Tuesday, December 6, 2011

Report: Corporate America Is Sitting On The Solution To The Jobs Crisis

Last September this news blog posted an article saying:

American corporations are holding more cash on their balance sheets than at any time in nearly a half century, as they continue to save instead of investing or hiring workers, according to a Federal Reserve report released last Friday. At the same time, Republican presidential candidates and corporate leaders continue to lobby for lower corporate tax rates and huge corporate tax giveaways under the guise that they will lead to higher rates of job creation.

According to the report, non-financial corporations held more than $2 trillion in cash at the end of June, a $88 billion jump since the end of March. Cash holdings made up 7.1 percent of all company assets, the highest level since 1963.

According to a new report from a group of University of Massachusetts economists America's largest banks and non-financial companies are now sitting on $3.6 trillion in cash. If banks and non-financial companies would stop hoarding the $3.6 trillion in cash they have accumulated and move it into productive investments, the report estimates that about 19 million jobs would be created in the next three years, lowering the unemployment rate to under 5 percent.

"There is no reason that the U.S. needs to remain stuck in a long-term unemployment crisis," Robert Pollin, lead author of the report and co-director of the Political Economy Research Institute, said in a statement accompanying the report's release Tuesday.

"Getting the banks and corporations to move their hoards into productive investments and job creation requires carrots and sticks -- policies such as a new round of government spending stimulus as well as taxes on the banks' excess reserves -- that can both strengthen overall market demand and unlock credit markets for small businesses," Pollin said.

Banks have borrowed trillions of dollars from the Federal Reserve at zero percent interest, then churned that money in the market to rack in big profits that they now hoard. In fact, according to the Federal Reserve, banks are currently sitting on $1.6 trillion in reserves -- about 80 times the $20 billion they held in 2007. Meanwhile, non-financial companies are keeping over $2 trillion of their profits liquid, rather than plowing them back into investments.

Together, that amounts to almost a quarter of the U.S. gross domestic product.

Pollin and his colleagues report that even accounting for a massive safety cushion of emergency cash, at least $1.4 trillion of that cash should be considered excess safety cushion. Even while all those trillions of dollars sit fallow, the report also notes that small business are having a hard time getting anyone to lend them money.

The report concludes that investing the $1.4 trillion in private businesses would generate an enormous surge in employment. It recommends that the money in particular be channeled toward "small businesses that face larger than normal credit constraints; more labor intensive businesses; and businesses that generate large social as well as private benefits."

If tax cuts are the most stimulative approach to creating jobs, as Republicans claim in rejecting Obama's jobs stimulus plan while demanding a continuation of the Bush Tax cuts, then the economy should already be racing, given the trillions of dollars in tax cuts President Bush and Republicans already gave the nation over the past eight years. Right? Wrong!

Corporate Tax Cuts vs. Corp. Job Creation
Source: U.S. Dept. of Commerce: Federal Reserve; U.S. Dept. of Labor; Federal Reserve Bank of St Louis; Wall Street Journal

Unfortunately, Reagan's "supply-side" mythology that "tax cut stimulus works best" is alive and well and still promoted by conservatives today, despite all evidence to the contrary.

The outcome of Pres. Bush's 2001 tax cuts was "the weakest employment growth in decades." Republican tax cuts in 2004 didn't fare much better, with resulting job creation well below historical averages.

When Bush's White House proposed more tax cuts in 2003, Republicans promised that it would add 5.5 million new jobs between June 2003 and the end of 2004. But "by the end of 2004, there were only 2.6 million more jobs than in June 2003." And, remember President Bush's February 2008 promise that his $168 billion tax cut/rebate economic stimulus plan would stave off economic recession and job losses? Wrong again! All these broken Republican promises stem from a broken understanding of how the world really works.

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