Activate the Mechanism!

Recovery in U.S. Is Lifting Profits, but Not Adding Jobs

(The New York Times) - With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold.

That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

read more

This is what damn near everyone has been saying for the last few years, but it doesn’t seem to be sinking in with many people right of center. Well, either it’s not sinking in or they really don’t care. I suppose it’s an optimum situation if you’re wealthy.

Low-wage, temporary jobs have become so widespread that they threaten to become the norm.

(New York Times) - Politicians across the political spectrum herald “job creation,” but frightfully few of them talk about what kinds of jobs are being created. Yet this clearly matters: According to the Census Bureau, one-third of adults who live in poverty are working but do not earn enough to support themselves and their families.

A quarter of jobs in America pay below the federal poverty line for a family of four ($23,050). Not only are many jobs low-wage, they are also temporary and insecure. Over the last three years, the temp industry added more jobs in the United States than any other, according to the American Staffing Association, the trade group representing temp recruitment agencies, outsourcing specialists and the like.

Low-wage, temporary jobs have become so widespread that they threaten to become the norm. But for some reason this isn’t causing a scandal. At least in the business press, we are more likely to hear plaudits for “lean and mean” companies than angst about the changing nature of work for ordinary Americans.

How did we arrive at this state of affairs? Many argue that it was the inevitable result of macroeconomic forces — globalization, deindustrialization and technological change — beyond our political control. Yet employers had (and have) choices. Rather than squeezing workers, they could have invested in workers and boosted product quality, taking what economists call the high road toward more advanced manufacturing and skilled service work. But this hasn’t happened. Instead, American employers have generally taken the low road: lowering wages and cutting benefits, converting permanent employees into part-time and contingent workers, busting unions and subcontracting and outsourcing jobs. They have done so, in part, because of the extraordinary evangelizing of the temp industry, which rose from humble origins to become a global behemoth.

read more

Corporate Profits Hit Record High While Worker Wages Hit Record Low

A constant conservative charge against President Obama is that he is inherently anti-business. However, businesses keep defying the storyline by making larger and larger profits, rebounding nicely out of the Great Recession.

In the third quarter of this year, “corporate earnings were $1.75 trillion, up 18.6% from a year ago.” Corporations are currently making more as a percentage of the economy than they ever have since such records were kept. But at the same time, wages as a percentage of the economy are at an all-time low, as this chart shows. (The red line is corporate profits; the blue line is private sector wages.):

Corporations made a record $824 billion in profits last year as well, while the stock market has had one of its best performances since 1900 while Obama has been in office.

Meanwhile, workers are getting the short end of the stick. As CNN Money explained, “a separate government reading shows that total wages have now fallen to a record low of 43.5% of GDP. Until 1975, wages almost always accounted for at least half of GDP, and had been as high as 49% as recently as early 2001.”

source

If this business about the “job creators” and “wealth trickling down” were true, then we should be swimming in jobs right now.

Be we aren’t.

Today’s Jobs Report, Showing More Gains, Destroys Right-Wing ‘Cooked’ Claims

Greg Mitchell | The Nation

I’ve had to warn here, every month, that despite the media and political hype, the monthly U.S.  jobs report never seems to move the polls.  But here’s this month’s, just out at 8:30 a.m.:  Unemployment up  slightly from 7.8% to 7.9%,  but with 171,000 jobs added, a nice number (beating expectations), plus more than 80,000 gained in revisions to previous months.  August revised up from 142K to 192K, September revised up from 114K to 148K.

Now awaiting how these numbers “cooked.”  One of the rightwing (led by Jack Welch and Donald Trump) claims last month:  those August and September numbers would be revised downward now after their cooking time ended. Did not happen.

BTW, numbers show the reason so many jobs were added, but unemployment  rose, was  because 578,000 joined the work force, countering another GOP argument that jobs numbers look better only because so many have stopped looking for work. 

source

Another reason low taxes on the rich doesn’t make sense:

An employee is a tax-deductible expense.

Having higher taxes means that there will be a lower net cost of hiring/paying that individual.

Lower taxes mean more net profit can be kept without the need for additional hiring to write off as a tax deduction.  

This would also apply to paying employees more. Higher wages and better benefits would be “putting money back into the company” - another tax write-off, but the lower tax rates would be incentive to hold on to this money, or invest it elsewhere as opposed to putting it back into the company as an operating expense/tax write off.

Overall, higher taxes on the rich historically have correlated to higher economic growth for the country.

It seems self-evident that tax-cuts should stimulate the economy. It seems so self-evident, that we discuss the theory as if it were a known fact. We don’t even question the claim. But history offers us some evidence that tax cuts don’t stimulate the economy.

• In 1921 & 1925, major taxes cut were passed. In the following years a stock market bubble formed while working class wages stagnated, then in 1929 the bubble burst and the economy crashed into the Great Depression.
• In 1981 a tax cut was passed. The economy sank deeper into recession and stayed in recession for nearly two years.
• In 1987 major tax cuts were passed. By 1990 growth declined leading into the 1991 recession.
• In 2001 a tax cut was passed, and another rebate was given in 2008. From 2001 through 2008 the economy grew slower than it did in the preceding 8 while a bubble formed in stocks, housing, and executive salaries. In 2008 the bubble burst, and now the economy in sinking into the worst recession since the Great Depression.

So what do we see in the data overall? Perhaps we should look at the data more thoroughly. We start by looking at the marginal tax rate on the richest citizens.

When we look at the tax rate charged to the richest citizens, we see that low taxes correlate to slow growth. When marginal taxes on the rich were below 40% growth remained below 4.5%. When top taxes were above 65% growth tended to be higher, even going above 6%. Historically, higher taxes on the rich have correlated to higher growth.

Overall, higher taxes on the rich historically have correlated to higher economic growth for the country. It’s counterintuitive, but it is the historical fact. Just, to be certain, we can compare taxes to job creation also.

Again we see higher growth when the marginal tax on the rich is higher. It might seen odd, but that’s what history shows us.

Let’s look closer at how the economy changed after tax cuts. We can look at how both GDP and employment grew just before the tax cut, and then just after the tax cut. Did they grow faster or slower?

In the last 50 years there were 5 tax cuts to the rich. Three of them were followed by a decline in GDP growth, 3 were followed by a decline in employment growth. The evidence suggests that tax cuts do not promote growth and probably promote decline.

In the last 50 years there was just one tax increase to the rich. After that tax increase both the GDP and employment growth rates increased significantly.

The historical evidence suggests that an economic decline will follow a tax cut to the rich, and economic growth may follow a tax increase to the rich. The evidence suggests that the optimum tax marginal tax rate on the rich is higher than 60%.

Can we make similar conclusions for taxes rates on the middle class and poor?

For the lower classes, the historical data does not have an apparent pattern. The scatter is wide and fails to show a tendency in either direction.

Historically, taxes on the middle class and poor have shown no correlation to economic growth. Other factors must have greater influence than tax rates.

source

I was just talking about this not too long ago, it seems like taxing the very rich (and the companies they own) at a lower rate is an incentive to keep money concentrated at the top as opposed to actually letting profits “trickle down”.

Historical data seems to correlate with this.

Low taxes on high earners - A reason to let wealth concentrate at the top

When you start taxing corporations and their CEOs/Board members at lower rates, this is incentive to keep money concentrated at the top. In other words, “trickle down” economics work exactly opposite to how they are presented.

It would seem that if you were taxing these high earners at a higher rate, there would be more incentive to pass on profits/earnings to employees to avoid paying larger amounts in taxes as this higher pay for employees would mean higher operating cost and less profit to be taxed. 

At the same time more money is going to employees who then spend that money on living expenses and perhaps the occasional luxury item, putting money back into the economy.

The lower tax scenario is exactly what has happened. Has corporate profits and high earners are taxed less, money continues to concentrate at the top, workers are paid less and receive less in benefits and the divide between the rich and the poor gets larger. Hence, the current financial situation we have in the US.  

Think Progress | Meet The Conservatives Who Think Today’s Job Numbers Are A Conspiracy

The Bureau of Labor Statistics released an unexpectedly strong monthly jobs report on Friday, finding a dramatic drop in unemployment to 7.8 percent and revised the number of jobs added in July and August up from initial estimates. While for most Americans, the growing economy is good news, conservatives immediately expressed their skepticism in the jobs report’s credibility.

1) Minutes after the report was released, Jack Welch, who famously cooked General Electric’s accounting books when he was CEO, accused President Obama of manipulating the numbers to distract from his debate performance:

2) Conn Carroll, a senior writer at the Washington Examiner, doesn’t think the problem is the BLS, but a widespread conspiracy of Democrats lying about their unemployment:

3) Former Rumsfeld Chief of Staff Keith Urbahn questioned the timing:

4) Stuart Varney on Fox News claims the drop in unemployment five weeks before the election is too “convenient”: (link to video)

5) Also on Fox News, Charles Payne “guarantees” that unemployment rate will be revised back up to above 8 percent after the election: (link to video)

Fox News’ Eric Bolling:

source

What was I just saying earlier about right-wingers distorting reality when reality didn’t fit with their narrative? This is hilarious. 

U.S. Unemployment rate drops to 7.8; Huge upward revisions for July and August job numbers

WASHINGTON (MarketWatch) - The U.S. economy generated a lackluster 114,000 jobs in September, but the unemployment rate fell to 7.8% from 8.1%, the lowest level since January 2009, the government said Friday. Economists surveyed by MarketWatch expected a 110,000 increase in jobs, based on the Labor Department’s survey of businesses.

The unemployment rate, which is drawn from a separate survey of households, was forecast to tick up to 8.2% from 8.1%. Yet the jobless rate fell sharply after the biggest increase in employment as measured by the household survey since 1983. Some 873,000 people in the household survey said they found jobs. Employment gains for August and July, meanwhile, were revised higher by a combined 86,000. The number of new jobs created in August was revised up to 142,000 from an original estimate of 96,000. July’s figure was revised up to 181,000 from 141,000. In September, average hourly wages rose 7 cents, or 0.4%, to $23.58. The average workweek edged up 0.1 hour to 34.5

source

This type of thing tends to be very good news for an incumbent presidential candidate.