High Corporate Taxes Do Not Stymie Corporate Spending

Consider this our second lesson in economics; Economics 102.

Lets talk about high corporate (or business) taxes versus low taxes.  I argued with a die-hard Conservative for about an hour this weekend, and he refused to see the sense of what I am about to tell you.  Let’s see if it makes sense to you, or if I am wet behind the ears.  I’ll use the same examples I gave him.

Let’s say I have two tax scenarios; one is with corporate/business taxes at 25% and one is at 75%.  Please keep in mind that no one is suggesting even close to a 75% tax rate, but let’s use it for an example.

My Conservative friend  said that trickle down economics works because if he had lower corporate taxes (he doesn’t own a business) he would use that extra money saved with the lower taxes to buy equipment, which would trickle down to the factory that made the equipment and the people employed there.  Well enough.

Except that’s not the way it works in business.  It sounds good, it almost sounds right, but it isn’t.  It’s an anecdote that has no basis in reality.  I answered that any business person waiting until after he had paid his taxes to see what he had left for capital equipment purchases is a moron and deserves to get gouged by taxation.  That wasn’t met with a great deal of understanding or approval, so I explained why I said it.

As a business owner, I don’t wait until I pay my taxes in the new year to buy equipment I need.  That would be stupid.  I buy the equipment before I pay my taxes for one purpose. I call it Profit Reduction.  Call it whatever you want; tax-deductible equipment purchase, capital equipment purchase… whatever.  The point is I use that purchase to reduce the profit that I have to report to the IRS.  Remember that all profit is taxable, but not all income is.  Income is the money my business earns.  But it’s not all taxable.  I can deduct expenses just like an individual can.  I can deduct labor, travel, materials, office space rent, utilities, equipment purchases, etc.  All of those expenses are deducted from gross business revenue (income).  What’s left after that is profit.  Let’s go to the example.

Let’s say my business has a gross revenue of $200,000.  Labor costs are $120,000, equipment costs were $20,000, and rent and utilities and all other expenses were $20,000.  Those business expenses add up to $160,000.  Since my gross revenue was $200,000, my actual net profit would be $40,000.  If my business was taxed at 25%, my tax bill would be $10,000.  If it was taxed at a 75% rate, my tax bill would be $30,000.  If I waited until after I paid my taxes to buy equipment, I would have left my net profit at the full $40,000, all of it taxable.

Here’s why high taxes can actually be an incentive for a business owner to buy equipment at the end of the year…or give out employee bonuses at the end of the year.  Yes, if you receive a bonus around Christmas time, that bonus is fully deductible as a business expense.  Now you know why it comes around the end of the year.  And here you thought your boss was actually giving you a Christmas bonus.  Nope, he’s reducing the net profit of his business and your bonus helps him avoid paying more taxes.  As a business owner, the thought process sounds something like this:

“Hmmm, if my net profit is $40,000, I’ll owe $10,000 in taxes this year.   Why should I pay that much?  Why should the Federal government get my business’ hard earned money?  I’d rather give it away than pay them that much!”

And so evolves the “Christmas” bonus in the mind of the business owner.  Better that my employees get a bonus than the Fed gets one dime more than they deserve, which is almost nothing.  Besides, maybe that bonus will encourage my employees to work more efficiently; at least they won’t waste that money like the Federal government would.  And, I can pay myself a nice bonus, too…fully deductible.

So let’s say the bonuses add up to $20,000.  My net profit is now reduced to $20,000, and if I paid at a 25% rate, I would still owe $5,000 in taxes.  Hmm, how can I cut that amount even lower?  I know!  I’ll buy equipment that I was putting off until next year!  Anything to reduce my net profit as close to zero as possible so that my tax bill is as close to zero as possible, too.

Trickle Down Economics puts the cart before the horse.  In other words, it paints a portrait of a business owner being a moron and paying taxes before he pays bonuses or buys capital equipment.  Not smart, especially when it leaves you paying taxes on a much higher net profit.  I don’t personally know of a single business owner or executive who runs his business that way.  Not one.

Remember when I said that higher tax rates would create an even greater incentive for a business to reinvest in itself rather than throw their net profit down the toilet by paying extra taxes to the Fed?  Well, think about it.  If my tax rate was 75%, that would mean a $40,000 profit would see $30,000 of my company’s money being paid to the IRS.  If you think I’m stingy at 25%, wait until you see how stingy I am toward the IRS if taxes are at 75%.

Where does all that money go?  If I give it to my employees as bonuses, conveniently around Christmas so I look like a big softy; where does that money end up?  Does some of it maybe end up at the mall?  And maybe some of it is saved, and some of it is invested.  If I didn’t give those “Christmas” bonuses, and instead paid the actual taxes on my gross profit, where would that money end up?  I think we all know that it would end up in the toilet.

Where does the money I spend on Capital equipment right before the end of the year go? The same place my Conservative friend said it would end up if only the Feds would cut his business taxes so he had more money to buy equipment.  The cart before the horse.

If you are a business owner who waits to buy equipment or give out bonuses until after you’ve paid taxes, you are flushing money down the toilet.  Executives and business owners do not operate that way, unless they are morons.

In the end, the Federal Government does not dictate to me how much of that gross profit they are going to get.  I control that, because I control how much net profit I actually have.  I control it through wages, expenses, and equipment purchases.  If I have to buy a new computer every year just to make sure that the $2000 I spend on it does not end up in the hands of the IRS, then that’s what I do.  And I do do that.

Higher taxes are an even greater incentive for me to reinvest in my business than low taxes.  Like I said before, I do not know of a single business owner or executive who doesn’t feel the same way.  Conservative politics and Trickle Down anecdotes aside, the numbers prove that high taxes are a greater incentive for businesses to reinvest in themselves than low taxes. And when we reinvest in our  own businesses, we are helping to create the demand that Conservatives say comes from Trickle Down economics.  Cut corporate taxes, they say.  But it doesn’t work.  Low taxes create very little incentive for reinvestment.  Rather, they create incentive for a business to hoard cash.  Cash doesn’t do anyone any good unless it is spent.

This is not rocket science, but proponents of Trickle Down economics prefer anecdotes to facts.  They prefer to tell you all about how businesses would reinvest money into their own business if only we cut their taxes, and they’d do it because they’d have more money to spend.  But reality shows that it just doesn’t work that way.  I spend my money before the Fed gets it, not after.  I know exactly how much money I have to spend, and I plan that with my accountant.  I reduce the actual taxes I pay by being proactive; by reinvesting in my business RATHER THAN PAYING THAT MONEY TO THE IRS.

It’s the cart before the horse.  My tax bill does not decide for me how much equipment I can buy, or what kind of a bonus I can give to my employees.  I decide how much gross profit is going to be exposed to taxes.  That’s not an anecdote; that’s just reality.     Ω

The Hope Of America

In trying to come up with a new post for the last few days, I’ve been struck by how negative some of my articles have become.  I wanted to write about joblessness, or about Glenn Beck’s upcoming Revelation on August 27, but these things would invariably have led to more negativity. For just one day, I want to write about something positive.

That it took me several days to find something to write about is indicative of what my focus on politics is doing to my mind.  You can’t stay here, in the world of bad news, or corruption, unemployment and economic depression, for long.  You have to get out of it for a bit and open your eyes, because there is still beauty to behold, and still good in this world.

When I’m looking for something good to focus on I invariably find my daughter.

Some things never change.

On Monday, August 30, my daughter will enter college for the first time.  She’s been the brightest joy of my life.  I rarely talk of personal stuff here, but I’ll share this with you, even if it is a bit self-indulgent.

Whereas my focus is usually on investments and financial advice (my business) or on the dirty business of politics, my daughter’s focus is on her future, and specifically, the one starting Monday.  She’s anticipating that day not with fear over how she’ll make ends meet, or fear over the economy or Washington politics, but with a different kind of fear; she’s beginning a new cycle of her life, and Monday marks her first day in school as an adult. The whole wide world is open to her, even though if you asked her, she’d say an open door would be enough for now.  Just give her an opportunity to prove herself, that’s all she wants.

She’ll get that opportunity starting Monday.  She’ll be seeing the world from a new perspective; an open college campus where thought, diversity, and exploration are encouraged.  She’ll spread her wings and try to fly.  This is the just the first step for her into what will possibly be a long career of higher learning and purpose.  She wants to be a psychologist, and the one thing I know about that field is it changes so fast, that her education will be ongoing.  That’s right up her alley.

I know she is a bit anxious; I was, too, my first day on campus.  She’s attending our local college for her first year, which allows her to stay at home with me and keep her job.  I am particularly glad about the staying at home with me part.   All nerves aside, she is excited.  Along with millions of other young adults, my daughter is excited about the future.

Read that again; it’s the real focus of this article.

Millions of young adults are excited about their future.  I realize that this is true about many young people in this world, but it’s particularly important in this country, where often, we are only focused on what’s wrong, especially in these last few years.  When I think about all of that excitement, it energizes me.  I used to pick my daughter and friends up from high school, and I can attest that there is nothing more invigorating than teenagers in a car just after school.  This is the energy we need; and they have it in abundance.  It’s the hope we seek, and they carry it naturally; as easily as if it were sown on to the front of their shirts.  In fact, maybe I should make a T-shirt and sell it.  On it would be the simple phrase “I am Hope personified”.

That’s it.  That’s what they, and my daughter, are.  Hope.  We need it; they have it.  Let’s do everything we can to make sure their hope is realized; it will be to the benefit of us all.    Ω

How Did Glenn Beck Miss This? Republicans And The Color Red

It’s rare that I invoke the name of the Holy High Radio Host, Glenn Beck.  But ironic times call for ironic measures, and this is such a time.  I’m astounded that I’m first one to think of this, maybe even the only one.  It’s hard to believe that Glenn Beck didn’t see this before I did, but I’ll give him a pass, since he’s been so busy, lately.  In fact, I’ll pick up the mantel of paranoia and fear for him, if just for a while.  I’m serious, dead serious.

It all begins with the color red.  I can’t believe I didn’t see it before, but maybe that’s because I relied on Beck too much.  Maybe all that fear-mongering band wagoneering softened my senses, clouded my judgment, and blinded me to the truth.  Still, am I the only one who has seen this?

Oh my God!  It all ties together!  Why didn’t we see it before?

Because Republicans were weaseling their way into the hearts and minds of Americans using that old communist trick: fear!  They were telling us that they were the only Party that could protect us from government when all along, what they really wanted was for us to hand government over to them so they could complete their mission of building a country safe for the wealthy, privileged few at the top, borne on the backs of the poor, working masses.

And it almost worked!  They almost fooled us into creating a corporate welfare system founded upon the principles of “fairness”.  But don’t you go believing for a minute that they would be content with just taking over America!  No, no no!  They wanted the world!  They created tax vacations for huge corporations if those corporations promised to move parts of their structure overseas, into foreign countries, where the Republican Party could gain a foothold where none was available to it before!  And it worked!  Almost!

Am I the only one who sees this?

Fellow Americans, we have to do something. At the very least, we have to reload, maybe even go out and buy more of what is promised in our second amendment rights.  We have to arm ourselves with the assault rifle of truth, the sub-machine gun of justice, and the AK-47 of freedom, before the communists…ahem..Republicans take my beloved country over!

Folks, I truly love this country, and I wish it weren’t me being the one to discover this, but someone had to!  My God!  If they can take over Congress, imagine what else they can take over!  The White House?  Our local public libraries?  Our places of worship?  They’re already trying to do that!  What else can they take over?  Our freedom of speech?  Of the press?  Can you imagine me being censored?  What kind of heinous political party would do this?

A political party disguised as a small government, pro-business, pro-constitution-when-it-suits-them party; that’s what kind of political party would do this.  A political party hell-bent on grabbing power, by force, if necessary, to  break America to their will.

Are you going to let them?  Are you going to stand by and watch while, one by one, your freedoms are attacked and destroyed?  Are you willing to let the Red Republican Army trample on your rights and oppress you?  I, for one, will not!  I will fight them, and I will show them that no matter how bloody they get, no matter how cruel they treat us, that America cannot be conquered by Communists.  I will show them that America is more than just an idea; that America was founded on principles of freedom, of equal rights for all, not just for the privileged few at the top, like the Red Republicans want, but for all Americans!

You can help, if you want.  Don’t just stand on the sidelines and watch the Red Republicans gun down the Freedom of Speech, or slit the throat of religious freedom.  You have to meet fire with fire.  If they bring knives, you have to bring guns.  You can help me take America back; you can reload and fire a shot over the bow of Red Republicans.  You can fire a shot for freedom.

Fellow Americans, don’t wait until it’s too late.  It’s already nearing the end game.  We don’t have much time.  But whatever you do, don’t listen to the lies of the Red Republicans any longer.  They say they want to be your friend, but what they really want is your money, and, to put it bluntly, your LIFE!  That’s right.  They want your life, and they’ll stop at nothing to get it, so you have to be equally as cunning, equally as ruthless to root out the evil in our midst and stem the rising Red Tide.   Folks, I love my country.  Don’t you want to love it as much as I do?  It brings tears to my eyes to think that in a few short months, Red Republicans could take over control of Congress and resume their quest for domination of America…first…and then…the world.  Are you going to let them?  Well?  Are you?

Glenn, you can thank me at your leisure…I’m just trying to help out.     Ω

Meet The New CatMedia, As Fickle As Ever

We just received the worst economic news of the year, all the Mainstream media can talk about is a mosque and Dr. Laura?

No wonder Americans hate the mainstream media.  They are as fickle as cats.  Let’s just call them the CatMedia from now on.      Ω

Breaking Down Trickle Down: Business Plan 101

The thirty year old Conservative plan for the economy is known by many names; Supply Side, Reaganomics, but my favorite name for it is Trickle-Down economics. In case you don’t follow economic theories, Trickle-Down is the practice of giving advantage to the supply side of our economics system, the corporations, wealthy, and small businesses who create jobs, through tax breaks and incentives. The idea is that wealthy people flush with cash save that cash, and those savings are invested, through some means, back into the economy, which then through various ways, trickles down even to the poorest of Americans, either through innovations and efficiencies that make consumer goods less expensive to own, or through job creation due to increased demand.

Historically, this has been accomplished through tax breaks, especially for corporate America. In fact, about the only solution available to Supply-Siders is reducing taxes.

Thankfully, that’s as complicated as Republicans have made it, which makes my job much simpler.  The idea of cutting taxes for corporate America and small businesses is that they will then use that money to create jobs in their own businesses.  Only we’ve been using Bush’ Trickle-Down tax cuts for nine years, and we’re bleeding jobs.  The best that can be said about Bush’ job creation record was that it was a positive record during his two terms.  He averaged 49,000 jobs created per month.  Economists say we need at least 150,000 to keep up with population growth.  So Bush only fell about 101,000 jobs short per month with his Trickle-Down plan.

So much for tax cuts creating jobs.

Now let’s get to the good stuff, and don’t worry, this is easy.  Business Plan 101.  How to make money running a business.

Business A receives a tax cut and finds itself flush with cash.  Wanting to do their part, they immediately hire several staff.  However, after a few months, they realize that there is no work for these new staffers to do; even though they were flush with cash before they hired the new staff, in the end, there was no demand for those new hires to fulfill.  After a few more months, those hires were laid off, and Business A had less cash than they did before they received the tax cut.

Business B received the same tax cut as Business A.  Instead of hiring new staff, though, Business B researched whether there was actually anything for them to do; in other words, they monitored demand, always at the ready to meet it with new employees if it came to that.  But in this case, the demand for their product was no different from before they received the tax cut, so they didn’t hire anyone.  The tax cut ended up not achieving its goal.

Which business is the smarter business?

Tax cuts mean nothing for job creation without demand.  Absolutely nothing, and that it can be described like this, without using any fancy formulas, completely destroys the myth of Trickle-Down economics.  The effect that tax cuts for the wealthy, or for Corporate America have on our economy are long delayed, at best, and meaningless at worst.

Business planning 101 dictates that you don’t hire unless there is work for them to do.  In other words, if demand is not present, neither should any new hires be.  And this is exactly what ails our economy today.  No good, smart business should ever hire someone just because they received a tax break, and the investments that the wealthy make and the subsequent trickling effect are too delayed and minimal to do any good.

Capitalism starts from the ground up.  No product is sold without a consumer to buy it.  This is simple stuff.  I explain it to my conservative friends all of the time, and then they go watch Fox News or some moronic Republican Senator who repeats all of the old anecdotal “facts” about Supply-Side, and I have to start all over again.

I can make the greatest gadget ever, but if there is no buyer for this gadget, I’ve just lost money.  Capitalism’s history is gorged with start-ups that failed because no one wanted their product or service.  President Obama just visited one that teeters on the brink yesterday, ZBB in Menomonee Falls, Wisconsin.

No matter how you roll the economy, it has a starting place, and that starting place is demand, at the bottom.  Tax cuts have no  significant impact on job creation.     Ω

The Unemployables Aren’t Unemployable; Shame On You, Mainstream Media For Even Suggesting Such A Thing

The geniuses in the White House and the so-called economists are calling it “Structural Unemployment”.  That’s their moniker for the record number of people (6.55 Million ) who have been unemployed for twenty-seven weeks or longer as of July, 2010,according to the U.S. Bureau of Labor and Statistics.  And that number doesn’t even include the number of people (8.5 Million) who have been forced to work part-time because their hours were cut or they can’t find full-time employment.

Of the long-term unemployment, economist John Lott, a FoxNews contributor, had this to say:

“While most discussions assume that the long time that people are unemployed shows the need for longer benefits, there is another possibility: the unprecedented benefits are the cause, not the cure, for the current long-term unemployment.”

You would expect nothing less from a fervent Free Trade proponent and Trickle-Down, anti-regulation-of-anything advocate.  But that’s not the point.  His assertion that long-term unemployment benefits cause long-term unemployment is bunk.  Lack of demand is what causes long-term unemployment, pure and simple.  The idea that a fellow on unemployment receiving $300 a week would rather keep receiving that than earn twice to three times that amount while working is ridiculous to even suggest.

The Economist said:

“In the latest employment report, the number of long-term unemployed rose again, as did the share of all unemployed who fall into that category—now nearly half.And then there are other issues that seem intuitively likely to be causing labour market problems. Skills mismatch between the unemployed and the jobs being created is one.”

Skills mismatch?  And people take this magazine seriously?  Nevertheless, “skills mismatch” is the very demon behind our “structural” long-term unemployment, according to just about every mainstream media outlet you go to.  I wish I had been logging all of the times I’ve seen some serious economist discussing structural unemployment with some serious talking-head-with-perfect-and-curiously-non-receding-hair.  The list would be biblical.

In essence, what the Mainstream media is attempting is to package a convenient description for a phenomenon they can’t explain or understand.  If there is long-term unemployment, it must be because the unemployed are undesirable hirables as they stand, or “unhirable “unemployables”.

But one blogger put it perfectly:

“Another thing the economists focus on is the idea of a skill mismatch. Structural unemployment, they say, occurs because workers don’t have the particular skills demanded by employers. While there’s little doubt that there’s some of this going on, again, I think this issue is given way too much emphasis. The idea that if we could simply re-train everyone, the problem would be solved is simply not credible. If you doubt that, ask any of the thousands of workers who have completed training programs, but still can’t find work.”

That’s only part of the overall answer, but a very necessary part.Instead of asking thousands of people, why not just ask yourself why there are almost six unemployed applicants for every new job created?  Surely you can come up with an answer that is better than “workers don’t have the particular skills demanded by employers.”  After all, if that were the case, we’d expect to see the proportion of applicants to openings to be much lower.

Now some stats and sources, so you can see and understand what the real structural problem has been and is.

“For example, furniture manufacturing has been transformed by offshoring in recent years. Imports have surged from $17.2 billion in 2000 to $30.3 billion in 2006, with virtually all of that increase coming from low-cost China. And the industry has lost 21% of its jobs during the same period.

Paul B. Toms Jr., CEO of publicly traded Hooker Furniture Corp., (HOFT ) recently closed his company’s last remaining domestic wood-furniture manufacturing plant, in Martinsville, Va. It was the culmination of a wrenching process that started in 2000, when Hooker still made the vast majority of its products in the U.S. Toms didn’t want to go overseas, he says, but he couldn’t pass up the 20% to 25% savings to be gleaned from manufacturing there.

The lure  of offshoring works the same way for large companies. Byrne of Accenture is working with a “major transportation equipment company” that’s planning to offshore more than half of its parts procurement over the next few years. Most of it will go to China. “We’re talking about 30% to 40% cost reductions,” says Byrne.

Yet no matter how hard you look, you can’t find any trace of the cost savings from offshoring in the import price statistics. The furniture industry’s experience is particularly telling. Despite the surge of low-priced chairs, tables, and similar products from China, the BLS is reporting that the import price of furniture has actually risen 6.7% since 2003.“  Newsweek, June, 2007

Twenty to thirty percent savings in costs, but the prices have gone up?  That would explain the corporate profits.  But that leads to another conclusion:  Demand precludes cost.  In other words, if demand for a product or sector is high, that demand will bear significant cost increases, within reason.  That’s just one example of why high corporate taxes, historically, have not led to job losses.  It’s also why even though costs were reduced when jobs were outsourced, corporations felt confident enough to raise prices within that sector.  Demand, it turns out, is even more important than we thought.

You might like this little tidbit from  six years ago:

“If one thing illustrates the kind of year the Bush administration has stumbled and bumbled its way through in 2004, it was the comments earlier this week by the president’s chief economic adviser, Greg Mankiw.

Mankiw wrote that the movement of U.S. jobs overseas due to cheaper labor costs – “outsourcing” he dubbed it in a remarkable display of political tone deafness – would prove “a plus for the economy in the long run,” and was simply “a new way of doing international trade.” “

My, my, my, how the chickens have come home to roost.  Here’s a confirmed list of companies exporting American jobs overseas.  And here’s something from The Economic Policy Institute:

The Economic Policy Institute estimates that between 1993 and 2000, our lopsided trade policies, reflected in the explosive increase in the U.S. trade deficit, cost Americans a net 3 million jobs and job opportunities. The growth in the NAFTA trade deficit alone is associated with nearly 900,000 lost jobs and job opportunities through 2002.

That’s eight years ago.  If that number doubled over the next eight years, it explains the 6.55 Million Long-Term Unemployed in America.  And that’s just NAFTA.  We haven’t even begun to count the effects of exporting jobs to China and India.  These fellows try:

• Forrester Research Inc. predicts U.S. employers will move 3.4 million white-collar jobs and $136 billion in wages overseas by 2015. The outplacement firm Challenger, Gray and Christmas estimates the number of service-sector jobs moving overseas each year will hit 588,000 by 2005. A University of California at Berkeley report finds 14 million jobs are at risk of being sent offshore, and predicts job losses will exceed the Forrester study’s projections.
• Gartner Inc., a high-tech forecasting firm, estimates 10 percent of computer services and software jobs will be moved overseas by the end of this year, while a study by Meta group projects 40 percent of corporate tech operations will move offshore by 2008.
• A survey by Deloitte Research found the world’s 100 largest financial services firms expect to shift $356 billion worth of operations and about two million jobs to low-wage countries over the next five years. Another Deloitte survey of 42 global telecom operators projects 275,000 jobs in the sector will be sent off-shore by 2008.
• (2002 AFL-CIO)

That last section was all taken from The AFL-CIO’s website in 2002.  Where are we today?  Right where they predicted, and headed right where they said we would go.  You can’t move 40% of one sector’s jobs and 10% of another’s and millions more from a third and not expect long-term unemployment.  That there is even a mystery over this is as frustrating as it is mind-boggling.

But don’t count on hearing the why and how from Anderson Cooper, Bill O’Reilly, or Chris Matthews.  They either don’t understand it, or don’t want to.  I’m guessing it’s the first one.  Our Mainstream Media won’t talk about this and you sure as hell can’t count on your elected official to comment on it, except to say what politicians have always said: “We ought to do something about that.”  Yup. We ought to.  But to even suggest “protectionist” policies to anyone in Washington or on the Conservative side is akin to being a bomb-carrying leprechaun in Buckingham Palace.

They’ll tell you that tariffs and taxes are protectionist and evil!

Since when has protecting American jobs been evil? Will someone please answer that question for me?

The unemployables aren’t unemployable.  They’re just the victims of a vicious policy of exporting American jobs and wealth to foreigners.     Ω

Twitterpated And A Double Dip All In The Same post?

I succumbed to Twitter, but already I’m thinking about un-succumbing.  I wanted to see what all the fuss is about and now I see that it is about nothing.  My first follower wanted to show me her naked pictures, but not on her Twitter site…

I ask you.

Do I really need this?

In other news,  They’re just predicting this now?  A double dip recession?  Oh noes!  Whoever could have predicted that?

Listen, when your top “economists” are making apologies to the 40% of the unemployed who will remain unemployed because their skills are “unwanted” in America, continual recession into depression is what you end up with.  But the Mainstream Media is going to act like this is new…BREAKING NEWS! ECONOMY ISN’T RECOVERING!  I’ve been warning you for a year now.  This is just the tip of the iceberg.  But when it’s done, hopefully we’ll have learned our lesson about Free Trade and Trickle Down.

I’ll be following that thought up with a new post about the new permanently “unemployables” soon.     Ω

Accused Of Being Ignorant Of The Economy, I Make My Case Against Charlie Sykes and Supply-Side

Finally some good economic news!  Sales on Porsches are up!  In July alone, Porsche sales climbed 75% from July of 2009.  However, sales on Ford, Dodge, and GM averaged about a 5% increase, and Honda and Toyota sales are down, meaning the Middle Class isn’t buying as many new cars this year as last year, and last year, they didn’t buy much at all.

Okay, so my good news was a bit tongue-in-cheek.  Yes, the economy rocks for the rich and for Wall Street, but for the Middle Class, according to Newsweek columnist Dan Gross real unemployment remains around16.5%:

That’s the Bureau of Labor’s U6 number, which takes into consideration so-called “discouraged workers” who have given up looking for work, as well as people who are working part-time but would like to be working full-time. Overall, according to Gross, the number means that there is “one out of six adults in this country whose talents and time and skills are not being utilized anywhere near to the extent of their abilities.”

Tax rates on some of those buying Porsches are half of what they were pre-1982, and lower by four to seven percent than in the 1990′s, a period of time marked by low unemployment.  Clearly the top tax rates have diddly squat to do with creating jobs.  It’s been that way all throughout our history in the 20th century and into the first decade of this one.  Anyone who says otherwise is either ignorant, lying, or relies on faith-based economics.  Sadly for them, economics aren’t faith-based.  Just because you believe the economy starts at the top and trickles down doesn’t make it so.  Neither do the actual numbers or consumers, the stuff a real economy is made of.

And what does this current economy tell us?

There aren’t enough consumers spending enough money, despite the glossy Porsche sales reports.  That fact is so blatant, so in-your-face that it’s hard to believe some people can’t see it.  Let me explain.  No matter how many tax breaks you give the top ten percent of earners in the US, there simply aren’t enough of them to make any difference in consumer demand, which drives our economy and job creation.

I was told by Charlie Sykes, talk radio host at WTMJ, Milwaukee, Wisconsin, that I was ignorant of economics.  Yes, he actually replied, briefly and insultingly, to my email of the other day, but he was allowed to be insulting since he took my blog post about him as an insult.  I’m a big boy…I took it with a thumb in my mouth and only a little bit of whining.  Tangent completed.

The reason I bring it up is because Charlie is amongst a large group of people called Conservatives who still believe the economy is driven from the top and trickles down to the Middle Class.  But as I stated earlier, there simply aren’t enough of them to create any real demand.  What’s my proof?

1. If consumer demand were up, jobs would be created.  We’re still losing more jobs than we’re creating.  Demand is down.  From the US Consumer Demand Index:

After a surprisingly strong upswing in May, the CDI for June fell by more than 20 index points and now stands at -27, down from -5 in May as lower demand for clothing and food drags the aggregated index down. However, this is still 10 points up on the all-time low of February 2009. The three-month moving average is also down but less dramatically so, from -13 in May to -18 in June.
Reminding you that the index was set at 100 as an average for the year of 2000, it’s obvious that we are not yet out of the woods. But on the other hand the new data do not convincingly indicate that there is much further to go to reach the bottom, if we have not already reached it.

2. Despite eight years of lowering taxes on corporations and the top ten percent of earners, from 2001 thru 2008, an average of only 49,000 jobs were created per month.  A benchmark of 150,000 jobs is needed each month to accommodate incoming/outgoing workers, to say nothing of actual positive job growth beyond that.  Needless to say, when compared to the benchmark, 49,000 jobs created each month is pathetic.  It also explains why the first Bush Recession was a jobless recovery.

3.  The economy has lost a cumulative total of 3.1 million manufacturing jobs since 2001 according to the U.S. Bureau of Labor Statistics.  That’s 28,703 jobs lost per month.  I think we know where they went, and where they are going…overseas.  But Conservatives like Charlie Sykes and his brethren “believe” that Free Trade is good for American jobs.  Just another case where faith-based economics is completely opposite of reality.  I know you guys really, really want supply-side economics to be true, but the numbers say, undisguisedly, that supply-side economics is a fairy tale, unless the only goal of trickle-down is to enrich a very few people in the United States while everyone else steadily but rapidly sees their standard of living decline, which, mind you, mimics our current reality.

4.  If you still needed evidence that taxes do not affect job creation, this graph says it all.  It breaks down job creation, change in GDP, and change in household net worth by decade.  Remember, corporate tax rates and tax rates on the highest earners were 70% or above until 1982.

Boy, the current decade really sucks, doesn’t it?  Negative job growth, negative household net worth gain, and the lowest GDP since the Great Depression.  President Bush and President Obama must be so proud.  I really do believe they are going to set unbreakable records for economic futility.  Even the 1970′s beats this decade, and we all remember how sucky that decade was. The 70′s didn’t just beat this decade, they kicked its ass; which means Nixon, Viet Nam, the oil embargo, an impeachment, Ford, and Carter did better economically speaking than Bush and Obama.  How’s that for a pathetic record?  A record, I might add, that includes tax rates that are half of what they were during the seventies, when, you know, high  corporate tax rates stagnated job growth…umm, except, from the graph, it looks like taxes didn’t have any effect whatsoever on job growth in the 70′s.  Or in the 60′s, or in the 50′s, or in the 40′s…or ever.

Will Charlie, or people like him finally admit the error of their ways?  Will they, at the very least, admit that the numbers don’t look so hot?  If not, why not?  Facts are facts.  You can’t hide from these numbers, they are what they are, and sadly, I used to be a Supply-sider.  Not any more.  Not once I started studying the actual statistics.  And if I can change, I have to believe that Charlie and others can, too.  I was a staunch supporter of trickle down and everything Reagan.  To some extent, I’m still an apologist for Reagan; I just love the guy.  But when you run into the actual numbers, you have to make a choice; will you accept that what you’ve believed for three decades has been false, or will you continue to “believe” in a lie?

And if you continue to believe in that lie, why?  What are you trying to protect?  The numbers of this economy don’t protect the Middle Class; they destroy it.  The last time I checked, most of the people I know are Middle Class, including Charlie and most Conservatives.  So what have you to gain by protecting a faith-based economic system that has never loved you back?

16.5% real unemployment.  9.5% by the government’s count, and over 9% unemployment for eighteen consecutive months.  3.1 Million manufacturing jobs lost.  With a benchmark of 150,000 jobs needed to be created per month to keep pace with population growth, the Bush average of 49,000 fell over 100,000 short per month, amidst the largest corporate tax cut in two decades.  Even the “good” times in the Bush presidency were shockingly bad by every historical standard since the Great Depression, with regards to the Middle Class.

If the Middle Class can’t buy because they don’t earn enough or don’t have a job, demand suffers.  If that condition persists long enough, it becomes chronic, and the hole gets deeper and harder to climb out of with each passing month.  That unemployment persistently remains so high is an indicator of a huge lack of consumer demand, and nothing else.  Some writers report that corporations are hoarding their cash and not hiring even though they have the reserves to do so.  I don’t doubt that, and I won’t blame them.  If there’s no demand, why bother hiring?   Even corporations are showing by their unwillingness to hire that it is demand that drives this economy, and not corporations and wealthy people flush with cash who just want to fling a few chips down to the peasants.  Trickle down is a lie, a fable, nothing more.  American corporations flush with cash but not hiring are proving that fact beyond the shadow of a doubt.

My rule number three of economics applies here.  That corporations are flush with cash and aren’t hiring isn’t a sign that they are leery of the deficit, or of higher taxes.  Rather, it’s the strongest indicator that demand is non-existent.  Because remember, in Capitalism, where there is demand, someone will always meet it.  If you are a corporation that refuses to meet that demand, don’t worry, someone else will.  If there were any actual demand present, these corporations would be hiring, to meet it, or they would be amongst the dumbest of business models ever invented.

If you and Charlie are still inclined to “believe” that supply-side (trickle down, voodoo, call it whatever you want) economics is the only way to make the American economy work for everyone, then might I suggest that you click your heels together three times in rapid succession, and maybe you’ll find yourself in the dream-land where trickle-down really works.

Do you need more statistics?  Do you want more?  I could go on all year if you need me to, if it would make any difference.  But somehow, I think it won’t.  I think Charlie, and those who “believe” in supply-side economics do so because they don’t want to see the truth…they just want to be right, even if being “right” means being ignorant of the facts.

Faith-based economics will not save you, or America.  If you love America, do the one thing for yourself that you still can.  Vote according to your own interests, like corporations do with their lobbyist minions.  But before you vote, you better make damned sure of what’s best for your interests.  For three decades, Republicans have been tooting the supply-side horn.  They’re tooting it louder than ever this year.  But we’ve USED supply-side economics for the last three decades, and look where it’s gotten us?  Even with Obama’s tax increase, corporations and the top earners are paying half of what they did before supply-side hit America.  Half.

And maybe you, or someone you know has been out of work for a long time, or has lost the pension he contributed to for decades, or did everything right…saved twenty percent of his income and invested the way Money Magazine told him to, and all he has left, if he is lucky, is his original investment.  Or maybe you or someone you know lost his job to someone overseas, and the next job he got saw him earning twenty percent less than before.  Maybe your parents paid for your college education, and try as you might, you can see no way of paying for your children’s education.  Perhaps you are nearing retirement, and are worried about what the most recent bear markets did to your chances of financially surviving retirement.

Your interests are the only thing you should be focused on right now.  Any economic plan that focuses on corporations and the wealthy few is, by definition, not focused on you.

Think about that.     Ω

Huh?

We're totally cereal

These guys want you to take them seriously, really.  Really, really seriously.  Because they’re serious.

They’re called “Fuck Tea”, with a subtitle of “Progress is the Real American Party”, sponsored by the Agenda Project.  They’re antagonist is the Tea Party, and their aim is to expose it and apparently, fuck it.  Their stated goal is:

The Agenda Project’s goal is to build a powerful, intelligent, well-connected political movement capable of identifying and advancing rational, effective ideas in the public debate and in so doing ensure our country’s enduring success. (from The Huffington Post)

Wait a minute.

They want to “build a powerful, intelligent” movement capable of “advancing rational” ideas?  And the best name they could think of to call their movement is “Fuck Tea”?

Is this a joke?

I’m totally cereal.  Someone please help me.     Ω

Charlie Sykes’ Response

Yesterday I shared with you an email I sent to Charlie Sykes, conservative talk radio host at WTMJ, Milwaukee Wisconsin.  I told you I would let you know what his response to it was.  Here it is:

Oh, there has also been one other response.  You see, I visit his page regularly, and comment on his web posts.  Today, he wrote a piece titled Scenes From Moocher Nation.  Here’s an excerpt from an excerpt Charlie pasted on his page:

On Wednesday, 30,000 people suffered through hours in the hot sun, angry flare-ups in the crowd and lots of frustration and confusion for a chance to receive a government-subsidized apartment.

The massive event sometimes descended into a chaotic mob scene filled with anger and impatience. Some 62 people needed medical attention and 20 of them were transported to a hospital, authorities said. A baby went into a seizure in the heat and was stabilized at a hospital. People were removed on stretchers and when a throng of people who had been waiting hours in a line was told to move to another line, people started pushing, shoving and cursing, witnesses said.

Here was my comment, which I’ll share with you, because apparently, my comments are no longer accepted there:

Moochers. Just another example of you demonizing a group of people with 1/100th of the info you need to make that judgment.  I explained to you yesterday in my email why so many people need help these days.  I hope you are looking forward to paying a 50% tax rate as much as I am.  Keep supporting the party that believes shipping American jobs and American wealth overseas makes good economic sense

That comment was “moderated”…I guess for cussing,  threatening language, and treason.  Maybe not.  I’ll never know.

But I’m not the only one who thinks Charlie is being an ass on this.  From one commenter:

Your lack of compassion Charlie reminds me of the English during the potato famine. They did not want to give the starving Irish food for fear of making them dependent. Instead they stood by and watched Mother and child starve. Shame on them and you.

There’s more.  And there will be much more as the day goes on, I am sure.  Go on..see for yourself.  See what an out-of-touch, pampered, crabby, whining, wuss Charlie Sykes really is.  Really, I’ve never heard someone as negative and whiny as Charlie…and he gets paid for it!  I’m jealous!  I’m sure I could be much more whiny and crabby than him!  And I can make crap up, too, although I tend to like to stick to..you know…facts…which is what got me into “You are not allowed to comment here ever, ever, ever again”-land.

Oh well.  At least I’m not a moocher, like Charlie is.  Where would that poor man be without his cushy corporate job with his cushy, corporate benefits?  I think he’d be in that crowd, or in the soup line, because it’s clear the man has no other skills.

Just one question:  Whatever happened to the phrase, “There, but for the grace of God, go I”?     Ω