Week of 06/08/2020

Recovery Must Put People Over Profits
– by David Matthews 2

There is an old philosophical question that has been asked over the ages…

What came first: the chicken or the egg?

While people were tossing about back and forth over the subject through the years, paleontologists actually came up with the answer.

The egg, of course.

Eggs had to exist before a chicken could come from them.  And eggs did exist long before any winged creature, never mind a warm-blooded feathered foul, could ever come to be. 

A similar question has been perplexing America over the past century.

When helping the economy through a major crisis, what should come first: people or business?

Without people spending currency, there is no business.  You have to have it to spend it.  But, supposedly, without business, currency would be useless.

For far too long, the business community and their acolytes in the media have been imposing the message that as long as the business world is supported, that people will somehow succeed through them.  Businesses create jobs, the workers get paid, money is spent, and as business improves, everyone gains.  They firmly believe that any assistance through an economic crisis such as a recession or depression should go directly to the businesses.

And, for a while, this commentator used to believe that as well.  I drank the capitalist Kool-Aid and believed that businesses would somehow take the added money they get from tax breaks and tax cuts and the added profits and turn those into jobs and raises and bonuses.  It was the propaganda message resonating through conservative media and business media for decades.

Except that it was a lie.

A lie that was proven to be a lie during the Great Recession.

In the recovery following the Recession, all emphasis was placed on corporations.  Banks, Wall Street, Big Business… they all got bailouts and tax breaks and tax cuts, just like all of the other times when things were tough.  They all prospered, and they posted record profits quickly.  And then people waited for those promised raises and bonuses and expansions and the much-needed jobs.  After all, that was the message, right?  Bail out business and business will help out the people.

Except that they didn’t to that.

Instead we heard about the insanity called a “jobless recovery”.  Big Business got their bailout, made up their losses, recovered from the Recession, reaped obscene profits, and then flipped the bird on the people.  You still had a job?  Great.  But you didn’t get any raises or bonuses, did you?  You lost your job?  Sucks to be you because Big Business said “it’s just too unstable for us to think about hiring people.”

But if you really think about it… they couldn’t spend that money to make those promised jobs.  That’s not how businesses work.

What is profit?  Simply put, profit is revenue minus expenses. 

Revenue comes from income streams such as sales or investments.  You have a product, you sell the product, that money is revenue.  Or you get someone to give you money as an investment or a loan.

Expenses are all of the costs in making the product, selling the product, transporting the product, and all of the people involved in the company.  That means paying your employees.  That includes the contractors and temporary employees that you bring in, all of the overhead involved with the building such as utilities, and all of the benefits such as health insurance and retirement.  That also includes all sales taxes and property taxes, so when governments give tax cuts and tax breaks, they are actually cutting expenses.

So as long as you make more revenue than you pay in expenses, that difference is called “profit”.

But that profit doesn’t belong to the business!  When Microsoft or Walmart or Apple or Amazon or State Farm Insurance or McDonald’s announce huge stinking profits, those profits are not held in some piggy bank to spend on later.  No, no, no.  That profit goes to the owners and investors and stockholders.  That is their money.

You see, hiring people and promoting people and giving out raises and bonuses and expanding… those are all expenses.  If businesses are spending money on those things, then that cuts into their profit.  That means less money going to the owners and investors and stockholders.  And, in the world of business, that means failure.

Understand that the sole purpose of a business, especially since the creation of the corporation, is to make a profit.  It’s not about “helping society” or any other kind of philosophical delusion.  It is about making money and turning a profit, period.  If they don’t, then they are considered a failure.

Now let’s go back to the Great Recession.  Banks were going bankrupt.  Businesses were laying people off.  Families were losing their homes through foreclosure.  The ones who still had jobs were getting screwed over even worse by the remaining banks.  Big Business gets big breaks.  Those translate into lower expenses and thus higher profits.  Great for them.

But why should they then spend that money on jobs and promotions?  Because some media personality on radio or TV said so?  Because some self-professed financial guru made that claim in some newspaper column?  *They* never made that promise!  That was just the word of those media personalities!  You know, the ones that claim they are “entertainers” and “comedians”.

So here we are today, in 2020, in the midst of yet another economic collapse, partially due to the COVID-19 global pandemic.  Businesses are having to shut down, some of them permanently, and people are getting laid off because of this pandemic.  Others are shutting down because of all of the people that have been laid off or furloughed so they don’t have the money they need to spend on things.

Yes, there was a bailout.  Bailout for people and for businesses.  But more so for businesses than for the people.

Yes, there are some new and very creative idea implemented such as the Payroll Protection Program, which let banks loan the money to businesses to keep people on payroll instead of having them laid off or furloughed because of the pandemic.  That was a great idea that was implemented.  But it was also badly mismanaged, with preferences again going to Big Corporate instead of those small businesses that people claim to their dying breath are the “backbone” of American business. 

Hey, guys?  If those small businesses are so “essential”, then why are they continually getting short-changed in favor of those big businesses?  You know, asking for a friend.

So now we have businesses trying to start back up, and states trying to “re-open” even though there is still a pandemic going through, and certain people are operating under the delusion that somehow there would be some miraculous supercharged recovery simply because they said so.

Except it won’t.

Sure, Wall Street seems to be going obscenely great as of this column’s posting.  But, as this commentator has repeatedly said, Wall Street is not Main Street, where small businesses reside, and it sure as hell is not your street and mine, where the real hard-working people live.  Wall Street is a financial crack house on overdose right now, and it sure as hell is not reflective of the real world.

First and foremost, we need to forget about Wall Street.  It is not more a measurement of the real world, of the real economy, any more than an alcoholic left alone in a brewery.  It is mostly a bunch of algorithms right now that are being gamed by “rumors” and “hopes”.

Second, any talk about recovery needs to be muzzled while you have a global pandemic running roughshod across America.  All the directives and executive orders in the world will not stop the virus, nor will it magically make the spread go away.  Nor will it also stop a second wave of infections.  If that happens, then all bets are off.  You don’t believe me?  Look at history.  We went through this a century ago.  It’s high time that we learned from our previous screw-ups for once!

Third… let’s get brutally honest here… any talk about helping the economy needs to start with the people first, businesses second.  You want people spending money on businesses?  They have to have money first.  You want them buying 4K televisions and streaming services?  You want them to buy those new cars?  You want them to upgrade their phones and their game consoles?  They can’t do that if they’re worried about whether or not they can keep the mortgage paid and take care of healthcare and whether or not they can afford food.  If the people are worried about whether or not they can put food on the table and keep a roof over their heads, then they will not spend money on other things that bring in the revenue and bring in the real profits.  There is no amount of delusional thinking that can change that.

It's really simple: just like the egg existing long before the chicken, people existed before business, never mind capitalism.  The whole reason of business is for people to exchange currency for goods and/or services.  And therein lies the problem.  You have to have people able to do that.  And when the expected scope of our economic crisis threatens to cover over one-third of the populace, if not more, then we can’t afford to play the same economic games of the past.  It just doesn’t work like that.