Thursday, June 4, 2015

Another Failure of American Capitalism: Profits and Stock Buyback

A fundamental rationale and justification for the appropriation of profit by the capitalist class rests on the assumption of productive reinvestment. This is also the basis for the argument that while cutting taxes on corporations and the rich will concentrate wealth in the short-run, it will inevitably “trickle down” in the long run. The experience of the US economy over the last thirty years has exposed this claim as fraudulent. The following table shows the dramatic disconnect between profits and net investment over this period, and particularly after 2000.

There are a variety of explanations for the growing gap -- profits secured through outsourcing/offshoring, financialization, intensification of work, wage suppression, government tax breaks/subsidies. An excellent piece of journalism in the in the Boston Globe provides more precise evidence of a particularly pernicious financialization-related maneuver – company profits plowed into the stock market to buy back shares of their own company. 

Reporting on the networking company Cisco, and its Boxborough Massachusetts facility:
The Boxborough workers learned that at the same time they were being laid off the company was continuing to spend billions of dollars to buy back its own stock, a move designed to reduce the number of shares on the open market and perhaps boost its relatively stagnant share price.
The Globe further notes:
This stock buyback boom, while obscure to much of the public, has become one of the most pervasive and divisive practices in corporate America. It affects jobs, investment, and the health of the economy, all in the search for higher share prices. It is also a major driver of the widening economic divide in this country, which could make it a prominent issue in the 2016 presidential election.

This buyback practice is a direct cause of the long-term “trickle up” (not down) tendency in the United States, since stock ownership is highly concentrated among the top 10%. It is also closely associated with the socially irresponsible “shareholder value” principle which led managers, parroting a slogan they learned in business school classes, to claim that “my only obligation is to my shareholders”.

We should all now be well aware there is no guarantee that the accumulation of private profit will advance the public good. Unfortunately, economic development policies in the United States continue to be based on this assumption.

Tuesday, June 2, 2015

Whats The Matter With America? Doubling Down on Failed Policy -- Domestic and Foreign

There are some obvious reasons for the steady decline of American effectiveness in dealing with domestic economic woes as well as international affairs.  Most notable is the adherence to ideologies that generate policies with a proven track record of failure. Despite this demonstrated failure, the United States continues to pursue the same policies, believing the results will be different. This is sometimes described as insanity. However, a closer examination indicates that there are powerful interests that benefit from this practice. The net result is both a diminished democracy and a nation falling far short of its potential for global leadership.

On the domestic front, neoliberal political economic ideology has prevailed since the 1980s.  This involves a belief in the goodness of the market and the badness of government; the preference for private sector solutions over public sector responsibility. It is based on the assumption that any policy that benefits private corporate interests will inevitably produce public social good.  Privatization, deregulation, low taxes on the wealthy and corporations, no unions, and no increased minimum wage are just some of the most notable policy preferences. The fact that this has been the trend for thirty years, and has produced record income and wealth inequality and a domestic economy that is grossly incapable of meeting the socio-economic needs of the population, not to mention contributing to the continuing economic crisis, seems to be an irrelevant indicator of its ineffectiveness.  

Almost all political and public officials  -- Democrat and Republican -- still subscribe to the basic tenets of neoliberalism. The Nobel-prize winning economist Joseph Stiglitz describes this phenomenon as “cognitive capture”. In addition to the direct capture of government by moneyed interests through financial contributions, there is the more subtle and insidious “cognitive” forms involving the taken for granted assumption that economic policy – particularly at the state and local levels – involves reducing the costs and providing tax and financial incentives to the private sector.  This has become the singular guiding principle of public policy, often disguised behind the intuitively appealing but highly asymmetrical “public-private partnership”. Once established, this principle precludes any need for public participation in economic policy decisions, since it has taken on the status of a self-evident truth. It is this mindset and worldview that ensures policies will serve, first and foremost, the economic interests of the few rather than the socio-economic needs of the many. In the process, democracy is short-circuited.

On the foreign-military policy front (hyphenated because the two have become indistinguishable) there is an equally impressive record of failure; most recently in Iraq, Afghanistan, and perhaps, shortly, with ISIS.  The failure stems from what Andrew Bacevich, a former Army colonel, labels the long-standing “Washington rules”.  The first rule, what he calls the American Credo, assumes that the United States is responsible for leading, saving, liberating, and ultimately transforming the world.  Others have described this as “imperial hubris”. The second rule is that this mission will be accomplished primarily through military rather than diplomatic means, and at a scale and scope that far exceeds national security requirements. It rests, according to Bacevich,  on “the sacred trinity: an abiding conviction that the minimum essentials of international peace and order require the United States to maintain a global military presence, to configure its forces for global power projection, and to counter existing or anticipated threats by relying on a policy of global interventionism.”  This approach has not only exacted a huge human and financial toll, it has also failed to foster a global sense of security nor has it improved our global reputation.  A Gallop/Win poll conducted in 2014 of 66,000 people in 68 countries found that the United States was regarded as the “greatest threat to world peace” by a plurality of respondents (with 24%, well ahead of second place Pakistan with 8%). 

But as with the neoliberal orthodoxy, there is no discussion about an alternative foreign-policy paradigm in the face of accumulated failures. While the publicly proclaimed desired goals of shared prosperity and global peace are never realized, there is little critical scrutiny of the seemingly bankrupt means employed to achieve these worthy objectives. This is because, in both arenas, there are powerful interests that benefit from the existing arrangements independent of their efficacy. The neoliberal model domestically has produced a systematic transfer of income and wealth from the many to the few. The Washington rules globally, and the associated permanent “war on terrorism”, has enriched the military/national-security industrial complex.

If one hopes to achieve some redress through our electoral system, they are likely to be disappointed. Despite all the talk about political polarization, on the two cornerstones of American identity – economic growth and global superiority – the party duopoly is largely united in support of policy prescriptions that have a consistent record of failure.  The familiar mantra of defenders of the status quo – “there is no alternative” (aka TINA) – has never rang so true.

There was a time when the United States was regarded as a pragmatic, rather than ideological, society. This would mean that economic and foreign policies would be based on practical results and demonstrated success. This has been replaced by blind faith in, and ideological attachment to, neoliberal market-based and neoconservative military solutions, reinforced by the material interests that benefit disproportionately from their continuation.   Call it calculated insanity.

Saturday, February 28, 2015

Class War and the "Right-to-Work" Law Comes to Wisconsin

Every time I see the word “right-to-work” it brings me back to 1981 and my first academic publication “Capitalists Versus Unions: An Analysis of Anti-Union Political Mobilization” with my mentor Richard Ratcliff at Washington University. 

But enough about me.

Fast forward -- and the class war continues unabated.

It is remarkable that after the 2008 economic crisis that was fueled by inequality and a war on labor, is a demand-side crisis still painfully lingering as a result of continuing inequality and wage stagnation, the forces of darkness would continue to believe that we are in a supply-side crisis that instead requires more anti-labor legislation and a better "business climate" for capital. 

In 2012, Michigan, home of the United Auto Workers, passed a “right-to-work” law. Now Wisconsin, home to the progressive legacy of Robert LaFollette, is on the verge of passing the law.

The always reliable Economic Policy Institute has a good analysis of the issue. Here is an overview:

RTW laws have nothing to do with anyone being forced to be a member of a union, or forced to pay even a penny to political causes they do not support; that’s already illegal under federal law. What RTW laws do is to make it illegal for a group of unionized workers to negotiate a contract that requires each employee who enjoys the benefit of the contract to pay his or her share of the costs of negotiating and policing it. By making it harder for workers’ organizations to sustain themselves financially, RTW laws aim to restrict the share of employees who are able to represent themselves through collective bargaining, and to limit the effectiveness of unions in negotiating higher wages and benefits for their members.

Wednesday, February 18, 2015

Progressives Should Oppose Loretta Lynch Nomination

Just a couple pieces that further confirm the inability of the Democratic party to engage in some principled non-partisanship.

The first from the always on-target Yves Smith at Naked Capitalism.

The second highlighting the ever-present identity politics that clouds the central political-economic priorities by Glen Ford.

Monday, February 2, 2015

Links to Good Stuff

Too much going on to devote attention to any one issue. Here are a few links to some interesting and important stories and developments:

For further confirmation of the way US foreign policy in the Mideast is fueling the very forces we claim to oppose, a report on a talk by Human Rights Watch Kenneth Roth.

The criminalization of poverty.

Professor fired for criticizing Israel files law suit.

U.S. Senate refuses to accept human role in climate change....will revisit flat earth debate next week.

New book on the U.S. Presidency provides a badly needed perspective on the political-economic structural constraints determining policy independent of party or personality.

Wednesday, January 28, 2015

Fawning Obituaries for a Saudi Monarch

U.S. officials are expressing their condolences on the death of Saudi Arabia King Abdullah bin Abdulaziz and to the people of Saudi Arabia. Obama praised him for his "enduring contribution to the search for peace in the region" and the "the courage of his convictions" noting that "the closeness and strength of the partnership between our two countries is part of King Abdullah's legacy".

This is the absolute monarch who has ruled Saudi Arabia for 20 years; a country that has earned the following summary review from Human Rights Watch in 2014:

Saudi Arabia stepped up arrests, trials, and convictions of peaceful dissidents, and forcibly dispersed peaceful demonstrations by citizens in 2013. Authorities continued to violate the rights of 9 million Saudi women and girls and 9 million foreign workers. As in past years, authorities subjected thousands of people to unfair trials and arbitrary detention. In 2013, courts convicted seven human rights defenders and others for peaceful expression or assembly demanding political and human rights reforms.

In the mainstram media there was virtually no mention of his brutal dictatorship or the routine use of beheadings as part of the criminal justice apparatus. Instead he was praised as a "man of peace".

As one critical report noted:

It’s not often that the unelected leader of a country which publicly flogs dissidents and beheads people for sorcery wins such glowing praise from American officials. Even more perplexing, perhaps, have been the fawning obituaries in the mainstream press which have faithfully echoed this characterization of Abdullah as a benign and well-intentioned man of peace.

In another, there was an interesting comparison and contrast between the US obituaries for King Abdullah versus Venezuela's Hugo Chavez, the latter a democratically elected leader. It represents a powerful lesson in the priorities of US foreign policy.

Monday, January 19, 2015

What's (Fiscally) The Matter With Kansas

When Kansas governor Sam Brownback decided to take the advice of extreme conservative supply-side economists and reform the tax code to serve the interests of the few, he promised that it would generate economic growth and “lift all boats” (sound familiar). However, as the tax cutting plan was implemented, knowledgeable observers on both the right and the left predicted dire results.

And, as predicted, revenues dropped, no economic renaissance resulted, budget deficits swelled, services and public investment were slashed, the state’s credit rating was downgraded, and the population of Kansas was royally pissed off.  

Well, as it now turns out, he is prepared to raise some taxes. Would those be taxes on the wealthy? No. How about taxes on corporations? No.  Instead he will raise taxes on liquor and cigarettes. Yes, a sales tax -- the most regressive of all taxes falling most heavily on those least able to pay.  

Has Brownback learned anything from this experience? No. Why? Because the supply-side neoliberal economic theory is faith-based economics. Empirical evidence is irrelevant. They don’t call it market fundamentalism for nothing.

And so, in addition to announcing regressive sales tax increases, there was this: “We will continue our march to zero income taxes,” the governor said Thursday in his State of the State address. “States with no income tax consistently grow faster than those with high income taxes.”
There is no end to the fiscal insanity.