Tuesday, September 11, 2012

The Capitalist Strike

Continuing evidence of a too cash-rich capitalism.

The Federal Reserve reports  that U.S. non-financial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets,(triple the Fed figure) which equals $5.1 trillion in today's dollars and equal to America's entire economic output that year from New Year's Day through May Day. It makes perfect sense these days to hoard cash. First, Congress lets overseas profits accumulate untaxed, so long as offshore subsidiaries own the cash. Second, companies have a hard time putting cash to work because fewer jobs and lower wages mean less demand for products and services. Third, a thick pile of cash gives risk-averse CEOs a nice cushion if the economy worsens. Given the enduring hard times, you might think that corporations have used up their cash since 2009. But real pretax corporate profits have soared, from less than $1.5 trillion in 2009 to $1.9 trillion in 2010 and almost $2 trillion in 2011, data from the federal Bureau of Economic Analysis shows. That is nearly $1 trillion of increased profits over two years.  Dividends, wages and capital expenditures all grew less than profits, while undistributed profits rose. The single biggest expense to any company is full-time employees due to payroll, taxes and benefits. During the recession, and recovery, businesses have kept very tight controls on costs by reducing inventory levels, cutting budgets and maximizing productivity per employee.  This has also led to massive changes in hiring and employment.  Temporary hires (which have lower wages and no benefit costs) have substantially outpaced permanent employment since the end of the last recession.  Since the first quarter of 2009 part-time employment has increased by more than 1.5 million while full-time employment is still lower by 1.25 million. Over the past decade the demand on businesses to increase profits, from shareholders and Wall Street, has driven productivity higher and wages lower.  Real wages are well below the long term trend due to the large, and available, labor pool which keeps wages and salary levels suppressed. While it is enticing to want to force corporations to deploy the cash and create jobs - the unfortunate situation is that it is the very demands to maintain profitability that keeps them on the defensive.  Secondarily, let's not forget that we live in a free market economy and businesses are in the "business" of making profits. Corporations will not increase hiring, and ultimately wages, until end demand substantially increases.  Businesses have no incentive to release their "cash hoards" as long as "poor sales" remain their primary concern.

The result: more cash.

 Capital has not the inclination to offer workers more exploitation right now.

http://www.zerohedge.com/news/guest-post-corporate-profits-surge-expense-workers
http://www.reuters.com/article/2012/07/16/us-column-dcjohnston-idlecash-idUSBRE86F0GK20120716

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