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WSJ on Bush economy: when in hole, stop digging

by Jerome a Paris Thu Sep 14th, 2006 at 10:54:14 AM EST

Crossposted from DailyKos. Thanks for your support.

From <u>"the long and short"</u>, by Jesse Eisinger, a regular columnist in the Wall Street Journal (sorry, no link, my transcript from the paper version, p.22 of the European edition) comes the following scathing indictment of the performance of the economy since 2001.

The title, "The lagging effect of 9/11", appears to blame the terrorist attacks, but that's not quite what the column says...

Corporate profits

Corporate profits are off the charts. (...) companies aren't investing as much as they should to create future earning streams, preferring to pay dividends and buy back shares.

"I don't think we have ever seen an expansion of corporate profits in a business cycle where such a large share can be attributed to economic policy makers' behavior rather than corporate behavior", says Doug Cliggot, chief investment officer of Race Point Asset Managment.

In a word: this is not wealth creation, this is wealth capture by corporates, thanks to hand outs by the Bush administration.

Cash was cheap. Now it's not

Speculation has been the order of the day. The housingmarket has exploded, as one bubble has been replaced with a larger bubble.

I have not written about this in a long time, but here's a reminder: this is the handywork of "Bubbles" Greenspan, who has flooded the world with cheap money. While a temporary boost after 9/11 was understandable and necessary, it was unconscionable to leave Fed rates as low as he did for so long. Now the oil bubble (i.e. dollars funded by debt  used to pay for oil and recycled by oil producing countries in US Treasuries, effectively funding the oil purchases and thus allowing the trade balance to deteriorate further at no immediate cost to Americans) is hiding the deflating of the house bubble.

Debt is king

...total liabilities of US households represented 18.5% of total assets last year, a record.

"What's more remarkableis that the ratio is still going up, even though asset prices of real estate have been going up at a rapid rate.  Tha means people are borrowing more and more." Paul Kastril, Northern Trust's head economist, says.

Households have long been providers of funds to businesses and countries. Now they are net borrowers. It's a radical change.(...)

Many of these asset gains will prove fleeting, of course; the debt won't go away. (...) Goldman Sachs economists now predict that home prices nationwide will fall next year on average.


"What we are investing in is 5000-square-foot homes. It's more of a consumption good than an investment that leaads to higher productivity and output"

The cheap credit did its job of pulling us out of the recession of 2001. But the juice was more like a shot of adrenaline than a free-weighty workout that made us genuinely stronger

Not to mention that McMansions aggravate the energy/sustanability issues of the US economy But you'd think you're reading one the extremist ecobloggers of DailyKos...

"We may now be in for a lenghthy period of weakness in consumer spending where lenghthy is measured in years rather than in quarters", says Goldman Sachs economist Jan Hatzius

Hey, it's okay. Dems, back in power, will be blamed...


So how have banks reacted to this changed landscape? They've gorged on real estate. - loans to folkwho might not be able to afford their homes, financing for commercial real-estate developments, and investments in mortgage-backed securities. According to Fed data, more than 62% ofU.S. banks' earning assets - that is their loans and investments - are real estate linked. So (...) they're more exposed to the now-obvious housing bubble.

Tha banks and the rest of the finance industry should heed the rule of holes: When in one, stop digging.

That's the most unpredictable element in this whole thing: what will be the impact on the financial sector of the deflating bubbles? Will it be passed on to the whole economy through the myriad hedgin instruments that have been used, or will the banks (or a few major banks) will be so severely weakened that a bailout becomes necessary? Will panic replace the frenzy of recent years?

"Cry Bubble" could be the story of the past few years, as the imbalances pointed out by the bears have yet to result in a serious correction. But what happens if and when it finally happens? The fair answer is that nobody knows. what's sure is that US households and banks seem particularly exposed.

What's equally clear is that the bearish view is no longer confined to a few crackpots.

Well yes, this does read a bit like old news. You have been going on about all this and oll' Bubbles Greenspan. And I would reckon you've some mild satisfaction in finding your own opinion printed in the newspaper, where it not for the fact that this reads even worse than the warnings you have repeatedly posted. 62%? That's gonna give hell when that Bubble goes: ......

So, where's the good news, Jerome? When did Goldilocks come home, again?

by Nomad on Thu Sep 14th, 2006 at 09:44:25 PM EST
For an interpretation of the Bubble[s] reference, see Wikipedia, Powerpuff Girls. She has superpowers, so watch out when she swings into action.

Words and ideas I offer here may be used freely and without attribution.
by technopolitical on Fri Sep 15th, 2006 at 12:07:37 AM EST
[ Parent ]
no longer confined to a few crackpots

Sing (like a hymn, with drunken Christian fervor):  

"I used to be cracked, but now I'm whole:
Reality has caught up and redemed my soul."  

I mean, it is not like any of us knew what we were talking about in the first place!  

The Fates are kind.

by Gaianne on Thu Sep 14th, 2006 at 10:26:57 PM EST
Natgas down from $15 in Jan to under $5 today.   66%
Gold down from $800+ to sub $600                 25%
Oil down hard from $78, now $63.                 19%
Mogas down from $2.2 on Nymex to nearly $1.60    28%

copper is down 15-20% from it's peak

by HiD on Fri Sep 15th, 2006 at 05:12:10 AM EST

Analyst predicts plunge in gas prices

WASHINGTON -- The recent sharp drop in the global price of crude oil could mark the start of a massive sell-off that returns gasoline prices to lows not seen since the late 1990s -- perhaps as low as $1.15 a gallon.

"All the hurricane flags are flying" in oil markets, said Philip Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Now, he says, they appear to be poised for a dramatic plunge.

Crude-oil prices have fallen about $14, or roughly 17 percent, from their July 14 peak of $78.40.

A drop to $15 would guarantee an even faster return to much higher prices as it would suddenly make oil companies rethink their investment plans based on $30 or $40 oil...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 15th, 2006 at 10:52:32 AM EST
[ Parent ]
They have fallen by $15, not to $15. Right?

Those whom the Gods wish to destroy They first make mad. — Euripides
by Migeru (migeru at eurotrib dot com) on Fri Sep 15th, 2006 at 10:54:05 AM EST
[ Parent ]
Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, Verleger said, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon.

Those whom the Gods wish to destroy They first make mad. — Euripides
by Migeru (migeru at eurotrib dot com) on Fri Sep 15th, 2006 at 11:03:13 AM EST
[ Parent ]
Well, I just filled out an app to allow me to short sell with my trading account. I'm going to ride a few US homebuilders into the toilet.

you are the media you consume.

by MillMan (millguy at gmail) on Fri Sep 15th, 2006 at 01:31:08 PM EST
good luck, but be cautious.  These stocks are already down significantly, as investors anticipated this change early last year.  For example, homebuilder KBH Home was trading at $80 at the beginning of the year, and now is just above $40 per share.

There is now some thought that the stock market may have overreacted, and stock prices could begin to rebound a little.

Perhaps this means it's time to buy the homebuilder stocks, at least for a trade. Sentiment on the homebuilder stocks is still strongly negative. But the SPDR Homebuilders ETF (AMEX: XHB - News) ticked up recently, and individual homebuilder stocks such as Toll Brothers (NYSE: TOL - News) seem to have bottomed.

My apologies if my comments are gratuitous.
by wchurchill on Fri Sep 15th, 2006 at 03:26:18 PM EST
[ Parent ]
shorting is always risky, yes. I was looking at KBH, actually. I'm betting on a bloodbath that the market doesn't at the moment buy into.

you are the media you consume.

by MillMan (millguy at gmail) on Fri Sep 15th, 2006 at 03:47:57 PM EST
[ Parent ]
great!  I can see you're a savvy person, and understand how to think about this.  good luck with your investments.
by wchurchill on Fri Sep 15th, 2006 at 04:17:52 PM EST
[ Parent ]
Also, as is often the case, I look at that chart in your link and come to the exact opposite conclusion.

you are the media you consume.

by MillMan (millguy at gmail) on Fri Sep 15th, 2006 at 04:20:16 PM EST
[ Parent ]
I didn't come to a conclusion,,,,or intend to anyway.  I just wanted to make sure you knew that the stock market is based on estimates of future earnings, and therefore had already priced into the home building stocks their best estimates of the housing market going down. (which clearly you do understand, based on your comments.)   I don't personally follow the housing segment, so I have no opinion as to whether they have priced in too big of a decline, or not enough.  I was a little reluctant to write my note, since I thought if you were considering shorting, you were likely a knowledgeable investor, and therefore my comment, "apologies if this is gratuitous".  

I tend to think housing prices overall will be somewhat flat, except in the "hot" areas over the past few years, such as Florida, San Francisco, SoCal where I would imagine there will be drops in prices.  but of course even my "softer landing" type of view, would likely have severe impact on the home builders, who are building new homes in a market where there is likely not much new demand.

by wchurchill on Fri Sep 15th, 2006 at 04:46:41 PM EST
[ Parent ]
Jerome, you were forecasting no growth in the US and other capitalist economies last year--(you'll find your comment was the first to the diary I link to).  That forecast has proven to be wrong so far, as shown in the strong growth figures from the latest (2nd quarter '06) OECD data showing 3.6% growth in the US, and 2.5% growth in the Euro Zone.  (I don't have quick access to Asian data right now, but I know growth there was even stronger.)  Preliminary monthly figures I have seen show continued positive growth in Q3 for these economies, and I'm confident the year will end up with very positive growth.  In fact, I would expect that the Dow will end up the year at or near 12.000, which will be an all time high,,,,breaking the old highs set during the technology peaks of 2000.  

I would suggest you find someone better than Mr. Eisinger to guide your thoughts and understanding on the economy.  His bio seems to suggest he is a journalist, with a BA in American Studies from Columbia University.  His lack of study in economics, and practise of it as a profession is incredibly obvious in his comments.

Corporate profits are off the charts. There's only one way for them to go from here.

The Standard & Poor's 500 companies have had 17 consecutive quarters of double-digit operating profit growth. That's a record since S&P started tracking operating earnings in 1988, according to Howard Silverblatt, S&P's keeper of the numbers.

So record earnings growth for US corportations coupled with the 3.6% strong growth in the overall economy,,,and Mr. Eisinger implies the only way for strong US companies and the overall economy to go is down?!!  That is truely absurd.
Yet investors are paying less and less per dollar of earnings. The projected price-to-earnings ratio of the S&P is merely 15. That's inexpensive relative to recent history -- with good reason
The "mere 15 PE" is the historical average of the S&P 500.  Being at average doesn't seem like something to deride.

The title, "The lagging effect of 9/11", appears to blame the terrorist attacks, but that's not quite what the column says...
You are right that the column does not suggest that,,,Mr. Eisinger is clearly not so well versed in economics to discuss risk premiums on stock market valuations.  But anyone that doesn't understand that today's valuations contain higher than normal risk premiums due to the added volatility of terror attacks in the world, and their potential impact on future earnings,,,,should not be investing in the stock markets, much less writing about it.  (US equity markets typically have a risk premium of about 3%; analysis that I have recently seen, which is updated monthly, suggest that there is an additional 10% to 20% risk premium on the market.)

Mr. Eisinger shows his lack of understanding of economics and the stock market in a number of other comments, but the above should suffice to prove the point.

by wchurchill on Fri Sep 15th, 2006 at 02:45:54 PM EST

Jerome, you were forecasting no growth in the US and other capitalist economies last year--(you'll find your comment was the first to the diary I link to).

Hey, I still have 4 years to be proved right!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 15th, 2006 at 04:05:56 PM EST
[ Parent ]
I thought you might say that, regarding the projections-:)
The growth to date, however, gives you a hill to climb to end up at negative growth after 5 years,,,,,but we shall see.
by wchurchill on Fri Sep 15th, 2006 at 05:15:35 PM EST
[ Parent ]
In a word: this is not wealth creation, this is wealth capture by corporates, thanks to hand outs by the Bush administration.
I shouldn't let this pass.  Wealth is obviously being created by American industry and entrepreneurs (actually not just American, but your comments address US companies), and you can see it in the every day headlines--here are just two examples, one serious and one less so:improved health
The U.S. Food and Drug Administration on Thursday approved the first vaccine for cervical cancer -- Gardasil, manufactured by Merck and Co.
and on a less serious note
What Apple Computer Inc. did for music, it now hopes to do with movies.

The company whose iPods revolutionized the way the world listens to music on Tuesday started selling downloadable movies - about $13 to $15 for new ones, $10 for older titles - for computers and iPods, and said future flicks will be available on its iTunes Web site the same day they are released on DVDs.

Even more significantly, Apple gave a sneak peek at something it calls iTV, a device the size of a few slices of toast that's designed to wirelessly beam downloaded movies, music, home videos and pictures to television sets and computers scattered throughout a home. It plans to introduce the product next year at $299.

Fabulous improvements to our quality of life are introduced every day.  And yes, these do lead to increase in real wealth.  And those corporations don't get the wealth, the people that own the corporations, and the employees of the corporations get the wealth.  In the US more than half of households own these corporations.

So no, this is not wealth capture, whatever that was meant to imply.  And no, it doesn't go to corporations.  And no, it's not hand outs by the Bush administration--nor should the Bush administration get credit for the vaccines, or the movies, or the fact that now one can download the movies.  It's simply the US economy just continuing to chugg along.

by wchurchill on Fri Sep 15th, 2006 at 03:10:28 PM EST

And those corporations don't get the wealth, the people that own the corporations, and the employees of the corporations get the wealth.  In the US more than half of households own these corporations.

See this:

Why record profits are not boosting investment

The world's 100 largest companies are now holding a whopping $1,100bn in liquid assets. These account for 9 per cent of their total balance sheets. And even if their debt levels are increasing again as they engage in an intense round of mergers and acquisitions, their capital allocation remains unhealthily defensive if not, in many cases, downright inefficient.

The old theory that the profits of today will create tomorrow's jobs and investments no longer seems to apply.

"More than half of households own corporations". But most of that half own insignificant bits. The concentration of assets is even starker tha nthat of income.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 15th, 2006 at 04:10:18 PM EST
[ Parent ]
Thanks for the FT reference.
The trouble is they are not putting all their money to constructive use, preferring instead to sit on huge cash piles or return money to shareholders through share buy-backs or special dividends.
The emphasized part of this quote is wrong, at least by all accepted economic and business theory.  I don't mean I disagree with it, I mean it's wrong.  Businesses should only invest that portion of their cash flow that fits within their strategic direction, and where returns are expected to be above their cost of capital.  Funds beyond that amount should be returned to shareholders, and the two best ways for large corporations to return funds are dividends and stock buy-backs (which result in fewer shares outstanding and therefore higher per share prices, in a growing company.)  The comment of sitting on piles of cash is correct--that money either should be invested in the business, or returned to shareholders so they can invest it elsewhere.

These comments seem to be, based on the examples, more focused on European companies.  IMHO, the following better describes what is going in with most American companies

Cash and equivalent levels in the industrial companies in the S&P 500 stock index has reached an all-time high on robust earnings and lower corporate spending, Standard & Poor's said Tuesday.
"The bulge in cash is permitting companies to simultaneously finance record levels of stock buybacks and dividends," said Howard Silverblatt, equity market analyst at S&P.
"Many companies now have the rare opportunity to make long-term investments or return large values back to shareholders, while still having sufficient cash left to grow and finance their business," he added.
The 376 companies in the S&P 500 (SPX :1,319.87, +3.59, +0.3% ) that S&P classifies as industrials have a total of $634.4 billion in cash and equivalents -- a record high, up from about $260 billion in 1999, Silverblatt said.
Cash represents 7.7% of the market value of the industrial stocks in the S&P 500, a level not seen since 1988 when it hit 8.7%, according to S&P.
Meanwhile, current cash levels relative to long-term debt at 41.3% are at their highest point since 1980, when S&P first started to calculate the statistic.
S&P sees cash levels moving slowly downward in the second half of the year with companies persisting with buybacks and dividends. It also anticipates higher spending on mergers and acquisitions, and more investment in capital expenditures and employment.
It's probably worth noting that the level of dividend payouts is far lower in the US than it was 50 years ago.  I think it's something like 1.5% of earnings today, versus 3--4% in the past.  One of the main reasons for the fall was that dividends were taxed at ordinary income rates, while stock buybacks were reflected in per share price gains, which normally resulted in long term capital gains tax rates, which are lower.  The new dividend tax rates are equivalent to long term capital gains, therefore removing this disincentive, and allowing funds now to flow out of firms to shareholders, so they can be more quickly invested in other businesses with hopefully higher returns--a good thing for the economy, jobs, 401k plans, etc,,,imo.
by wchurchill on Fri Sep 15th, 2006 at 05:13:30 PM EST
[ Parent ]

Many companies now have the rare opportunity to make long-term investments or return large values back to shareholders, while still having sufficient cash left to grow and finance their business

But they don't (invest).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Sep 15th, 2006 at 05:57:13 PM EST
[ Parent ]
Because it's all about wealth capture.

If they don't invest it is because they don't expect sufficient returns from investment. Is there something they know about the economy that the rest of us don't, like an impending meltdown?

Those whom the Gods wish to destroy They first make mad. — Euripides

by Migeru (migeru at eurotrib dot com) on Fri Sep 15th, 2006 at 05:58:36 PM EST
[ Parent ]
Maybe we are having a problem in semantics.  In the terms of business,  US companies are making substantial investments in their business.  And let me just randomly pick one, Pfizer, simply to check our terminology.  From Pfizer's annual 10K you will find details on their business.  You will find in the fiscal year of 2005 they spent $2.1 billion in capital expenditures--property, plant and equipment.  This would be primarily plants in which to make their products, equipment to be used to develop products and to manufacture them, and property to put their plants and offices on.  These are required investments to run and grow their business.  In addition they spent $7.4 billion in research and development.  Accounting treatment doesn't allow this spending to be capitalized and put on the balance sheet, so in accounting terms it's not an investment.  But clearly R&D is the cash spent to research, develop, conduct clinical trials and gain regulatory approvals for new products, like the example I gave above for Merck's new vaccine to prevent cervical cancer.  So in a business sense, it's clearly an investment in the future that will sustain the growth of the company.

If you add these numbers up for all US companies, they are huge!  But just sticking with Pfizer to see if we have a semantics problem, are you saying they are not investing?

by wchurchill on Fri Sep 15th, 2006 at 08:00:28 PM EST
[ Parent ]
than usual when you see their position as net savers, vs the consumers as net debtors, something unprecedented and which shows that money is allocated to consumption rather than to investment.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Sep 16th, 2006 at 11:55:22 AM EST
[ Parent ]
first you say
But they don't (invest).
and now you say
They are investing much less than usual,,,,
I find this disingenuous.  Your above comment actually, if you compare the statements, demonstrates that your previous extreme comment was inaccurate.  But you don't in a straightforward manner simply admit that your statement was in error.  But instead, you shift the ground now saying in effect, "OK, but they are investing less", and you provide no data to back up that new claim.  

You add unsupported comments such as " vs the consumers as net debtors"--what is that supposed to mean?  You infer this is a negative thing, but don't explain it.  It seeming contradicts a comment in your own diary:

total liabilities of US households represented 18.5% of total assets last year, a record.
A household with 18.5% debt compared to total assets has, for example, $100 in total assets, against which they have borrowed $18.50,,,,thus a total net worth of $77.50.  This does not mean he is a "net debtor", in fact he/she is the opposite.  A householder with a home mortgage and who also wants to margin some of his investment in stocks (more than 50% of American household, btw) would likely have a higher percentage of debt than 18.5%.  And this household would be running their affairs in a sophisticated and rationale manner.

Your facts are either inaccurate, non-existent, and your logic is, to be kind, very flawed.

by wchurchill on Sat Sep 16th, 2006 at 02:43:01 PM EST
[ Parent ]
that you are picking on words?

- they don't invest vs they don't invest enough.

Of course, you're right, literally. But I think both sentences mean the same thing in practice. I quoted numbers above.

- "net debtors" was meant as "they have a negative savings rate". Again, you may be technically right wrt their net asset position, but as was quoted above, asset values are theoretical whereas debt is very real. It is unprecedented for households to spend more thna they earn.

The harshness of your comment is totally out of place and only shows that you refuse the debate on the substance of what I wrote. Fine.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Sep 17th, 2006 at 07:31:30 AM EST
[ Parent ]
jerome, responded to your query.

It's 2:30 AM and I'm done for tonight.  If you have other questions, I'll be on briefly tmw am.

Have fun with that Tory.  never did know one that didn't have a touch of the supercillious jerk.

by HiD on Sun Sep 17th, 2006 at 08:22:38 AM EST
[ Parent ]
The only thing I agree with in your statements is that my tone is wrong, and I'm sorry about that.  It's due to frustration with the lack of understanding of finance, accounting, and economics on this thread, and other diaries.  And I include the comments of reporters quoted in this thread.  For an FT reporter to not understand the concept behind dividends and stock buy backs is really,,,,I guess incredible is the word.  The WSJ reporter seems to have no education nor on the job experience in these subjects, and it shows in his comments.

I don't think you're being intellectually honest regarding your comments on US companies investing.  Look back on your comments and you'll see that you and Migeru were responding with an invented term called "wealth capture", for which you provide no rationale, no data.  There's a reason you won't find that term in the literature of reputable textbooks in these areas, it doesn't rationally fit in those fields.

clearly you can go to any S&P 500 firm and quickly see that superficially these firms are investing heavily in their businesses.  If you were to actually dig deeper into these companies in the healthcare sector, you would find it's deeper than the numbers show at first review, because non strategic tasks (tasks not providing competitive advantage) are being farmed out more and more to specialist firms with expertise in those areas,,,,so the investments are actually on those companies balance sheets that are providing the services.

How can you think these new products can be developed without investment in R&D?--I gave just two examples.  How can you think company sales grow, and GDP grow, without increasing investment in capital expenditures,  On the latter I imagine you'll revert to GDP is a cooked up number,,,heuristic,,,,sigh.

Anyway, I think it's a good time to take some time off the site, because I don't like the tone of my comments.  It will also give more time for these thoughts about "zero growth" to prove themselves wrong--though as these projections turn out to be inaccurate, quarter after quarter, one would think people would examine their fundamental premises.  But seemingly not.  

by wchurchill on Sun Sep 17th, 2006 at 01:21:21 PM EST
[ Parent ]
wchurchill, you can possibly rightly claim that "wealth capture" is a term invented by Jerome, but what you can't say is that there is no rationale or data behind it. Just here on ET, Jerome has written extensively around it. You may disagree with his analysis, but that is a different story.

Jerome is, in addition, a Ph.D. economist and a by all accounts successful project finance banker. You can claim that he has a different "understanding of finance, accounting and econometrics" than you do, but I am not so sure about "lack" thereof.

In addition, I don't know why you hold textbooks in such high esteem. I have spent the better part of my life in academia and I can tell you textbooks suck with exceptions few and far between.

Now let's review what Jerome (and at least one other) have written here about wealth capture.

Politicians must stop listening to businessmen by Jerome a Paris, October 26th 2005

Businesspeople are narrow minded and focus, naturally enough, on their profits, often mostly on the short term numbers. The role of politicians is not to listen to them, but precisely to fight them and to defend the common interest (which usually includes the long term interests of these businesspeople) against that narrow quest for less immediate costs and constraints.

Instead, we see politics increasingly captured by business interests. Wealth capture is not wealth creation

The Better Part by Captain Future, October 31st 2005
This is a kind of adjunct or continuation to the subject and general ideas of the post here a few days ago by Jerome a Paris, with the theme "wealth capture is not wealth creation."  The tone is different, as is perspective, coming from the U.S.  But that's what makes a community fun.

Since the Reagan years, the reigning economic orthodoxy in the U.S. and therefore in the globalized economy has become that economies succeed when the wealthy and corporations are free from taxes, government is virtually nonexistent except to subsidize favored corporations, and businesses cut costs by shedding jobs to countries where living standards are poor and labor is therefore cheap, and by forcing employees in western nations to work harder and longer for less pay and smaller pensions and health care support that can be disappeared at any time, while businesses spend freely on lobbyists, legal and illicit graft, and executive pay and perks, all in response not to the longterm health of a company, an industry or a polity, but to keep stock prices going higher by means of favorable quarterly reports.

Bush administration = vicious circle (a philosophical rant) by Jerome a Paris, November 14th 2005
The Bush administration is convinced, in line with an increasing fraction of the Right, that both economics and international relations are zero-sum games.

They may talk about "trickle down effects" or "rising tides lift all boats" to paint the image of a positive-sum game, but fundamentally what they are doing on the economic front is trying to shift the balance of economic wealth away from the middle classes towards the upper classes, and to shift spending away from investment towards consumption to increase the above wealth capture today. The USA are incredibly rich and such "rebalancing" can be on a large scale for quite a bit of time before it will have a material impact, but, make no mistake about it, it will have an impact on the future well being of the country. Debt, to be paid down by later generations is one thing, but the lack of investment in the infrastructure of the future will mean lesser opportunities for all later on (and the weight of debt makes it harder to correct this when it becomes an issue).

More insidious in the general loss of trust in government and other institutions, which will increasingly be seen as unfair and dangerous by individuals, who will revert to time-tested, but less effective means of economic regulation - trusting only family, friends or neighbors, investing with a shorter time horizon, demanding collateral.

IHT sees the light on French student protests by Jerome a Paris, March 23rd 2006
The model's principal characteristic in the United States has been the transfer of wealth to stockholders and managers, and away from public interests (by tax cuts) and employees (through wage-depression and elimination of employee benefits).

My jaw actually dropped when I saw him write this. He saw the light! It's in black and white in the European edition of the New York Times! The transfer of wealth away from public interests and employees.

In this perspective, what in France seems to be a sterile defense of an obsolete social and economic order might be interpreted as a premonitory appeal for a new but humane model to replace it. It could be Europe's opportunity.

A number of you made fun of my claim that the French student's fight is very similar to your fights against the Bush machine in the US. And yet it is, in a very real sense. We are fighting the same ideology of wealth capture by the corporations from the workers and the State.

Growth for a few is just fine by Jerome a Paris, April 6th 2006
"You don't need an equitable distribution to have a sustainable recovery," said Jared Bernstein, a liberal economist in Washington.

The common wisdom of the Reagan years has now spread to "liberal economists": wealth capture by the upper classes is okay.

Those whom the Gods wish to destroy They first make mad. — Euripides
by Migeru (migeru at eurotrib dot com) on Sun Sep 17th, 2006 at 01:45:53 PM EST
[ Parent ]

wages and salaries now make up the lowest share of the nation's gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960's. UBS, the investment bank, recently described the current period as "the golden era of profitability."

Looking like this:

I'll dig up the updated version, which looks even more striking, later.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Sep 17th, 2006 at 02:02:29 PM EST
[ Parent ]

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