Blue Mass Group

Reality-based commentary on politics.

Wonk Post: Corporate America Tells US Economy to Suck Eggs

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While I don’t doubt the sincerity of honest conservatives who support Corporate America presuming that it supports the US economy in its own best interest, the facts are otherwise:

Business excess

Despite cheap credit and a profitable business climate, what corporations are not doing is investing…

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  1. If you missed it, the New York Times had this related story (Cheap Debt for Corporations Fails to Spur Economy) last week.

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    Companies like Microsoft  are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves.

    The development presents something of a chicken-and-egg situation: Corporations keep saving, waiting for the economy to perk up – but the economy is unlikely to perk up if corporations keep saving.

  2. When corporations were worried about future taxes, regulations and the economy.

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    p> BTW one company did this before the current downturn, that firm is FORD who  survived without  corporate bailouts.

    • Ford, having major profit/loss difficulties before the Great Recession, cut back costs and dividends, invested in plant infrastructure, and took the long view.

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      p>Hence the company did not need federal support to survive.

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      p>Your premise that corporate plans are based (largely) upon “future taxes [and] regulations” is great spin, but, given the actual structure of the US Tax Code as applied to corporations, has little to do with corporate decisions over the past three decades, where abandonment of fiduciary responsibility on the part of Boards of Directors and institutional investors alike created the mess.

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      p>Specific to American automobile companies, another problem was the rise of corporate leaders from the design, finance, and marketing divisions supplanting automotive engineers in the executive suites (and making engineering decisions for which they had little or no qualifications).

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      p>As Adam Smith pointed out in “The Wealth of Nations” unregulated markets always self-corrupt and auto-destruct.

      • Instead they have to compete with GM who is subsidized by the US government. So Ford played the game correctly, and the US government rigged the game.

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        p>Both GM Executives and Workers dragged the company down.

    • Ford still has family responsibility.  I doubt if any of the Ford family wants to be known as the ones that ran the company under.  Other companies are out to chase the quarter earning and no long range goal is needed.  The execs hope to be retired by the time of collapse.  Quick buck is more important than peer rating.

      • Companies held by families have a much longer time horizon. They put up with the ups and downs.

        • Inheritance taxes don’t apply when any competent 3L can create a family trust – if that trust is created under the public auspices of a practicing attorney.

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          p>The issue is not ownership of money, but control, and estate taxes only apply to “ownership” by the deceased.  When the trust has “ownership”, control passes to the heirs without dilution.

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          p>The concept of “Death Taxes”, while good and effective spin, is legally and financially fraudulent – again presuming a marginally competent estates and trusts attorney.  

    • From a NY Times business column by Catherine Rampell:

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      The biggest single problem facing America’s small businesses isn’t taxes or overregulation. It’s low demand, according to a new report released by the National Federation of Independent Business.

      Thirty-one percent of small businesses surveyed by the N.F.I.B. said that “poor sales” are their company’s “single most important problem.” The other options included were competition from large businesses, insurance costs and availability, financing and interest rates, government requirements and red tape, inflation, quality of labor, cost of labor and “other.”

      • (at the moment) are unlikely to increase employment (or help the economy). Caught in the paradox of thrift, demand is low. We need to stimulate demand.

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        p>That’s one reason the Beacon Hill Institute’s recent rehashing of the Laffer Curve is stupid. Other reasons might include their failure to seriously discuss what 10,000 (!)public sector jobs we would lose, the quality of 27,000+ jobs Question 3 would allegedly create, and extreme pressure the cuts would put on property taxes. But hey, why sweat the details? The market will provide.

  3. Possibly this reflects a growth in the profits accruing to the financial sector whose profitability doesn’t require much in the way of equipment.

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    p>Furthermore, the growth of that sector has been hard to justify on the grounds of social good. Inventions like mortgage-backed securities and credit default swaps have been good for the economy precisely how?

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