Rundles wrap up: the confidence game
Early last month the San Francisco Federal Reserve Bank, in its regional Economic Letter, suggested that the probability of another recession gripping the nation within the next 18 to 24 months is higher than there being an economic expansion. The reason: Consumer confidence and spending have dropped, and private-company hiring is well below expectations.
There’s a lot to be said for this point of view, and it is very important for all of us to focus on consumer expectations and jobs. Wall Street has posted significant gains over the last several months, but look closer at the corporate earnings reports fueling the surge and you’ll find that corporations have beefed up their profits at the expense of jobs – jobs once held by those very “consumers” whose confidence and spending have fallen.
It’s no wonder consumers have no confidence. Those who have jobs have very little confidence that their job will continue, and those without jobs have almost no confidence that they will find one anytime soon.
If you think about it, it’s a kind of confidence game. But the trick here is that this confidence game, involving the jobs of Americans, is not something new. This has been going on steadily for decades. Solid American jobs, those involved in the building of wealth through production, have been going overseas since at least the 1970s, and ever since then we have been involved in the smoke-and-mirrors obfuscation that Wall Street is Main Street.
It isn’t. It used to be that the largest corporation in the country was General Motors, which employed hundreds of thousands of people in relatively high-paying jobs. Now the biggest companies are retailers, whose own workers can’t afford health insurance or to buy a new car, and oil companies that represent billions of our dollars going overseas.
Government, or at least the way we have come to understand the role of government, cannot be the font of jobs. Private companies must be, and they have to be good jobs, the kinds of jobs that create consumers with the wages and confidence to spend money.
The only way to achieve this is to produce. We need to make more cars. We need to manufacture televisions, apparel, shoes, steel, tractors, computers, crops and everything you can think of. And we need to make these products and then sell them to the Chinese and the Indians and the rest of the world. What we have decided to do instead is conceive these products, finance their production, and let the rest of the world have the jobs involved in the manufacture. That’s good for investment bankers and financiers, not to mention corporate earnings, but it isn’t any good at all for America.
Why? Because it narrows wealth. Back when America was the production capital of the world, our corporations and Wall Street generally made a ton of money, but so too did the little people.
Over the last two decades or so, we have been operating under the illusion that tax cuts for the wealthy and corporations will drive them to reinvest the savings that will trickle down to the populace.
I believe we should do this in a more targeted way. Cut taxes, on both corporations and the wealthy, and also cut capital gains taxes, even drastically, but only in return for specific investments, like American jobs and American production. Do the same with domestic energy exploration and mineral production. Overall taxes on corporations and the wealthy would fall, which is their incentive, but overall tax collections would rise, and along with that personal incomes of everyday people would rise as well. Plus, instead of exporting jobs, we would be exporting valuable goods, which builds wealth up and down the socio-economic ladder. Would things be more expensive? Yes, but we’d all have the money to afford them.
You want consumer confidence to rise, then stop the confidence game that exporting jobs and basically becoming the world’s middle man is a benefit to everyday Americans. What made America great in what turned out to be The American Century was production that made us – all of us – highly productive and highly affluent. Investment banking, and Wall Street at large, needs to be guided back in