High profits, low taxes

We now live in a country in which corporations make extraordinary profits and spend more to remunerate their CEOs and to engage in lobbying than they pay in federal taxes.

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That’s the conclusion of a new report by the Institute for Policy Studies, “Executive Excess 2011” [pdf].

Guns don’t kill people, the old saw goes. People do.

By the same token, corporations don’t dodge taxes. People do. The people who run corporations. And these people — America’s CEOs — are reaping awesomely lavish rewards for the tax dodging they have their corporations do.

In fact, corporate tax dodging has gone so out of control that 25 major U.S. corporations last year paid their chief executives more than they paid Uncle Sam in federal income taxes.

The incredible shrinking government

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As I’ve explained before, during the Great Depression of the 1930s, the Works Progress Administration provided paid jobs for millions of unemployed men and women. Private capitalism couldn’t or wouldn’t generate enough jobs to keep the jobless ranks from swelling. Therefore, the state had to step in, in the form of the New Deal, to provide gainful employment (at market wages) for millions of people.

During the Second Great Depression, government employment has actually been shrinking.

The latest numbers confirm this trend:

Local and state governments axed more than 200,000 jobs in 2010, according to U.S. Census data released on Tuesday that showed the growing threat of public employee layoffs to the economic recovery.

According to the Census, local and state governments had 203,321 fewer full-time equivalent employees in 2010 than in 2009 and 27,567 fewer part-time employees.

Most local governments cut full-time jobs in 2010, with the biggest decline in Rhode Island, where the workforce shrank 7.7 percent. Those in North Dakota, one of few states to go through the 2007-09 recession unscathed, added jobs in 2010, with its full-time workforce growing 7.5 percent in 2010.

It was the second year local governments lost part-time employees, with cities, counties and authorities in California shedding the most, 47,620.

The job losses have continued this year. John Lonski, chief economist for Moody’s Capital Markets Research told Reuters this month that “we are looking at the worst contraction of state and local government employment since 1981.”

The sorry state of mainstream economics

Mark Tansey, "The Key" (1984)

The usual argument is that mainstream economists, because they do science, hold the key to unlocking the gates of economic knowledge. Therefore, all of other economic theories—nonmainstream, heterodox economics—can be ignored or eliminated from the discipline.

Well, to judge by the recent 4th Nobel Laureate Meeting in Lindau, Germany, mainstream economics is in a pretty sorry state.

Here’s Mark Thoma:

Surprisingly, the financial crisis did not receive much attention at the conference. Many of the sessions on macroeconomics and finance didn’t mention it at all, and when it was finally discussed, the reasons cited for the financial meltdown were all over the map.

It was the banks, the Fed, too much regulation, too little regulation, Fannie and Freddie, moral hazard from too-big-to-fail banks, bad and intentionally misleading accounting, irrational exuberance, faulty models, and the ratings agencies. In addition, factors I view as important contributors to the crisis, such as the conditions that allowed troublesome runs on the shadow banking system after regulators let Lehman fail, were hardly mentioned.

Macroeconomic models have not fared well in recent years – the models didn’t predict the financial crisis and gave little guidance to policymakers, and I was anxious to hear the laureates discuss what macroeconomists need to do to fix them. So I found the lack of consensus on what caused the crisis distressing. If the very best economists in the profession cannot come to anything close to agreement about why the crisis happened almost four years after the recession began, how can we possibly address the problems?

And Olaf Storbeck:

It takes a Nobel laureate to talk about banks, hedge funds and financial intermediation for half an hour without even mentioning the current financial crisis. Myron Scholes, the creator of the Black-Scholes formula who received the prize in 1997, accomplished this amazing achievement last week in Lindau, Germany.

Scholes wasn’t the only top-notch economist at the 4^th meeting of economic Nobel laureates who apparently had not realised that the world is enduring the worst financial and economic crisis since the great depression.

Robert Aumann even described the current state of the world economy as “pretty good”. . .

Laureates who bothered to acknowledge the crisis gave rather contradictory advice. Frequently, they did it in a way that wasn’t really digestible even for most of the 360 young economists who flocked to Lindau from all over the world.

A telling moment was the lecture of Roger Myerson. The 2007 laureate presented a theoretical model on moral hazard in the financial industry that yields some interesting conclusions. However, his lecture was so technical that Myerson lost most of his audience very quickly. After about 20 minutes, he cracked a joke but only a handful of people of the 300 people attending the speech were laughing.

The conclusion Marcela Velez, a journalist from Chile, tweeted on Twitter at the end of the meeting was head on:

“We are in huge trouble, we need reforms tons of them, we don’t know what or how to implement them.”

Public art of the day

Robbie Conal

Cartoon of the day

Stories of Vermont

There are many stories emerging from the ongoing disaster in Vermont in the wake of Tropical Storm Irene. Here’s another of them:

In Rochester:

The White River washed away the town’s electric substation, cutting off power at about 3 p.m. Sunday. A mountain brook at the north end of the village turned into a torrent that swept away one house entirely and undermined the foundation of a second. One section of town, West Rochester, was cut off from the village when a bridge collapsed on Vermont 73, [Sandy] Haas [a resident and the area’s state representative] said.

The town’s water system was working, driven by a generator, but water had to be boiled — an impossibility with no power to homes.

In the absence of help from the outside, Rochester residents helped each other.

“People are really pitching in and taking care of each other. It’s really amazing,” Ross Laffan, a longtime resident, said Tuesday by cellphone. “The townspeople and the fire department have just been awesome.”

He said as many as 300 people came to a town meeting Monday and to a second meeting Tuesday, after they were alerted by volunteers who went door to door.

The town’s general store opened Monday to give away its perishable food.

“There were long lines of people,” Laffan said, “And long lines again this morning.”

Four restaurants were providing meals to residents, and volunteers at the Federated Church collected enough food to offer lunch Tuesday.

In Pittsfield:

With the bridges out in Pittsfield, Vermont, and its 400 residents marooned, Wall Street trader Scott Redler took matters into his own hands: He hired a helicopter and was back home in New Jersey yesterday afternoon.

Redler’s family were weekend wedding guests when Hurricane Irene’s heavy rains pushed the Tweed River over its banks, smashing at least 20 homes. With his 65-year-old mother running out of medicine, Redler, T3Live.com’s chief strategist, found a pilot charging $7,000 for the rescue.

“I wasn’t going to wait for the state or federal government,” Redler, 38, said yesterday from his mobile phone as he waited for the chopper. “I can’t trust them, because I know I’m not a priority.”

Stories of Vermont

There are many stories emerging from the ongoing disaster in Vermont in the wake of Tropical Storm Irene. Here’s one of them:

Eric Cantor:

Eric Cantor, the No. 2 House Republican, is pressing for budget cuts to cover the cost of cleaning up after Hurricane Irene and other disasters. . .

“Those monies” for responding to disasters “are not unlimited,” said House Majority Leader Cantor of Virginia in an Aug. 29 interview on Fox News. “We’ll find other places to save so that we can fund the role the federal government needs to play.”

Bernie Sanders:

As Senator Bernard Sanders toured Vermont by helicopter on Tuesday to assess the damage from what he said could be his state’s worst-ever natural disaster, the idea of cutting other federal programs to aid towns pummeled by Hurricane Irene was stoking his outrage.

“To say that the only way you can come up with funding to rebuild devastated communities is to cut back on other desperately needed programs is totally absurd,” said Mr. Sanders, an independent, responding to a call by leading Republicans to balance any financial relief with spending reductions elsewhere. “Historically in this country we have understood that when communities and states experience disasters, we as a nation come together to address those.

“That is what being a nation is about,” he said in an interview.

State of the day

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New Orleans—contested city

Six years after the federal levees failed and 80 percent of the city was flooded, the battle for New Orleans continues.

Jordan Flaherty explains what has been happening:

New Orleans has lost 80,000 jobs and 110,000 residents. It is a whiter and wealthier city, with tourist areas well maintained while communities like the Lower Ninth Ward remain devastated. Beyond the statistics, it is still a much contested city.

Politics continues to shape how the changes to New Orleans are viewed. For some, the city is a crime scene of corporate profiteering and the mass displacement of African Americans and working poor; but for others it’s an example of bold public sector reforms, taken in the aftermath of a natural disaster, that have led the way for other cities.

This past weekend, the push back was heard and organized at the latest Rising Tide conference.*

* I was invited to speak at the conference but, unfortunately, I was not able to participate.

Cartoon of the day

Special mention