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writing for godot

Business Too Rigged to Fail

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Written by Thomas Magstadt   
Thursday, 29 November 2012 06:29
It's a cliché that Business, unlike Government, always has to look to the bottom line. It's all about the profit and loss statement (PL). But never mind. This stuff is too complicated for most of us to understand. People have to trust the bean counters, quants, and number crunchers to count, quantify, and crunch, okay?

Allow me to explain the basics. "Profit" is what a business nets out after labor costs are tallied, utility bills paid, aging equipment is replaced, and any other "losses" due to natural disasters, product liability, and bad management are taken into account. There's no ambiguity or sentimentality involved in this approach – it's what is meant by the term "business-like" and why accounting, that most dismal realm of the dismal science, is so important.

In the arcane world inhabited only by CPAs and troglodytes, the casual visitor encounters all sorts of unaccountable oddities and counter-intuitive ways of counting things. Not to mention an obscure language spoken only by a new tribe of cave-dwelling computer slaves indentured to megabanks and corporations listed on the New York Stock Exchange. In keeping with the requirements of the New Business Model, these individuals have no emotional attachment to anything or anybody; politics is irrelevant except when Government gets too pushy – like when it levies taxes on business or tries to hold business and banking accountable.

Accounting, you see, is a rigorously quantitative science, a branch of mathematics that only private sector accountants and the sybaritic CEOs they serve can comprehend. The public sector is way too politically polluted to permit a clearheaded understanding of accounting practices in the new transaction-based Derivative Economy.

Despite all the ineffable complexities of modern accounting, the New Business Model is amazingly simple. Here's how the magic of the new profit-and-loss approach works: Business takes the profits and labor takes the losses, starting with the loss of benefits and ending with the loss of jobs, homes, and dignity. Whatever losses labor cannot absorb are offloaded to middle-class taxpayers – wage-earners and salaried employees – in the form of bailouts, cuts in Medicare and Social Security, loss of public services, aging infrastructure, and the like.

But what about the government accounting? Revenues and expenditures are way out of whack. Raising taxes on corporations and wealthy individuals will send the economy into a tailspin. Just ask anybody representing the Chamber of Commerce.

Still, we urgently need to cut the deficit because the government has to be run like a business. James Surowiecki, writing in The New Yorker argues, "at a time when long-term interest rates are at historic lows, with the U.S. able to borrow money for ten years at less than one per cent, we simply don’t need to rush to come up with a massive debt-reduction plan. Yes, in the long run we need to deal with the debt (which, above all, means dealing with the rising cost of health care)." But what does HE know?

As Bill Keller writing recently in the New York Times notes, "This country accounts for more than 40 percent of the money spent on defense worldwide. We spend as much as the next 14 countries on the top-spender list combined, and most of them are American allies. And that’s just the Defense Department. It doesn’t include the Energy Department’s nuclear weapons program, the C.I.A.’s drone franchise, the NASA satellites, the benefits provided by Veterans Affairs, and so on." Big deal.

Do you want to give up your gas-guzzling SUV? Wanna pay ten bucks a gallon like the Europeans? Well, do you? Or do you want the US to be energy independent for the next 50 years? If the answer is yes the solution is clear: drill, baby, drill. And don't just drill. Frack like there's no tomorrow.

Frack enough and there probably won't be. But never mind, fracking is a boon to Big Oil and, don't forget, the business of America is business. Meanwhile, government has no business interfering in business, except, of course, when it come to things like the oil depletion allowance, a $4 billion annual giveaway that lets producers deduct 15% of the gross income from oil and gas wells they own. And did you know the big oil companies also get lucrative foreign tax credits and the tax laws let the industry write off nearly $800 million a year for drilling costs? It's true.

Altering the foreign tax credit alone would save the government around $850 million a year. But forget about it. Any effort to adjust the tax laws would doom the economy, see? Without such incentives, the Big Oil CEOs would stop drilling and shut down all operations tomorrow.

Never mind the Buffet rule or the fact that the 400 individuals with the highest incomes paid at a rate of less than 20% of adjusted gross income in 2009 compared to 26.7% in 1992.

Never mind that the average income of these individuals was $202 million which works out to a tidy compensation rate of $97,000 an hour for a 40-work week.

And never mind that "the three biggest U.S. oil companies took home more than $80 billion in profit, with Exxon Mobil Corp. collecting almost $4.7 million each hour" in 2011. Cut a billion or two off that profit margin and Big Oil walks. That'll teach us.

The New Business Model is not to be confused with the anti-business model being popularized by false prophets like Princeton economics professor Paul Krugman and Pulitzer Prize winner, Joseph Stieglitz. Basically, the New Business Model is anti-everything except profits. It's anti-taxes, anti-environment, anti-regulation, anti-government, anti-labor, anti-competition, and anti-science. (Okay, okay. Lung cancer turned out to be real, but climate change? Pshaw.)

The main problem with this new world-beating model – the root of all the other problems the corporate plutocracy is foisting on taxpayers and future generations – is that it's profoundly anti-American. The "business of America" is a myth. Business is plural, not singular; they come in all shapes and sizes, although the big ones, with plenty of help from government, are crowding out all the others.

Once upon a time, Virginia, there were small and medium-sized businesses across the length and breadth of the land. Businesses that thrived in every town and city, and small farms where the tillers of the soil actually lived and raised families. Today, small businesses, local banks, main street stores are marginalized and often can't compete with the big box stores. These family-owned, community-based businesses, the backbone of middle-class America for two centuries, are now all but forgotten as megabanks and union-busting corporate giants saturate the mass media with mendacious ads, finance political campaigns, and buy influence in government at all levels.

In a word, the system is now rigged in such a way that our biggest corporations - like our megabanks - are too big to fail. Too big politically, that is. The economy would not collapse if AIG or General Motors had been allowed to go under any more than it did when Enron imploded. But Corporate America has accumulated unprecedented power in Washington and New York City (home to Wall Street, Madison Avenue, and the nerve center of the national mass media).

According to Warren Buffet, the Forbes 400 raked in $1.7 trillion in 2009. He ought to know. Buffet is one of the most successful capitalists in US history, but as a critic of America's New Business Model, he has more in common with the devotees of Marx than the denizens of Madison Avenue. And given the way Corporate America now operates, Marx is looking more prescient – and relevant – all the time.

Note: A version of this article with point-and-click searchable sources appeared in Nation of Change 11/29/2012.
 

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0 # DakotaKid 2012-12-10 08:49
Joseph Stiglitz has a trenchant piece on the state of the US economy and what should be done to fix it in Slate. Or go to Project Syndicate where it originated yesterday (12/09/2012). Everybody should read it. Title: "The Election is Over. Now What?"
 

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