This page has been archived and commenting is disabled.
Whither The Economy?
Submitted by 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.
- 22561 reads
- Printer-friendly version
- Send to friend
- advertisements -


Love Craig Roberts and what he has to say. OT... Re: Hilary... anyone heard about the hackers who suposedly hacked her server and are offering the email trove to the highest bidder? If this ends up being true you can stick a fork in her... http://radaronline.com/celebrity-news/hillary-clinton-hacked-emails-sale...
I like the imagery of sticking a fork in Hillary, but we would need a volunteer... Yes, that would be great if that story is true. I believe Sean Hannity has already offered to buy any of Hillary's emails.
* * *
As far as interest rates, I sold almost all of my stock (including my last "big chunk" a month or so ago) as well as longer-term bonds. So I am OUT of all that. So, it is almost irrelevant to me how the economy goes (other than affecting loved ones).
Were the Fed to raise rates, that would help me as a cash holder (more correctly: the cash that is in the bank). Raising rates would be good for me, even as a gold holder.
It really isn't going to matter in a few years, the USA as we know t is about to disappear. It wll be replaced by several smaller countries divided into the can do and the can't do, pick a side now before it's chosen for you.....
Fork? How about a wooden stake?
I'll see you one wooden stake and raise one silver bullet. Got to cover all of her personalities.
The pant-suit is most likely made of Kevlar. Adjust accordingly, I know Huma does...
http://www.whatamimissinghere.com/wp-content/uploads/2010/06/GovernmentI...
This is why unfettered laissez-faire capitalism is breathing its last breath. The top corporate executives will always find a way to game the system to their advantage.
Meanwhile, the jobs that were lost are not coming back but new jobs will be created in new areas which cannot even be imagined at the present time. High-paying jobs with good benefits in the “knowledge economy”.
Certainly there will be many who can’t or won’t adapt but that’s why a minimum wage much higher than we have now is imperative if we are ever going to regain our competitive edge.
Boy, was that ever a knee slapper!
But, if you're gonna wanna post around here it helps if you put a sarc tag at the end of your rant or people might start mistaking you for MDB.
Which part of it did you think was sarcastic? You're not one of those corporate executives, are you?
Aren't you, Mr. Moneybags?
A survey of business activity in Hong Kong has deepened the gloom over the health of the private sector, fuelling concern investment will dry up and further slow down the city's economy.
The sharp decline in the Purchasing Managers' Index prompted one leading economist to question whether the economy would grow by two per cent for the year - the lower end of a new target set by the government last month - if business orders continued to dwindle.
http://www.scmp.com/news/hong-kong/economy/article/1855218/key-hong-kong...
It's a Global Rekovery!...How Robust!!!
Geez, I hate running out of Thermonuclear Facepalms on a long weekend.
In commemoration of Labor Day, all wage workers should have a minimum wage sufficient to rent a 4 bdrm dwelling, the financing for 2 dependable automobiles with the requisite insurance, fuel and standard maintenance. In addition, child support for a maximum 2 children, plus adequate food and medical care.
If the extreme right Republicans in Congress would quit pandering to their ignorant constituencies (mostly in the South/Southwest/Mountain West) and uphold their sworn duty, we would be out of the woods in no time flat.
Formadesika3, you really have some real life learning to do.
Go check out the latest ZH top post “Europe’s Biggest Bank Dares To Ask: Is The Fed Preparing For A Controlled Demolition’”. Read the whole article and tell me I’m wrong. DB’s conclusion — if you want the short and sweet — is Fiscal Stimulus i.e., ‘helicopter money’ is coming. A very high minimum wage is one way to make helicopter money happen.
Who needs the life learning? Just sayin'.
The FSA ('free shit army') has been growing steadily and you appear to be one of the leaders.
I will say what you seek will bring about the fall much quicker !!
All things to their season.
Formadesika3, First off, sorry to be so brazen with my critique. It's poor form.
We all form our opinions over time. I'm a liberal of many years, more socialist than some, not a gold bug.... but a fiscal conservative. I think welfare is a good idea, if not just to keep the macontents out of my hair. I'm for single payer health care, and against most of the wars ever fought. That said, when you see something not working again and again, I have to realize that maybe something is up. QE is destroying the fiber of the world and enabling the 1% more than anything else.
I don't have the answer, but I can see when something isn't. Helicopter money isn't. One of the beauties of ZH is the differning opinions and often opposing articles. I've seen articles written about things I am expert on that were dead wrong... and then another article, sometimes the same day, that was spot on.
Life learning is a lifetime.
well put.
Thank you. Havea good night.
What a gentlemanly exchange! Up votes for everyone.
The "Knowledge Economy" will certainly be be such a crowded place that they will pay no higher than the competitive "Bid"
Hint: its not "new area" its a frigging Corral where they herd the sheep.
And then you have robotics who don't need to eat and sleep.
Brave new World indeed
Is that you MDB?
Is this me?
"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.
Oh, brother. The 'controlled opposition' speaks? Nixon was a crook and the EPA was created to stop competition and sell influence within DC.
This is the same nonsense that PCR does, saying this present system is "unfettered laissez-faire capitalism" this shackled heavy-handed capitalism run by cronies for cronies. PCR above states clearly that the EPA is a captured agency. They all are. They are weapons the cronies use against everyone else and were IMO created as such. A property rights system would have ended their pollution, fraud, etc that these agencies pretend to protect us from. Remember pollution got the way it did because the government decided to allow people's property rights to be violated.
If we really had "unfettered laissez-faire capitalism" so many other people would have a shot, things would be diversified and stronger. Instead we have a government managed system that insures that only the bigs get to play and the jobs get shipped overseas. The whole mess is impossible without government as an active partner.
I meant the idea of unfettered laissez-faire capitalism is breathing its last breath.
Of course, there has never actually been unfettered laissez-faire capitalism. That goes without saying. There never will be either.
Formadesika3
So one imagines, given your minimum wage opine, that Rumplestiltskins in fact do exist for you, and can spin gold out of straw.
Minimum wage hikes will only exacerbate the taxation of the middle class through higher prices with resulting fewer jobs and more competition for those opportunities which do exist. Aka supply and demand.
It is obvious that anything politicians like Bernie Sanders want to get behind continue to be those things which suck the life out of middle class tax payers by redistributing what already exists rather than creating wealth from innovating what does not.
The great problem is fascism which is also short-sighted. The USA is not laissez faire, it is a "managed" society with a "managed" economy. Here is a clue: chaos cannot be managed.
US will drift inevitably toward fascism. The corporate cronies will run the show. You will be working for them. And your happiness will be ensured by the police state. You will once again believe in the greatness of Amerika.
I'm stacking and packing (supplies) because the BIRCS are comin after the Western Banksters and I ain't getting in their way. Going down. Actually I'm going to stay a student for as long as possible and see what happens. Try to catch a few banksters jumping with my camera and what not.
Already once said here that "economics" is not science and was crucified (never seen so many "-" in a review!).
Well, I reiterate my observation.
Economists are sons of bitches who invent a lot of papers and formulas to replace decent work and the money earned from good people.
Those who produce the wealth of a country.
Whoever heard you pay for gold and take back a role?
Think about it in the absurd!
In my farm, seeing a cow, I want money.
No he did not buy diesel, seeds etc. .
Not seeing early harvest, I am not sure crop, plant and seeing how God gives the conditions.
Cash.
I have no credit card (looks like an aberration), only work with cash and check (another aberration).
If everyone lived within their means, maybe the shit would not be so great.
Another thing, Economist for me is at the same level of esoteric signs that creates graphics (mine is Scorpio)
Kkkkkkkkkkkkkkkkkkkkkkkkkk!
Come on, do not be shy, I want more than the 18 "-" I had the last time!
hehe.
" yes we can! "
The 20 Poorest Cities in the United Stateshttp://housely.com/news/20-poorest-cities-united-states/?utm_source=yaho...
The Failure of Laissez Faire Capitalism and Economic Dissolution of the West
That nonsense is to be expected from from an ex-Wall Street Editor and ex-Treasury Secretary in the Regan regime.
What laissez faire capitalism? Where? I can't think of one thing that isn't affected in some way by law and regulation. Statist writers like Roberts are very good at defining the problem. Their delusion is in thinking there is a government solution. They can't let it go.
You are deluded if you think there is ANY solution. Big systems will always favor the few. We are beyond fucked.
You are deluded if you think there is ANY solution.
Of course there is a solution; this can't last much longer. Try to imagine Thelma and Louise driving off Grand Canyon. http://baltimorepostexaminer.com/wp-content/uploads/2012/12/Thelma_Louis...
Big systems will always favor the few.
There is another saying: The bigger they are, the harder they fall. These people are total economic ignoramuses on the verge of being wiped out before this decade is over.
We are beyond fucked.
Maybe you, but not me. I saw this coming decades ago.
Saw what coming? There's not going to be a crash. Just an ongoing depression with a nice chunk of war on the side. In ten years we're all going to be a lot poorer... and the existing power structures will still be in control.
We'll have to compare notes in about five years.
You are one of the few that gets it. ALL Governments exist and were created at the point of a sword…or gun.
I have seen how my country turned from rural little towns where family was like a gang that stood together and took care of each other.
When I was young and I had troubles, I could call my nephews and I had a gang that would help me out. And the best part was: They didn't care what it was for, I was right because we where family.
30 years later and we've grown insanely wealthyour society has thrown away all those bonds. it used to be so common and now it's gone.
And as a future? I see it all comming back once society breaks down.
This summer was the weirdest summer I've ever seen.
I never heard of so many friends who got sick
Got devorced
Quit their jobs without having a new job, just because they where sick of it.
A lot of people aren't happy anymore. It's not worth it anymore.
I'm blessed with a good family and we talk to each other on a daily basis. Without it? I don't know if I could handle it.
After work, I call my sister, my brother and my father and we go walk our dogs for a few hours and we talk. We tell each other everything.
And I do that also with my kids, my wife and I teach them the same things. Get along and talk to each other. It's worth a billion euro's or dollars.
It just feels good to pad each other on back when things aren't going well and when you hear: "You'll do fine, we believe in you".
And not just family, have a lot of friends to!
Yesterday, I got drunk with my friends drinking 4 bottles of gin in the pool. And it feels great talking bullshit when you're drunk with your friends. That's a big battery charger for me to.
And so few people do that these days. Just do stuff together, the good and the bad.
Fuck the Fed!
A corn crop, need "x" diesel, seeds, stir and spoon.
Maintenance cost, my time, taxes.
Create cow or chicken is more work, earn more and the risk is higher.
I'm only in corn and soybeans, some cows for consumption as well as chickens and pigs.
I hate raising pigs but like muto of Kkkkkkkkkkkkkkkkkkk meat!
Wheat not of here, rice either.
Coffee!
Plant and for consumption as well as beans and watermelon.
Today was an unusual day, a hellish heat in the winter, 34ºC in the shade with no wind.
The sprawled animals ...
I'm around Brasilia.
:-)
CEOs are just hired hands. Worship of executives & management, in general, can die a slow & painful death in a lake of fire. Fuck them in their no ethics having asses. Bankers, politicians, military, academia, intellectuals can go for a nice long soak w corporate management in that lake of fire. Perversion of ethics defines our times.
Great post all together. So much more to say, but why bother? This about says it all.
There are no safe harbors left - the billions and billions rush to any glimmer of light and then the opportunity gets monkey hammered so some HFT or corporation can make money going up and down. The fundamentals are gone - so is the economy - so is the country.
Just don't say the helicopter drop is gone.
Laissez fair capitaleism? Where? Laissez faire with a central bank price-fixing interest rates via monetary debasement is a logical impossibility.
Yes, paving the way for a global fascist state, of some sort?
http://redefininggod.com/?s=paul+craig+roberts
http://redefininggod.com/wp-content/uploads/2015/08/nukeprop1.png
ZeroHedge ... well said !!!!
The gains in executive bonuses and shareholder capital gains were achieved by destroying the economic prospects of millions of Americans
When you read Dr. Roberts' writings, be sure to remember that he is a Conservative. This is a good representation of the Conservative viewpoint on the economy. I first started reading Dr. Roberts in the mid-1990s, because his Clinton Derangement Syndrome was so extreme I found it hilarious. Dr. Roberts hasn't changed one bit. I came, slowly, to understand what he was saying about the Clintons, and that Dr. Roberts was correct.
Then George W. Bush was elected, and Dr. Roberts held him to Conservative standards. As a result, Dr. Roberts never gets invited to those frankfurter parties anymore.
I don't know what you call the current crop of politicians, but there isn't a Conservative among them. They're all radicals, and Fascists, as far as I can tell. They pander to different constituencies, so they use different words sometimes. But the policy preferences are virtually identical. Including Trump.
pcr tends to be able to describe what is going on quite accurately in a fact based analysis. he doesn't try to predict the future except as an extension of policy in place.
lets see if he is the first to report the chinese are single handedly trying to krack the dollar to take the pressure off of all the ems(who happen to be aligned with the brics).
Uh, du.. Tax it all. Preformance is fake anyway.