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The Case of the Missing Recovery

By Paul Craig Roberts | Dissident Voice | January 4, 2014

Have you seen the economic recovery? I haven’t either. But it is bound to be around here somewhere, because the National Bureau of Economic Research spotted it in June 2009, four and one-half years ago.

It is a shy and reclusive recovery, like the “New Economy” and all those promised new economy jobs. I haven’t seen them either, but we know they are here, somewhere, because the economists said so.

Congress must have seen all those jobs before they went home for Christmas, because our representatives let extended unemployment benefits expire for 1.3 million unemployed Americans, who have not yet met up with those new economy jobs, or even with an old economy job for that matter.

By letting extended unemployment benefits expire, Congress figures that they saved 1.3 million Americans from becoming lifelong bums of the nanny state and living off the public purse. After all, who do those unemployed Americans think they are? A bank too big to fail? The military-security complex? Israel?

What the unemployed need to do is to form a lobby organization and make campaign contributions.

Just as economists don’t recognize facts that are inconsistent with corporate grants, career ambitions, and being on the speaking circuit, our representatives don’t recognize facts inconsistent with campaign contributions.

For example, our representative in the White House tells us that ObamaCare is a worthy program even though those who are supposed to be helped by it aren’t because of large deductibles, copays, and Medicaid estate recovery. The cost of this non-help is a doubling of the policy premiums on those insured Americans who did not need ObamaCare and the reclassification by employers of workers’ jobs from full-time to part-time in order to avoid medical insurance costs. All it took was campaign contributions from the insurance industry to turn a policy that hurts most and helps none into a worthy program. Worthy, of course, for the insurance companies.

Keep in mind that it is the people who could not afford medical insurance who have to come up with their part of the premium or pay a penalty. How do people who have no discretionary income come up with what are to them large sums of money? Are they going to eat less, drive less, dress less? If so, what happens to people employed in those industries when demand falls? Apparently, this was too big a thought for the White House occupant, his economists, and our representatives in Congress.

According to the official wage statistics for 2012, forty percent of the US work force earned less than $20,000, fifty-three percent earned less than $30,000, and seventy-three percent earned less than $50,000. The median wage or salary was $27,519. The amounts are in current dollars and they are compensation amounts subject to state and federal income taxes and to Social Security and Medicare payroll taxes. In other words, the take home pay is less.

To put these incomes into some perspective, the poverty threshold for a family of four in 2013 was $23,550.

In recent years, the only incomes that have been growing in real terms are those few at the top of the income distribution. Those at the top have benefitted from “performance bonuses,” often acquired by laying off workers or by replacing US workers with cheaper foreign labor, and from the rise in stock and bond prices caused by the Federal Reserve’s policy of quantitative easing. Everyone else has experienced a decline in real income and wealth.

As only slightly more than one percent of Americans make more than $200,000 annually and less than four-tenths of one percent make $1,000,000 or more annually, there are not enough people with discretionary income to drive the economy with consumer spending. When real median family income and real per capita income ceased to grow and began falling, Federal Reserve chairman Alan Greenspan substituted a credit expansion to take the place of the missing growth in income. However, as consumers became loaded with debt, it was no longer possible to expand consumer spending with credit expansion.

World War II left the US economy the only undamaged industrial and manufacturing center. Prosperity ensued. But by the 1970s the Keynesian demand management economic policy had produced stagflation. Reagan’s supply-side policy was able to give the US economy another 20 years. But the collapse of the Soviet Union brought an era of jobs offshoring to large Asian economies that formerly were closed to Western capital. Once corporate executives realized that they could earn multi-million dollar performance bonuses by moving US jobs abroad and once they were threatened by Wall Street and shareholder advocates with takeovers if they did not, American capitalism began giving the US economy to other countries, mainly located in Asia. As high productivity manufacturing and professional service jobs (such as software engineering) moved offshore, US incomes stagnated and fell.

As real income growth stagnated, wives entered the work force to compensate. Children were educated by refinancing the home mortgage and using the equity in the family home or with student loans that they do not earn enough to repay. Since the December 2007 downturn, Americans have used up their coping mechanisms. Homes have been refinanced. IRAs raided. Savings drawn down. Grown children, now adults, are back home with parents. The falling labor force participation rate signals that the economy can no longer provide jobs for the workforce. In such a situation, economic recovery is impossible.

What the Treasury and Federal Reserve have done, with the complicity of the White House, Congress, economists, and the media, is to focus on rescuing a half dozen banks “too big to fail.” The consequence of focusing economic policy on saving the banks is rigged financial markets and massive stock and bond market bubbles. To protect the dollar’s exchange value from quantitative easing, the price of gold has been forced down in the paper futures market, with the consequence that physical gold is shipped to Asia where it is unavailable as a refuge for Americans faced with currency depreciation.

At a time when most Americans are running out of coping mechanisms, the US faces a possible financial collapse and a high rate of inflation from dollar depreciation as the Fed pours out newly created money in an effort to support the rigged financial markets.

It remains to be seen whether the chickens can be kept from coming home to roost for another year.

~

Paul Craig Roberts is an American economist, author, columnist, former Assistant Secretary of the Treasury, and former editor and columnist for corporate media publications. He is the author of The Failure of Laissez Faire Capitalism.

January 4, 2014 Posted by | Corruption, Deception, Economics | , , | Leave a comment

The Great Corporate Tax Shift-Part 1

By Jack Rasmus | November 19, 2013

The great corporate myth-making machine has been hard at work of late, attempting to create the false impression that US corporations are increasingly uncompetitive with their foreign rivals due to the fact they pay much higher corporate taxes in the US and abroad than their capitalist counterparts. But that is one of the great myths perpetrated by corporate apologists, pundits and their politician friends. The myth is high in the pantheon of conscious falsifications their marketing machines feed the American public, right up there along with such other false notions that ‘business tax cuts create jobs’, ‘free trade benefits everyone’, ‘income inequality is due to a worker’s own low productivity contribution’, ‘overpaid public workers are the cause of states’ budget deficits’, or that ‘social security and medicare are going broke’.

If corporate America can create and sell the idea that they pay more taxes than their offshore capitalist cousins, then they are half way home to getting their paid politicians to provide them still more corporate tax cuts—a proposal by the way that both Republicans and Obama are on record for, in their joint proposal to reduce the top corporate tax rate from 35% to 28% (Obama) or 25% (Republicans).

The message of too high corporate taxes is appearing more frequently nowadays, since actual legislation for big corporate tax cuts is now working its way through Congress. Driving the legislation are Teaparty favorites in the House of Representatives, like David Camp, head of the Ways & Means Committee, and Max Baucus, Democrat in the Senate, who is set to retire in 2014 and wants to give his business buddies yet another big cash freebie (you know Max, the guy who rode herd on that Health Insurance Corporation subsidy bill called Obamacare?).

So it’s time to debunk the ‘US Corporations Pay Too Much Taxes’ (and thus need another tax cut) myth. What follows is the first segment of a longer essay—with tables and graphs—on the same topic that will appear shortly in the December issue of ‘Z’ magazine. More segments of that essay will follow.

US corporations don’t pay the nominal corporate tax rate of 35% today; they pay an effective (i.e. actual) rate of only 12%. The additional effective state-wide corporate income tax they pay amounts to only a 2% or so—not the 10% they claim. And the effective corporate tax on offshore earnings is only another 2.2% or so—not the 20% average they’ll complain. So the total US tax for US corporations is barely 16%–not the 35% plus 10% (state) plus 20% (offshore) nominal tax rate. And however you cut it, the story is the same: US corporations’ share of total federal tax revenues have been in freefall for decades. The share of corporate taxes as a percent of GDP and national income has halved over the decades. And corporations since 2008 have realized record level profits during the ‘Obama Recovery’—while their taxes as a percent of profits since 2008 is half that of the average paid as recently as 1987-2007. Okay, more detail on all that in parts 2 and 3 to follow.
For the moment, what all the corporate tax cutting to date has produced is a mountain of corporate cash.

US Corporations today in fact are sitting on more than $10 TRILLION in cash!

For example, even the US business press admits today that US multinational corporations have diverted more than $2 trillion to their offshore subsidiaries, to avoid paying the U.S. Corporate Income Tax. (watch for parts 2 and 3 of to follow for how they do this).

In addition to the $2 trillion now diverted by US multinational corporations offshore, after having paid federal taxes another $1 trillion is now held as cash on hand by the 1,000 largest nonfinancial companies based in the U.S. as of mid-2013, an increase of 61% in the past five years, according to a study by the REL Consulting Group.

For financial companies, deposits in US banks are currently at a record $10.6 trillion, while bank loans outstanding have been declining since 2008 and are now at a record low of $7.58 trillion—thus leaving US banks sitting on a cash hoard of nearly $3 trillion according to the Wall St. Journal. That’s a total approaching $7 trillion so far.

This record after-tax cash exists despite corporations having bought back their stock and paid dividends worth trillions more since 2008. Corporate buybacks of stock since 2009 passed the $1 trillion mark in 2012, according to a survey by Rosenblatt Securities—with projections to increase at an even faster rate of $400-$500 billion more in 2013. Corporate dividend payouts equaled another $282 billion in 2012 alone, perhaps at least that amount in years prior, and are today projected to exceed $300 billion in 2013. That’s another $2.5 trillion.

Include hundreds of thousands of US corporations and businesses that are not part of the largest 1000 or who don’t operate offshore—plus cash socked away in depreciation funds and other special funds for all the above—and that comes to at least another $500 billion.

That $10 trillion corporate total, moreover, doesn’t include still further additional dollars that have been spent by US corporations abroad. While business investment in the US has been declining, total US corporate foreign direct investment is estimated at $4.4 trillion in 2012, up from $3 trillion in 2007 and from $1.3 trillion in 2000. So that’s another roughly $1.4 trillion in corporate income committed offshore since the official ‘end’ of the recession in June 2009.

Add all that up and its well more than $10 trillion in buybacks, payouts, and hoarded cash (onshore and offshore) by US corporations since 2009—i.e. during the sub-par economic recovery (for the rest of us) of the past four years. That’s corporate income and cash that has been diverted, hoarded, or otherwise not committed to US real investment, and therefore never contributing to jobs, income creation and consumption in the US. No wonder consumption (70% of the US economy) for the bottom 80% households in the US has been stagnating, stalling, or declining in the US in recent years. No wonder all the US economy can do is create low wage, contingent, service jobs, while more than 20 million are still unemployed and uncounted millions more have left the US labor force altogether. No consumption recovery follows declining US investment, while tens of trillions of dollars go elsewhere or sit on the sidelines.

To summarize, at least as much as $10 trillion—and perhaps approaching $12 trillion—has been taken out, redirected, diverted, or otherwise hoarded by US corporations since the 2008 crash. Keep all that in mind when you next hear politicians from the two wings of the one party system in America—Republicans and Democrats—and their friends in mainstream media trying to justify proposals for still more corporate tax cuts.

Jack is the author of the 2012 book, ‘Obama’s Economy: Recovery for the Few’ (Pluto press), and host of the weekly radio show, Alternative Visions, on the Progressive Radio Network. His website is http://www.kyklosproductions and blog, jackrasmus.com. His twitter handle, @drjackrasmus.

November 20, 2013 Posted by | Deception, Economics, Timeless or most popular | , , , , | Leave a comment

The Employment Rate In The United States Is Lower Than It Was During The Last Recession

By Michael Snyder | BlackListedNews | August 4, 2012

Did you know that a smaller percentage of Americans are working today than when the last recession supposedly ended?  But you won’t hear about this on the mainstream news.  Instead, the mainstream media obsesses over the highly politicized and highly manipulated “unemployment rate”.  The media is buzzing about how “163,000 new jobs” were added in July but the unemployment rate went up to “8.254%.”  Sadly, those numbers are quite misleading.  According to the Bureau of Labor Statistics, in June 142,415,000 people had jobs in the United States. In July, that number declined to 142,220,000. That means that 195,000 fewer Americans were working in July than in June. But somehow that works out to “163,000 new jobs” in July.  I am not exactly sure how they get that math to add up.  Perhaps someone out there can explain it to me.  Personally, I find that the “employment rate” gives a much clearer picture of what is actually going on in the economy.  The employment to population ratio is a measure of the percentage of working age Americans that actually have jobs.  When it goes up that is good.  When it goes down, that is bad.  In July, the employment to population ratio dropped from 58.6 percent to 58.4 percent.  Overall, the percentage of working age Americans that have jobs has now been under 59 percent for 35 months in a row.

The following is a chart of the employment to population ratio in the United States over the past 10 years:

The Employment Rate In The United States Is Lower Than It Was During The Last Recession Employment Population Ratio 2012 440x264

The gray shaded bar in the chart represents the last recession as defined by the Federal Reserve.  As you can see, the percentage of working age Americans with a job dropped sharply from nearly 63 percent at the start of 2008 to a little above 59 percent when the recession ended.

But the “employment rate” kept on dropping even further.

It finally bottomed out at 58.2 percent in December of 2009.

Since that time, it has stayed very steady.  It has not fallen below 58 percent and it has not risen back above 59 percent.

This is very odd, because after ever other recession since World War II this number has always bounced back strongly.

But this has not happened this time.

In essence, it is starting to look like 4 percent of the working age population of the United States has been removed from the workforce permanently.

The good news in all of this is that things have at least not been getting any worse over the last couple of years.  Even though things have been bad, at least we have had a period of relative stability.

The bad news is that the employment rate has not rebounded despite unprecedented borrowing and spending by the federal government and despite reckless money printing by the Federal Reserve.

Considering how desperately the federal government and the Federal Reserve have been trying to stimulate the economy, I truly did expect to see the employment rate bounce back at least a little bit by now.

Unfortunately it has not and now the U.S. economy is rapidly heading for another recession.

But Barack Obama is going to prance around over the next few days and talk about how wonderful it is that the economy created “163,000 new jobs” in July. … Full article

August 4, 2012 Posted by | Economics, Progressive Hypocrite | , , , | Leave a comment