I’m not sure why I actually read the editorial page of the New York Times, except perhaps it provides me with subjects on economics and law. Maybe I just get perverse enjoyment from the humbling experience of reading True Economic Brilliance from the "intellectual" leaders of "The Ruling Class." I’m not sure, but here I am again, writing commentary about how stupid and economically illiterate we Austrian economists really are.
Today, I wish to examine a column by Mr. Economic Brilliance Himself, Bob Herbert, who claims that American corporations have caused the current economic downturn to be worse because they are not hiring enough workers. Granted, I always thought that businesses laid off workers because there is a recession, not to mention economic uncertainty, but Herbert is a major spokesman for The Ruling Class, and like Dr. Science, he knows more than I do, even if he does not have a master’s degree in science — or economics.
Because I don’t want to write something that might wrongly interpret the intelligent prose from members of The Ruling Class, I will have to let Herbert speak in his own words. Granted, one might find a non sequitur or two, but that shouldn’t matter, since members of The Ruling Class do not have to follow the Law of Cause and Effect. (That rule only applies to Austrian economists, and since Paul Krugman, the Official Economist of The Ruling Class, thinks that Austrian economics is something akin to the Phlogiston Theory of Fire, one can conclude that the Law of Cause and Effect is Really Stupid Stuff and does not apply to Really Smart People.)
First, Herbert states his theme:
The treatment of workers by American corporations has been worse — far more treacherous — than most of the population realizes. There was no need for so many men and women to be forced out of their jobs in the downturn known as the great recession.
Many of those workers were cashiered for no reason other than outright greed by corporate managers. And that cruel, irresponsible, shortsighted policy has resulted in widespread human suffering and is doing great harm to the economy.
How is this harming the economy? Herbert explains:
The recession officially started in December 2007. From the fourth quarter of 2007 to the fourth quarter of 2009, real aggregate output in the U.S., as measured by the gross domestic product, fell by about 2.5 percent. But employers cut their payrolls by 6 percent.
In many cases, bosses told panicked workers who were still on the job that they had to take pay cuts or cuts in hours, or both. And raises were out of the question. The staggering job losses and stagnant wages are central reasons why any real recovery has been so difficult.
"They threw out far more workers and hours than they lost output," said Professor (Andrew) Sum. "Here’s what happened: At the end of the fourth quarter in 2008, you see corporate profits begin to really take off, and they grow by the time you get to the first quarter of 2010 by $572 billion. And over that same time period, wage and salary payments go down by $122 billion."
That kind of disconnect, said Mr. Sum, had never been seen before in all the decades since World War II.
In short, the corporations are making out like bandits. Now they’re sitting on mountains of cash and they still are not interested in hiring to any significant degree, or strengthening workers’ paychecks.
Productivity tells the story. Increases in the productivity of American workers are supposed to go hand in hand with improvements in their standard of living. That’s how capitalism is supposed to work. That’s how the economic pie expands, and we’re all supposed to have a fair share of that expansion.
Corporations have now said the hell with that. Economists believe the nation may have emerged, technically, from the recession early in the summer of 2009. As Professor Sum writes in a new study for the labor market center, this period of economic recovery "has seen the most lopsided gains in corporate profits relative to real wages and salaries in our history."
Worker productivity has increased dramatically, but the workers themselves have seen no gains from their increased production. It has all gone to corporate profits. This is unprecedented in the postwar years, and it is wrong.
Having taken everything for themselves, the corporations are so awash in cash they don’t know what to do with it all. Citing a recent article from Bloomberg BusinessWeek, Professor Sum noted that in July cash at the nation’s nonfinancial corporations stood at $1.84 trillion, a 27 percent increase over early 2007. Moody’s has pointed out that as a percent of total company assets, cash has reached a level not seen in the past half-century.
Executives are delighted with this ill-gotten bonanza. Charles D. McLane Jr. is the chief financial officer of Alcoa, which recently experienced a turnaround in profits and a 22 percent increase in revenue. As The Times reported this week, Mr. McLane assured investors that his company was in no hurry to bring back 37,000 workers who were let go since 2008. The plan is to minimize rehires wherever possible, he said, adding, "We’re not only holding head-count levels, but are also driving restructuring this quarter that will result in further reductions."
There can be no robust recovery as long as corporations are intent on keeping idle workers sidelined and squeezing the pay of those on the job.
This is an "Aha!" moment, I suppose. Businesses are doing just fine, but now they just sit on their money and they don’t hire workers, so workers are not spending and the economy is in recession even though the economy actually is in recovery, even if evil businesses don’t want to admit it. Got that?
So, Herbert has figured out The Truth: we are in recession — even though we are not in recession — because businesses are really profitable but are not hiring workers because they would rather just sit on their "mountains of cash" because they Really Hate Workers and are Really Bad People. Now, I must admit that I was not privy to such logic when I was studying economics in graduate school, but because I did not study in a program that had Official Ruling Class Status (i.e. Princeton or MIT), I never got to learn such truths.
(I would think about filing suit against my profs like Robert Ekelund, Henry Thompson, and Andy Barnett, who never informed me that the purpose of business hiring is to put cash into the hands of workers so they can spend and keep us out of recession — even when we are not in a recession. Unfortunately, the statute of limitations against Really Stupid Lawsuits has run out, so I have to stew in my anger that I was not given access to Ruling Class Economic Logic. Apparently, the Mises Institute also was derelict in its duty, as I spent a lot of time there, and no one in the building ever explained Herbert’s Theory of Corporate Spending to me.)
Now, there might be other explanations as to why businesses are reluctant to re-invest their profits into their operations — things like "regime uncertainty" and the coming punitive tax increases — but I have decided not to buy into any of that. No, it is obvious that corporations automatically produce goods, and they hire people so that people will have money in order to "buy back" the products that these Evil Corporations have produced.
How do I know that? The NYT tells me so, and everyone knows that if it is not printed in the Newspaper of Record, then it cannot possibly be true, and Austrian thinking does not exist on the pages of that newspaper, unless it is to have someone point out that the Austrians are wrong, wrong, wrong.
So, those of you who might have thought that businesses hire people in order to perform work in order to help make products that these businesses sell in the marketplace are wrong, wrong, wrong. The Ruling Class has spoken, and if you don’t want to listen, then please leave the room and be silent.
William L. Anderson, Ph.D. [send him mail], teaches economics at Frostburg State University in Maryland, and is an adjunct scholar of the Ludwig von Mises Institute. He also is a consultant with American Economic Services. Visit his blog.