Sunday, December 30, 2012

Class Warfare at the Edge of the Fiscal Cliff


Two (related) things are on my mind today.  (1) The willingness of good, open-minded people to become instantly inflamed over the idea of corporate profits being at an all-time high (this relates to the provocative graph above), and (2) something I recently saw on CNN.  CNN was discussing the fiscal cliff negotiations before many people would be taking their Christmas break.  No, this was not a discussion of differing points of view.  This was a discussion between concerned like-minded CNN correspondents on why it would be really, really good for the GOP if they would follow Boehner in breaking their read-my-lips pledges.

Yes, this worked wonders for George H.W. Bush's career, didn't it?   Remember those Democrat ads constantly reminding the people that Bush 41 had made this same deal with Democrats?  Funny how they used Bush's willingness to work with them as a bludgeon in the following election year.  Kind of like how the Democrats have maligned Bush 43 for supporting the very outlays they wanted, increased funds for education and medicine-- Democrats now act like it was mainly international warfare that were the principal factors in our pre-TARP deficits (think Biden's "two wars on a credit card" quip).  

The Bush 41 capitulation was a repeat of Reagan's regretted capitulation to raising taxes.  Reagan capitulated because the agreement was that there would be $3 in cuts for every $1 of tax increase.  But it somehow never materialized. 

This puts me in mind of the majors news outlets repeatedly discussing Romney's supposed absence of specifics (are there a lot of pre-negotiation specifics?  what were the pre-negotiation specifics of "Affordable Care"?)-- with no discussion of the specific cap on deductions idea.  And then into December where was the discussion of what Obama and his party comrades were willing to concede in serious spending reductions?  What specifics?  Where was the leadership? 

Realize this:  The Obama era deficits dwarf the Bush era deficits even during the height of the Middle East efforts, with the exception of the last year dominated by the TARP bailouts.  The crisis spending (which may well have been a bad idea) for the bailouts was taken by this administration as the "New Normal" for spending: Obama being championed as not signficantly raising the bar on spending.  Even with Congress being temporarily dominated by the Democratic party for the first two years of Obama's term, they couldn't get spending down to the lowest mark of the Bush years, let alone the Clinton years.  They would be going back on the very outlays to which they got Bush 43 to agree!  When their total lack of accountability brought about the Tea Party revolution of 2010, they had to blame that on racism because there was no better canard, and they desparately needed to divert attention. 

Famed "centrist" Obama, hailed as a pragmatist in 2008, heir-apparent to the new Clintonian "fiscal conservative progressive" movement, in a teachable moment were everything should be on the table, has made one thing essential and non-negotiable:  Tax the rich.  Nope, he's definitely not an ideologue; he just thinks his principle of fairness trumps every consideration when all our livelihoods are potentially affected.  Don't worry though, it will all be the fault of the silly Republicans with their silly commitments and pledges--if you watch CNN. 

As the CNN talking heads put it:  Why are the Republicans so out of touch with their leader Boehner?  Why can't they just play follow-the-leader?  Well, gee whiz, maybe there's someone else they have to answer to, hmm?  Perhaps the people that elected them based on their silly pledges, hmm?  Maybe they somehow figure into this.  But hey, I'm not a high-paid CNN policy wonk so what the &#%$! do I know?  That's probably not an important factor to bring up in any "discussion" like this. 

Anyway, back to corporate profits and unemployment.  Record profits with high unemployment!  Why, there must be an epidemic of greed!  More greed than there's ever been before!  All this terrible economic woe where people can't spend as much money as before and corporations are somehow making more money than ever before!  Why, that's positively criminal!!!! 

If you click on the graph here, you'll see that there is always a lag effect in employment.  Compamies do not hire everyone back all at once.  Sometimes unemployment actually does not even start turning around once a recession is over (look at 1992).  People start buying again, but companies don't immediately hire back everyone.  They are very cautious.  This isn't new!  As things stabilize, only then do they see that their profits will truly be maximized by hiring more people.  Companies aren't charities!  The only reason they hired all those people to begin with (before the recession layoffs) was because those people allowed the company to do more business and make more money.  That's why companies slowly and eventually re-hired people.  Unemployment falls after an upset but ALWAYS falls much more slowly than it rose during the recession.  Unless you are re-defining greed as not wanting a company to go under, this is just basic market dynamics.

In spite of the increased profit margin with fewer employees post-recession, corporations know that in the end, they make more money by being able to handle more business.  Hiring any new employee is an investment.  The company shells out a lot of dough up front without neessarily seeing a return on that extra expenditure for some time.  It takes a stable, growing economy for a company to take that risk.  Until then, they accumulate their profits to make strategic acquisitions or to weather upcoming economic after-shocks. 

Another thing to look at.  The 1982 spike in unemployment.  Reagan, in the short run, allowed a major market upset in order to get runaway inflation under control.  He supported the Federal Reserve in not artificially reducing unemployment by devaluing everyone's money (as the recent severe inflations of the Obama years have done significantly).  This cause an upset that would have ousted Reagan during an election year.  Reagan took the hit because with business-friendly policies he believed there would be a quick recovery.  By 1984, unemployment was even lower than before the mighty spike.  By 1988 unemployment was at pre-1975 levels.  The recession that partly lost Bush 41 the election was eventually followed by the Clinton-Gingrich reforms (helped too much by the dot-com boom) with a new low in unemployment.  Capital gains tax rates went to an all-time low even when Clinton wasn't facing re-election.  Meaningful spending cuts, meaningful welfare reforms, business-friendly policies.  

All the greed rhetoric and fairness posturing doesn't seem to be facilitating discussion.

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