Corporate Profits, Government Regulations, and the Hoodwinking of America

The Leesburg Daily Commercial surprised us today by highlighting the role of money in modern politics. Front page coverage of huge Super PAC contributions from the wealthy Morse family (the developers of The Villages) was a fine complement to the excellent Letter of the Week from Tom Christian on the Citizens United decision. Sadly, however, the newspaper spoiled its good work by subjecting us to yet another drip in the agonizing Chinese torture that is Russ Sloan’s column in the Money section. Citing the case of a Russian immigrant forced to buy expensive equipment 1 for his New York City bagel shop in order to avoid further sanitation fines from an apparently suffocating bureaucracy (a case that has become a cause celebre all over the right-wing blogosphere), Sloan led readers to believe that excessive government regulation is strangling small businesses in the crib. While Sloan’s background in the Chamber of Horrors (sorry, Commerce) suggests that his solicitude for small business may be quite genuine, he knows very well (or certainly should) that this Reaganesque trope is music to the ears of big business, too. In fact, the appeal to small business owners is a central component of the GOP’s propaganda, designed to lure the unsuspecting into the corporate maw.

Like so many of the Tea Party ghouls who haunt the Voices section of the Daily Commercial, Sloan seems to be relying rather too much on Rupert Murdoch’s empire of ignorance (example here) for his information. Readers sensitive to the once-relevant distinction between objective analysis and outright manipulation will find a more complete, and infinitely more edifying, portrait of the health of the American economy at Business Insider. In both a summary view and a comprehensive series of charts, the editor-in-chief explodes the myth that government regulation is destroying Russ Sloan’s beloved bottom line.

Big Profits, Low Profile

As a starting point, consider the spectacular rise of after-tax corporate profits from the 1980s on, and note the quick recovery from the recent recession:

Corporate Profits After Tax

Clearly, the Republican pitch that onerous regulations are destroying the economy doesn’t quite gel with reality. (Nor does the frequent lament that corporate tax rates are too high, but we’ll come back to that later.) One can’t imagine why they wouldn’t want us to know this. Focusing on small businesses shifts the public’s attention away from the large corporations that really matter – Mitt Romney’s very special, very rich, and very powerful people. Unfortunately for the public interest, a great many small business people and even their employees fall for this ploy, failing to realize that their enlistment in the deregulation camp plays right into the hands of actors who care not one whit about their long-term prospects.

It would be far more useful if Russ Sloan would ask small business owners to consider the possibility that big businesses are quite happy with the status quo. They can afford to buy politicians who will write rules that suit their interests; they can afford the army of lobbyists necessary to shape the legislative and administrative rule-making processes; and they can afford the lawyers to fight rules they don’t like in court and figure out how to comply with or evade the rules they have to live with. In short, they know how to play the game, and they are winning by a wide margin. Thus, if Russ Sloan wanted to argue that government regulations are hurting small businesses because the government is controlled by big businesses, we would be quite interested in what he had to say. But we wouldn’t be reading the Daily Commercial that we all know and love.

As we discussed in our recent post on the health of the private sector, the American economy has become a wealth-concentration machine, with the owners of capital faring increasingly better than the owners of labor (workers). This trend is illustrated clearly below by labor’s declining share of national income:

Wages as Share of National Income

Just as Republican appeals to small business owners are intended to distract us from the condition of big businesses, their constant beating of the debt drum is intended to draw attention exclusively to the public sector. It is always the government that is profligate and irresponsible, not the citizenry or businesses. The deeper, more complete, reality is that all three major economic groups – households, companies, and government – indulged in reckless borrowing. While Republicans love to talk about the federal government’s debt of around $15 trillion, they neglect to mention that total debt in the economy is approximately $50 trillion. If pressed, they would no doubt find some way to blame the difference on the government, too, but only regular viewers of Fox News would swallow it.

Much of the growth we experienced after 1980 was based on this massive accumulation of debt across the board. In a sense, that growth was illusory. The following chart shows the dramatic rise in corporate borrowing, which exhibits a similar trajectory to household borrowing. Don’t expect to see it in any Romney campaign ads this year.

Corporate Borrowing

Similarly, when the public is reminded about the magnitude of the government’s debt, the predicament is always blamed on runaway (Democratic) spending and never on dwindling tax revenues. Readers of The Bottom Line have been subjected to this lopsided account for longer than we can remember, but of course the truth includes an element that we aren’t supposed to see. While federal spending has increased, and much of this is indeed due to Russ Sloan’s hated social programs (which help many readers of the Daily Commercial tremendously), the decline in tax revenues is equally apparent. In the following graph, the red line tracks federal spending; the blue line shows tax revenue:

Federal Expenditures and Receipts

Obviously, the dips in federal receipts around 2001 and 2009 are partly attributable to recessionary troughs, but the impact of the Bush tax cuts is also unmistakeable, contributing to radical departures from the long-run trend. Clearly, the solution to the federal debt problem can not come entirely from the spending side of the equation.

The American economy cannot recover until corporations enjoying record levels of profitability recognize the need – which is actually in their own long-term, selfish interests anyway – to share some of those profits with workers. When ordinary Americans receive a higher percentage of national income – as they did in the 1950s, for example – we will have a chance of restoring an economy based on sound footings instead of on unsustainable credit binges. And an economy with a more equitable distribution of income between capital and labor would also require less intervention from government in the form of transfer payments.

Put differently, the American Dream is drowning in an ocean of hidden profits. The factions that Russ Sloan and his ilk represent are not interested in sharing their winnings, and if they can fool enough people into buying their version of reality, they won’t have to. To the extent that we fall for their tricks, we are complicit in our own demise.

  1. Update 7/8/12. In response to a reader letter that questioned Sloan’s claim that the equipment installed by the bagel shop owner cost $900,000 – a figure repeated all over the blogosphere, by the way – Russ Sloan admitted today that the actual cost of the equipment was only $900. Despite this massive difference, Sloan saw no weakening of his position and stood by all his original points. He also ignored the letter writer’s other common-sense observation that all the shop owner was asked to do was sweep up his floor to prevent rodent infestations, a demand that would strike most consumers as eminently reasonable. But reason, of course, has no place in propaganda. The right is always right, no matter what the facts say. Sloan’s stubborn refusal to acknowledge an uncomfortable reality reminds me of Stephen Colbert’s brilliant roast of President Bush: “The greatest thing about this man is he’s steady. You know where he stands. He believes the same thing Wednesday that he did on Monday… no matter what happened Tuesday.”

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