Friday, August 6, 2010

"[C]orporate earnings were spectacular...the job market just stinks.”


There's a lot of finger pointing going on right now, after massive bailouts and government spending has failed to translate into new jobs. But as the above quote suggests, there's certainly one place to point it. Corporations are still seeing substantial growth in profits even as the job market continues to shrink. Why is this? In part it's because they're hoarding what capital they have (which, not incidentally, often includes the public dollars we spent to bail them out). But rather than reinvesting this into the economy, they're protecting profits by cutting costs - especially workers. Fiscal conservatives look at this like an austerity measure. The shedding of workers is just the proverbial "tightening of the belt," that we all need to do in lean times. Another way to look at it is that hoarded capital is capital which is not being circulating in the economy. That means that in order to create the liquid capital needed to get money moving again, the government has to print more of the stuff - which of course, devalues the currency and more or less defeats it's own purpose. Now, I'm no economist, but this looks to me like a damn fine argument against letting the Bush tax cuts expire. Tax hikes on the very corporate profits (i.e. hoarding) that's helping to stall job growth can and should be redirected to state and local governments to prevent those jobs from being lost as well. It's basic Keynesianism (which I know will irritate some people no end). When the economy contracts, private sector corporations - the ones who control most of the capital - begin hoarding by cutting costs and shedding jobs. This lowers demand which induces further hoarding, etc, etc. To make up for this, Keynes argued that the government should make up for it by expanding it's own work force to compensate, thus keeping people employed and demand stable. If the federal government can't do this, then that tax money should go to the states where it can protect libraries, schools, police and roads. These things create jobs. And while I'd always prefer the private sector to be the job creators, the reality is, right now, they aren't. And if they aren't who will be? This is something we need to keep in mind when people start arguing against any and all forms of taxaton. Of course people out of work and small business don't need more taxes when they are struggling. But corporations are not struggling - they're the reason you're struggling. Try to remember that the next time some one tries to scare you with the tax hike boogieman.