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Thread: UC Berkeley's Dr. Robert Reich's 2011 Economic 'Predictions'

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    Default UC Berkeley's Dr. Robert Reich's 2011 Economic 'Predictions'

    from

    (snip)"What will happen to the US economy in 2011? If you’re referring to profits of big corporations and Wall Street, next year is likely to be a good one. But if you’re referring to average American workers, far from good.

    The two American economies — the Big Money economy and the Average Working Family economy — will continue to diverge. Corporate profits will continue to rise, as will the stock market. But typical wages will go nowhere, joblessness will remain high, the ranks of the long-term unemployed will continue to rise, the housing recovery will remain stalled, and consumer confidence will sag.

    The big disconnect between corporate profits and jobs is likely to continue because America’s big businesses are depending less and less on U.S. sales and U.S. workers. Their big profits are coming from two sources: (1) growing sales in China, India, and other fast-growing countries, and (2) slimmed-down US payrolls.

    In a typical recovery, profits lead to more hiring. That’s because in a typical recovery, American consumers head back to the malls — and their buying justifies more hires. Not this time. All the hype about Christmas sales over the last few weeks masked the fact that American consumers demanded bargain-basement prices. And the price-cutting dramatically reduced sellers’ margins. In short, profits aren’t coming from American consumers — and profits won’t be coming from American consumers in 2011.

    Most Americans don’t have the dough. They’re still deep in debt, can’t borrow against their homes, and have to start saving for retirement.

    The Dow Jones Industrial Average is rising because of foreign sales. General Motors is now making more cars in China than in the US, and two-thirds of its total sales are coming from abroad. When it went public last month it boasted that soon almost half its cars will be made around the world where labor is less than $15 an hour.

    Wal-Mart isn’t doing especially well in America but Wal-Mart International is booming. And Wal-Mart is hiring like mad outside the US.

    General Electric is keeping its payrolls down in the US but plans to invest half a billion dollars in Brazil and hire 1,000 Brazilians, and invest $2 billion in China.

    Corporate America is in a V-shaped recovery. That’s great news for investors and everyone whose savings are mainly in stocks and bonds. It’s also great news for executives and Wall Street traders, whose pay is linked to stock prices. All can expect a banner 2011.

    But most American workers are trapped in an L-shaped recovery. That’s bad news for the Main Streets and small businesses in 2011. It’s also a bad omen for home prices and sales, and everyone whose savings are mainly in their homes.

    Home prices in major metropolitan areas sank last month, the third straight month-to-month drop. I expect home price declines to continue next year. We’re in a double-dip housing market, largely because unemployment remains so bad that millions of Americans can’t pay their mortgages.

    None of this bodes well for US employment next year. I expect the official unemployment rate to remain around 9 percent.

    In other words, whether 2011 is a great year economically depends which economy you’re in – the one that’s rising with the profits of big business and Wall Street, or the one that will continue to struggle with few jobs and lousy wages.

    Sadly, the next Congress is unlikely to do much to reverse any of this. Most Republicans and too many Democrats are dependent on corporate America and Wall Street. Their version of tax reform is to cut taxes on the wealthy and on big corporations, and either raise them on everyone else (sale and property taxes are already on the rise) or cut spending on programs working families depend on"(snip)


    The fairly obvious point here is that the Big Money people will do better than ever in 2011, while 'working class' Americans will do worse. This is a point worth considering since, by extension, strip clubs catering to Big Money customers are far more likely to do well next year than strip clubs catering to 'working class' customers.

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    Default Re: UC Berkeley's Dr. Robert Reich's 2011 Economic 'Predictions'

    More than half the IT engineers and developers at the place I work are H1B visas from India and Malaysia. The only production is prototypes; which when perfected and ready for mass production are made in Malaysia.

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    Default Re: UC Berkeley's Dr. Robert Reich's 2011 Economic 'Predictions'

    More than half the IT engineers and developers at the place I work are H1B visas from India and Malaysia. The only production is prototypes; which when perfected and ready for mass production are made in Malaysia.
    While not discussed by Dr. Reich, this is indeed the 'new paradigm' for US based corporations. Corporate functions like top management, research, product development, marketing, finance, accounting and legal etc. will remain in the USA ... with US labor costs reduced as much as possible via H1B's or (foreign) sub-contracting of services ... while much more labor intensive lower skill level manufacturing and support services jobs are relocated offshore.

    When there is an 'American Content' issue to avoid tariffs or to meet US gov't funded purchasing standards, this 'new paradigm' is slightly modified. In this case, the majority of labor intensive manufacturing and support services jobs are still relocated offshore, but an American presence of 'final assembly' workers ( bolting together foreign produced high added value sub-assemblies )and 'customer support' workers must be retained in order to obtain that 'Made in USA' label.

    In both cases, Dr. Reich's point holds true ... that the American operations of US based corporations are retaining some small number of high skill level high pay rate employees, while the majority of jobs being relocated offshore are resulting in the permanent loss of medium skill level middle class US jobs.

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    Default Re: UC Berkeley's Dr. Robert Reich's 2011 Economic 'Predictions'

    actually, the same issue is discussed in detail at

    (snip)""There's a Huge Difference Between What is Good for American Companies Versus What is Good for the American Economy"

    AP noted yesterday:

    Corporate profits are up. Stock prices are up. So why isn't anyone hiring?
    Actually, many American companies are — just maybe not in your town. They're hiring overseas, where sales are surging and the pipeline of orders is fat.

    The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

    But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute's senior international economist.

    "There's a huge difference between what is good for American companies versus what is good for the American economy," says Scott.



    Many of the products being made overseas aren't coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.

    And President Obama pointed out in October that tax laws are a large part of the reason that so many jobs are being shipped abroad:

    For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.

    [Some] in Washington have consistently fought to keep these corporate loopholes open. Over the last four years alone, [some congress members] in the House voted 11 times to continue rewarding corporations that create jobs and profits overseas -- a policy that costs taxpayers billions of dollars every year.

    That doesn't make a lot sense. It doesn't make sense for American workers, American businesses, or America's economy. A lot of companies that do business internationally make an important contribution to our economy here at home. That's a good thing. But there is no reason why our tax code should actively reward them for creating jobs overseas. Instead, we should be using our tax dollars to reward companies that create jobs and businesses within our borders.
    (snip)


    [ the above is arguably a reference to 'foreign subsidiary' tax laws, which allow companies like Microsoft, Google, McDonalds, Proctor & Gamble, WalMart, GM / Ford etc. to treat their offshore product sales and resulting earnings as non-US operations thus not subject to US corporate taxes unless and until those earnings are 'repatriated' back into the US. This creates strong incentives for these companies to invest offshore earnings money into new offshore production facilities instead of new US facilities, because the minute the money re-entered the USA to begin paying for new US facilities it would be hit with a 30+% US corporate tax - sic ]


    (snip)What's Good for the Big Companies Ain't So Good for America

    We've all been taught "What's good for [the big company] is good for America".

    But as Jim Quinn writes:

    As a percentage of national income, corporate profits are 9.5%. They have only topped 9% twice in history – in 2006 and 1929. When you see the paid Wall Street shills parade on CNBC every day proclaiming the huge corporate profit growth ahead, keep these data points in mind. Do profits generally rise dramatically from all time peaks? (snip)

    (snip)"Even Alan Greenspan recently called the recovery "extremely unbalanced," driven largely by high earners benefiting from recovering stock markets and large corporations.

    ***

    As economics professor and former Secretary of Labor Robert Reich writes today in an outstanding piece:

    Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The "wealth effect" is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

    As I noted in May:

    As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.

    (Of course, the divergence between the wealthiest and the rest has only increased since 2007.)

    And professor G. William Domhoff just updated his "Who Rules America" study, showing that the richest 10% own 98.5% of all financial securities, and that:

    The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America."(snip)


    The arguable implications of these last points are that, with the current US tax structure, current US labor costs, current US regulatory compliance costs etc., it is very difficult for US corporations to earn a significant profit from US operations. This has resulted in greatly increased emphasis / expansion of foreign operations, which are far more profitable due to lower taxes, lower labor costs, lower regulatory compliance costs etc. Investors who own shares of these US ( multinational ) corporations will share in these greater profits from offshore operations via dividend payments and rising stock prices. US workers depending on these US corporations for their paychecks will NOT share in the greater profits from offshore operations, as their future fates are almost exclusively tied to ( declining ) US production / US consumption levels.

    I would add that the stock and bond owning 'top 10%' of Americans, from an economic standpoint, roughly corresponds to those earning in excess of $100k per year, and the non-stock and bond owning 'bottom 50%' of Americans roughly corresponds to those earning less than $50k per year.

    I would also reference my earlier point to dancers to evaluate the customer base of their club to determine whether or not the majority of customers are in the 'top 10%' category or not ! If they are, then your dancer earnings potential is likely to improve in 2011. If they're not, then your dancer earnings potential is likely to decline in 2011. And if your club's customer base primarily consists of the 'bottom 50%' category your dancer earnings potential is likely to decline significantly in 2011 !

    ~
    Last edited by Melonie; 12-31-2010 at 04:51 AM.

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