:( Republican myths about tax cuts

boygabriel · October 2010

Look, companies sitting on cash reserves instead of using it to create jobs. I thought tax cuts and higher profits meant more jobs?

It couldn't possibly be that companies just want lower taxes in order to make more money while keeping employment levels the same or worse? That wouldn't happen, right? Otherwise the Republican answer to everything (cut taxes) might not be the cure-all they claim it is.

Golly, what if the government had to come up with actual tax and commerce policy, instead of simply running up debt with tax cuts aka "Bush-ing it"

http://crooksandliars.com/susie-madrak/us-companies-have-so-much-money-theyr

October 07, 2010 10:00 AM
U.S. Companies Have So Much Money, They're Buying Their Own Stock Instead of Hiring

By Susie Madrak

I wish President Obama would call this out for what it is: un-American. It's just plain un-American that the people who run these corporations, companies that made so much money they can sit on it, feel no obligation whatsoever to the country's economic health, or loyalty to its workers. They are perpetuating the national unemployment crisis by refusing to hire, and they feel perfectly okay about that.

If only we still had stocks. Some people could really use a good, old-fashioned public shaming:
For months, companies have been sitting on the sidelines with record piles of cash, too nervous to spend. Now they're starting to deploy some of that money - not on hiring workers or building factories, but to prop up their share prices.

Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year, according to Birinyi Associates, a stock market research firm. But the rise in buybacks signals that many companies are still hesitant to spend their cash on the job-generating activities that could produce economic growth.

Some companies are buying back shares partly because they don't want to invest in developing new products or services while consumer demand remains weak, analysts said.

"They don't know what they want to do with all the cash they're sitting on," said Zachary Karabell, president of RiverTwice Research.

Historically low interest rates are also prompting some companies to borrow to repurchase shares.

whynot_31 · October 2010

Are you blaming the companies for this behavior or the government?

It seems silly to blame the companies. The job of a company is simple: Make money. One of the best ways to make money is to minimize expenses. Labor is often the most expensive item purchased, so to minimize the use of labor makes sense to me.

Now if you are blaming government, this is different.

.....no one can succinctly define the job of a government. Governments are asked to create domestic jobs AND create an environment in which the US companies will be competitive worldwide. These goals conflict.

boygabriel · October 2010

whynot_31 wrote: Are you blaming the companies for this behavior or the government?

It seems silly to blame the companies. The job of a company is simple: Make money. One of the best ways to make money is to minimize expenses. Labor is often the most expensive item purchased, so to minimize the use of labor makes sense to me.

Now if you are blaming government, this is different.

.....no one can succintly define the job off a government. Governments are asked to create domestic jobs AND create an environment in which the US companies will be competitive worldwide. These goals conflict.

I'm not blaming the companies for anything. They can do whatever they want.

But the justification, that has been parroted on these boards more than once, that 'dems raise taxes and kill job growth and hurt america' should be called out for the over-simplified falsehood that it is. If only significant blocs of voters would stop believing that bs.

water ice · October 2010

I've been reading the conservative business press for almost 25 years and can offer, with some authority, the following cures to some of our societal ills:

Want to spur investment? Cut taxes.
Want to reduce the deficit? Cut taxes.
Want to increase incentives for people to work? Cut taxes.
Need a cure for cancer? Cut taxes.
Need to enhance the nation's security? Cut taxes.

You get the idea. The real problem is a dearth of consumer spending, coupled with excessive debt accumulated while paying far too much for assets (primarily homes). Will take a while for the market (economy) to clear and improve. In the meantime, pass the bottle...

modsquad2.0 · October 2010

Boygabriel wrote:

But the justification, that has been parroted on these boards more than once, that 'dems raise taxes and kill job growth and hurt america' should be called out for the over-simplified falsehood that it is. If only significant blocs of voters would stop believing that bs.

Speaking of over-simplification: You might consider the fact that thanks to Obama care everyone is scared shitless to hire anyone.
http://www.heartland.org/healthpolicy-news.org/article/28442/Senates_Two_Doctors_Call_Obamacare_Bad_Medicine.html

Obamacare moves that cost to a little over $9.00 per hour,” said Furtchgott-Roth. “In order for Americans to get hired, their labor must be worth a little over that amount—a bar that many low-skilled, low-wage Americans just cannot meet.

one of the reasons the unemployment rate has stayed so high, around 10 percent, is because of Obamacare's new taxes and health care mandates on our country's businesses and the great uncertainty it has caused.”

Even Obama recognizes the fact that it is hostile to business giving free passes to the likes of the UFT and McDonald's among others.

boygabriel · October 2010

The Obama plan is indeed severely flawed and is more of a 'private health insurance' bill than it is a 'health care' bill. Its more accurate to call it Obama Insurance than Obama care.

Either way, it's ironic to see health care cost criticisms coming from two Republican congress critters.

I'm sure their answer to health care costs is to cut taxes.

Water Ice wrote: You get the idea. The real problem is a dearth of consumer spending, coupled with excessive debt accumulated while paying far too much for assets (primarily homes). Will take a while for the market (economy) to clear and improve. In the meantime, pass the bottle...

Agree 100% percent.

whynot_31 · October 2010

We should also include a discussion about having to pay for Unemployment.

Unlike public assistance, when an employee collects Unemployment, much of those costs are borne by their former employer. (When a company lays off an employee, their Unemployment insurance premiums increase by a compensating amount).

In addition, in this economy, the ex-employee is usually found eligible for unemployment because the Hearing Officers are sympathetic to the plight of the unemployed.

As an employer, the only way you are going to escape paying for what may be an extended stint on unemployment is to extensively document their poor performance, or pray that they show up late or are insubordinate (i.e. give you cause to fire them). Hiring and firing people as your business improves and slows down has become an incredibly expensive practice.

As a result of this, and the looming healthcare expenses modsquad discusses, many employers are minimizing their use of labor even more than they otherwise would.

The way to avoid this drama is to hire citizens off the books, or hire people who are not legally allowed to work in the US.

.....the alternative, of course, is to have the government create jobs. Before I'm accused of being a Socialist, if this is a temporary recession (as some believe) this may mitigate some of the pain IF such programs can be rolled out quickly and benefit those most effected. Yet, our recession is widespread geographically and by social class ....such a program is difficult to implement. Keynes has a good plan under certain circumstances, but not all.

If you believe (like me) that this is not a recession in the traditional sense, but is instead a "new normal", you belive that comprehensive re-training and infrastructure investment is required to have the US once again be competitive in the world .....something that I've seen not enough evidence of in the Stimulus. You also believe that Americans across the board must have their wages fall in order to become attractive. In this light, the Stimulus has largely told Americans that they continue to be entitled to an unsustainable "fake" standard of living built on trade deficits and government debt .....at some point we are going to have to be honest ....taking on more debt until then is scary to me.

water ice · October 2010

I'm not sure why unemployment benefits would hurt hiring more than during any other recession. The burden isn't high now compared with the past. Unemployment insurance has been around a long time, and isn't likely to be suddenly responsible for slack hiring. Healthcare is a different animal. Good jobs have always had such benefits (at least in my lifetime, and in my parents' as well). Low level jobs (i.e. "burger flipper" jobs) don't usually include such benefits, but will now have to. I can see this retarding growth in low level wage jobs. However, businesses nationwide have been clamoring for help with out of control healthcare spending for a decade. And the last two recessions (1990 and 2000), also had lower healthcare costs (as a % of income), yet they also had painfully slow job recoveries. What happened then?

This recession is different. We spent far too much of our productive energy purchasing non-necessary and non-productive assets for too high a price. And we borrowed to do so. And banks hurt their capacity to create money—which artificially contracted credit, or money. Meanwhile, we didn't invest (in productive infrastructure) as much as was probably necessary to even compensate for depreciation of existing assets (witness falling bridges). It will take a while for this mess to clear.

As for a new normal, well, in the medium term, I agree. But I don't see why we all have to accept lower standards of living across the board, especially over the long term (longer than 5 years). The laws of comparative advantage haven't been repealed. And our labor markets are among the most flexible in the world. Ironically, it's the private sector which is stunting labor flexibility, by, for example, holding people hostage to their under-water mortgages. In addition, productivity is ultimately what drives living standards. We’ve seen amazing gains since the mid-nineties, yet the top executives have found a way to skim productivity gains to their own pockets. This is not really a free (read competitive) labor market, but one which has been distorted by overwhelming power in the hands of a few.

Sure, some fields like auto-manufacturing will see wages fall to a level comparable to other counties. Others, like high end engineering, healthcare, and who knows what, will yield higher living standards. Even the great depression ultimately yielded to an era of much, much greater prosperity (and higher income equality). It just took a while.

whynot_31 · October 2010

Re: unemployment. True, it hasn't changed much since the last recession.

....but if we are trying to free up labor as an attempt to get out this mess, could we do something that might encourage people to move from their sad post-industrial state?

Unemployment is tied to one's state.

....I hope you are right about this being temporary, but Malthus and I disagree.

water ice · October 2010

whynot--Like you, I worry about the overall debt level. But I'm not sure anything credible can be done about it in the short term without really doing some damage (such as laying off thousands of government workers). Eventually, we will stop fighting two wars and that will help. Eventually, we'll have to accept more reasonable social security benefits (such as collecting at age 68 or later, etc). That will help too, but these are long-term solutions.

By freeing labor up, do you mean by cutting unemployment to give incentive to go to work? I can assure you the vast majority of those collecting unemployment will gladly accept work at a wage which will sustain them, if not keep them at their former living standards. Most people collecting unemployment are living primarily off of savings, not the check they get from the government. We need job stimulus, whether through government action or (miraculously) private investment. I hope I am right to (mostly I'm wrong about most things). As for Malthus, his calculation could not have been more wrong, and thank goodness for that. This is a good conversation, though not a happy one.

whynot_31 · October 2010

Actually, I was talking about geographic state. ....when someone becomes unemployed in Michigan they lose their unemployment if they move to VA to job hunt. (assuming they don't lie).

re living wage. I'm one of those who says we need a period of domestic deflation: wages, home prices, etc. [gasp!]

....and I also think that the minimum wage (presently something like $7) is set too high. .....this "bottom" pushes wages up throughout the wage scale. [Admittedly, I try to refrain from articulating this position when I'm with poor people who work]

I'm not opposed to a minimum wage, but do thing something like $5 an hour might help deflate prices and make the country competitive.

We also have an immigration mess, which complicates how wages are set. I'm creating a clear naturalization system, which grandfathers almost everyone already here. There are something like 2 million undocumented immigrants in NYC .....they should get the protection of minimum wage too.

water ice · October 2010

Sorry for the misunderstanding. Yes, people moving out of state lose unemployment benefits. But, why would most people move unless they had a job? I can conduct a job hunt in the D.C. area right from my kitchen in Brooklyn (and often do). Also, starting a business, even if it takes a while before you earn any money, would disqualify you from unemployment benefits.

Immigration is a mess. I'm for liberal (read open) labor markets and immigration policy. More immigrants make the melting pot richer, both in flavor and economically. Most people, when hunkered down, view this as a threat and so this is not politically possible. See, we're not so different in views.

boygabriel · October 2010

Not to subvert the good back and forth going on here, but I wanted to share these very relevant observations from Ezra Klein:

If we only counted private-sector jobs, we'd have had positive jobs reports for the last nine months. As it is, public-sector losses have wiped out private-sector gains for the past four months.

http://voices.washingtonpost.com/ezra-klein/2010/10/welcome_to_the_anti-stimulus.html

The government can't make the private sector invest. They can't demand that Wal-Mart start hiring. They can offer incentives, and tax breaks, and encouragement, but that's it. The same cannot be said when it comes to public sector jobs. The government can, if it's willing to run deficits, keep those workers employed. But Senate Republicans, alongside some conservative Democrats, have decided to make the government pro-cyclical: Rather than fighting the downturn in the business cycle, the government is now accelerating it.

And don't ignore the effect this has on private businesses. They're not going to hire new workers or invest in more capacity if jobs aren't coming back, because without jobs, there's no demand. But because the federal government has decided against backing up state and local governments, the bleeding continues, and that scares businesses away from investing in recovery. We create the stimulus that helped the economy survive 2008 and 2009, and we've created the anti-stimulus that's keeping it from recovering in 2010.

water ice · October 2010

I agree. We need jobs. And yes the private sector has had 9 straight months of hiring. But we need 200 - 400K jobs per month from the private sector (as happened in the mid-90s), not 25K to 75K. That's not even enough to keep up with new entrants, such as recent college grads.

whynot_31 · October 2010

....we need deflation.

deflation could create jobs.....

(I need a body guard from anyone who owns property)

water ice · October 2010

My reply to your asking for deflation:

I go to the store and look at clothing. I see a nice jacket which I need for fall. It's $200. I go the next day to purchase it, and now it's $180. Seeing the price has fallen, I hold my wallet and decide to check back in a week. After a week, it's $150. I still hold my wallet. I check again in a few days. Now it's $125. I hold my wallet. Eventually, the store will sell the jacket, perhaps at a loss. Now, the businesses's mortgage, labor cost, and insurance costs are fixed (for the time being). Their burden is greater because their margins are shrinking. So they hold off on buying new inventory (gotta make the rent). Now what?

whynot_31 · October 2010

1. I've already admitted implementing such a plan soley as a result of my advice, would likely place me at risk of physical harm by anyone who owns anything, including inventory.

2. Yes, we may have to deal with these folks going out business, until the prices from their suppliers fall. Hopefullly it will all work out in the end.
(our present plan of incurring debt instead of reforming our ecnomic system isn't real sustainable ....although we have pulled it off for a few decades now.)

3. Perhaps paying off the debt (instead of deflation) will inflict the pain on the American economy that I truly believe it deserves and needs. I remain open to other painful ideas.

Admittedly, I was envisioning a different, lower wage character than one who is able to conduct a job search remotely (such as yourself).

My guy worked at Denny's in Detroit and earned $11 an hour. Denny's closed due to the economy. My guy sits there, collecting unemployment, yet is unable (unwilling?) to move from Michigan because his unemployment benefits won't go with him. Unemployment provides very little retraining.

He looks for employment in Detroit and the surrounding towns. Jobs he's qualified to do are difficult to find because the employers now must pay for health insurance (as discussed above).

....when his benefits are exhausted, my guy finally moves to a new area of the country, and once again pursues his career as a short order cook. He is broke after being unemployed for over a year.

He's kinda pathetic, but can't we give my guy some funds to move when he first becomes unemployed?

....or let him legally wander around the country looking for work while keeping his unemployment?

or give him some training to do so something that is in demand?

hell, in exchange, we could even take a few months off his maximum length on unemployment ....we might break even on the deal.

His favorite team (the Detroit Lions) reportedly sucks, so once he moved, he'd end up with a greater sense of self esteem as well.

.....Detroit won't miss him. Everyone wins.

whynot_31 · October 2010

Water Ice wrote: I agree. We need jobs. And yes the private sector has had 9 straight months of hiring. But we need 200 - 400K jobs per month from the private sector (as happened in the mid-90s), not 25K to 75K. That's not even enough to keep up with new entrants, such as recent college grads.

Clearly, the answer is for Obama to promptly ban college graduations. 8)

....in the past, we've expanded our militaries and opened bases to prop up local economies [beer sales, tattoo parlors, escort services, motorcycle dealerships, the like].

For better or worse, times have changed and this strategy is no longer being pursued.

Rather than export our wealth in the form of debt, we could have a WPA type program. .....we ended up with some really big, lovely schools in some really small towns from the last time we did that.

....but we have to wait until times are bad enough that no one accuses us of socialism. I am told being a socialist is bad.

water ice · October 2010

Banning graduations would be a welcome idea. Better yet, ban school, lest we give big ideas to those we are educating.

I sincerely hope that by next year at this time we are all pleasantly surprised by the amazing turnaround in this country. Then maybe we won't have to move the former Denny's worker from Woodward Ave (Detroit). And maybe I'll gainfully employed as well. Back to the job search...

whynot_31 · October 2010

The views of the following video do not represent the views of Whynot.

....but do represent the views of many people who are for tax cuts.

http://www.facebook.com/video/video.php?v=155553641142859

:( Republican myths about tax cuts

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