Down the Garden Path

In 1972 the Dow Jones average was at about 850. Yes, that's right. 3 digits. Last week the Dow cracked 23,000, 5 digits. Please don't think that I am an economic expert just because I happen to know how to get these figures. But, to me, this means that over the past 45 years the amount of wealth generated by those companies listed on the Dow Jones Exchange increased by a factor of 23. What is more surprising but irrational is that the wages of the average worker have increased by zip. That is right. The average worker in the United States has not received a raise in buying power in 45 years. How can that be possible?

Just today I saw an ad on television that said American businesses are hurting and can't afford to reinvest these surpluses and hire additional workers. The ad went on to say that the United States has the highest tax rates in the world and that we need tax relief. Thing is the ad didn't really say what it meant. What is true is that the United States has the 3rd highest corporate tax rate in the world but that hardly anyone pays it. For instance, for years now General Electric has not paid a cent in federal taxes. Apple and Microsoft, two of the most profitable companies in the world managed to tweak the law to an average tax rate of 16% to 19%.

Hedge funds, which are shelters for people with too much money and who don't want to risk it on a new reinvestment venture which may lose money, use something called "carried interest" which is taxed at a rate of 20%.

Often when I try to talk to people about this they just tell me "well, they're just smart. What they do is legal." That is true but that doesn't make it right. What they don't say is that the financial industry has the resources to lobby Congress for favorable taxation avoidance laws. Legal as it can be. The money spent on lobbying is the best money a corporation can spend having returns of thousands of dollars

for each dollar spent lobbying. One friend tells me joyfully that his investments have done better under President Obama than under President Bush by a lot. And that is after the Great Recession. Why is that? Government was forced to make investments to prevent the entire system from crashing which were very favorable to businesses. Much of the money loaned to the big banks was used not to create more jobs but, instead, to buy back stock thereby increasing the wealth of its investors. Money loaned to corporations at rates approaching 0% interest were used for the same things. Trillions of dollars financed by the federal government to essentially increase the wealth of investors. Now, the Federal Reserve is beginning to raise interest rates in order to pay off the bonds that it sold to finance those trillions and you should hear the howling.

But, what has that to do with us, the average Joe or Joan on the street? The question is where is the money? Politicians like to say that NAFTA allowed our jobs to go overseas and our leaders stuck it to us. It's true that many low skill, good paying manufacturing jobs went overseas leaving millions in the lurch but it is also true that manufacturing in the United States is now higher than is was before NAFTA. So, why can't people get good paying jobs? The answer is automation. Look at an assembly line. Where there used to be a man or woman welding or putting a nut on a bolt now there is a

machine doing it. How did that happen? Those companies used the money they borrowed from the Federal Government essentially interest free to automate and update their plants. Robots don't take vacations, get sick, have babies or ask for raises. They just work 24/7/365. What a deal!
But we really can't blame those corporations. The investors invest to make money and this one has a good return on investment. The real and the most pertinent question is why hasn't the average American worker shared in that explosion of wealth? Who does the lobbying for Joe and Joan? How can we restore the American middle class to the position of esteem it once held. From WWII to the 1970s it was the American worker who saw the greatest increases in wealth. Since then wealth has gone almost entirely to the wealthy leaving the middle class to gradually become the lower class with all of its attendant lack of benefits.

Now the talk of Congress is tax reform. They don't mean reform for Joe and Joan, they mean reform for those who just can't stand to see their millions and billions be subject to taxation like Joe's and Joan's. Once again they dangle the chimera of lower taxation for the rich meaning more jobs for you. Don't you believe it. It was a lie before and it's a lie now. I could maybe support a lower corporate tax rate if Congress would eliminate most or all of what is know as “tax expenditures” which are loopholes that corporations use to avoid taxes. I'll be you'd hear some howling about that. So, when they come to you talking about voting for tax reform and lower taxes don't you think for a minute they mean for you because that's not what they mean.

I want to leave you with a quote from Neel Kashkari who is President of the Minneapolis Branch of the Federal Reserve.

Minneapolis Fed President Neel Kashkari said Monday that businesses who complain they are having trouble finding workers but don't raise wages are just "whining." In a question-and-answer session in Sioux Falls, South Dakota, Kashkari said short-handed firms during the recent oil boom in North Dakota raised wages and "people responded." "Are you really struggling to find workers? If so, the proof for me is you are raising wages. If you are not raising wages, then it just sounds like whining," he said.

My Take is for Joe and Joan to hold on to their wallets because they're coming for you again. When they say tax reform ask “for who?” Next time we'll follow the money.