Corporate America’s Short-Term Profit Myopia

Amgen - Forget Tomorrow!This week, I was at the ASI Tech Expo 2014. It was a vile little event filled with companies pushing their products and their brands. While this is true of all conferences, most have other things that make it all worth while. This one did not. In fact, the “keynote” speech was by some guy at Lenovo given what was basically a shareholders speech. I really didn’t care about what was going on with their market share, and I didn’t appreciate some obvious “lying with statistics.” But there was one interesting thing at the conference: AMD had its talk canceled. Apparently, the company is going through layoffs, and the guy who was supposed to give the talk was laid off. Great PR guys!

Now I understand: AMD has been struggling. It recently announced a “restructuring” to make itself more “competitive.” This is business-speak for, “We’re going to fire a bunch of people who actually work for us; the stock market will reward us with an increased valuation because nothing gets them as excited as firing people; then the bonuses of our top managers will be much higher!” But regardless of what a company needs, what management always does is the same thing. The health of the company doesn’t matter; what matters is just how much money the CEO is making.

Michael Hiltzik wrote about this issue on the very day I was at the conference, Wall Street Talks, Companies Respond — by Axing Thousands of Jobs. He provided two recent examples of companies doing long-term harm to themselves in the name of impressing (or simply appeasing) the stock market. The first is the Amgen. The biotech company has been doing really well, but it isn’t good enough. “[H]hedge fund magnate Danel Loeb wants Amgen to engage in the kind of financial engineering that throws off cash to investors such as himself — a company breakup, stock buybacks, cost cutting.” But this short-term thinking is only good for the people on the stock market. It is potentially catastrophic for the company, “If the pipeline begins to go dry in a few years because the Seattle R&D staff is no more, Loeb and his fellow hedgers probably won’t care; they will have moved on.”

The second example is Time Warner, “There, the cost cutting appears to reflect an effort by CEO Jeff Bewkes to show he made the right decision in fending off an $80-billion takeover bid by Rupert Murdoch.” So people get fired to goose the stock so that Bewkes can claim victory. This is not responsible management:

The Time Warner layoffs include about 1,475 employees at Turner Broadcasting, which includes CNN. The company said the layoffs were designed to “prioritize investment in programming, monetization and innovation as near- and long-term drivers of growth,” whatever all that means.

But as far as CNN is concerned, it reflects a systematic hollowing out of what was once a vigorous news-gathering operation. Raise your hand if you think CNN does as creditable a job today as it did, say, 10 years ago. Anyone? About 1,000 positions will be gone, too, at Time Warner’s Burbank-based Warner Bros.

There, too, no one even pretends that the job cuts — or as Warner Bros. Entertainment CEO Kevin Tsujihara put it in a memo last month, “this situation” — are aimed at enhancing creativity or keeping the place from disappearing beneath the waves.

What this all strikes me as is these companies eating their seed corn. But the term doesn’t fully capture the insanity of the situation. First, people normally eat their seed corn because they are starving and wouldn’t live to the next harvest if they don’t eat their seed corn. This situation might apply to AMD, but it doesn’t apply to either Amgen or Time Warner. They are both just trying to take money out of the companies in the short-term with no thought to what it means to the companies in the long-term.

The bigger issue is that the companies are not deciding to put short-term profits above the long-term health of themselves. The issue is that the CEOs are a poor analogy for the companies they run. They are doing what is in their own best short- and long-term interests. This is the same thing that went on during the housing bubble of the aughts. The fed has not been willing to prosecute the people who ran the banks because the sub-prime mortgages weren’t in their interests. Why would they do it? Very simple: those running the banks had different interests than the banks themselves. It is like I’ve written about before: the rich show no impulse control. They want to be rewarded now now now! And they don’t care about the long-term, because they know they are set to life.

This is how a great economy is destroyed in just a couple of generations.

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Republican Senate Will Mean No Judicial Appointments for Two Years

Obama CopeThis morning, Jonathan Chait explained, There’s Only One Thing at Stake in the Senate Race. It’s a good article. He started by explaining why it is that the Republicans are not going to start making deals. Right now, the problem is that the House Republicans will not make any deals with Obama. Any deal that they would make would be acceptable to the Senate — be it in Republican or Democratic control.

I think he was a too dismissive of the possibility of Obama caving on a Grand Bargain. If the Republicans offered Obama cuts to Social Security in exchange for just about anything, he would take it. The only reason this doesn’t terrify me is that the Republicans have a long history of being unwilling to offer any compromises at all. So just as it has been the last four years, what will save us for the next two years will be that the Republicans are unwilling to do anything. And that takes us back to Chait’s original point: it doesn’t matter what’s going on in the Senate.

Where Senate control matters is on the appointment of federal judges. It is very likely that a Republican controlled Senate will not approve a single judge in the following two years. And why is that? Because the Republicans have long ago given up any ideas about respecting norms. They will see having no judges appointed as being better than having a liberal (or more likely a moderate) judge appointed. And in as much as the media will even notice this, Mitch McConnell’s response is almost certain to be to point to the elimination of the filibuster on appointments and claim, “They started it!”

Mitch McConnellWhat bugs me about this is that during Obama’s first term, he was incredibly lackadaisical about about judicial and executive appointments. I know that Obama cares about his legacy, and there is no greater one than the judges that are put on the bench — especially in an era in which Republicans nominate almost nothing but ideologues. Obama seems to have always thought that he had plenty of time. And clearly he didn’t. Since the removal of the filibuster for these appointments, there has been a much bigger push by the administration. But it’s still been slow going, because the Republicans have done literally everything they can to slow progress.

Some people have claimed that Obama couldn’t have focused on judges early in his term because there was so much other stuff that he was doing. But the president has almost unlimited resources for hiring people. If it was an important issue for him, it would have gotten done. Part of the problem, I think, is that during the first four years, Obama still harbored the delusion that he was going to be a bipartisan president (whatever that might mean). And appointing lots of judges would have been seen as rubbing the Republicans’ noses in Obama’s power. Of course, the truth of the matter is that Obama can’t walk down the street without the Republicans feeling offended. Remember when Obama gave a speech about the importance of education to school children and the Republican freak out that ensued?

So the real question that we have to ask is, “How does control of the Senate allow the Republicans to harm Obama?” That’s it. They aren’t interested in anything else. And Chait is right, the one place where they will gain power is in rejecting Obama’s nominations. And that’s why I think they will not allow any for the next two years, if they get control of the Senate. And that is a very big deal.

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Marie Laurencin

Marie LaurencinI really should know better than to leave the house. I feel very much like the Aztecs when Cortés came. You know that they weren’t defeated militarily. It is just that the Europeans, who lived in a world of filth and virus, brought unknown disease to the new continent. It is kind of hard to fight a war when 90% of your troops die of smallpox. Anyway, I just don’t get out much. So when I leave the house, I am under constant threat — especially from children, who I think we all know are evil, even if it isn’t there intention. Bottom line: I’m quite sick and without any medicine or even alcohol to help me through it.

On this day in 1883, the great cubist painter Marie Laurencin was born. But she was more than that. The self-portrait at the beginning of this article is almost neoclassical — plus it is multimedia, primarily charcoal. She started her studies doing porcelain painting. It was only later that she became involved in avant-garde. And the work that I most admire of hers is not cubist. In fact, she seems to have only done cubist work for a short period. For example, Jeune Femmes (“Young Women”) is from 1910:

Jeune Femmes

But by 1928, she was creating work that looked more like, Portrait of Mrs Aitato, which reminds me a bit of Modigliani:

Portrait of Mrs Aitato

It’s all lovely. I always think that people like Laurencin aren’t better known because they are women. Sexism in the art world seems to be especially bad. Or used to be. I don’t know anything about the art world today.

Happy birthday Marie Laurencin!

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The Fed Continues to Do as Little as Possible

Federal ReserveYesterday over at Washington Post, Matt O’Brien explained, Why the Fed Is Giving Up Too Soon on the Economy. This is in reference to the Federal Reserve ending the third round of “quantitative easing” or QE3. He noted that in 2013, because of all the federal government cutbacks, the economy should have slowed down a lot. But it didn’t. And the reason for that is because of QE3. I’m not sure if I agree with that, but it is a reasonable contention. I will at least go this far: quantitative easing provides at least some stimulus to the economy and it is just crazy to think that it is a bad thing to do given our current economic situation.

O’Brien imagines what it would have been like if the federal government had done its job and not enacted policies to harm the economy. We might have seen 300,000 jobs added per month for the last two years. Except: no. This is something that economists just don’t appreciate enough. If the federal government had done its job and stimulated the economy — as everyone knew was the right thing to do since World War II — then the Federal Reserve would not have done any quantitative easing.

It is true that the unemployment rate has fallen from 7.9% at the start of 2013 to 5.9% now. But is this real? We haven’t seen wages going up. And then there is the employment rate. The following graph shows the percentage of people age 25-54 who were employed before the financial crisis and after. Given the ages, this can’t have anything to do with people retiring. And what we see is that we are maybe 20% of the way back to full employment. So that 5.9% unemployment level isn’t anywhere near full employment.

Employment Rate Ages 25-54: 2004 - 2014

So why is the Federal Reserve ending QE3? Well, if you want the official — “Let’s play nice!” — answer, you can read O’Brien’s article. I would say, however, that in ending QE3, the Fed is doing what it always does: the absolute minimum it can get away with. As long as inflation stays low, the power elite will be happy. The Fed only needs to look like it cares about employment. It doesn’t really have to care about it. After all, employment is just an issue that affects the little people. The Fed is not interested in it and they certainly aren’t afraid of it. Janet Yellen won’t lose her job because millions of people unnecessarily go without work.

So what this all comes down to is that the Fed sees its job as the backstop: something that will stop things from going too far gone. But if the elected government were doing its job, the Fed would be focused on the one thing it really cares about: keeping inflation low. And they care about that, because that is what the plutocrats care about. What matters is that people with lots and lots of money continue to enjoy their rents on it. It is a joke that the Fed has a dual mandate to keep inflation low and employment high. As Matt Yglesias said a couple of years ago, “If the unemployment and inflation rates were reversed, would the Fed do something about it?” The answer is: a lot. But what was it doing about the high unemployment at that time: as little as possible.

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No, I’m Not Keen on Republicans

Rush LimbaughIt seems as though people are grabbing onto a factoid and making a big deal out of it. Or at least Cass Sunstein and David Brooks are. It is based on a 2010 poll that found that 33% of Democrats and 49% of Republicans would be displeased if their child married someone of the opposite party. This is up from 1960 when pretty much no one thought that. I think it is worth noting that 1960 was kind of a transitional period when the Republicans were turning into freaks and Democrats were finally starting to shed their historic racism. Of course, this was also a time when the political parties simply didn’t mean that much in an ideological sense. The liberal Republicans were more liberal than the conservative Democrats.

For all the problems I may sometimes have with Jonathan Chait, there are few writers who so easily obliterate this kind of nonsense, Confessions of a “Partyist”: Yes, I Judge Your Politics. But let me lay it out very simply. The problem with racism is, to rip off Martin Luther King, judging people on the color of their skin instead of the content of the character. It isn’t wrong to dislike someone because they hold vile opinions. Political parties are now highly ideological, so “Republican” or “Democrat” is shorthand for certain beliefs. Why is it wrong to say you wouldn’t want someone of the other party marrying your son or daughter?

I talk as much as I can to conservatives. And on economic issues, we usually have a lot of common ground — at least until an issue starts to be propagandized on the right. But the fact remains that on social issues, these people tend to hold positions that I find troubling. They tend to have very unsophisticated notions of sociology that, in their extremes, lead to blatant racism. And, as John Dean documented in Conservatives without Conscience, most conservatives have strong authoritarian tendencies. Does all this apply to all Republicans? Certain not. But as Chait observed:

Note that the wording of the poll asks if you’d feel “displeased” about your child marrying an opposing party loyalist, not whether such a thing would be Montagues-and-Capulets unacceptable. I consider Republicanism a negative factor in a potential in-law. That is not the only ideological objection. I would likewise bring healthy skepticism to a Marxist, anarchist, radical Islamist, monarchist, or advocate of Greater Russia. That goes for advocates of belligerent, hypernationalism of any kind — though, come to think of it, most belligerent hypernationalists you run into in this country happen to be Republicans.

And I can understand it from the other side, although I think it is weird that Republicans feel more strongly about this than Democrats. Liberals tend to be naive, always wanting to find good in people, even when it isn’t there. Liberals aren’t patriotic in the way that conservatives tend to define the word. We are very often embarrassed by ostentatious expressions of nationalism whereas conservatives see this as what patriotism is. Liberals are trying to destroy America by tearing down the most successful and elevating the weak. Again, I don’t see it this way. Conservatives actually show a shocking lack of understanding about sociology and psychology, but I get that they look at me and see an America-hating wimp.

What the numbers most likely mean is that the really ideological people (roughly 20% on the left and 20% on the right) have a problem with their children marrying people of the opposite ideology. And to be honest, I don’t see any problem with that. It makes as much sense as religious parents having problems with heretical in-laws. It’s all about ideas. I think the vast majority of Americans would not want to have to spend every Thanksgiving with a neo-Nazi in-law. It wouldn’t be the label that was the problem — it would be what the label says about what they think. No one wants to have that argument about Aryan skull shape and the inferiority of Jews. Just the same, we Democrats are not interested in hearing how right what Rush Limbaugh said about catcalls was.

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The Real Social Security Problem: Income Inequality

Dean BakerI have only ever had one real complaint against Dean Baker, because he is, you know, brilliant — perhaps the best practical macroeconomist in the world. (And yes, I do know what a remarkable claim that is.) But where I differ with him is that sometimes he sticks to the economics too tight without admitting political realities. For example, he dismisses the concern about decreasing numbers of workers for each retiree. He argues that it doesn’t matter because wages should go up at a faster rate that will dwarf this effect. This is true. The problem is that middle class wages have been pretty stagnant the last 35 years as almost all productivity gains have gone to the rich. Baker’s implicit point is that this problem has nothing to do with Social Security and so shouldn’t be phrased as though it did.

In an article today, I think Baker did a much better job of explaining the whole situation, Washington Post Offers Lesson in Bad Public Opinion Polling. He explained that the problem is that we have other (non-Social-Security) policies that affect the distribution of incomes:

A tax hike of this magnitude is less than 10 percent of the projected rise in average real wages over the next two decades. In the last three decades, most workers have seen little or no real wage gains because the vast majority of wage growth has gone to those at the top of the income distribution. It will make far more difference to workers’ living standards in 2033 whether we continue the policies that have led to this upward redistribution (eg Federal Reserve Board policy that uses high interest rates to keep unemployment from falling, trade policy that uses international competition to lower the wages of most workers, and financial policy that subsidizes Wall Street) than if we raise Social Security taxes to maintain benefit levels.

Yes, yes, yes! Of course, that really is the point of the people who are now and forever wringing their hands about Social Security: they take it is a given that the rich should be taking all the gains from the economy. They take it as such a given that they never even think it is open to discussion. The way things are is the way that things must be.

It reminds me of all the upper-middle class urban journalists who just love Uber. I don’t personally have against companies like that. But these same journalists never seem to get excited about things like strong unions that would give workers more power. No, it is always some “free market” solution that ends up with workers doing worse and just so happens to provide marginal gains for upper-middle class urban journalists.

So we get the same kind of thing from the Washington Post. I know it doesn’t work this way, but it seems like there is an explicit decision making process: we must only consider solutions that the power elite will go along with. What is probably more the case is that the rich are the ones who fund think tanks and so there are reports that come out that talk about the necessity of chained-CPI (Social Security cuts). There are not nearly as many reports about raising the payroll tax cap, because that would cost the rich more money. And there is virtually no talk about the policies that have destroyed unions and which funnel money from the poor to the rich.

So the Washington Post can shed crocodile tears about raising the payroll taxes of the poor by 3 percentage points in 2033. But there is no talk of the fact that for almost four decades the poor have not participated in our economic growth and there is no reason to think this will change in the next two decades. In fact, those writing for mainstream media outlets don’t even seem to be aware of these problems. So they continue to claim fealty to the well-being of the poor, when their only concern is the continued bleeding of the poor to enrich the power elite.

“Comfort the afflicted, and afflict the comfortable”?
That’s not the modern American way!

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Politics and Cultivated Stupidity

Charles PierceHow can anyone possibly look at the past 14 years and conclude that the modern Republican party can be trusted to “make the economy favor regular people again”? The party of deregulation, privatization, obstruction, and Mitt Freaking Romney? Well, one reason is that there is no apparent opposition to it on the core economic issues. There has been lip service, and moans of impotent frustration, and Tim Freaking Geithner as Treasury Secretary. So kids come to believe the darndest things…

Yeah, this is about a kind of willful detachment and deliberately cultivated stupidity on the part of what is still allegedly a self-governing people. But it’s also about every Democratic politician who made The Deficit more of a priority than stimulating the economy, all the Democratic politicians who fed Vaal on the Simpson-Bowles fiasco, and every Democratic senator in a “red” state, most of which took the brunt of the collapse right in the teeth, who chose austerity because that’s what “my constituents” want. This is Creationism in a political context, true. But it’s Creationism that both parties pitched to the country. Come next Tuesday, we may see the true triumph of calculated and crafted ignorance. Nice job, everyone.

—Charlie Pierce
Kill Me Now

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John Adams Was Not All Bad

John AdamsOn this day in 1735, John Adams was born. When I was a kid, I thought quite highly of him. He had a nice wife and most of the best songs in 1776. It was only later that I learned about the four Alien and Sedition Acts. The republic had only been in existence for a scant decade and already Adams and his allies were trying to destroy it. I’m not saying that they weren’t right to have concerns. Armed rebellion was a very good possibility. But the Naturalization Act and the two Alien acts were just xenophobic power grabs. And the Sedition Act was nothing but an attempt to stop the political competition from talking. The truth is, I don’t see how any of the acts made an armed rebellion less likely. But I suspect the real concern — what conservatives are always worried about — was that democracy would work and the Federalists would be thrown out of power. Indeed, Adams would be the last Federalist president, and the party would be gone completely in Adams’ own life.

What Adams most symbolizes to me is the desire among many people in the early days of the United States to have hereditary rule. It is true that Adams said many things during his life, but it is clear what he thought. He did spend much of the later years of his life disavowing this belief. But that was just because Jefferson and company had beat up on him so much. When Adams had political power, he really did have classist beliefs. And I understand that. It is hard not to look out on the world and escape the conclusion that if only everyone listened to my wise self, all would be grand. But good sense always gets in my way. Adams had no such blocking mechanism.

(My ultimate dream is that I could be a kind of Kermit the Frog. I would be the calm in the middle of the storm of creative insanity. I could add that little bit of structure that they all need for greatness. Sadly, in humans — as opposed to the superior puppets — the creative insane tend to break off into their own creative twisters. Alas, my dream is destined to die with me.)

On the other hand, there is the Boston Massacre. Not only did it show some fortitude to take the case, it showed a good deal of open-mindedness. And in the case, he said something that conservatives of my age have lost sight of:

It is more important that innocence be protected than it is that guilt be punished, for guilt and crimes are so frequent in this world that they cannot all be punished.

But if innocence itself is brought to the bar and condemned, perhaps to die, then the citizen will say, “whether I do good or whether I do evil is immaterial, for innocence itself is no protection,” and if such an idea as that were to take hold in the mind of the citizen that would be the end of security whatsoever.

So I don’t think Adams was all bad. He wasn’t a slave owner! And he lost the 1800 election to Jefferson because of the South’s inflated population size because of the slave population, which were only citizens for the purpose of giving slave owners more political power. Ultimately, John Adams is no worse than Edmund Burke. And it is clear that neither man would be welcome in the modern conservative movement. And that’s shocking.

Happy birthday John Adams!

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Madeleine Peyroux’s Careless Love

Madeleine PeyrouxI’m out of town today, so I didn’t have time for the usual five posts yesterday or really even today So let’s just end the evening with a little Madeleine Peyroux. There isn’t a lot to say about her except that I love her stuff. When I first heard one of her songs, I thought it was a Billie Holiday song I hadn’t heard. She does sound like Holiday a lot of the time.

More recently, she seems to have tried to get a little away from that. But on her second album, Careless Love, she still sounded a lot like Holiday. This is the title track, “Careless Love”:

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The Medicaid Expansion is Just Good Economics

Michael HiltzikMichael Hiltzik reads the Kaiser Family Foundation reports so we don’t have to, A New Sign That Opting Out of Medicaid Expansion Will Cost States Money. And as the title indicates this one is a doozy. But it ain’t surprising. It turns out that those states who have not accepted the Medicaid expansion are seeing their total state expenditures go up much faster next year than this year. But in states that did expand Medicaid, the rate of increase will go down.

Let me unpack this. Medicaid exists in every state in the union. Just under normal circumstances, there are more people born and so total enrollment expands. What’s more, medical inflation is still higher than overall inflation. (Obamacare is helping to slow that.) So these two factors cause state Medicaid costs to increase each year. But there is also an increase in the number of eligible people who are participating in the program. This has caused the overall increase of state spending from year to year to go down from 6.6% in 2014 to 4.4% in 2015. So the state expenditures in the states that expanded Medicaid are still growing, but the rate is decreasing.

In the states that did not expand Medicaid, the situation is much worse. The state spending from year to year has gone up from 6.1% in 2014 to 6.8% in 2015. And this is despite the fact that these states are not, you know, expanding Medicaid to the working poor. They are putting increasing pressure on their state budgets and all they get for it is that warm feeling that that they are sticking it to Obama.

Here are Figures 2 and 3 from the report combined by me to make for clearer viewing:

Medicaid Expansion Comparison

In addition to this, states will be saving money on things like providing care in prisons and in programs to reimburse hospitals for unpaid care. Hiltzik lays it out:

These findings mock the claims of expansion obstructionists — all Republicans — that they’re being fiscally responsible by opting out of the Medicaid expansion. Since the federal government is picking up the tab, taxpayers in those states aren’t evading the costs — they’re just paying via their federal taxes for Medicaid in states other than their own.

One thing Hiltzik doesn’t go into is the pure economics of this (although he has in the past). This is just a question of the federal government giving the states free money. To a first approximation, the states are just getting back money that their people have already paid in taxes. So this whole Republican hissy fit makes no sense. In addition to reducing the costs of the government, it is also a stimulus program for the state economy. The extra money going into the state will create jobs.

The truth is, what the Republicans are doing is totally bizarre. It is something that goes against any idea of rational actors. These Republican state legislators and governors are directly hurting themselves, the people they represent, and their state. And it is all done for what? To send a message to the federal government? As Hiltzik noted, “The last holdouts look increasingly foolish.” And that’s saying something, given how foolish they already looked.

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