncertainty, firms tend to increase cash reserves. But is that cash sitting underneath the cushions of the CEO's platinum-gilt sofa? No, it is in banks which then lend that cash to others, which does tricky things like increase GDP. Further, much of the uncertainty firms face lies in the fact that successful firms are continuously excoriated for doing things like being profitable by the confederacy of dunces that includes the likes of Harold Meyerson, Keith Olbermann and Barak Obama and they don't know how or when they will be punished via taxation for being so damned profitable).
Why invest in new plants, offices and workers, particularly here at home? Spooked by the 2008 crash, corporations want to keep more money under the mattress (see above). More important, they're sitting pretty as profits rise.
Is this model sustainable? It's hard to say -- a double-dip recession could plunge their profits yet again. But from the American worker's perspective, the model, no less than a new downturn, is an unqualified disaster. (Mr. Marx, Mr. Keynes, you're needed. Again!). It portends the kind of long-term, structural unemployment that we haven't seen since the 1930s (see here. One of the reasons unemployment is as high as it is and some have been unemployed as long as they have has been the increase in quality and duration of unemployment insurance, which can have moral hazard implications, but is generally a good thing in that allows qualified people and firms to find each other for the right fit which leads to better productivity, but not necessarily to higher wages). It locks into place a generation of reduced incomes. (Again, if prices are stagnant, and they are despite the Treasury Department effectively doubling the money supply (M2) in the last 18 months, then wage stagnation isn't a problem--but Meyerson just did a neat trick...above he notes that wages were flat, now they are "reduced." They aren't. Further, a generation is 30 years. No one, especially a scribe of this caliber, knows what wages will be like 1 year from now, much less thirty).
This dystopian** America already stares us in the face. Fully 46 percent of the unemployed have been without work for six months or more -- the highest level since the Bureau of Labor Statistics began measuring such things in 1947 (see above on UC). Two years ago, just 18 percent of the unemployed were jobless for more than six months. America's private-sector job machine -- the marvel of the world since 1940 -- has clanged to a halt, and there's no place for it in corporations' new business model.
The restoration of American prosperity, then, isn't likely to be driven by our corporate sector. Across-the-board business tax cuts make no sense when business is already sitting on oceans of cash (because it's not like the money actually belongs to those who earn it, right?). Targeted tax cuts and credits for strategic investment and hiring within the United States, on the other hand, make excellent sense (this favors the larger firms that can employ the lobbyists Congress requires to figure out who gets what tax credits). The Obama administration has proposed expanding the tax credit for the manufacture of green technology here at home, and congressional Democrats will soon unveil legislation creating further incentives for domestic manufacturing (read: tariffs and quotas, both of which retard GDP growth. If Meyerson and the poor, weakened unions can't close their eyes and wish wages to increase, he'll help take care of one of his idiotic bugaboos and make sure GDP doesn't go up, either).
Another source of jobs would be public, and public-private, investment in infrastructure (You knew this was coming, didn't you? More government spending and deciding what gets done with money they don't have. Which means higher taxes, today or next year doesn't really matter, and crowding out of private investment. Along with the normal objections of the federal government doing that which it has no license to do). As Michael Lind and Sherle Schwenninger of the New America Foundation have argued, building a new American infrastructure of roads, rail and broadband is not only an economic necessity but also the investment with the highest multiplier effect in creating new jobs (wrong, private investment, innovation, efficiency, in other words an unfettered free market has the highest multiplier). A U.S. infrastructure investment bank, such as that proposed by Rep. Rosa DeLauro (D-Conn.), could leverage significant private capital to begin America's rebuilding, though the idea has encountered rough sledding in (surprise) the Senate.
What won't work as an economic solution -- indeed, it amounts to cruel and unusual punishment -- is blaming the unemployed for their failure to find jobs. There are now roughly five unemployed Americans for every open job, according to the Economic Policy Institute's most recent calculations, and that ratio isn't likely to decline much if we leave it to the corporate sector to resume hiring. Corporations have figured out a way to make money without resuming hiring. Their model is premised on not resuming hiring. If the public sector doesn't fill the gap, the era of American prosperity is history. (Taken to it's natural conclusion, unemployment should always be zero, any unemployed person should be hired by the government, even if the labor supplied is unproductive. The hearkening funeral bells of American prosperity have been signaled many times throughout our history. The only meaningful knell will come if anyone listens to idiots like Harold Meyerson).
Ok, so what can those corporations do with all that filthy profit? At least that which isn't taxed away? It can: a) put it in the bank; b) pay people more (but with the labor supply greater than that which is now needed, that doesn't make sense practically or economically); invest in capital goods (the factors of production other than labor, which will happen when the market clears). No matter what a firm chooses to do with it, it will benefit society as a whole. Unless, of course, the government takes it.
*As noted, wages are set by market forces taking supply and demand into account, inter alia, ceteris parabus, etc. etc. Unions cartelize the labor force and skew wages beyond their market price. This helps members of the union, but not the people who would otherwise be employed were it not for the union. Wage floors above the market price only create dead-weight loss and increase unemployment. This is not theoretical. Mr. Meyerson also doesn't mention that the minimum wage increase that went into effect last year may, just may, have also boosted unemployment.
**I'll have more on dystopias and the socialist utopias that are always just around the corner in a later post. I'll just leave for now a reminder that More was being ironic and "Utopia" means "no place."