[lbo-talk] A rant on Romer

Chuck Grimes c123grimes at att.net
Tue Nov 2 19:32:05 PDT 2010


`` `To this day, economists don't fully understand why firms cut production [and jobs] as much as they did' during the depths of the recession, said Christina Romer in September, as she left her post heading Obama's Council of Economic Advisers. `Almost all analysts were surprised by the violent reaction.' ''

http://www.csmonitor.com/USA/Election-2010/2010/1102/Vote-2010-How-did-Obama-Democrats-lose-their-way-on-the-economy

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I posted this Romer quote for its amazing living on Mars quality. Analysts and economists don't understand why companies laid off so many people? And Romer was supposed to be better than Summers?

Okay, butt heads, I'll explain it.

It takes almost no time for the boss, when he/she gets the latest accounting report, to check the bottom line and go through his employee spread sheet, and select names. The next step is calling the payroll company and ask for overnight mailing for last pay checks before the next pay period. The boss has already tried beating his employees as hard as possible so gains in productivity have stopped. That leaves lay offs.

All the companies I worked for ran a credit line for cash flow to meet payroll, purchasing, costs of doing business, because the receivables in my trade ran out on average 90-120 days. The reason for such outrageous time frames was denial of service claims from the public and private insurance industry. Meanwhile business invoices demand payment at 30days, some with discounts for 15days or less. If you don't meet the 30day invoice, they put you on COD. At 60days, they cut you off. If you don't pay in 90 days, they turn your account over to the pit bulls of collection Nightmare Inc. Now you are just praying to anything you can pay the IRS quarterly payroll withholding due. You can only stall with a lawyer who wants money up front to fight the IRS, and that only works for a few months. This is what the Nightly Business Report politely calls a downward business cycle.

When bank managers running business and commercial credit lines go over their accounts they can see how you are doing and move their rates accordingly. Business credit is available---its rates are just too damned high. The rates are at the magic point of consuming all the potential profit you might make. Essentially bank business credit acts like a multiplier in both directions. If banks really don't like what they see, they will cut you off. Banks don't particularly like business or commercial credit because the returns are much lower than playing financial games with their money.


>From a business point of view the way to look promising to a bank who holds
you by the short hairs, is to cut costs, and the only place you can do that is lay offs. Everything beyond payroll is pretty much fixed or slightly rising. In a recession, the customer purchasing base has fallen, so you can't increase sales. Chances are pretty good your sales are dropping.

Business tax cuts help, but not if these are tied to hiring. The cuts are too small to make up for the cost of hiring more people. Why would you hire more people, if your sales are down? And by the way, reported wages are not an accurate reflection of the real cost of wages. The accurate reflection is to add a third again as much on top of the reported gross. Yes, I have personally gone through accounts. When you add health benefits, workman's compensation tax, unemployment tax, bank interest payments, payrol fees it adds a third more.

I think the stark reality that nobody wants to face is the only way to get out of the recession is to boost wages and expand employment. Capital will never raise wages and expand employment, period.

Everything from Marxist class war to simple common sense tells you the same story. So that means we as a society at this standard of living are going down to a lower standard. This means a middle class bleeds down to the working-lower classes. Meanwhile the lower classes bleed out to poverty where they will die off at some increased rate. Yes, dearest souls, poverty kills you. Why do you think Africans and South Asians die like flies? Genetics?

CG



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