News What is wrong with the US economy?

[edward]

snip

No doubt the BIGGEST issue of FACT on the U.S. economy, and complaint with the Bush White House policy, is how big U.S. corporations have FAILED to REINVEST record earnings back into the business infrastructure. Those record earnings were made possible in large part by tax breaks on corporations, done so with the historical belief [they] would reinvest back in America. But U.S. corporations instead mostly sat on the CASH, rewarded executives, and invested in finacial markets and commodoties like oil, that caused a surge in pricing and inflation.

U.S. corporations have built dozens of new factrories. Unfortunately those factories are in other countries.

 

[Futobingoro]

The observed oil profits are not excessive. Profit margins are in line with the historical neighborhood of 10%. But repeat a big number (say, $36 billion) across the airwaves and people tend to forget that ExxonMobil had to spend more than $334 billion in taxes and expenses to earn that $36 billion.

Bewailing the $36 billion as "excessive" is akin to calling China "fat" for having the world's largest food consumption. Both of these statements are made without any regard to proportionality - a fatal mistake when examining statistics such as these.

I do not claim to be omnipotent in matters of economics, but much as a movie critic can recognize a bad movie without being able to do better himself, I can recognize incomplete economic analysis when I see it.

With that in mind, I take issue with the claims that the government and corporate greed are to blame for any failure to reinvest.

It seems that the issue is more complicated than some might believe:

But the biggest problem with costly oil is that it makes it tougher to line up new supplies. Countries that sit on lots of oil -- such as Iran, Kuwait, Libya, Russia, Venezuela, and Nigeria -- drive harder bargains with the supermajors like ExxonMobil when oil prices are high. Oil-rich nations are reluctant to part with irreplaceable natural resources at prices below where they stand now. The Western oil companies want to cut deals on the assumption that oil will drop back to $25 or $30 a barrel. But that's hard to argue when the oil for delivery in December, 2012, is trading at $64.

When the supermajors can't negotiate access to new fields, their production drops. This isn't just hypothetical: The most important fact in ExxonMobil's quarterly earnings report was that oil and natural gas production fell 3.6% in 2005 from 2004, continuing a five-year downtrend. (Excluding onetime factors such as hurricanes, it fell 1%.) If the company can't ramp up output by getting access to new fields, it will be a cash cow slowly going dry. Not a good prospect.

http://www.businessweek.com/magazine/content/06_07/b3971064.htm

It looks like the oil companies actually want to reinvest to be able to maintain, or increase, oil production. This process, however, is being hindered by our good friend - high oil prices.

But for this to be true we would have to ignore the "fact" that oil companies only stand to benefit from their "price manipulation," and that they are failing to reinvest only because of their greed.

In the end we will probably be told that the greedy oil executives wanted to increase oil prices for a short-term windfall to buy their mansions with gold-plated toilets and diamond-encrusted silverware, leaving the long-term problem to their successors and to America in general.

 

[McGyver]

U.S. Corporations Instead Acting as Financial Institutions

Short of reinvesting in America, and now with large CASH COFFERS, thousands of U.S. corporations operate today more like unregulated FINANCIAL INSTITUTIONS, where there CORE product and service transactions comprise an ever-shinking part of their total business.

There are physical limits to the number of mergers and acquisitions a company can undertake. Eventually, you run out of companies, and are forced to innovate within your own four walls. At this juncture, if you haven't undertaken solid R&D and planned for new product introduction, your product or service will SUFFER, and your business will be "eaten away" by those who have, i.e. better cheaper Japanese products and emerging innovation out of China.

As for U.S. investment in plants oversees, many of these do not reach a reasonable "lifecycle," and are abandoned for (perceived) more lucrative investment elsewhere. This leads to ever more shrinking useful lifecycles on plant and equipment, and deters long term investment in quality plants and equipment, R&D, and infrastructure needed for long term sustainability. Finanally, states and localities feel the brunt and fiscally begin to collapse, then must raise taxes, which further drives business out!

Can you say, Opportunity Costs!"

 

[McGyver]

The observed oil profits are not excessive. Profit margins are in line with the historical neighborhood of 10%. But repeat a big number (say, $36 billion) across the airwaves and people tend to forget that ExxonMobil had to spend more than $334 billion in taxes and expenses to earn that $36 billion.

With that in mind, I take issue with the claims that the government and corporate greed are to blame for any failure to reinvest.

It seems that the issue is more complicated than some might believe:http://www.businessweek.com/magazine/content/06_07/b3971064.htm

It looks like the oil companies actually want to reinvest to be able to maintain, or increase, oil production. This process, however, is being hindered by our good friend - high oil prices.

But for this to be true we would have to ignore the "fact" that oil companies only stand to benefit from their "price manipulation," and that they are failing to reinvest only because of their greed.

Oil companies reap more earnings when the price of oil rises. When the tech, real estate, and equity markets are flat, more investment dollars will flow into commodoties like oil, pushing up prices. HIGHER oil prices should spur oil companies to reinvest, unless it is their imperitive to keep field exploration and supplies low in the hopes of further driving up prices.

But, there will be opportunity costs, down the road, to those decisions. A free market and free society will remedy any wrongs!

 

[Skyhunter]

Corporate income and personal income are not calculated the same way. Putting them next to each other like that implies that they are the same. The term "corporate income" is a misnomer that is only ever really used with the word "tax" at the end: it isn't income that is being taxed (and shown in that stat), it is profit.

So you agree that corporate profits are up 368.9% from 2001 - 2004 and personal income rose 10.7%. Yet this is misleading?

How is the comparison misleading.

Could you demonstrate what you mean?

As I see it;

Net income equals ((gross income minus expenses) minus taxes).

Or net income = after tax profit.

How is that calculated differently between corporations and persons in such a way as to make the two so disparate that they are beyond comparison?


As for the poor, or the lowest 20% of income, their actual income declined from 2001 - 2005.

It is not the fault of the CBP that the statistics that look so bad coincide with the Bush reign. I don't know why they left out 2005 from the first chart, but I don't believe that it would significantly impact the trend.

 

[Astronuc]

Not some much wrong as just a correction/adjustment, but could be an indicator or a sign of trouble ahead.

Existing-home prices fall for 1st time in 11 years
Sales drop 0.5% in August to lowest pace since January 2004

WASHINGTON (MarketWatch) -- The collapsing U.S. housing market crossed another milestone in August, as the median sales price of existing homes fell for the first time in 11 years and for just the sixth time in the past 38 years, the National Association of Realtors said Monday

The median sales price fell 1.7% year-over-year to $225,000 in August.
Sales of existing homes fell 0.5% in August to a seasonally adjusted annual rate of 6.3 million, the industry group said. It was the lowest sales pace since January 2004. Sales have fallen five months in a row. Sales are down 12.6% in the past year.
. . . .
Meanwhile, inventories of unsold homes rose to a 13-year high.

If people wait to buy homes, then there will be more downward pressure on prices. How far will the correction go?

 

[Skyhunter]

Not some much wrong as just a correction/adjustment, but could be an indicator or a sign of trouble ahead.

Existing-home prices fall for 1st time in 11 years
Sales drop 0.5% in August to lowest pace since January 2004
If people wait to buy homes, then there will be more downward pressure on prices. How far will the correction go?

Low interest rates have fueled the home construction market, now that they are on the rise, home construction is slowing. Commercial construction has increased recently, so the effects of slowing residential construction has not significantly impacted the construction industry as a whole.

 

[selfAdjoint]

Low interest rates have fueled the home construction market, now that they are on the rise, home construction is slowing. Commercial construction has increased recently, so the effects of slowing residential construction has not significantly impacted the construction industry as a whole.

The latest data shows that not only are fewer new houses being built, but the prices of existing houses are coming down. A bubble is when people only buy something in the hopes of making a profit by selling it later for more than they paid. I think it's unquestionable that at least some of the housing boom was a bubble. And the bubble has burst.

 

[edward]

There was a lot of speculation buying done. For instance my brother in law bought a home ,to live in, located in an upper middle class subdivision.
Now when I drive through his neighborhood there are at least two "for sale" signs on every block.

A lot of this speculative buying was done using some really questionable methods. Negative amortization loans are a prime example.

The concerns of home builders appear to be well founded. The Federal Deposit Insurance Corporation (FDIC) recently identified 55 metro areas where price appreciation had reached “boom” proportions by the end of 2004, and mortgage loan data files (from LoanPerformance) show not only an upswing in investor activity nationally but also relatively high shares of investor purchases in many of the “boom” markets identified by the FDIC.

Furthermore, it seems clear that investors often use “exotic” forms of adjustable-rate mortgages, financing vehicles that Federal Reserve Chairman Alan Greenspan recently called “developments of particular concern” in testimony before the Joint Economic Committee of the Congress. Greenspan also told Congress that “speculative activity may have had a greater role in generating the recent price increases than it has customarily had in the past,” and he cited a quickened pace of turnover of existing homes as symptomatic of speculative activity.

http://www.nahb.org/news_details.aspx?newsID=1527

 

[Astronuc]

http://today.reuters.com/news/articlenews.aspx?type=newsOne&storyID=2006-09-30T014439Z_01_N29420601_RTRUKOC_0_US-FINANCIAL-AMARANTH.xml&WTmodLoc=Home-C2-TopNews-newsOne-2

Well if you haven't been reading the business/economic news, you might have missed another collosal failure in the US economy.

NEW YORK (Reuters) - Amaranth Advisors LLC, the hedge fund manager which lost billions of dollars in energy trades, will suspend redemptions and liquidate its remaining positions, the company said in a letter made available to Reuters on Friday.

Amaranth will continue to pursue strategic alliances, the letter said, after its net asset value declined by 65 percent to 70 percent during September. Its funds are down 55 percent to 60 percent year-to-date, it estimated.

Amaranth said it was in investors' best interests to temporarily suspend redemptions for September 30 and October 31.

"This temporary suspension of redemptions will enable the Amaranth funds to generate liquidity for investors in an orderly fashion, with the goal of maximizing the proceeds of asset dispositions, while seeking to treat all investors equitably through pro rata distributions," the letter by founder Nicholas Maounis said.

The Greenwich, Connecticut-based firm, a "multi-strategy" fund manager that in August reported assets of more than $9 billion, met with investors earlier this week to discuss future plans.

Amaranth suffered a $6 billion loss this month in wrong-way bets on natural gas derivatives, including $560 million in one day alone, which led to demands by investors for a return of capital.

The letter is the latest evidence of the unraveling of Amaranth, a once prominent hedge fund manager whose trading prowess generated more than $3 billion in profit from January 2005 to August 2006, largely on commodity trades.

Those gains should have been a "warning sign" to investors, said Magnus Olssen, portfolio manager at London & Capital Group, a fund-of-funds based in the United Kingdom.

Oops!

 

[Astronuc]

Gosh, it gets even better!

Inflation's up, consumer spending down
http://marketplace.publicradio.org/shows/2006/09/29/PM200609291.html

The government released some worrisome economic data. August's core inflation, which excludes food and energy prices, posted the biggest year-over-year increase in more than a decade. And consumer spending was down. Janet Babin reports.

JANET BABIN: The nation's annual inflation rate posted its biggest increase since 1995. The jump comes despite a two-year long effort by the Federal Reserve to keep a lid on inflation.

The Commerce Department's report also found that consumer spending dropped slightly in August and incomes rose only 0.3 percent. That's the weakest income performance in nine months.

Economist Richard DeKaser with National City Corporation says weak spending and income numbers indicate an economic slowdown. And that might be a good thing: . . .

Layoffs might be a good thing too (to keep downward pressure on wages), unless you're the one getting layed off.

=====================================

But still even better -

Taking a (tax) break in Puerto Rico
http://marketplace.publicradio.org/shows/2006/09/29/PM200609297.html

A great example of how companies are getting even more creative looking for tax breaks? The pharmaceutical industry's presence in Puerto Rico. Kai Ryssdal talks about it with Jill Barshay of Congressional Quarterly.

KAI RYSSDAL: You know what Congress has managed to get done the past month it's been in session. Antiterror legislation. And a couple of spending bills. What it hasn't gotten done is almost anything else, including corporate tax reform. Which was on the agenda for a while. Until it wasn't.

Tax breaks for businesses are nothing new. But companies are getting ever more creative in taking advantage of them. One great example is the pharmaceutical industry and its larger than usual presence in Puerto Rico.

. . . How did it become the manufacturing center of the pharmaceutical industry in this country?

BARSHAY: It became the center of the pharmaceutical industry in the 1960s. They were lured there by the U.S. Congress that had a very generous tax break for American companies that wanted to manufacture down there. And it was so generous by the late '80s that they were getting $78,000 from U.S. taxpayers for every job they created down on the island.

. . .

We looked at what happened 10 years after Congress took this action. Congress thought it would raise $10 billion in the last 10 years. And it appears that the pharmaceutical industry found some clever accountants and tax attorneys, and they realized they could re-register as foreign companies in Puerto Rico and pay no taxes at all down there.

Why do business in the US, when you can start your own company in Puerto Rico and not pay US taxes. Just put the profits off-shore and quietly transfer them wherever needed.

So if you buy products from yourself, that's a deductible expense, and most money goes off-shore - to yourself, of course.

Can you say capital flight?!

 

[Yonoz]

Stagflation, here we come. :(

 

[Astronuc]

Gas prices: down. Deficit: shrinking. All the good news! So what could be wrong?! Economist Austan Goolsbee agreed that the news sounded good — until he delved into the government's accounting magic.

http://marketplace.publicradio.org/shows/2006/10/12/PM200610124.html

KAI RYSSDAL:

The federal government's about 12 days into fiscal year 2007. The president took the opportunity yesterday to have a look at the books. He announced the budget deficit for the last fiscal year came in just shy of $250 billion. That's a big number. But it's still less red than there had been. And it had commentator and economist Austan Goolsbee feeling pretty good. Until he remembered the way the government does math.

--------------------------------------------------------------------------------

AUSTAN GOOLSBEE:

Turns out years ago the government decided that it didn't like showing its spending habits. So regular ledger-keeping was dumped in favor of a more Washington-friendly way of bean counting.

In normal life, if you charge $5,000 on your credit card, you subtract it as an expense. But not in D.C. No, in D.C., if it's not due today, it's not a cost.

Take the Social Security system. It's running a surplus this year because it is building up money it needs to pay for Baby Boom retirements.

The government counts that surplus as income. Presto! That income cut the deficit in half.

But anybody can see that's nuts. You can't call that income anymore than a cash advance on your credit card is income. If you have to pay it back, it ain't income.

There is no difference between what the government is doing and what Enron and Worldcom did to land themselves in jail. It's overstating earnings and hiding true costs. In fact, if you add up costs the way standard business accounting rules do, the deficit for this year alone would be more like $700 billion. Add in Social Security and Medicare promises and it would be over $3 trillion!

Now, that just couldn't be right, could it?

So just to make myself feel better I contacted Larry Kotlikoff at Boston University, one of our leading budget experts, and I asked him.

Well, he told me that by the standards of business, the U.S. is actually bankrupt. The promises we're on the hook for will cost $70 trillion more than the revenue we're going to bring in. He figures to pay it off would take something like an 80 percent hike in all income taxes.

Whoah! Now, I really don't feel any better. When all this goes down, you know somebody is going to be left holding the bag. Take a wild guess who.

RYSSDAL: Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business.

Well, let's see in 10, 20, . . . years time. If all is as it seems, there will be insufficient funds to cover all obligations - and that means some will go without. Perhaps we'll observe the 100th anniversary of the Great Depression of the 20th Century with a Great Depression of the 21st Century. But then again, Washington may get religion and become fiscally responsible.


Also - Record trade deficit not all bad news

http://marketplace.publicradio.org/shows/2006/10/12/PM200610121.html

Soaring oil prices sent the U.S. trade deficit to a record of almost $70 billion in August. But the government says record imports of oil sank a healthy gain in U.S. exports.

KAI RYSSDAL: The trade gap numbers came out today, too. Another month, another record deficit in how much Americans bought from overseas. Marketplace's Scott Tong looks at Uncle Sam's shopping list from the month of August.

SCOTT TONG: The trade gap hit $69.9 billion, largely because Americans paid sky-high prices for oil in August.

But Daiwa Securities' Michael Moran reminds us that the sky has fallen — crude is off 25 percent since the summer. [maybe this is the good news? ]

MICHAEL MORAN: Over the next several months, we will be seeing lower prices of imported oil, which will be helping to either bring down or limit the increase in the trade deficit.

Also in August, retailers bought a whole lot of presents from overseas, or at least what they hope will be presents. Here's Anirvan Banerji of the Economic Cycle Research Institute.

. . . .

America's trade gap with China hit a monthly record of $22 billion. Think of it this way: for every U.S. boat that carries stuff to China, five boats come the other way.

. . . .

Oh, well.

 

[Astronuc]

Loose Credit Standards Boost Real Estate Woes
http://www.npr.org/templates/story/story.php?storyId=6326038
by Chris Arnold

Morning Edition, October 19, 2006 · Many investors loaded up on condos and other properties during the real-estate boom, hoping to sell them quickly at big profits. Now, with prices falling, some of them are in real trouble. One 24-year-old investor has started the Web site: iamfacingforeclosure.com.

Speed of Housing Downturn Surprises Homeowners
http://www.npr.org/templates/story/story.php?storyId=6123037

Morning Edition, September 22, 2006 · The real estate market has made a surprisingly quick downturn in some parts of the country. The change in direction has left many homeowners holding property they can't sell at the price they would like, or need, to get.

Buyer's market it appears, but one might wait to buy as prices may come down considerably, especially if the economy slows.

I know some who got good deals on properties through foreclosures.

 

[russ_watters]

This thread died and came back and I never answered this:

So you agree that corporate profits are up 368.9% from 2001 - 2004 and personal income rose 10.7%. Yet this is misleading?

Yes.

How is the comparison misleading.

It is misleading because it is meant to show two numbers that are describing the same thing (income for business vs income for people) which are in actuality not describing the same thing.

Could you demonstrate what you mean?

Well, let's see how you did...

As I see it;

Net income equals ((gross income minus expenses) minus taxes).

Or net income = after tax profit.

How is that calculated differently between corporations and persons in such a way as to make the two so disparate that they are beyond comparison?

It's pretty simple: people don't have profits. It's just personal gross income that is being compared against corporate profit (your definition of corporate profit is correct).

Lets say, for example, that I earned $50,000 last year and spent all but $49,000 on taxes and expenses. $1,000, I saved. This year, I got a raise and earned $55,000, spending $49,000 again. The way personal income is calculated I gained 10% and the way corporate income is calculated, I gained 500%.

And, needless to say, if I didn't save anything last year, but did save $1 this year, then my "profit" would be up by an infinite amount. Clearly, an absurdity, yet that is how the statistics are being presented wrt corporations. It's actually a problem when working with P/E ratios to figure out when to buy/sell stock - sometimes the P/E ratio is undefined/infinite.

As for the poor, or the lowest 20% of income, their actual income declined from 2001 - 2005.

That's commonly cited, but it is misleading to the point of being a purposeful deception. Saying "declined from 2001-2005" implies yearly decreases, when in fact it decreased each year from 2001-2004, then went up in 2005. Yes, it is still lower than in 2001, but either that's sloppy wording or an intentional deception. And I don't accept that people are that sloppy in their wording.

It is not the fault of the CBP that the statistics that look so bad coincide with the Bush reign. I don't know why they left out 2005 from the first chart, but I don't believe that it would significantly impact the trend.

Regardless, it is wrong to be intentionally deceptive when presenting statistics.

 

[russ_watters]

That's commonly cited, but it is misleading to the point of being a purposeful deception. Saying "declined from 2001-2005" implies yearly decreases, when in fact it decreased each year from 2001-2004, then went up in 2005. Yes, it is still lower than in 2001, but either that's sloppy wording or an intentional deception. And I don't accept that people are that sloppy in their wording. Regardless, it is wrong to be intentionally deceptive when presenting statistics.

And btw, were the poor the only ones negatively affected by Clinton's recession and the "jobless recovery" that followed it under Bush? How were those at the top 20% doing in 2005 compared with 2001...?

Again, like the above deceptions, Democrats like to cherry-pick economic data showing negatives, implying that those negatives only apply to those on the low end, when in fact, they apply to everyone. It's more of the 'the rich get richer while the poor get poorer' thing they like to play-up. But the reality is that when things are good, they are good for all and when they are bad they are bad for all. They may not be equally good or bad, but the trends affect everyone: Currently, no one in any 5th (or the top 5%) are back up to their peak incomes from just before the recession. But all are rising again. http://www.census.gov/hhes/www/income/histinc/h03ar.html

The one-two punch of the 'us vs them' and attempts to argue their way out of the economic cycle are the two big rediculous deceptions the Democratic party play's-up. They are both easily shown to be wrong, but in campaigns they often work well because you can argue them so easily with a misleading soundbyte in a 30 second commercial.

 

[edward]

Since this thread seems to be back up and running. I would add that statistics can vary depending on the source. A company that is paid to find information that leads to a desireable result, will probably find it.

That said I don't think anyone has covered several other topics. I hope

One is job growth compared to population growth. The link below doesn't paint a rosy picture.

http://www.jobwatch.org/20040820_state_job_growth_pop_growth.pdf

The other has been on my mind for some time. Just how many jobs were created because of the Bush tax cuts? The link below indicates that without the massive increases in defense and discretional spending by the government, there would have been few or no jobs created by the tax cuts.
http://www.epi.org/content.cfm/webfeatures_snapshots_20060126

 

[russ_watters]

One is job growth compared to population growth. The link below doesn't paint a rosy picture.

http://www.jobwatch.org/20040820_state_job_growth_pop_growth.pdf

Once again, cherry-picking one year isn't very useful for telling us where the country is really going. Its nice they picked a year that there actually was job growth, but by the very nature of a cycle, the first year of increase after a decline is pretty much always going to have thin gains.

The other has been on my mind for some time. Just how many jobs were created because of the Bush tax cuts? The link below indicates that without the massive increases in defense and discretional spending by the government, there would have been few no jobs created by the tax cuts.
http://www.epi.org/content.cfm/webfeatures_snapshots_20060126

Again, they're analyzing the bottom of the curve for something that takes a while to manifest. It is the great thing about being a liberal economist: most conservative ideas are long-range and you can easily discount them by being short-sighted.

That said, Bush's first tax cut was actually a psuedo-rebate, which was intended as a quick shot-in-the-arm and probably helped soften the recession that was underway when he took office. That was an unusual thing, though.

Regardless of all that, taxes are very difficult to positively correlate to changes in the economy. They certainly have an effect, but the normal cyclical fluctuations drown them out over the short-term.

 

[edward]

Once again, cherry-picking one year isn't very useful for telling us where the country is really going.

Actually there was no cherry picking Russ, that was the only link I could find without a subscription. I would take it then that you presume that no connection between employment and population growth can be shown unitil X nuber of years have passed.

russ_wattersThat said, Bush's first tax cut was actually a psuedo-rebate, which was intended as a quick shot-in-the-arm and probably helped soften the recession that was underway when he took office. That was an unusual thing, though.

Regardless of all that, taxes are very difficult to positively correlate to changes in the economy. They certainly have an effect, but the normal cyclical fluctuations drown them out over the short-term.

Odd then that the White House uses the jobs supposedly provided by the tax cuts as a bragging point. And you would then discount any chance that the massive spending by the Bush administration had anything to do with satisfactory employment figures??

The Strength And Continued Growth Of Our Economy Is A Tribute To The American Worker And The President's Tax Cuts.

http://www.whitehouse.gov/infocus/economy/

I say that without the record government spending bills, employment would have tanked in 04-05, just when it mysteriously started holding it's own.

 

[Skyhunter]

This thread died and came back and I never answered this: Yes. It is misleading because it is meant to show two numbers that are describing the same thing (income for business vs income for people) which are in actuality not describing the same thing. Well, let's see how you did... It's pretty simple: people don't have profits. It's just personal gross income that is being compared against corporate profit (your definition of corporate profit is correct).

Lets say, for example, that I earned $50,000 last year and spent all but $49,000 on taxes and expenses. $1,000, I saved. This year, I got a raise and earned $55,000, spending $49,000 again. The way personal income is calculated I gained 10% and the way corporate income is calculated, I gained 500%.

And, needless to say, if I didn't save anything last year, but did save $1 this year, then my "profit" would be up by an infinite amount. Clearly, an absurdity, yet that is how the statistics are being presented wrt corporations. It's actually a problem when working with P/E ratios to figure out when to buy/sell stock - sometimes the P/E ratio is undefined/infinite. That's commonly cited, but it is misleading to the point of being a purposeful deception. Saying "declined from 2001-2005" implies yearly decreases, when in fact it decreased each year from 2001-2004, then went up in 2005. Yes, it is still lower than in 2001, but either that's sloppy wording or an intentional deception. And I don't accept that people are that sloppy in their wording. Regardless, it is wrong to be intentionally deceptive when presenting statistics.

Thanks for the clarification. I agree, that one should not be intentionally misleading when presenting statistics.

Still if corporations are realizing a 300% increase in profit, they are not spreading it around, otherwise personal income would be higher, not 300% perhaps, since as you pointed out the two are not the same, but certanly there is not an equitable distribution.

Since much of the personal income in this country is derived from government employees, high level management executives, and investments, the real growth in personal income is not from corporate profits to workers. It is the workers BTW that produce the goods and services, that are responsible for the wealth that becomes corporate profit.

Since corporate and personal earning data are calculated differently, what would you suggest as a less confusing comparison?

 

[Astronuc]

Even conservative institutions like Forbes are questioning excessive CEO compensation.

http://www.forbes.com/2005/04/20/05ceoland.html

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html



A friend of mine mentioned Jeff Immelt's compensation package has bonuses tied to long-term performance. I think GE is one of the better managed companies in the world.

 

[Skyhunter]

Even conservative institutions like Forbes are questioning excessive CEO compensation.

http://www.forbes.com/2005/04/20/05ceoland.html

http://www.forbes.com/2006/04/17/06ceo_ceo-compensation_land.html



A friend of mine mentioned Jeff Immelt's compensation package has bonuses tied to long-term performance. I think GE is one of the better managed companies in the world.

My Uncle is VP of operations for a multi million dollar company. He told me yesterday that he reduced overall costs by 5.8% this year, and yet the company still raised the price for the goods they produce by 3%.

Why?

Because they can.

 

[loseyourname]

Since corporate and personal earning data are calculated differently, what would you suggest as a less confusing comparison?

The best thing to do would probably be to look at where the profits are actually going. I doubt any corporation is just putting money in a shoe box for a rainy day; either someone's income is increasing or the profits are being reinvested or both. Reinvestment doesn't necessarily mean the building of new manufacturing plants, but perhaps the acquiring of existing ones, or of entire companies, or simply the placement of money into stocks, bonds, banks, whatever, in which case it is again reinvested or made into income somewhere else.

The problem is, it's not really possible to do this, that is, track every dollar that a corporation brings in in excess of its overhead costs for that year in order to see where each dollar is going. The picture, no doubt, becomes incredibly complex fairly quickly. The most obvious beneficiaries of a profitable year are 1) anybody in a position within the company that is paid a bonus in proportion to quarterly or yearly profit, and 2) the governments of the state and municipality in which the corporate headquarters resides.

If all you want to compare are corporate earnings with working class incomes, I'd say your best bet is to use absolute numbers. Instead of a percentage increase, look at the number of dollars by which US corporate earnings increased last year, and compare it to the number of dollars by which the income of whatever subpopulation you're looking at increased (10% X the number of persons in the subpopulation X the average yearly income of a person in that subpopulation). The numbers for each year likely won't show much of a trend, as people are going to tend to get raises the next year at the very earliest, but if you look at a long enough span of time, you'll no doubt start to see some historical patterns on how the dollar amounts correlate with each other. Then you can compare the typical five-year pattern with the pattern observed in the past five years to see if, indeed, income has risen with profit in accordance with historical trends or if corporations have indeed become stingier today with the lower rungs of workers than they were in the past.

 

[Astronuc]

Economy
After Two Strong Quarters, GDP Swoons
http://www.npr.org/templates/story/story.php?storyId=6394189
by Jim Zarroli

All Things Considered, October 27, 2006 · The national economy slowed sharply in the third quarter, falling to 1.6 percent, according to new government numbers. The droop comes after the nation's Gross Domestic Product had expanded at a 5.6 percent annual rate earlier in the year. Analysts blamed the poor showing on a slump in the housing sector.

As rough patches go, this one has arrived with unusual suddenness. Earlier this year, the economy was growing at better than 5.5 percent, and Federal Reserve officials worried about inflation pressures.

Since then, interest rates have gone up, and job creation has been weak. Now, overall growth is what economists call "below-trend" -- meaning it is weaker than necessary to sustain a healthy economy.

Joel Naroff, president of Naroff Economic Advisers, says that, "Clearly, there's an economic slowdown going on. And 1.6 is the slowest we've seen since the quarter where we had the Iraq war in 2003."

But Naroff noted something that a lot of economists pointed out after hearing the new figures. Almost all of the slowdown in growth was due to the unusually weak housing market. Wednesday, the Commerce Department said the median price of a single family home fell in September at its fastest level since 1970.

Bush administration officials downplayed the significance of today's numbers and predicted they would rebound when the housing market stabilized.

In an interview on Bloomberg Television, Treasury Secretary Henry Paulson noted Friday that if it weren't for the home construction sector, overall growth would have been a more respectable 2.6 or 2.78 percent -- about where growth was during the second quarter.

Falling real estate prices may put pressure on those with overextended credit who have financed their lifestyle with home equity loans. If consumers stop spending, the economy could really slow down.


GAO chief warns economic disaster looms
http://news.yahoo.com/s/ap/20061028/ap_on_go_ot/america_the_bankrupt

AUSTIN, Texas - David M. Walker sure talks like he's running for office. "This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."

But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Basically, that makes Walker the nation's accountant-in-chief. And the accountant-in-chief's professional opinion is that the American public needs to tell Washington it's time to steer the nation off the path to financial ruin.
. . . .

What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.

There's a good reason politicians don't like to talk about the nation's long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.
. . . .

 

[McGyver]

There is a Jobs Reality in Sen Kerry Comment of U.S. Troops

Senatory Kerry made his most recent comments that a vast number of U.S. troops who end up serving in Iraq (which has ignited a firestorm of Republican response) are there in part due to lesser education and work opportunities here in the U.S.. Kerry was in California trying to give a boost to the Democrat candidate for governor. Perhaps it was a bit of a Fruedian slip, or he intended to say what he said - but either way, his statement bears some truth on the limited career prospects today for many young people in America - especially w/o a solid education.

http://www.cbsnews.com/stories/2006/10/31/politics/main2139768.shtml

Though the Republicans have made Kerry remarks to be the Democrat position towards the Iraq war, this discussion really belongs more in the jobs debate.

I mean, how many of those young men and women in Iraq are there because they WANT TO SERVE THEIR COUNTRY, and how many are merely doing it FOR THE PAYCHECK, and they didn't have any other better offers?

 

[Astronuc]

Grid Limitations Increase Prices for Electricity
http://www.nytimes.com/2006/12/13/business/13power.html

CHAMBERSBURG, Pa. — It is a tiny, flickering signal of an expensive problem looming for tens of millions of Americans: The cost of electricity for households in this southern Pennsylvania town soared this year by 31 percent, or an average of $24 a month.

Like the nation’s highways and bridges, the network of transmission lines has not been maintained and expanded enough to meet growing demand, the United States Department of Energy says. In areas where there are not enough lines to transmit electricity from the most efficient generating stations, utilities must find other sources. Sometimes they have to buy from costlier power plants nearby, like drivers forced by highway bottlenecks onto slower side roads.

The problem already affects about 40 million people from metropolitan New York to Virginia as well as 18 million in Southern California. Similar but smaller price increases will hit New England, the San Francisco Bay Area and the Seattle-Portland and Phoenix-Tucson corridors until new transmission lines are built.

These higher costs, known as congestion charges, added $5.7 million to the cost of electricity in Chambersburg this year, which the borough has paid from a reserve fund rather than apply them directly to utility bills.

Over all, the Energy Department estimates, congestion charges in 2008 will add $8 billion or so — about $40 a person — to electricity costs on the Eastern grid, which serves almost 200 million people east of the Rockies except for Texas. The department did not make an estimate for the Western grids.

These congestion charges would raise electricity prices by about a nickel on the dollar if they were spread evenly, but in fact some customers pay far more and others pay nothing.

Something to consider when one relocates in the country - in addition to good schools. Maybe it's time to think about alternative energy supplies - particularly a personal supply.

 

[russ_watters]

Since personal energy supplies are much more expensive than grid power, what we should be thinking about is upgrading the grid.

 

[Astronuc]

Goldman Sachs paid Lloyd C. Blankfein, its chairman and chief executive, a bonus of $53.4 million in 2006, the highest ever for a Wall Street chief executive. The bonus comes a week after Goldman reported a record profit of $9.5 billion in 2006, and as its stock price is up almost 60 percent for the year.

from NYTimes Direct.

Certainly there is nothing wrong here. Not sure what one does for this kind of compensation. I think it's more a trickle up approach to economics.

 

[russ_watters]

from NYTimes Direct.

Certainly there is nothing wrong here. Not sure what one does for this kind of compensation. I think it's more a trickle up approach to economics.

By the nature of that business, profits are rediculously out of sync with actual job performance, so bonuses based on job performance are rediculously big. It's nice work if you can get it, but I don't understand why supply and demand hasn't pushed that down. Perhaps the fact that the cycle is a cycle has something to do with it, but if someone in a relatively low-end job is getting 50-100% bonuses 8 of 10 years, the two years that they don't get bonuses doesn't drop their average salary that much.

That bonus, btw, works out to exactly 1$ per share of their stock outstanding, or about 4% of the share price, or 18% of that profit.

 

[kmarinas86]

http://reclaimdemocracy.org/articles_2004/costco_employee_benefits_walmart.html

But Costco's kind-hearted philosophy toward its 100,000 cashiers, shelf-stockers and other workers is drawing criticism from Wall Street. Some analysts and investors contend that the Issaquah, Wash., warehouse-club operator actually is too good to employees, with Costco shareholders suffering as a result.

...

Some critics still aren't convinced that lower turnover is worth what it costs Costco in higher wages and benefits. "Their benefits are amazing, but shareholders get frustrated from a stock perspective," says Emme Kozloff, a retail analyst at Sanford C. Bernstein LLC.

Costco kicks ass!

http://seattlepi.nwsource.com/business/166680_costco29.html

The Issaquah-based company pays among the highest salaries in the retail industry. A new employee working at one of Costco's warehouses starts with an hourly wage of at least $10. After four years with the company, a cashier can earn around $44,000, including bonuses.

Duh! But only intelligent people will get this =p.