Second-quarter earnings reports are coming in, and they're making Wall Street smile. Corporate profits are up. And big American companies are sitting on a gigantic pile of money. The 500 largest non-financial firms held almost a trillion dollars in the second quarter, and that money pile is growing larger this quarter. Profits that plummeted in the recession have bounced back. Big businesses have recovered almost 90 percent of what they lost.
So with all this money and profit, they'll start hiring again, right? Wrong - for three reasons.
First, lots of their profits are coming from their overseas operations. So that's where they're investing and expanding production.
GM now sells more cars in China than it does in the US, but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States - down from 468,000 in 1970.
GM isn't just hiring low-tech assembly workers in China. Last week the firm broke ground there on a $250 million advanced technology center to develop batteries and other alternative energy sources.
You and I and other American taxpayers still own over 60 percent of GM. We bought GM to save GM jobs, remember?
GM officials say no American taxpayer money is being used to expand in China. But money is fungible. Because of our generosity, GM can use the dollars it doesn't have to spend in the United States meeting its American payroll and repaying its creditors for new investments in China.
Second, big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls.
Last Friday, for example, Ford reported a $2.6 billion second-quarter profit. The firm is already more than two-thirds the way to equaling its record 1999 profits. But due to labor-saving technologies, Ford now has half as many employees as it did a decade ago.
Wall Street analysts are happy with Ford's "commitment to keeping capacity in check," according to the Wall Street Journal. Ford shares rose 5.2 percent Friday. "Keeping capacity in check" is the Street's way of saying "no new hiring." In fact, the Street is advising investors to sell the stocks of companies that talk openly of expanding capacity.
Finally, corporations are using their pile of money to pay dividends to their shareholders and buy back their own stock - thereby pushing up share prices.
Last Friday, GE announced it would raise its dividend by 20 percent and reinstate its share-buyback plan. It's GE's first dividend increase since the company cut its dividend in early 2009. As a result, GE shares are up more than 5% in the past few days.
Bottom line: Higher corporate profits no longer lead to higher employment. We're witnessing a great decoupling of company profits from jobs.
The next supply-side economist who tells you companies need more incentive (i.e. lower taxes) before they'll hire is living on another planet.
The reality is this: Big American companies won't begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won't start buying again until they know they have reliable paychecks.
This post originally appeared at RobertReich.org.
For most businesses, especially small businesses, the goal is to DO something productive -- To make hats. To style hair and make people look good. To turn grapes into wine. To give surgeons a better tool for unblocking arteries -- And in the process, to earn money.
Most people are driven by more than just the desire for money, however, most people have intrinsic drives to do something of value, worthwhile. Quite often people value autonomy above money (or seek money as part of a drive for autonomy). Nearly all people desire as much control of what they do with their lives and time as possible.
I think it's mostly counterfeiters and insurance companies that are in business just to make money and not DO anything productive for it.
So it comes down to this. They have built up enough corporate fat hoping that their reticence will result in a very long winter of discontentment. They are hoping that the President will surrender and revert to Bush era laissez Faire, no holds barred, they win we lose non-policies.
Good luck to them. The President is right, lets call their bluff.
America has been robbed of it's prosperity with socialization of the loss and privatization of the profits. Where is America's share of the obscene profits from Wall Street?
Where is America share of the obscene profits from the Corporate Fascist?
Strike, subvert, do not support this corrupt system.
In other words, I'm convinced that US corporate CEOs are so powerful, and so amoral, that they would literally tailor their own corporate strategy to suit their personal political preferences. They're using the cash in their publicly owned corporation for personal political leverage.
If that's the case, then we officially live in an oligarchic plutocracy, not a democracy. You can still vote for whoever you want, but CEOs will punish you if you vote for Democrats.
Walmart has pretty much destroyed the Grocery jobs. There was a time when you could support your family with a job at a grocery store, with only one working spouse. Walmart changed all of that now a grocery job is a low paying job that no one could raise a family with.
DON'T SHOP AT WALFART PEOPLE!!!!
Glaobalization did not make the people of this country better off, it did not reduce prices, the savings went into the pockets of the corporations. Only balanced trade regulations can bring the jobs back in the US. Trade is only free and beneficial when it's balanced.
Mr Reich please study the topic of balanced trade. You can start with the articles of Ian Fletcher, here on HP.
But it represents a catch 22, so what do we do about it?
Republicans and self-proclaimed Conservatives with an income well below $ 250,000, don't have a clue about anything outside their greedy little "I want everything for FREE!" and that's exactly how they vote, much to the detriment of the rest of the American people who do get it.
"We"???? Umm - I don't remember the American people being consulted about that decision. And with unemployment as high as it is, I wouldn't beat the drum about how taxpayer money was used to save UNION jobs, a reward to the Dems' voting base.
The GM/Chrysler "bankruptcies" were shocking examples of gov't over-reach (at the taxpayers' expense) in the private sector, and crass payoffs to the UAW. Those two bloated, uncompetitive, money losing behemoths should have gone through Ch 11 and the chips left to fall where they may.
So Mr Reich - time was when 98% of Americans engaged in agriculture. Today, 2% do, feeding not only this country, but a good portion of the rest of the world - are you saying 98% was better? What happened to the other 96%, did they go jobless?
Companies search out the best combination of input-costs vs. value added to maximize profits. When an input becomes too expensive to maintain profits, alternatives are found. Why are companies so set against hiring, vs. investing in productivity Mr Reich?
Capital flows to where it's treated best. Mr Reich - if capital is flowing OUT of the US, what does that tell you about how well it is treated here? Perhaps if we took a hard look at US tax and reg policies, we'd find the answers...
Because sir one reason, GREED. They are making HUGE profits, but how much is enough? They are investing the profits in the Wall st Casino, in countries with cheap labor. The last ten years they have gotten everything they wanted, Deregulation, all of the big loopholes to dive through to avoid paying any taxes. Exxon/Mobil had record profits last year and yet paid no taxes in the United States. So many industries that employed our citizens have gone offshore so what is the solution? Let them have more profit to not invest in our country? Just pay no taxes to run a government that has given Big Industries every advantage to thrive. Get rid of environmental laws? Would that satisfy them? Let them polute the air and water?
Does Big Business owe anything to this country at all or do we have to watch as greed and corruption at the top destroys our economy and then get down on our knees to thank them ?
The utopia you have built has cashed out and it will be a decade, if not longer, before the bulk of the United States recovers. This is no concern of yours, as you already have the monies so well gamed out of the ash heap.
Whatever riches you have gained are not the ones that earn you any respect from me. For American citizens who value their country, it is best to remember that keeping your purchases, banking and employment close to home is your best bet. Every time you do not, please remember that you are giving sustenance to stateless weasels.
I dunno, but I do think about an ole George Harrison song and get a craving for pork.
It is your only defense.
What do the "rich" do with the money they keep - hide it in a vault like Scrooge McDuck?
Are you saying that higher tax rates are justified, because the government has more claim on a person's income than they do?
You tell us what "investment" they have made for the future of this country? You tell us? We'll wait................