{"id":61192,"date":"2014-01-30T09:00:58","date_gmt":"2014-01-30T14:00:58","guid":{"rendered":"http:\/\/thesocietypages.org\/socimages\/?p=61192"},"modified":"2014-01-27T17:15:19","modified_gmt":"2014-01-27T22:15:19","slug":"businesses-are-swimming-in-money-more-profit-protection-will-not-end-the-recession","status":"publish","type":"post","link":"https:\/\/thesocietypages.org\/socimages\/2014\/01\/30\/businesses-are-swimming-in-money-more-profit-protection-will-not-end-the-recession\/","title":{"rendered":"“Businesses are Swimming in Money”: More Profit Protection Will Not End the Recession"},"content":{"rendered":"

One conventional explanation for our economic problems seems to be that our businesses are strapped for funds.\u00a0 Greater business earnings, it is said, will translate into needed investment, employment, consumption and, finally, sustained economic recovery.\u00a0 Thus, the preferred policy response: provide business with greater regulatory freedom and relief from high taxes and wages.<\/p>\n

It is this view that underpins current business and government support for new corporate tax cuts and trade agreements designed to reduce government regulation of business activity, attacks on unions, and opposition to extending unemployment benefits and increasing the minimum wage.<\/p>\n

One problem with this story is that businesses are already swimming in money<\/em> and they haven\u2019t shown the slightest inclination to use their funds for investment or employment.<\/p>\n

The first chart below highlights the trend in free cash flow as a percentage of GDP.\u00a0 Free cash flow is one way to represent business profits.\u00a0 More specifically, it is a pretax measure of the money firms have after spending on wages and salaries, depreciation charges, amortization of past loans, and new investment. \u00a0As you can see that ratio remains at historic highs.\u00a0 In short, business is certainly not short of money.<\/p>\n

\"1<\/a><\/p>\n

So what are businesses doing with their funds?\u00a0 The next chart looks at the ratio of net private nonresidential fixed investment to net domestic product (I use \u201cnet\u201d rather than \u201cgross\u201d variables in order to focus on investment that goes beyond simply replacing worn out plant and equipment).\u00a0 The ratio makes clear that one reason for the large cash flow is that businesses are not committed to new investment<\/em>.\u00a0 Indeed quite the opposite is true.<\/p>\n

\"1<\/a><\/p>\n

Rather than invest in plant and equipment, businesses are primarily using their funds to repurchase their own stocks in order to boost management earnings and ward off hostile take-overs, pay dividends to stockholders, and accumulate large cash and bond holdings.<\/p>\n

Cutting taxes, deregulation, attacking unions and slashing social programs will only intensify these very trends.\u00a0 Time for a new understanding of our problems and a very new response to them.<\/p>\n

Cross-posted at Reports from the Economic Front<\/a>.<\/em><\/p>\nMartin Hart-Landsberg is a professor of economics at Lewis and Clark College<\/a>. You can follow him at Reports from the Economic Front<\/a>.<\/span>","protected":false},"excerpt":{"rendered":"

One conventional explanation for our economic problems seems to be that our businesses are strapped for funds.\u00a0 Greater business earnings, it is said, will translate into needed investment, employment, consumption and, finally, sustained economic recovery.\u00a0 Thus, the preferred policy response: provide business with greater regulatory freedom and relief from high taxes and wages. It is […]<\/p>\n","protected":false},"author":1853,"featured_media":61196,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[29,36,98,23633,12498,23635,253,85,304],"class_list":["post-61192","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-class","tag-economics","tag-capitalism","tag-economics-corporations","tag-economics-great-recession","tag-economics-history","tag-history","tag-politics","tag-the-state"],"jetpack_featured_media_url":"https:\/\/thesocietypages.org\/socimages\/files\/2014\/01\/1-25.jpg","_links":{"self":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/61192","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/users\/1853"}],"replies":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/comments?post=61192"}],"version-history":[{"count":2,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/61192\/revisions"}],"predecessor-version":[{"id":61198,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/61192\/revisions\/61198"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/media\/61196"}],"wp:attachment":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/media?parent=61192"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/categories?post=61192"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/tags?post=61192"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}