My Quarterly Call For Your Support and My Latest Column
Dear Friends,
It is September and time for my quarterly request for
your support. The website has a number of supporters who have set up automatic
monthly donations. If the website had more of these, I could dispense with
quarterly requests.
If you contribute via PayPal or Stripe, please make a
note of it. As credit card companies are saving money by not providing much of
a description of your card charges, some contributors do not recognize the
charges and file a dispute. These mistaken disputes waste a lot of my time and
cost the website money in automatic “fraud fees.” Credit card companies are set
up for purchases, not for contributions. Therefore, PayPal and Stripe assume
that the charge to your card originated with the website and not with you, and
I become involved in an incorrect charge dispute. IPE does not have your credit
card number and cannot charge you for anything. When you use your card to make
a donation, PayPal or Stripe has your card number, not IPE.
Remember, this is your website. To use an old
expression, I am at the time of life when I would like to be shed of all this
and spend my time with family and my cats, hiking along the mountain streams
and walking the beach while I still can, and driving sports cars while I can
still get in and out of them. But I understand that I provide a window into The
Matrix or out of it, and I will not desert you as long as you support the site.
I understand, without being conceited, that my education and life experiences
mean that I know things that you can’t know and that there is scarcely anyone
else to inform you. This statement does not mean that I think I know about
everything and that every explanation I give is 100% correct. Experience and
best effort are what I give you.
I appreciate your emails and try to read them all, but
I cannot respond to them all, especially the ones asking for my responses to
manuscripts, books, video presentations, and requests for lengthy explanations
of various matters and advice. If I stopped reading and writing and only
attended to your requests, I would still not be able to satisfy them all. The
absence of my reply does not mean that you are rejected or that I don’t think
that your thoughts and efforts are worthwhile. It merely means that time,
energy, and other duties are constraints. The same applies to requests to
collaborate in various ventures and protests. I am only one person, and my
hands are full.
This month is a busy one for me. Family visitors and
other responsibilities will necessitate that I take some time off, so expect my
postings to be lighter than usual. After the 20th of the month, things should
ease a bit.
In the meantime, below is my take on the economy in
contrast to the disinformation fed to you by the government and financial
media.
Whither The Economy?
Paul Craig Roberts
The great problem with corporate capitalism is that
publicly owned companies have short time horizons. Unlike a privately owned
business, the top executives of a publicly owned corporation generally come to
their positions late in life. Consequently, they have a few years in which to
make their fortune.
As a consequence of the short-sightedness of reformers
and Congress, the annual salaries of top executives were capped at $1 million.
Amounts in excess are not deductible for the company as an expense. The
exception is “performance-related” pay, which has no limit. The result is that
the major part of executive pay comes in the form of performance bonuses.
Performance means a rise in the price of the company’s shares.
Performance bonuses can be honestly obtained by good
management or mere luck that results in a rise in the company’s profits.
However, there are a number of ways in which performance bonuses can be less legitimately
obtained, almost all of which result in short-term gains to executives and
shareholders and long-term damage to the corporation and economy.
Replacing American workers with foreign workers is one
way. The collapse of communism in Russia and China and the collapse of
socialism in India resulted in the under-utilized Indian and Chinese labor
forces becoming available to American corporations. Pushed by “shareholder
advocates,” Wall Street, and large retailers, US manufacturing corporations
began closing their manufacturing plants in the US and producing offshore the
goods, and later the services, that they market to Americans.
From the standpoint of the short-term interests of
executives and shareholders, this decision made sense. But to transform manufacturing
companies into marketing companies, as happened for example to Apple Computer,
which apparently does not own a single factory, was a strategic mistake for the
long-term. By offshoring the production of their products, US corporations
transferred technology, physical plant, and business knowhow to China. American
corporations are now dependent on China, a country that the idiots in
Washington are endeavoring to turn into an enemy.
Further downside comes from the fact that research,
development, and innovation are connected to the manufacturing process, because
it is difficult for these important functions to be successful in a sterile
atmosphere removed from the production process. As time goes by, US companies
are transformed from manufacturing enterprises into sales organizations and
lose connection to the work process, and these functions relocate abroad with
the manufacturing jobs.
Offshoring manufacturing jobs left Americans with
fewer high-value-added well-paid jobs, and the US middle class downsized.
Ladders of upward mobility were taken down. Income and wealth distributions
worsened. In effect, the One Percent got richer by giving away US incomes and
GDP to China. Economists who shilled for the offshoring corporations promised
new and better jobs to take the place of the lost manufacturing jobs, but as I
have pointed out for years, there is no sign of these promised jobs in the
payroll jobs releases or ten-year jobs projections.
Jobs offshoring began with manufacturing, but the rise
of the high speed Internet made it possible to move offshore tradable
professional skills, such as software engineering, Information Technology,
various forms of engineering, architecture, accounting, and even the medical
reading of MRIs and CT-Scans. The jobs and careers of university graduates were
sent abroad and denied to Americans. Many of the jobs that remained in the US
were given to foreign workers brought in on H1-B and L-1 work visas based on
the obviously false claim that there was a shortage of talent in the US.
The gains in executive bonuses and shareholder capital
gains were achieved by destroying the economic prospects of millions of
Americans and by reducing the growth potential of the US economy. In the
long-run this means the demise of the US as a world power. As I forecast in
2004, “the US will be a Third World country in 20 years.”
As jobs offshoring ran its course and had fewer
remaining gains to offer the One Percent, short-term greed turned to new ways
of wrecking both corporations and the US economy in behalf of executive and
shareholder gains. Executives of utility companies, for example, forewent
maintenance and upgrades and used the money instead to buy back their own
shares. If you have ever wondered why you can’t get faster Internet in your
area or why your electricity is constantly interrupted, this is probably the
cause.
Executives also use the company’s profits to
repurchase shares, and when they lack profits executives arrange bank loans to
the companies in order to buy back shares. Executive “performance pay” goes up,
but the corporations are left more heavily indebted and thus more vulnerable to
recession and foreign competition. In recent years, buybacks and dividends have
used up most of corporate profits, leaving the corporations bereft of updates
and reserves.
Publicly owned capitalism’s short-term time horizon is
also apparent with regard to nature’s resources and the environment. Ecological
economists, such as Herman Daly, have established the fact that environmental
destruction is the consequence of corporations moving many of the waste costs
associated with their activities off their profit and loss statements and onto
the environment. As other ways of artificially raising corporate profits and
share prices become exhausted, expect corporations to push harder against
pollution control measures. As the environment declines in its ability to
produce new resources and to absorb wastes or pollution—for example the large
growing dead areas in the Gulf of Mexico—the planet’s ability to sustain life
withers.
President Richard Nixon established the Environmental
Protection Agency in order to reduce the external or social costs that
corporations impose on the environment. However, the polluting industries were
not slow in taking over or capturing the agency, as University of Chicago
economist George Stigler predicted.
A basis of economic theory is the absurd assumption
that man-made capital is a perfect substitute for nature’s capital. This means
that if the environment is used up and ruined, not to worry. Innovation and
technology will substitute for nature. This absurd foundation of economic
theory is why there are so few ecological economists. Economics teaches not to
worry about the environment.
To sum up, the One Percent have enriched themselves at
the expense of the economy’s potential and everyone else.
Where does the economy stand at the present time, a
question on many of your minds? I am not a seer. Nevertheless, various things
are obvious. In the US consumer demand is constrained by high debt and the
absence of growth in real median family income. Evidence of the constrained US
consumer shows up in lackluster real retail sales and in year-over-year
declines in factory orders. On September 2, Zero Hedge reported that factory
orders had fallen for 9 consecutive months.
As I point out, the monthly payroll jobs announcements
are always overblown and consist largely of lowly-paid, part-time, domestic
service employment. The 5.3% unemployment rate is phony, because it does not
count any discouraged workers, and there are millions of them. Indeed, the
absence of jobs is the reason the labor force participation rate has
continually declined, a contradiction to the alleged recovery. On September 1,
the Economic Cycle Research Institute reported that the US government’s data on
employment/population ratios by education shows that the employment/population
ratio for those with high school and college diplomas is lower now than when
the alleged economic recovery began in June 2009. The only job gains have been
for those without a high school diploma, the cheapest labor available in the
US. Clearly, these are not jobs that will produce any rebound in consumer
demand. And clearly education is not the answer.
The main economic releases from Washington—the ones
that make the headline news: the unemployment rate, payroll jobs, GDP, and the
consumer price index—are worthless. The unemployment rate does not include
millions of unemployed, the CPI is rigged to undercount inflation, and as
inflation is undercounted, real GDP is over-reported. Indeed, in my opinion and
that of economic-statistician John Williams of shadowstats.com, nominal GDP
deflated with a correct measure of inflation shows essentially no growth during
the alleged recovery. What the government and financial media call economic
growth is essentially price rises or inflation.
What is happening to America is that all of the
surplus in the system accumulated over decades of success is being used up.
Americans have had no interest income from their savings since the Federal
Reserve decided to print trillions of dollars with which to purchase the
troubled financial assets of a small handful of mega-banks. In other words, the
Federal Reserve decided that, contrary to the propaganda about serving the
public interest, the Fed exists to serve a few oversized banks, not the
American people or their economy. As an institution, the Federal Reserve is so
corrupt that it should be shut down.
The elderly avoid the stock market, because a decline
can be long-lasting and eat up a large chunk of one’s savings. The same can
happen from long-term bonds. Therefore, older people prefer shorter term
interest instruments. The Federal Reserve’s zero interest rate policy means
that older people are using up their savings, at the expense of their peace of
mind and their heirs, in order to prevent a collapse in their standard of
living. The elderly are also drawing down their savings in support of
unemployed children and grandchildren. Unable to find jobs that will support
the formation of a household or even an individual existence, many young
college educated Americans are living with parents or grandparents, something I
have not previously seen in my lifetime.
All the while the corrupt financial media pump us full
of good economic news.
Many readers want to know if the stock market decline
is over. It remains to be seen. In my opinion two opposite forces are at work.
Based on earnings and the economy’s prospects, stocks are overvalued. However,
the appearance of a successful economy is important to Washington’s power, and
this brings in the Plunge Protection Team, a US Treasury/Federal Reserve team
that intervenes to support the market. Wall Street managed to get the team
created in 1988, and in the recent troubled days there are signs of it in
operation. For example, suddenly during a time of market decline strong
purchasing appeared, arresting the decline. Normally, optimistic purchasers who
interpret declines as buying opportunities wait until the decline is over. They
do not buy into the middle of a decline.
Today most stock purchases are made by money managers,
such as mutual funds and pension funds. Individuals do not account for much of
the market. Money managers are judged by their performance relative to their
peers. As long as they move up or down with their peers, they are safe. Once
the professionals see that government is supporting the market, they support
it. This behavior is bolstered by greed. Participants want the market to go up,
not down. Therefore, even if money managers understand that stocks are a
bubble, they will support the bubble as long as they think the Plunge
Protection Team is holding up the market. The unanswered question in the minds
of money managers is whether the Treasury and Fed are committed to maintaining
an overvalued market or whether they are just holding it up long enough for
their well-connected friends to get out. Only time will tell.
My book, The Failure of Laissez Faire
Capitalism and Economic Dissolution of the West, will introduce you to the
damage done by jobs offshoring and to the mistaken assumption of economists
that the environment puts no constraints on economic growth.
The other part of the story comes from Michael Hudson,
who explains the financialization of the economy and the transformation of the
financial sector, which once financed the production of real goods and
services, into a money-sucking leach that sucks all life out of the economy
into its own profits. I recently posted a link to Pam Martens’ review of his
book, Killing The Host.
If you can absorb my book, Michael Hudson’s book, and
one of Herman Daly’s books, you will have a much firmer grasp on economics than
economists have. Go to it.
And don’t forget to support this site.
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