16 December 2010

On the “Tax Compromise”

Filed under: Culture, Reflections — ktismatics @ 10:12 am

Purportedly the $1 trillion “tax compromise” will function as an economic stimulus. With more discretionary money to spend, the citizenry will buy more consumer goods. This increased demand will stimulate the private sector to hire more workers. I think it’s bullshit.

Between April 2008 to March 2009 the US unemployment rate doubled, and since then it’s been stuck at between 9 and 10 percent. During this same interval the consumer price index and the gross domestic product have both gone up slightly. Meanwhile US corporate profits have consistently increased over the past year and a half, reaching the highest level in history during the third quarter of 2010. Soaring profits demonstrate the success of an industry-wide strategy: cut costs by squeezing more productivity out of fewer workers while maintaining or even increasing sales.

The biggest obstacle to sustaining this profit-making strategy is the real possibility of a decline in demand. Unemployed people have less money to spend, while the still-employed haven’t seen their wages rise. But that’s nothing new: adjusted for inflation, US wages have stagnated for thirty years. During those thirty years prices and sales have gone up. How? Less saving, more borrowing. But the borrowing bubble burst in the mortgage crisis, and since then personal savings rates have been increasing.

To keep the profits rolling in, US industry has to find a way to keep discretionary spending high. It would seem that it’s finally time for industry to pay the piper: start paying workers more so they can keep buying more. Corporations are currently making profits at an annualized rate of $1.7 trillion: why not spend, say, an even trill next year to hire more workers and raise wages? Then the workers can spend the extra pay on more of the shit that they’re making and you’re selling.

But then, object the CEOs and investors, that trillion wouldn’t be profit any more, would it? How about this: instead of getting consumers to borrow more, let’s have the government borrow more. Then, instead of the government spending the borrowed money on more public works that benefit the citizenry, let’s have the government distribute the borrowed money to the consumers so they can buy more of the shit we sell. Instead of spending a trillion of our profits on increased labor costs, we’ll invest that trillion in the new bonds the government will issue to pay for the borrowing — that way corporations make even more profits on the interest. And we’ll make sure our political hacks keep selling our story: pass this borrow-and-spend stimulus package right now or risk double-dip recession. Okay, meeting adjourned.



  1. Hey Eloise! You’re back from the sabbatical as well, I see.


    Comment by parody center — 17 December 2010 @ 2:16 am

  2. “Bull shit” is a good way to put it!

    As you know, I’ve been reading Zinn. One thing that is interesting, related to your post here, is that in the early days of the industrial revolution, the technological innovations of industry meant that the U.S. began producing more than they were purchasing at home. So, the wealthy industrialists and corporate executives of the day began to look at foreign markets. Their representative government in the U.S. was happy to oblige and assist in opening markets, at times via the threat and actual use of force against foreign nations/peoples.

    The funny thing (“funny” it its most tragic sense) is that workers in the U.S. were sometimes going hungry, or often barely had the means to keep themselves and their families from going hungry, without clothes, or on the streets. Labor “unrest” is an understatement. Workers were angry and revolutionary. I was interested to learn that before WW1, the socialist party (at its peak in popularity) won something like 30% of the vote for mayoral elections in big cities like NY and Chicago.

    It’s was such a bizarre system: that wealthy capitalists would look for foreign markets before being willing to pay their workers more (so that their workers could in turn actually own some of the shit they made). But what was true then is true now, perhaps with the exception of a larger middle class. The last thing governmental or corporate power wants to consider is a raise in the wages of the workers. Any other harebrained scheme seems to be considered more worthwhile.


    Comment by Jonathan Erdman — 17 December 2010 @ 11:42 am

  3. Good points, Jon. And thanks for the Zinn recommendation: it’s an eye-opener on the consistent pattern of financial exploitation in American history.

    Low-paid workers who can’t afford to buy the stuff they make: today’s third-world sweatshops are like the American colonies of 300 years ago. Surely one question facing American industry is whether it’s more cost-effective (i.e. profitable) to boost the salaries = purchasing power of their third-world workforce/consumers or of their American workers/consumers. From a financial standpoint I don’t believe that the American investors are particularly patriotic about it. When American workers lose these battles and see their jobs exported to other countries, the usual reaction is trade protectionism and xenophobia. In a real sense American workers have more in common with Indian workers than with American CEOs and super-rich investors.

    It’s funny, Erdman, but I was just looking over this post again. In the last two paragraphs it turns into a hypothetical conversation between an advocate for the people and a businessman. The businessman’s voice is edgier, more italicized, more butch. It’s like, “Double-dip this, bitch!” Tycoons are often more entertaining figures in fiction. We just finished watching season one of Mad Men and that’s certainly the case. The guys in that show are shallow, exploitative, irredeemable assholes, but that’s largely what makes them so much fun to watch.


    Comment by ktismatics — 17 December 2010 @ 4:48 pm

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