The Wild Ride Gets Wilder – Only Government Spending Can Fix This

The world is out of balance. Everyone’s nervous. There is a glut of money floating around the world and no one offers a “safe place” to put it. The stock market is way up, way down, way up, way down – sometimes all on the same day. China’s currency is having dramatic swings while the U.S. has an enormous, humongous trade deficit.

Super-wealthy people are making and losing hundreds of millions (sometimes billions) in a day – none of it on making or doing actual things that matter. Inequality is soaring. (The top 25 hedge fund managers earn more than all kindergarten teachers in the U.S. combined.) And all around the world, there’s very little actual economic growth.

Meanwhile, most people barely (or don’t) have enough to get by.

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Trump: Don’t Make Corporations Pay Their Taxes

Republican economics has been stated a thousand ways by a thousand (always paid) voices. But the basic idea behind all the schemes has been hard to pin down. Finally Republican front-runner Donald Trump has spelled it out in a way anyone can understand.

Thursday’s Progressive Breakfast (you should subscribe, it’s free, it’s really good) contains a story in which Trump clearly articulates the Republican/Billionaire/Wall Street case for a low-or-zero tax on corporate profits: “because they don’t want to pay the tax.”

Trump Sides With Multinationals
Donald Trump backs repatriation in Time interview: “Pfizer is talking about moving to Ireland. Or someplace else … Do you know how big that is? It would wipe out New Jersey … They have $2.5 trillion sitting out of the country that they can’t get back because they don’t want to pay the tax. Nor would I … We should let them back in. Everybody. Even if you paid nothing it would be a good deal. Because they’ll take that money then and use it for other things. But they’ll pay something. Ten percent, they’ll pay something.”

There it is in a nutshell. The Republican case for low or no taxes: “because they don’t want to pay the tax.”

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Bernie Sanders Proposes To Boost Worker-Ownership Of Companies

Businesses are run for a profit that goes into the pockets of the business’ “investors.” To be an investor requires that you have money. This is a rigged system that by definition channels the returns and gains of our economy to the people who have money in the first place.

That system forces a terrible business model: investors try to squeeze money out of businesses as fast as they can. Then they move on. People who put the money in have even more money, but leave behind them a trail of squeezed-out ruin. This squeezing of the business involves squeezing the workers, squeezing the product, squeezing the customers and squeezing the government out of any taxes that might be owed.

This is bad for America’s long-term economy, people, environment and — since it brings about intense concentration of wealth — bad for our democracy, too. But hey, it’s great for a few already-wealthy people at the top.

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When The Real World Confronts Trade Theories, The Real World Wins

I had a conversation over the weekend about the Trans-Pacific Partnership (TPP). She’s for it, because “more trade is always good.”

TPP covers a whole lot more than what we would think of as “trade.” Regardless, let’s look here at the idea that expanding trade is always good.

Trade Is Good

Trade is good. We all at the very least trade our time for our pay. We might make or grow or draw or write something that we sell (trade) for money. Trade is basic.

But how we trade always makes a difference. If we trade our time and get paid too little, is that a good thing because it was a “trade”? Obviously the way trade gets done – the rules/policies that are in place – makes all the difference. So the question to consider is whether our current international trade policies as applied under our current economic order a good thing or a bad thing for We the People of the United States.

Cross-Border Trade

“Increasing cross-border trade” sounds like a worthy goal. But if you close a factory in the U.S., move the machines and jobs to a low-wage country, then bring the goods back here to sell in the same stores, you have just “increased cross-border trade.” How should we look at this?

The people now making the goods are paid much less, the investors who own the factory are pocketing much more. Sounds bad, unless you’re one of those owners.

Economists will tell you this is good because fewer of the resources of your economy are being expended to obtain whatever that factory was producing. Those resources can now be applied elsewhere by the investors, toward more productive investment. Sounds good.

Theoretically those American workers will now be freed up to do more productive work, potentially at a better pay rate. Sounds good.

But the way our current economic order works, those resources (the difference between what the American workers were paid and the lower costs of making the stuff somewhere else) are more often applied to the offshore tax-haven accounts of the elite investors than toward “more productive” investments. Sounds bad.

And the way our current system is working, without this new investment those workers remain unemployed, competing with the rest of the people in the workforce, which drives down everyone’s wages except for a few at the top. The reality is that if people laid off due to trade find new jobs, it is at a lower rate of pay. Sounds bad.

Economic theory confronts the reality of America’s current economic order and falls short. The elites use rigged “trade” deals to knock down labor costs. Instead of applying the gains toward investment in our economic future and higher wages for America’s workforce, they apply it to their bank accounts.

Comparative Advantage

The idea of comparative advantage says that countries (regions, etc.) should do what they are good at and trade with others for the things the others do better. Some countries are good at growing bananas and they can trade them for things they can’t grow or make.

But what counts as a comparative advantage?

A few years ago The New York Times took a look at the shift of manufacturing (and associated jobs) from the U.S. to China, in the report “How the U.S. Lost Out on iPhone Work.” The report is known for the Steve Jobs quote, talking to President Obama, saying, “Those jobs aren’t coming back.”

The reason Jobs said those jobs are not coming back was that in China the workers sleep in dormitories, 12 to a room, and can be rousted out of bed at any hour to complete “rush” jobs. They can be made to stand all day, work with dangerous chemicals, are paid very little, cannot organize unions, cannot even vote for a government that would make their lives better.

In other words, China offers a “comparative advantage.” That advantage is that they are not a democracy, workers have no rights and no voice. China is very “business-friendly.” So why would a company like Apple use American workers when they can use workers kept in these conditions?

Our democracy is a comparative disadvantage in world trade. Sounds bad.

Again economic theory confronts the reality of America’s current economic order and falls short. America had factories, China offered low-wage workers and the opportunity to freely pollute. Elites moved the factories to China. Elites use “trade” to attack democracy, turning government of, by and for We the People into a comparative disadvantage in world markets.

Click to see a video of Ian Fletcher talking at, of all places, the Heritage Foundation about his book, “Free Trade Doesn’t Work.” At 21:06 to 25:47 minutes he takes a very good look at the idea of comparative advantage in the real world. In sum:
1) Absence of externalities is not a competitive advantage. The pollution is still there, the workers are still exploited.
2) Capital mobility means you are allocating your capital outside of your own economy.
3) Comparative statistics look at a snapshot, a fixed point in time. If China doesn’t already have a factory making X it is not comparative advantage to go open one there. It is not the best move today if the other country is not already producing the thing for less.

Economies Of Scale

When trade is “opened up” across a border it doesn’t mean that new customers suddenly appear, anxious to buy goods and services produced by America’s small businesses. It’s not like there were no producers and suppliers on the other side of that trade border. The goods and services of an economy were likely already being supplied by someone.

Acme Widget, based in the American town of Plainville, is not suddenly going to get orders from small towns all across the new trading partner Tradonia. Tradonia already has suppliers of widgets. Those suppliers will just as easily come sell their widgets in Plainville.

Economists will say that “opening up” trade across a border increases competition, which benefits consumers. But this is not how it actually works. What has really opened up is a larger playing field with more opportunities for big companies on both sides of trade borders to dominate a larger market than the one they had been dominating, with a resulting decrease in aggregate employment.

In our current economic order big companies have advantages because of their size, and unfortunately rules are made based on which companies are ready to shell out the cash to influence how the rules for competition and domination of industries are made. Larger companies dominate and remove smaller competitors. One or two of these companies will get most of the business in both countries and become very large; the others will be gone. Due to economies of scale the overall widget manufacturing employment will decrease. The new monopolies and near-monopolies will then have the ability to charge what they want.

Once again economic theory confronts the reality of America’s current economic order and falls short. Opening up trade borders is more likely to bring further consolidation of giant companies, not more competition.

Reality Wins

These are just a few examples of the problems of academic trade and economic theory confronted with the realities of what actually happens in actual countries.

Another economic theory says that trade will balance as a result of currency adjustments. Supposedly when a country is running a surplus its currency rate will increase and things made in those countries will cost more, so purchases will shift back to the country that had a deficit. But in the real world, the United State competes with real countries that don’t play this way. Our country has an enormous, humongous trade deficit and has run continual trade deficits every single year since the late 1970s when “free markets” and “free trade” ideology came to dominate. This is because we follow an economic theory ideology, and other countries look at reality and adjust. So they win.

Reality trumps economic theories and ideologies – Every. Single. Time.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

Next Big One: Repatriation Tax Holiday Giveaway To Corporations

Here comes the next big one. Now that the corporations have fast-track trade authority in the bag, they are trying to push a huge, huge tax giveaway through Congress. We have to get the word out so this doesn’t just sneak through. We can’t let them continue to rig the system against us like this.

Up To $770 Billion Is Owed On $2.2 Trillion In Corporate Profits Stashed In Tax Havens

You might have heard about all that money the giant corporations have been stashing in tax havens so they can dodge paying their taxes. You might not have heard how much they owe us. Corporations have somewhere around $2.2 billion of “offshore” profits stashed in tax havens. They owe up to 35 percent in taxes on that money. That’s right; they owe up to $770 billion that We the People could have right now for our roads, schools, health care, scientific research, space exploration, to forgive student debt … we could have free college tuition, expand Social Security, high-speed rail across the country…. Instead, we’re told we can’t have these things because there are “budget deficits.”

And on top of that, at least another $50 billion per year of tax money is kept from us because of this scam.

Congress could just tell these corporations to pay up, and We the People would have up to $770 billion to use to make our lives better, and another $50 billion or more each year.

See if you can guess what Congress is getting ready to do instead?

Tax Holiday

Right now the giant, multinational corporations owe up to $770 billion in taxes on the $2.2 trillion they are holding outside the country in tax-haven mailbox subsidiaries. Right now. They have the cash in the bank (in tax-haven countries) and could write checks tomorrow if Congress told them to. Again, this is taxes they already owe but haven’t paid. Think of the things our country could do with that money.

But instead …

Congress is proposing to give these companies a tax holiday and let them off from paying the taxes they already owe on that money. There is all kinds of complicated language being used to mask what is happening, but it’s really simple: Some members of Congress are proposing letting them off from the taxes they already owe on “offshore” profits, and then letting them off from paying taxes on future profits made “outside the country” from now on.

For example, the Charles Schumer-Rob Portman bill in the Senate will tax this money (on which 35 percent is already owed), “at a rate significantly lower than the statutory corporate rate.” And then it will cut tax rates on future “offshore” profits forever.

Quick question: For years these companies have been moving jobs, production and profit centers out of the country to take advantage of this tax dodge. If they are rewarded for this with this huge tax cut, how many more companies will move jobs, production and profit centers out of the country from now on? Bonus question: Will there be any jobs, production or profit centers left inside the U.S. if Congress lets companies off the hook from taxes on profits made from moving jobs, production and profits centers out of the country?

Don’t Let this Sneak Past Us

The corporations and billionaires count on these things sneaking through under cover of complicated language, so we never find out what is happening to us. Later they tell us “we’re broke” and there is no way to “pay for” things like roads, schools, and other needs. They tell us we have “deficits” that could “bankrupt” us, so college tuition has to go up, we have to pay to use toll roads, they have to cut funding for schools, we can’t have high-speed rail, they can’t afford to do scientific research or space exploration or fight global warming or fix up national parks, and so on.

But what is really going on is the game is being rigged. Corporations get huge tax breaks and subsidies, a few billionaires and plutocrats get the cash, and We the People, the 99 percent, have to make up the difference.

We need to get the word out about this. This is the next big one they are trying to slip through before we know what is happening to us.

We have to fight this. We have to make noise. Even if we don’t win this, at least we will know what happened this time. Then, later, when they come back and say there’s no money to do things that make our lives better, we will be able to see through the smokescreen. We will know where the money went, and eventually enough people will understand how the game is being rigged – and stop it.

Congress should tell the giant, multinational corporations that it is time to pay the taxes the already owe on “offshore” profits. They should not reward companies for moving jobs, production and profit centers out of our country.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

Was Greece Lured Into “Strategic Deficits”?

The job of a lender is to evaluate risk and price a loan accordingly. If there is risk you charge a higher interest rate. That way you still make money on a broad portfolio of loans even when there are a few defaults.

That’s the job of a banker, supposedly. It’s what they are supposed to be good at. If they are bad at their job, give loans to deadbeats (or countries that can’t pay you back) you lose money, and probably shouldn’t in the business of being a lender.

The lender is supposed to evaluate the risk and say no if the borrower is irresponsible, not complain later about the borrower being irresponsible.

Unless their job is to get the borrower in over their head so you can get stuff. As in “Confessions of an Economic Hit Man.” In that case you try to get governments to borrow, you even bribe the leaders of governments to borrow like crazy so you can later control whoever is then in charge. From “Confessions of an Economic Hit Man“:

We are an elite group of men and women who utilize international financial organizations to foment conditions that make other nations subservient to the corporatocracy running our biggest corporations, our government, and our banks. Like our counterparts in the Mafia, EHMs provide favors. These take the form of loans to develop infrastructure – electric generating plants, highways, ports, airports, or industrial parks.

… Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creditor), the recipient country is required to pay it all back, principal plus interest. If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years. When this happens, then like the Mafia we demand our pound of flesh.

Former president Ronald Reagan, for example, said he was trying to run up the borrowing in order to force the government to cut back on things it does to make our lives better. He cut taxes, increased military spending, a strategy called “strategic deficits.” (Google that.)

Later we had budget surpluses under Clinton. Then Federal Reserve chairman Alan Greenspan complained that the government was paying off the debt too fast. Then “W” Bush cut taxes and doubled military spending and said it was “incredibly positive news” (Google that, too) that the government was going back into deficits because it would force spending cuts.

Strategic deficits. Done on purpose. Are Greece’s lenders bad at their job? Or are they good at a different job?

Atrios earlier:

“You lend money at a risk premium. Borrowers pay that risk premium for a reason. That reason is that they might stop being able to pay. Then you eat the loan.

… The banksters are supposed to be genius financial intermediaries, properly pricing risk and making loans accordingly. It seems that they aren’t very good at their jobs? I suppose it depends on whether that really is their job.”

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

In Tax Battles, “Competitiveness” Means Coercion

Watch out for this one. With fast track trade authority done, the big corporations are now pushing for massive tax giveaways. This is another exercise of raw corporate power by the few to take what they want from the many. The corporations use complexity to get people to tune out, and their schemes are masked by smooth words like “reform” and “competitiveness,” but it is all just another grab for (even more) money and power.

There are two areas where the corporations are coming at us. The first is a blatant grab to keep somewhere up to $700 billion in tax money they already owe on “offshore” profits. The second is a push to permanently cut corporate tax rates – even more.

Taxes Owed On Offshore Profits

Multinational corporations avoid paying U.S. taxes using a “deferral” loophole. This loophole lets them dodge taxes on profits made outside of the country until they bring the profits back into the country (called “repatriation”).

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Wall Street And Big Corporations Got What They Wanted – This Time

Fast track passes. Our Congress – the supposed representatives of We the People – voted to cut themselves and us out of the process of deciding what “the rules” for doing business “in the 21st Century” will be.

How do the plutocrats and oligarchs and their giant multinational corporations get what they want when a pesky democracy is in their way? They push that pesky democracy out of their way.

Because of fast track, when the secret Trans-Pacific Partnership (TPP) and any other secretly negotiated “trade” agreements are completed Congress must vote in a hurry with only limited debate, cannot make any amendments no matter what is in the agreement, and they can’t be filibustered. Nothing else coming before our Congress gets that kind of skid-greasing, only corporate-written “trade” agreements – and it doesn’t matter how far the contents go beyond actual “trade.”

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Will TPP Kill The Post Office?

Corporations are notorious for sneaking things into laws and regulations before the public can find out and rally to stop it. And we know from the conservative Supreme Court arguments against the Affordable Care Act that even what amounts to a typo can be used to change the obvious meaning and intent of a law.

These are reasons we need to see the text of the Trans-Pacific Partnership before Congress votes to preapprove it with fast track trade promotion authority (TPA). They are pushing what is literally a pig in a poke on us. We the People need to open that bag and have a good, long look inside before fast track buys the TPP pig in our name.

Negotiated in secret by corporate representatives, it is probable that the Trans-Pacific Partnership (TPP) is loaded with things the big corporations have snuck in. We already know from leaks that TPP contains provisions allowing companies to sue our government in “corporate courts” if they feel a law or regulation is cutting into their profits. What else is in there?

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