Editor's Note: I stitched together a few quoted paragraphs from various articles to show a correlation between several different topics (unemployment, secular stagnation, corporate taxes, hoarded profits and tax havens), so don't be confused (read through all the links.)
The New Yorker: Writing in the Washington Post earlier this week, Larry Summers warned that relying on low interest rates to boost the economy for long periods virtually ensures the emergence of substantial financial bubbles — and he called for more public and private investment.
The economy is currently being held back by inadequate demand.
For decades, the labor force has been growing at about one per cent a year: as more workers come online, the economy can produce more. But now that the baby boomers are retiring, things are changing rapidly. According to a recent study by economists at the Labor Department, between 2012 and 2022 the labor force is expected to grow at an annual rate of 0.5 per cent, half the previous decades’ figure.
Editor's Note: Why do economists keep referring to baby boomers retiring as being a major reason for a declining labor force -- when it's really because of population growth, and that, the U.S. has had more "non-starters" than "quitters" in the labor force.
An economist at the Federal Reserve Bank of San Francisco has crunched some figures: Between the start of 1997 and the third quarter of 2003, output per hour in the business sector rose at an annual rate of 3.6 per cent. But between the third quarter of 2003 and the second quarter of 2012, the annual rate of growth for output per hour was just 1.6 per cent. The Fed estimates the trend in future G.D.P. growth at just 2.1 per cent per year— the Congressional Budget Office puts the figure at 2.6 per cent.
Larry Summers, a supporter of private enterprise and an admirer of Milton Friedman, is enough of a Keynesian to believe that capitalism has a serious flaw when it comes to maintaining adequate demand.
“Secular stagnation is not inevitable,” Summers wrote earlier this week. But averting it requires making the right policy choices, “ending the disastrous trend towards ever less government spending and employment each year and taking advantage of the current period of economic slack to renew and build out our infrastructure.”
From a non-American blogger: "Avowedly Marxist economists...secular stagnation has been part of non-orthodox economics for over three decades...Weren't these the lefties who were always expecting the final crisis of capitalism, even after the fall of the Berlin Wall?...[he quotes another]:
The Marxian view is that capitalistic economies are inherently unstable and that excessive accumulation of capital [the hoarding of cash] will lead to increasingly severe economic crises. Growth theory, which has proved to be empirically successful, says this is not true. The capitalistic economy is stable, and absent some change in technology or the rules of the economic game [such as offshoring and H-1B visa perhaps?], the economy converges to a constant growth path with the standard of living doubling every 40 years [that was then, this is now].
Of course, mainstream economists could never acknowledge the prior arguments of a rival intellectual tradition, but now that Larry Summers has said it, suddenly it’s OK to spout what the lefties have been saying for 30 years (though with different explanations, of course—it’s declining population growth and falling levels of innovation, not nasty transnationals relocating production, or financialization of the economy white-anting the industrial sector).
But since Summers’ take on secular stagnation looks like it will be the flavour of the month for American economists for the foreseeable future.
Professor Laurence Kotlikoff, a professor of economics at Boston University, has written an opinion article in the New York Times headlined Abolish the Corporate Income Tax.
Time to abolish the corporate tax? "Learned professor creates huge tax model to illustrate . . . nothing."
"U.S. corporations are sitting on oceans of idle cash at the moment — $5 trillion in 2011 and surely more than that now — and they aren't investing it. What on earth would make anyone think that adding to their prodigious cash piles through corporate tax cuts would add a single job to the U.S. economy?"
Now see the Citizens for Tax Justice: Corporate Income Tax Repeal Is Not a Serious Proposal
And then read this: Time to abolish the corporate tax? (Part 2) Only fools or shills would agree.
"The corporate income tax raises a significant amount of revenue for the federal government — $242.3 billion in fiscal 2012, or almost 10 percent of total federal revenues. However, the corporate income tax is less important now than in the 1950s, when it accounted for about 30 percent of total revenues... Economists have failed to demonstrate a link between lower corporate taxes and economic growth over the past several decades that would justify the assumptions Kotlikoff uses."
CEPR: "Rand Paul wants to reduce the income tax rate for the rich to 5 percent." (Great! So companies can hoard more, invest less, and create more secular stagnation.)
Here are two different articles that are titled the same. From Forbes: If Ireland Is Not A Tax Haven, What Is It? --- From Treasure Islands (referencing to the Forbes article): If Ireland Is Not A Tax Haven, What Is It?. (I didn't see the Cook Islands on their list of tax havens, so here is one from the New York Times: Cook Islands, a Paradise of Untouchable Assets.)
Excess profits are being hoarded and untaxed offshore (executives hiding money). Hoarding cash, rather than reinvesting to create jobs and demand, because:
- the markets have been manipulated for maximum return without having to produce more
- they have been doing more with less (worker productivity, automation and robotics)
- cheap labor overseas
- As Mad Money's Jim Cramer recently said on CNBC, "They can make more profits by firing people."
Usually every time a dollar is transferred from one party to another, it creates some type of economy activity — a wage is paid, a service is used, a product is sold, and a tax is collected.
But if $5 trillion is collecting dust in an offshore bank accounts, it does no one any good, and creates what the "Marxists" and "Lefties" like to say is "secular stagnation" --- when no one works (unemployment creates lack of demand), no one buys anything (lack of demand reduces the necessity for supply, capital investment and hiring), and no taxes are collected to run the government (creating deficits and the need to borrow from China and "quantitative easing".)
But I thought "supply and demand" was the whole basis for capitalism.