Most everyone knows the most common use of welfare as helping those in danger of being left behind by society. Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP although often still referred to as Food Stamps, and Medicaid are the most well known programs available to people. And no, Social Security and Medicare are not welfare programs.

No Regulations - Do as you please!

But just as there are welfare programs for individuals and families, there are also welfare programs for corporations and the rich and powerful. These are just not given names to make them easily identifiable as welfare programs yet the end result is governments at all levels wind up subsidizing for profit industries at the expense of the taxpayer. Privatizing the profits, socializing the losses in other words.

Let me offer a few examples. WalMart is one of the easiest examples. They are a profitable business yet far too frequently, WalMart employees are forced to use public assistance, i.e., the pretty much textbook definition of the working poor (see here, here, here, here, here, and here). If you check der Google for “WalMart employees public assistance” there are over 900K hits in .34 seconds.

Privatizing the profits, socializing the losses.

Next up are oil and gas companies. Just for last year (2012) the Big Five oil companies (ExxonMobil, Shell, Chevron, BP, and ConocoPhillips) had combined profits of $117B (high of $45B for Exxon down to ‘only’ $8B for ConocoPhillips). These are just the biggest oil companies and does not cover the Koch Brothers Amerada Hess, T Boone Pickens, and many other “smaller” oil companies (smaller being a relative term). While the amount of subsidies varies depending on how they are defined, contrary to Forbes magazine’s contention, they do exist. As even an earlier Forbes article concedes (although they paint it as “everybody loves them.”) Christian Science Monitor places the subsidies at $41B a couple of years ago. The Atlantic in March discussed over $38B in Big Oil and gas subsidies identified by the Obama administration for deletion over the next 10 years. This chart shows the annual subsidies for Oil and gas at $10B to $52B per year. You will notice that all of these guesstimates on the amount of annual subsidies are well below the annual profits.

Just these past few weeks we have seen a few more examples of privatizing the profits and socializing the losses. Exxon’s oil spill/pipeline break in Mayflower, AR. Due to a loophole in the law, Exxon will not have to pay into a federal cleanup fund after this disaster. The West, TX fertilizer plant explosion:

“This explosion, I think, surprised a lot of people,” said Senator John Cornyn. “It is no surprise that ammonium nitrate is explosive under the right conditions.”

No one could have anticipated – unless they did.

Tax breaks. Lack of regulations. No inspections. Ka-boom!

I wish I had the answers or the magic wand but I do not have the magic wand and elected officials at all levels do not have the will to find and implement the answers. It might hurt the (un)free market and cost a few cents of profit.

Privatize the profits. Socialize the losses. Avoid the taxes and regulations and let the tax payer pick up the pieces. John Galt would be so very proud.

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor
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Damn but just when I reach a point where I think things can’t get any stoopider inside the Beltway, we have a week like this one with the release of President Obama’s “budget” and once again the reality of stoopid is even worse than imagined.

Word leaked last Friday (April 5) that Chained CPI was going to be part of President Obama’s budget, prompting me to point out a simple truth, “A Bad Idea Is a Bad Idea, No Matter Who Proposes It.” Of course, starting Monday, all the usual suspects and even a few somewhat surprising suspects started pushing the idea as a wonderful thing, maybe even as good as sliced bread.

The first cheers I saw, came from the Wall Street Journal. It is difficult to detail all the errors in this piece but it starts with the idea that Social Security has any bearing on the Budget in the first place the goes on to “explain” why Chained CPI is just such a good idea:

The chain-weighted CPI registers slower inflation than the usual CPI because it allows for the substitution effect of price changes. When the cost of one item rises, consumers switch to a similar product that has not risen in price (or not increased as much). The substitution can occur intra-item (whole wheat bread instead of white bread) and inter-item (beer versus wine). The chained CPI takes the shifts into its calculation; the traditional CPI does not.

Of course, these types of discussions never point out how the folks who are already “substituting” are supposed to pay for price increases, just as it fails to recognize the basic facts of Social Security, including the fact that the average monthly benefit is $1,264 per month, which is barely more than a minimum wage job pays and we all know how richly you can live on minimum wage. (Yes, that’s snark.)

Scrap the Cap on Social Security

The Washington Post also is on the bandwagon and loving them some Chained CPI, once again pretending that Social Security is a part of the overall Federal Budget:

Most important, the president committed himself in writing to more than $100 billion in Social Security spending restraint over the next decade, along with $400 billion in health program reductions.

Ruth Marcus yesterday earned her WaPo0 money by being oh so very concerned with how the Republicans react to the President:

The conundrum of President Obama’s budget is that he has produced a “come let us reason together” proposal aimed at a Republican Party that has demonstrated no interest in being reasonable.

On Tuesday, Jared Bernstein of the Center on Budget and Policy Priorities wrote a blog post comparing Paul Ryan’s “budget” with the President’s by stating that if Ryan’s budget is (self-described) as visionary, then the president’s is “strategic.” Bernstein quotes his colleague, Robert Greenstein (President of CBPP) who produced a statement in favor of President Obama’s budget, and specifically, in favor of Chained CPI.

I can’t begin to detail all the errors in Greenstein’s statement but will try to address the most egregious ones. First off:

As it stands, the package makes tough policy choices while largely adhering to the principle, as enunciated by the Bowles-Simpson commission, that deficit reduction should not increase poverty or inequality. Nevertheless, the budget’s substantial spending cuts, both in entitlements and discretionary programs, would have real-world consequences for millions of individuals and families.

While there was a Bowles-Simpson commission, there was nothing “enunciated” by the commission as there was no report since the recommendations could not achieve the necessary vote count to be accepted as official. And once again, we have someone who should know better (and most likely does) trying to conflate Social Security as part of the overall Federal Budget.

Then there’s:

Experts widely regard the chained CPI as a more accurate measure of inflation for the population as a whole. It may well be, however, less accurate for elderly individuals and many low-income people and, thus, understate the inflation that they face.

What experts are saying this? The best I have found is that the NY Times had an article claiming this that they would later correct as Dean Baker points out here.

Reuters presents it as The Grand Bargain while the Christian Science Monitor presents it as a great idea because liberals are angry so that must mean it is bi-partisany or something.

Tiger Beat On the Potomac (h/t Mr Pierce) of all people, actually gets to the nut in their lede:

President Barack Obama says he’ll protect the most vulnerable seniors from his “chained CPI” proposal – but he’s not going to protect everyone. Not even all seniors.

The White House, fighting back against liberal critics who say he’s giving away too much, released details Wednesday of the protections Obama would include to make sure older seniors and low-income people don’t get hurt by lower benefits.

There it is. As I said the other day and will say many more times I’m sure, IF YOU HAVE TO MAKE SPECIAL PROVISIONS TO ASSURE PEOPLE ARE NOT HURT, YOU ARE DOING IT WRONG.

Such a simple damn concept. But of course, with all the people doing the cheerleading, none of them are people who actually have to live on Social Security so for them, it is only an intellectual exercise, not reality.

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor
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FDR Quote on Social Security

Well, it looks like there is a new push on in the long term destruction of Social Security today. Now, I usually write about the plight of the long term unemployed and underemployed but I am getting close to Social Security eligibility so decided I would discuss the anti Social Security effort today.

I’ll start with Fact Free Fred Hiatt’s Concern Troll op-ed in today’s (Monday, January 28) Washington Post. It seems Mr Hiatt wants to offer his advice to President Obama on “entitlement reform” using the guise of how Democrats and Republicans view the past four years:

To achieve a fiscal compromise, Obama agreed in 2011 negotiations with House Speaker John Boehner to changes in Social Security that would be anathema to liberals, but Boehner walked away from the talks.
…snip…

Both histories are factually correct. That coherent accounts can be written either way ought to suggest to partisans that neither version is quite the slam-dunk they imagine.

At a minimum, it ought to propel the White House to continue acting in the national interest, whichever party that seems to serve. And for a long time, Obama has said the national interest requires both revenue increases and reform of entitlement programs.

Once again, Mr Hiatt and the Post are pushing the myth that Social Security is a part of the overall Federal Budget and needs to be “controlled” to “fix the deficit” when in fact, Social Security loans to the Genera Fund have been propping up the Federal Budget for decades, allowing for the tax cuts over the years.

While I expect this type of nonsense from the Washington Post, today’s Tampa Bay Times had a decidedly misleading headline (“US spends far more on seniors than on kids.”) How is it misleading?

In 2008, all government (local state, and federal) spent $26,255 on average for each person 65 or older, most of which is Social Security and Medicare.

The blurb on children spending:

Conversely, the federal government spends relatively little on children and Medicaid is the largest single item. State and local governments spend much more on children because they pay for schools. But overall, governments spend far more than double on seniors than they do on children 18 and younger.

Finally, at the very bottom of this post, the Times offers a couple of caveats to offset the misleading nature of their headline and opening:

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Dub and Peggy Taylor circa 1943

I am a Veteran. I served in the United States Air Force from 10 December 1976 to 9 September 1982. After basic training at Lackland AFB in San Antonio TX (yes, I spent Christmas and New Years in basic,) I did technical school for my future career field at Shepherd AFB in Wichita Falls, TX. My Air Force Specialty Code (AFSC) was 67251. In English that means I was an Accounting Specialist. I spent 15 months at Wurtsmith AFB, MI paying bills for the commissary. This means I was doing bookkeeping for the on base grocery store. Wurtsmith was a Strategic Air Command (SAC) base with a squadron of B52s and a squadron of KC-135s. My barracks was about 100 yards from the flight line and it got pretty noisy when a squadron of fully loaded B52s and a squadron of fully loaded KC-135s were queued up for take-off.

I went from Wurtsmith to Hickam AFB, HI after two short, cold, rainy summers and one long, cold, snowy winter. When I got to Hickam on 20 September 1978, I was assigned to the commissary accounting section once again. In Michigan, we had been a roughly $500K in revenues commissary while in Hawai’i, we had $2.5M a month in revenues. Yet, even though revenues were 5 times in Hawai’i what they had been in Michigan, the paperwork volume was probably less than a third increased since it was most all of the same vendors or types of groceries, just larger quantities. However, in Hawai’i there were four of us doing the work where in Michigan there had been two of us. When I got to Hawai’i and was told my work assignment, I was also told it was because the section was “behind.” When I saw what the definition of “behind” was, I laughed as in Michigan that level of “behind” would have been considered caught up to current day. It also pointed out the difference between the staffing at a “Major Command” base (Hickam was the home of the Headquarters Pacific Air Forces) and a northern tier SAC base. In SAC, the funds went to support the flying mission. As an example, my first calculator in Michigan was an older, hand cranked machine that I literally burned up within a month. And yes, I do mean burned up. I was running a column of figures and the machine did catch on fire. After this, I was given a new calculator. If I remember correctly, it was a Monroe Litton model 2410 and was the newest machine in the office. When I got to Hawai’i, everyone had Monroe Litton model 2420 which all had digital displays.

After 18 months in Hawai’i, I was moved over to the “Accounts Control” office where I was responsible for the accounting database, liaison with the data processing center, and worked with folks in every part of the accounting system from Base Supply to the Consolidated Base Personnel Office. I worked with the Headquarters command Accounting Office and Responsibility Cost Center Managers across the base. In order to be promoted within the USAF beyond the rank of E4 up to the rank of E7, we had to take tests on our knowledge in our career field. The first time I tested for E5, the test had two questions (out of 100) that were directly related to my work with another 10 being peripherally connected. The next time I tested a year later, 75 of the 100 questions were directly related to my work. When I got my results, I was number 3 USAF wide on the promotion list (though I did not get promoted until the end of the cycle since I had less time in grade as an E4 than others).
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Just how stupid are they? (Photo: David Flores / Flickr)

I sometimes think that there has to be a crest to the levels of stoopid coming out of Washington, DC but obviously, I am wrong. Just the past two days, Dean Baker at his blog Beat the Press refuted three different pieces of so-called “conventional wisdom” by different members of the Beltway Village Idiots Pundits, Press, and Politicians in good standing.

First up was his having to counter a column from Steven Pearlstein of the Washington Post. Pearlstein says:

Europe is a different story. The bubble years allowed much of Europe to avoid making the kind of structural changes necessary to put its social welfare system on a sustainable fiscal path and reform its labor and product markets. The euro crisis — which is both a banking crisis and a sovereign debt crisis — has forced Europeans to begin addressing those issues.

Baker points out however:

Of course this is completely wrong. The countries with the well developed welfare states, Germany, Denmark, Sweden, the Netherlands are doing fine. The countries that are in crisis, Spain, Greece, Portugal, Ireland, have the least developed welfare states among the older EU countries.

Next up we have a WaPo opinion piece decrying the “looming short fall in public pensions.” Baker points out here:

The pensions are underfunded in part because policymakers would not take seriously those of us who warned that pensions were making overly optimistic assumptions about stock returns before the market crashed. Returns have been well below expectations in the dozen years since the peak of the stock bubble in 2000.

The other reason is that some politicians, like New Jersey Governor Chris Christie, think it is really cute to not make the state’s required contribution to the pension fund. Not surprisingly, if states get into the habit of not contributing to their pension fund, as has been the case in some states, then pension funds will be underfunded.

However, it is more than a bit bizarre that we should therefore ripoff the workers who are counting on these pensions. Suppose state and local governments contract with construction companies for road work or hospitals to treat poor people. If the governments don’t put aside the money to pay these contracts would we then think it makes sense to tell the contractors and hospitals to get lost?

Finally, today Baker goes after NPR and Nariman Behravesh, the chief economist of the forecasting firm IHS Global Insight, who thinks that the biggest problem we face is “the deficit”:

Wow, isn’t that impressive. So Europe, China and the rest of the world will be really impressed if the United States throws even more people out of work as long as it reduces its budget deficit! That’s interesting, had it not been for NPR I never would have known people in the rest of the world thought this way.

As one of the 25 Million plus long term un and underemployed Baker mentions in his post, I would like to quote the inimitable Mr Pierce, “Fck the deficit. People got no jobs. People got no money.

David Dayen at FDL News today (Monday, October 22) covered a survey on the wage gap between federal workers and their private industry counterparts. Not so surprisingly, the public sector workers are paid far less than private sector jobs requiring comparable levels of skills and education:

If you compare organized federal employees, many of whom have college degrees, to unorganized service-sector and retail workers, then yes, you will find higher wages in the public sector. But if you do an apples-to-apples comparison between public employees and their private-sector counterparts in related fields, you will find that the public sector is significantly undervalued.

…snip…

You cannot lump together those who clean up the National Mall and those who work on scientific breakthroughs at the National Institute of Health, compare them to the “average worker,” and come up with a legitimate pay scale for federal employees. You have to go sector by sector and find the appropriate comparison in the private sector. And when you do that work, you see that federal employees are underpaid. This has an impact on millions of hard-working Americans, who are forced to take less than their skills would bring them back in the open market, because of a foolish tendency toward austerity and the demonizing of public workers.

Over these past few years, we’ve all seen many articles decrying the “generous pensions and salaries” of public sector workers, whether teachers, fire fighters, EMTs, or police at local levels or scientists at the NIH, NASA, JPL, EPA, or any other federal agency you wish to name.

My question is why?

One of the themes to emerge from this year’s presidential race has been Mitt Romeny’s “infamous” speech at a private fund raiser last May, calling 47% of the US basically moochers and freeloaders because they don’t pay federal income taxes or they receive some level of federal benefits be it Social Security, VA or the Earned Income Tax Credit (EITC) among others.

But why is it so fashionable to trash people who have earned pensions, earned veterans benefits or Social Security or have used the EITC because of low wages? Shouldn’t we be asking why there are so many people earning such low wages that they don’t even pay a minimum federal income tax? I know for myself, I would dearly love to be earning a salary that would have me paying federal income taxes. Reuters offered this analysis on Friday (October 19):

The number of Americans not owing federal income taxes has been growing since the mid-1980s, and the increase largely stems from expansion of these two tax credits – championed by Republicans from conservative economist Milton Friedman to former President Ronald Reagan.

I want to work in my chosen field, earn a decent wage with benefits and pay my fair share of taxes. Instead, we see the “champions of industry” threatening employees with lay offs should President Obama be re-elected.

Right now, I’m a bit surprised we don’t see more news articles like this one from the AP last Sunday (October 14) about a man attempting to rob a bank of $1 so he could be sent to a Federal Prison. How bad must it be to want to rob a bank so that you can get sent to prison? My guess is the three hots and a cot and health care sounded mighty appealing if the option was starving on the street.

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor

As many folks know, I spend a bit of time each day perusing various news sites. My postings have been light the past few weeks and months as I’ve been working through issues after my sister’s death. More recently in the last week I’ve gotten a small piece of good news in my personal life (and not saying anything further as I try to nurture this news and make it grow – but it’s not a job) as well as further bad news for my extended family, so the roller coaster ride does continue.

But then I go and see a headline like this at NBCNews.com:

Fed ready to help economy ‘fairly soon,’ minutes show

Turns out, the article was from Reuters though their headline wasn’t much better:

Fed looks set to ease fairly soon barring swift rebound

Earth to Fed! Earth to Fed! Where in the holy hell have you been for these past few years?

(Reuters) – The Federal Reserve is likely to deliver another round of monetary stimulus “fairly soon” unless the economy improves considerably, minutes released on Wednesday from the U.S. central bank’s August meeting suggested.

While the meeting was held before a recent improvement in economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.

…snip…

The Fed held policy steady at that gathering, but signaled a renewed readiness to act amid lingering softness in the economy. The minutes showed the central bank is actively considering a “flexible” bond-buying program, which could suggest that no upfront amount will be announced.

Let’s see. The “official” time frame for the Great Recession had a start in December 2007 and ended officially in June 2009. Last June I wrote a blog post where I predicted a double-dip recession. Officially, I was mistaken as the economy has managed to maintain just enough headway to avoid the term “recession.” But also last summer, I wrote a blog post asking Mr Bernanke just where the hell he has been these past few years. I and all the other people in long term un and underemployed situations have the same concerns. We want jobs. The Fed still has a “Mission Statement” that begins with direction for “…pursuit of maximum employment…” So we sit here with the official unemployment rate at 8.3% and the rate of un and underemployeds at 15%. These number still translate to nearly 13 million unemployed and another 10 to 15 million underemployed. And again, these numbers do NOT include new college grads trying to find their first full time jobs in their chosen fields. The numbers do NOT include all the millions who have been forced to become “self-employed, independent contractors. Add these groups into the official numbers and we are probably looking at (as a guesstimate) another 10 to 15 million people. Labor force participation was at 63.7%.

But have no fear! All is not lost. Why just today, one of Willard Mitt Romney’s top economic advisers proclaimed that The Benbernank is doing a smash up job as Fed chair and deserves to remain in the position while the Republican Party has added a plank calling for an annual audit of the Fed. My guess is this is the sop to Ron Paul. And to be honest, I can see this is a good plank. Of course, we still have the Todd Akin Memorial Anti-Abortion Plank Human Life Amendment so some things never change. After all, one of the reasons the Republicans re-took the US House in 2010 was because of the lack of jobs. Yet from the very start, the House concentrated on anti-abortion legislation that included “re-defining rape.”

Todd Akin isn’t an aberration in today’s Republican Party. He is the epitome of today’s Republican Party and Paul Ryan is right there with him. Meanwhile, the denizens of the Beltway wonder what all the fuss is about with jobs and millions of un and underemployed people wonder how they will survive.

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor

Now, some folks may have noticed (ha!) that I have not been posting too much these last few months. Those who actually know me understand that I’ve had a very good reason for this. However, I have still continued to surf the news sites each day and keep up with various blogs as well. I figure Mr Pierce does such a fine job eviscerating the Zombie-eyed-granny-starver and so many other idiots, that there really isn’t much I can say and definitely can’t improve on. As well, Dean Baker continues to easily refute the gibberish of so many Beltway Village Idiots Pundits and Politicians, so there’s not much need for my rants.

So, I laugh when I see where someone has butt shot himself while thinking of all the “butt calls” I have received from family and friends. And I get a little sad when I see legislators in my home state embarrassing themselves with their diatribes against teaching evolution. (Note: Gravity is still considered a theory as well, maybe some of these folks complaining about teaching evolution “cuz it’s only a theory” should maybe be invited to test that gravitational theory from the top of the capital building – rhetorically speaking of course.)

But then, I wind up reading something that is so incredibly stupid and disingenuous, that I am moved to take a whack at it on my own. Today, I reached this point when I read this idiocy from Robert Samuelson at the Washington Post:

Judging by the political reaction, you’d think that Paul Ryan’s budget takes a meat ax to Medicare and threatens economic havoc for the elderly. Just the opposite is true: The Ryan budget spares older people from almost any change or sacrifice — and that’s the problem. We have (and, to be fair, this is mainly the doing of Democrats and their intellectual apologists) made those 65 and over into a politically protected class, of which nothing is expected and everything is given.

It is impossible to have an honest debate about the budget — and government’s size and role — unless this changes, because aiding the elderly is now the main thing the federal government does. If you remove that, fearing a backlash from the 50 million or so Social Security and Medicare recipients, you condemn yourself to bad choices: (a) you can’t deal with deficits, which may crowd out productive investment and risk a financial crisis; (b) you must dramatically squeeze the rest of government, including the social safety net, defense and research; or (c) you must raise taxes sharply, which may further slow the economy.

Now, I am admittedly not an economist (thank doG) but by my rough count those two paragraphs contain maybe two semi-factual statements and about ten misstatements, mis-directs, and outright lies.

My first response after reading Samuelson’s gibberish was to rush over to Beat The Press and see if Dean Baker had already taken Samuelson to task. Alas, Dean has been otherwise occupied with taking Casey Mulligan of the NY Times Economix blog and the Washington Post to task for their various misstatements and mis-directs. I imagine he can only deal with just so much stoopid and disingenuousness in one day before reaching his fill.

So if I may quickly:
The Zombie-eyed-granny-starver’s budget and Medicare ‘Plan’ does take a meat ax to Medicare and threatens economic havoc on the elderly (via Kaiser Health News).

Samuelson proclaims that the Ryan budget “…spares older people from almost any change or sacrifice…” (this seems to be an article of perceived Conventional Wisdom among the Villagers and TradMed if this and this are indicators. But the devil as always is in the details as this from Think Progress explains. I would like to add that the attempt at generational war by proclaiming loudly that “55 and above are exempt from the changes” presupposes that those of us older than 55 have no desire to see these programs available to our younger family and friends. Please note, not everyone has an “I’ve got mine, fuck you!” attitude, m’kay?)

I am going to close this without attacking the rest of Samuelson’s gibberish and try to re-store my blood pressure to a more manageable level. But I would like to say that Samuelson continues to act as if the social safety net spending, Social Security, and Medicare have been stand alone problems these last ten years while ignoring the destruction of the US and world economies by the Banksters and fraudsters on Wall St.

[/Harrumph harrumph rant]

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor

A Jobs Program and A Sales Program, All In One! (image: donkeyhotey/flickr)

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It has been fascinating, albeit in an unpleasant way, to watch the War On Women unfold this month. There’s more than a little irony that we are seeing this “war” take place in March when March is annually the month to celebrate Women’s History. That’s a problem as many of the battles that women have fought for over the years are being re-fought this year, so how can we celebrate them as history?

Actually, the best way I think to celebrate is to fight against the current iteration of the war. As I wrote a couple of years ago, I love strong women, but that gives me no more the right to tell any woman how she should live her life than the state has a right to do. Yet all over the country, we are seeing state and federal elected officials propose that a women considering abortion has to undergo an invasive, unnecessary procedure that’s only purpose is to attempt to intimidate a woman as if she has no will and awareness of her own.

The justifications for these proposed laws are about as patronizing and condescending as there is. The attempted obfuscations (“Religious Freedom!”) rival the worst of what we’ve seen. Really, about the only smoke screen we haven’t seen is someone trying to defend these attacks on women as a job creation effort.

Maybe they just haven’t thought of it before. They do manage to keep re-cycling the same standard activities and call them Jobs programs. Tax Cuts! = Jobs Programs. De-regulation = Jobs Program. Drill, Baby, Drill = Jobs Program.

I guess the only reason they may have not linked the War On Women to a Jobs Program is it really wouldn’t be a Jobs Program. The sad thing is, I would wager they could find thousands of people willing to volunteer as “Chief Busybody and Slut Shamer.” Do they understand that “The Handmaid’s Tale” is not really a “How-to” guide? Read the rest of this entry →

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So there I was, surfing around the intertoobz this morning when I came across this headline at CNN:

Stop vilifying venture capitalists

I have to admit, I was a bit taken aback at the headline as it surely did not reflect anything I had read.

In reading the piece, it starts off in a fairly standard fashion:

From 1984 to 1999, Mitt Romney was in charge at Bain Capital, an investment firm that sought out small and sometimes troubled companies that, with careful management and Bain-provided cash, offered the chance for big profits. Bain, like many venture capital firms, invested in startups with the hope that the profits they made on the successes would outweigh the losses they incurred on the failures.

Venture capital markets are simple things. Two groups of people who want to create new businesses come together. Venture capitalists have money but lack ideas. Entrepreneurs have ideas but lack money. When they get together, they trade and new businesses are born.

Then I realized that the author was not really saying much I could disagree with – other than his implication that Bain Co. was this benign entity only helping entrepreneurs to find the needed funding to bring their ideas to market as wiki defines it.

Today’s Boston Globe addresses this in this article.

Mitt Romney has long called himself a venture capitalist, experience he says helps him understand the economy better than other candidates for president. But he spent much more of his career in leveraged buyouts than in the investments in start-up companies known as venture capital.

Romney’s one true venture deal was Staples Inc., the office supply superstore, two years after he started Bain Capital. He wasn’t the first to discover Staples; another Boston venture firm introduced him to Staples founder Tom Stemberg. But Romney did lead the deal in 1986 in classic fashion – at first investing $650,000 in the start-up, then becoming its chief cheerleader and assisting with strategy to expand the seller of paperclips and pens.

…snip…

With leveraged buyouts, the investment firm purchases a mature company, partially with its money and with debt it transfers to the company. The new owners then usually streamline the business and seek to resell it.

For example, in the same year that Romney invested in Staples, he led the firm in its $200 million acquisition of Accuride, a wheel rim maker that was part of Firestone. Bain put down only $5 million and borrowed the rest, using junk bonds from Drexel Burnham Lambert. Eighteen months later, Bain resold the company and reaped $121 million in its first taste of the big time in the go-go 1980s.

Soon after, Romney steered Bain Capital more toward debt-driven buyouts. There was more money at stake and less risk for Bain than betting on untested technology.

My bold. And there you have it. While maybe starting life as a “venture capital” firm, Bain Co under Romney quickly turned to being Vulture Capitalists using the leveraged buyout.

At this point, I guess I should queue cue the chorus of voices shouting “FREE MARKET! FREE MARKET!”

Point of fact – there is no such thing. The LBO gets to use the debt interest to write down their taxes. By “streamlining” the business, the methods have often included cutting wages and benefits, selling off assets, and dumping pensions onto the taxpayers through the Pension Benefit Guarantee Corp. Dean Baker explains it quite nicely here and here. From the first link:

If private equity firms were successful in making companies more efficient and lowering prices to consumers, then it could lead to more jobs in the economy, even if there were fewer workers directly employed in the firms under its control. (This does not really apply in the current economy, where inefficiency means more workers are employed. This is good in the context of a poorly managed macroeconomy with high unemployment.)

However private equity firms do not profit just by making firms more efficient. Private equity also profits by financial engineering. For example, it is standard practice for private equity firms to load their firms with debt. This means that interest payments, which are tax deductible, are substituted for dividend payments, which are not tax deductible.

Private equity companies also often force firms into bankruptcy to offload debt. This can often include pension obligations, which are then taken over by the Pension Benefit Guarantee Corporation. Insofar as private equity companies are drawing their profit from this sort of financial engineering, it is not providing a benefit to the economy. In fact, it is a direct drain on the productive economy.

So much for the nonexistent “free market.” If a firm has to offload their debts and pensions on the taxpayers, there ain’t a diddly damn thing free about it.

While I am still trying to figure out how it is possible for the LBO group to incur debt for an entity that they are acquiring (don’t you have to actually own something before you can mortgage it?), I’ll close this little rant with this article from today’s Cincinnati Enquirer headlined “Tax breaks for jobs: Half fall short.” A story for another day.

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor

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So here we are. It is the middle of December 2011. The US (and global) economies still suck. The Federal Reserve continues to wring its hands and do pretty much nothing about maximizing employment (which means they are not doing their jobs).

These past few weeks, I’ve seen a number of articles in various news sites about various states offering “tax incentives” to businesses trying to get them to stay where they are or to move to another state. One of the first was when I saw reports in early October that the governor of the state in which I reside claimed that the Chicago Mercantile Exchange could be moving to Florida. Then at the end of November, I noticed that Cincinnati and Ohio had “lost” Chiquita Brands to North Carolina:

Chiquita Brands International Inc. decided to leave Cincinnati for many reasons, but the biggest one is undeniable: Money.

Lured by the promise of big savings, better air service to Europe and Latin America and a more diverse workforce, Chiquita announced Tuesday that it plans to leave Cincinnati, site of its home office of 24 years, for Charlotte, N.C.

North Carolina offered a package of grants and tax incentives potentially worth $22.7 million over 11 years, enticing the relocation of the world’s largest banana seller.

The counter offer from the state of Ohio and Cincinnati to keep the company downtown amounted to $6 million to $6.5 million, Chiquita chairman and CEO Fernando Aguirre told The Enquirer late Tuesday.

A couple of days later, I see where Ohio, having offered a fraction of what North Carolina had offered for Chiquita had turned around and offered Sears hundreds of millions to move from Chicago to Columbus. At the end of the article on the Sears offer, I found this telling little nugget of information:

The largest incentive package in Cincinnati – a 2003 deal worth up to $52 million to keep Convergys Corp. downtown – was hotly debated for months before being approved. The deal kept Convergys downtown, but the company hasn’t grown here, and instead has cut its city workforce from 1,500 to 1,000.

Tax incentives are a quick, short-term strategy to boost job numbers, but they don’t always work in the long-term, said Wendy Patton, a former Ohio Department of Development official.

Just last week (December 7), the NY Times had an article on Fortune 500 companies being able to avoid paying any state taxes for years at a time, no matter how profitable they might be:

As states have struggled to balance their budgets by cutting services, laying off workers and raising taxes, a study to be released on Wednesday suggests that many profitable Fortune 500 companies have not been paying as much in state corporate income taxes as the average levied on American companies, with some big firms paying none at all in recent years.

A few companies, including DuPont, reported paying no state corporate income taxes from 2008 to 2010 even as they reported profits, according to the study, which was conducted by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, nonprofit research organizations in Washington that advocate a more progressive tax code. (A spokeswoman for DuPont said that she had not seen the study, but that “DuPont complies with all tax laws and regulations” wherever it operates.)

…snip…

To gauge how much Fortune 500 companies are paying in corporate income taxes, the study looked at the 265 of them that are both profitable and disclose their state tax payments. It found that 68 reported paying no state corporate taxes in at least one year between 2008 and 2010. All together, the study found that the companies reported $1.33 trillion in domestic profits from 2008 to 2010, but paid states only about half of what they would have if they had paid at the average corporate income tax rate of all states — reducing their state taxes by some $42.7 billion.

Today, the NY Times had a related article on the battle between states for corporate business:

As the unemployment crisis grinds on, states are trying to both lure and retain businesses by offering tax breaks, grants, cheap loans — just about anything (short of candy and foot massages) they can think of. But how many jobs do these expensive incentives actually create?

And are the jobs any good?

Economic development programs cost states and cities billions of dollars a year, but many programs require little if any job creation, fewer than half call for wage standards, and fewer than a quarter require the companies to provide health care for their workers, according to a study of program requirements scheduled to be released Wednesday by Good Jobs First, a nonprofit research organization that tracks corporate subsidies. Some merely require companies to invest in plants or new equipment, which could actually enable them to reduce their head counts.

In doing some quick checks of der Google for this post, I noticed that Indiana had also made a play for the Chicago Mercantile Exchange. Fortunately for the good folks of Indiana, Ohio, and Florida, the Illinois legislature has bowed to the corporate blackmail:

While a tax-break package aimed at keeping Sears Holdings Corp. and Chicago’s financial exchanges from exiting the state cleared the General Assembly on Tuesday, Illinois’ business tax policies will continue to be a hot-button issue in the coming year.

Lawmakers from both sides of the aisle said they expect the parade of companies seeking special relief to continue, creating pressure to further examine how the state taxes business.

At this point in our national economic crisis the image that keeps coming to mind with all of these tax incentives for companies to stay or go is so much re-arranging of the deck chairs. These jobs are not net new jobs for the nation and wind up costing jobs IMNSVHO because of the lost jobs and services in both the losing state and gaining state. The losing state winds up offering larger incentives to try to save jobs and for the folks in the losing state who have lost their jobs, here’s the struggle to make ends meet with unemployment so more bankruptcies and foreclosures. For the gaining states, there are all the costs associated in providing the sweetheart deals to the corporations to get them to move means non-reimbursed expenditures for infra-structure and more wear and tear on existing systems. If the state manages to “save” the jobs by bowing to the blackmail, it is that much less revenue coming in that cannot be recovered. Lose-lose-lose for all but a few folks in corporate management (Bonuses!)

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor