Billionaires deserve their money: Killings jobs is hard work

[David Guyatt]

From SystemicDisorder blog:

Sure billionaires deserve their money: Killing jobs is hard work

Feb11by Systemic Disorder
More is never enough. A few examples of the wrath of speculators illustrate the "whip" of finance capital as the world's corporations announced their results in recent weeks.
Among the words that do not go together are "shareholder activist." Whether a sign of the debasement of language, or that the corporate media's myopia has degenerated to the point where speculators trying to extract every possible dollar out of a corporation is what constitutes "activism" to them, as if this was some sort of selfless activity, these are the words often used to describe wolf packs that grow ever hungrier. Not even one of the world's biggest corporations, E.I. du Pont de Nemours & Company, is immune.
DuPont, a chemical multi-national that produces many products that dominate their market, has racked up about US$17.8 billion in profits over the past five years, including $3.6 billion in 2014. Its stock price increased by 20 percent last year, better than the benchmark S&P 500 Index. DuPont recently sold off its performance chemicals business, and will hand out $4 billion to shareholders from the proceeds of the sale. Surely enough you say? Nope.
A hedge-fund manager yep, one those "shareholder activists" has declared war on DuPont management. The hedge funder, Nelson Peltz, is demanding that DuPont bebroken up into two companies, under the theory that more profit can be extracted, and he is demanding that four seats on the DuPont board be given to him. So far, at least, DuPont management is resisting the hedge funder, but did announce $1 billion in cuts in a bid to pacify Wall Street. That means that more employees will pay for heightened extraction of money with their jobs. Mr. Peltz's hedge fund specializes in buying "undervalued stocks," according to Bloomberg, which is code for corporate raiding. It must pay well, for he is worth $1.9 billion.

DuPont chemical plant on Houston Ship Channel (photo by Blair Pittman for the U.S. Environmental Protection Agency)

One company that has given into speculators by selling off its best asset is Yahoo Inc. Although widely attacked in the business press for having no coherent plan for growth, Yahoo did report net income of $1.3 billion on revenue of $4.7 billion for 2013, a hefty profit margin, and remained profitable in 2014. Nonetheless, Yahoo said it will spin off into a separate company its most valuable asset, its stake in the Chinese online merchant Alibaba. This is being done so that more of the profits can distributed to speculators.
If Yahoo were to simply sell its stake, it would have to pay taxes. By spinning off its holding into a separate company, there will be no taxes paid, and thus more money will be stuffed into financiers' pockets. "The decision," The New York Times reported, "cheered shareholders because they will directly reap all the remaining profit from Yahoo's prescient investment." Yahoo will also lose its most valuable asset, making the company weaker (and presumably more likely to get rid of some of its workforce), but speculators will make a windfall. That is all that matters in these calculations.
Even an Internet darling, Google Inc., is losing its Wall Street halo. Grumbling was heard when Google's revenue for the fourth quarter of 2014 was "only" 10 percent higher than the fourth quarter of a year earlier, a slower rate of growth than in the past. For the full year 2014, Google reported net income of $14.4 billion on revenue of $66 billion. Based on these results, it looks as if Google will remain a going concern. Nonetheless, Google stock is down 12 percent since September, a sign of financiers' displeasure.
But perhaps happier days are on their way. The Associated Press reports that a "pep talk" by the company's chief financial officer "left open the possibility that the company might funnel some of its $64 billion in cash back to shareholders, especially if a law is passed to allow money stashed in overseas accounts to be brought to the U.S. at lower tax rates."
Ah, yes, all would be well if only multi-national corporations did not have to pay taxes. But despite the ceaseless demands by the world's financiers for more governmental austerity, more cuts to jobs, wages and benefits, more punishment, the world can afford a raise. AnAl Jazeera report by David Cay Johnston concludes that U.S.-based corporations held almost $7.9 trillion of liquid assets worldwide. That is more than double the yearly budget of the U.S. government.
The results are those familiar to all who are paying attention: Rising inequality and persistent economic stagnation as working people can no longer spend what they don't have. Almost all of the gains in income are going to the top: From 2009 to 2012, 95 percent of all gains in income went to the top one percent. The "efficiency" that financiers demand is that ever larger cascades of money flow upward. How long will we allow this to go on?

And then there's this:

Speculators trade in two weeks what the world makes in a year

Dec19by Systemic Disorder
Speculation rests on phenomenal amounts of money sloshing around the globe. We could call this endless wave a permanent tsunami, except that would grossly understate the size of the financial wave.
If we could pile up all the money that is exchanged in financial markets and make a literal wave out of it, it would make for an astounding sight were we on the International Space Station, towering above the clouds. The wave would rise so high it might swamp the space station itself.
All right, I am getting fanciful here. And we wouldn't want to contemplate having to bail out the space station in zero-G conditions. But we are talking about an international financial industry that has truly grown to monstrous proportions, beyond any reasonable necessity.
How big? The combined daily trading average on the world's foreign-exchange, bond and stock markets is very roughly about US$6 trillion. If that total seems amazing, it is for good reason: By way of comparison, the gross domestic product of the world is about $65 trillion. To put it another way, in 11 business days financial speculators trade instruments and contracts valued at more than all the products and services produced by the entire world in one year.
Most of us are familiar with stock exchanges, and that is the financial market that draws the lions' share of corporate mass media attention. But that is actually only a tiny portion; an average day's turnover on the world's stock markets amounts to $270 billion. Bond markets (government debt, corporate debt and the myriad of "asset-backed" securities continually cooked up) are several times larger, and foreign exchange is vastly larger than bond markets.
Much of this daily $6 trillion turnover is in derivatives, swaps, futures contracts and assorted legerdemain. Almost all of this is nothing more than self-interested speculation; trading for the sake of the largest possible short-term profits regardless of the cost to the rest of the economy or the destabilizing social costs of these giant pools of capital sloshing around the world, pouring in capital here and pulling capital there as opportunities for short-term profits wax and wane.
Why do stock markets exist?
In theory, stock markets exist to distribute investment capital to where it is needed and to enable corporations to raise money for investment or other purposes. In real life, neither is really true. A corporation with stock traded on an exchange can use that status to issue new shares, raising money without the burden of dealing with lenders and paying them interest. But large corporations can raise money in a variety of ways, for example by issuing bonds or other interest-bearing debt, or by selling shares directly to private investors.
Nor do corporations necessarily wish to float new stock doing so is disliked by investors because profits are diluted when spread among more shares. Instead, it is more common for large companies to buy back shares of their stock (at a premium to the trading price), which means less sharing of distributed profits.
From 1981 to 1997, for example, non-financial corporations in the United States bought back $813 billion more in stock through buyback programs and corporate takeovers than they issued.* That is money that was diverted from investment, employee compensation or community development, and constitutes still more money stuffed into financiers' pockets.
Most of the action on stock exchanges is simply speculation, and as computers become more sophisticated, the speculation drives higher trading volumes and becomes more remote from the actual business of the company in which stock is bought. "Day trading," where speculators buy and sell stock within minutes to earn profits on price fluctuations became common in the 1990s, but in the following decade the big Wall Street firms showed their muscle while bringing speculation to an unprecedented level.
These firms created sophisticated computer programs that buy and sell stocks in literally milliseconds. The programs issue thousands of buy orders that are canceled in minuscule fractions of a second in order to manipulate prices to the benefit of the computer owner. These price differences are only pennies, but are done on such enormous scale that the profits skimmed in this fashion are estimated to be as high as $21 billion per year only a "handful" of these high-speed computer traders account for a majority of all stock-exchange trades.**
Speculation for its own sake
Speculation tends to reinforce itself. During the two years I spent working on a financial news service during the 1990s stock-market bubble, I repeatedly heard traders say the dramatic price rises could not last but they would continue to ride the bubble as long as the consensus view that the long bull market would continue remained in place. The primary reason for why market players believe stock prices will rise at a given time is because they believe other market players believe stock prices will rise. Not nearly as "scientific" as financiers would have you believe.
Bond and foreign-exchanges markets are no less fueled by speculation, and it is the gargantuan size of these markets that give the larger players in them the power to dictate to the world's governments, extracting budget-busting bailouts, imposing austerity and raising their needs above all social considerations.
Their size is truly monstrous: the world's 1,000 largest banks held an estimated US$102 trillion of assets in 2011. Separately, the "shadow banking" system (hedge funds, private-equity firms and other investment companies) is worth an additional $67 trillion.*** Financiers hold an amount of capital that is more than two and a half times larger than the world's gross domestic product.
As more money is diverted into speculation because there are insufficient opportunities for investment, the size of the financial industry and the percentage of corporate profits claimed by the financial industry steadily grows the size of both banks and unregulated "shadow banks" have increased since the beginning of the economic crisis in 2008. This capital is a function of the amount of money flowing upward to the rich becoming larger than they can use for personal luxury consumption or investment; these torrents of money are diverted into increasingly risky pure speculation.
Too much money comes to chase too few assets, rapidly bidding up prices until there is no possible revenue stream that can sustain the price of assets bought at inflated levels, triggering a crash. The very size of financial markets is a major contributing cause of economic instability. That size is in turn a product of the continual downward pressure on wages an increasing share of corporate revenues go toward executive pay and profits as the share going toward wages declines.
A financial industry swollen to such gargantuan sizes have no relation to the actual needs of the economy. It is money that could be used for wages (which would strengthen the economy) or for productive investment were it not so concentrated and under-taxed. Austerity, after all, is only for working people.
* Doug Henwood, Wall Street [Verso, 1998], page 3
** Charles Duhigg, "Stock Traders Find Speed Pays, in Milliseconds," The New York Times, July 24, 2009
*** TheCityUK; the Financial Stability Board

And this:

Federal Reserve says your wages are too high

Feb18by Systemic Disorder
The Federal Reserve has declared that the reason for ongoing economic weakness is because wages have not fallen enough. Wages have been stagnant for four decades while productivity has soared, but nonetheless orthodox economists believe the collapse of 2008 has been a missed opportunity.
A paper prepared by two senior researchers with the San Francisco branch of the U.S. Federal Reserve Bank attempts to explain the lack of wage growth experienced as unemployment has fallen over the past couple of years this way:

"One explanation for this pattern is the hesitancy of employers to reduce wages and the reluctance of workers to accept wage cuts, even during recessions, a behavior known as downward nominal wage rigidity."

The two Federal Reserve researchers, Mary Daly and Bart Hobijn, based their argument on the standard ideology of orthodox economists, writing:

"Downward rigidities prevent businesses from reducing wages as much as they would like following a negative shock to the economy. This keeps wages from falling, but it also further reduces the demand for workers, contributing to the rise in unemployment. Accordingly, the higher wages come with more unemployment than would occur if wages were flexible and could be fully reduced."

A food line in Toronto in 1931; falling wages didn't work out during the Great Depression.

The "problem" of wages stubbornly refusing to drop as much as corporate executives and financiers would like is referred to as the "sticky wages" problem in orthodox economics. Simply put, this "problem" is one that orthodox economists, themselves not necessarily subject to the market forces they wish to impose on others, have long struggled to "solve." You perhaps will not be surprised to hear that "government" is the problem. Consider this remarkable passage published on the web site of the Mises Institute, an advocate of the Austrian school of economics:

"Much of the alleged stickiness' of wages is due to government policies. … [T]he trouble stems from workers not being willing to take pay cuts. When the demand from employers drops, at the old wage rate there is now surplus labor a.k.a. unemployment. Only when market wages drop to a lower level, so that demand once again matches supply, will equilibrium be restored in the labor market."

Collapsing wages in the Great Depression didn't help
According to this author, Robert P. Murphy, an "associated scholar" of the Mises Institute, failing to drive down wages is such a big mistake that it caused the Great Depression. He writes:

"After the 1929 crash, Herbert Hoover gathered the nation's leading businessmen for a conference in Washington and urged them to allow profits and dividends to take the hit, but to spare workers' paychecks. Rather than cut wages, businesses were supposed to implement spread-the-work schemes where workers would cut back their hours. The rationale for Hoover's high-wage policy was that the worker supposedly needed to be paid enough to buy back the product.' … The idea was that wage cuts would just cause workers to cut their spending, which would in turn lead to another round of wage cuts in a vicious downward spiral."

Herbert Hoover was not vicious enough! Although it was Hoover's Treasury secretary, Andrew Mellon, who advocated the government "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate" so as to "purge the rottenness out of the system," and not Hoover himself, the president did take hard-line right-wing positions. Michael Parenti, in discussing Hoover in his book History as Mystery, wrote:

"Like so many conservatives then and now, Hoover preached the virtues of self-reliance, opposed the taxation of overseas corporate earnings, sought to reduce income taxes for the highest brackets, and was against a veterans' bonus and aid to drought sufferers. He repeatedly warned that public assistance programs were the beginning of state socialism.' Toward business, however, he suffered from no such inflexibility' and could spend generously. He supported multimillion-dollar federal subsidies to shipping interests and agribusiness, and his Reconstruction Finance Corporation doled out about $2 billion to banks and corporations." [page 261]

Hoover's concern for working people was demonstrated when his troops fired on veterans demanding payments owed to them and burned their camps. His laissez-faire policies led to manufacturing wages falling 34 percent and unemployment rising to about 25 percent by 1933. That collapse in wages did not bring better times; only the massive government spending to wage World War II put an end to the Depression. Such wage declines, in the real world, actually make the economy worse, argues Keynesian economist Paul Krugman:

"[Y]ou could argue that a sufficiently large fall in wages could restore full employment now but it would have to be a very large wage decline, and the positive effects would kick in only after deflation had first driven just about every debtor in the economy into bankruptcy."

How many formulae can be written on the head of a pin?
Although orthodox economics is often nothing more than ideology in the service of capitalist elites, its practitioners like to believe themselves scientific because they base their theories on mathematical models. Unfortunately, these formulae are divorced from the real, physical world; the economy and the human behavior that animates it are not reducible to mathematics.
Robert Kuttner, a heterodox economist, explored these shortcomings in an article originally published in Atlantic Monthly. He wrote:

"The [prevailing] method of practicing economic science creates a professional ethic of studied myopia. Apprentice economists are relieved of the need to learn much about the complexities of human motivation, the messy universe of economic institutions, or the real dynamics of technological change. Those who have real empirical curiosity and insight about the workings of banks, corporations, production technologies, trade unions, economic history or individual behavior are dismissed as casual empiricists, literary historians or sociologists, and marginalized within the profession. In their place departments are graduating a generation of idiots savants, brilliant at esoteric mathematics yet innocent of actual economic life."

That was written in 1985; little if anything has changed since and arguably has gotten worse. Professor Kuttner points out that the very fact of persistent unemployment contradicts the basic theses of orthodox neoclassical economics. If the belief that markets automatically reach equilibrium were true, then wages would automatically fall until everybody had a job. Rather than acknowledge the real world, orthodox economists simply declare involuntary unemployment an "illusion," or claim "government interference" with the market is the culprit. "Business cycles were around long before trade unions or big-spending governments were," Professor Kuttner noted.
Wages are not as flexible as orthodox ideology suggests because within an enterprise preference is ordinarily given to existing workers to fill job openings, thereby buffering wages from external market forces, writes another heterodox economist, Herbert Gintis. In an essay originally appearing in Review of Radical Political Economics, he wrote:

"In particular, there is a tendency for the number of individuals qualified for a position to exceed the number of jobs available, in which case seniority and other administrative rules are used to determine promotion. Hardly do workers compete for the job by bidding down its wage."

In almost all cases, employees do not even know what wages their co-workers are earning. This top-down secrecy facilitates the disparity in wages, whereby, for example, women earn less than men. If everybody earned what they were worth, there would no such wage disparity. The very fact of disparities between the genders or among races and ethnicities demonstrates the ideological basis of orthodox economics, which assumes that employees who do the work of production are in their jobs due to personal choice and wages are based only on individual achievement independent of race, gender and other differences.
You produce more but don't earn more
Back in the real world, wages have significantly lagged productivity for four decades; thus, wages, examined against this benchmark, have significantly declined for those four decades. A study by the Economic Policy Institute, written by heterodox economist Elise Gould, reports:

"Between 1979 and 2013, productivity [in the U.S.] grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation." [page 4]

(Graphic by Economic Policy Institute)

Middle-class U.S. households earn $18,000 less than they would had wages kept pace with productivity, Dr. Gould calculates. Nor is that unique to the U.S.: Wages in Canada, Europe and Japan have also fallen well short of productivity gains. Canadian workers, for example, are paid at least $15,000 per year less than they would be had their wages kept pace.
To circle back to the San Francisco Federal Reserve paper that began this discussion, the authors claim that wage stagnation will persist until markets "return to normal." They assert:

"[T]he accumulated stockpile of pent-up wage cuts remains and must be worked off to put the labor market back in balance. In response, businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired level."

But as we can plainly see, and as those of us living in the real world experience, wages cuts have been the norm for a long time. The caveat at the end of the paper that it does not necessarily reflect the views of the Fed board of governors should be noted, but the paper was issued as part of a regular series by the San Francisco Fed and the authors are senior members of it, so it is not likely to be at variance with opinions there. It certainly does reflect orthodox economic ideology. Similarly, the argument by the Austrian School's Mises Institute, stripped of its academic-sounding veneer, is a call to eliminate the minimum wage.
Stagnation, declining wages and the ability of capitalists to shift production around the globe in a search for the lowest wages and lowest safety standards completely ignored in the orthodox hunt for economic scapegoats are the norm. Our need to sell our labor, the resulting reduction of human beings' labor power to a commodity, and the endless competitive pressures on capitalists to boost profits underlie the present economic difficulties.
Collective bargaining through unions and the needs of capitalists to retain their employees can be brakes against the race to the bottom what the orthodox economists at the Fed and elsewhere are arguing is that these remaining brakes be removed and wages driven down to starvation levels. That is what global capitalism has to offer.

Collectively these three articles paint a clear picture of what is going on in our world today. It is ruled by a Kleptocracy cashing out as quickly as they can grab loot and stick it in their Swiss pockets (so no tax is paid) - followed by a fuck-you-very-much to everyone else on the planet.