Daniel L. Feldman

Short Term Corporate Profits: Recipe For Trouble

In National Politics, New York State Politics, Policy on August 12, 2010 at 6:53 pm

In the past few weeks, national economic data has indicated that although corporate profits have increased considerably since the beginning of the fiscal crisis, companies have simply been hoarding cash. Corporations have not used their increased profitability to hire more employees – or, it seems, to increase compensation for those they have retained.

This reluctance is predictable, and frightening.

If a company can maintain or increase profits by shedding workers, it will do so, with the extremely rare exception of some socially conscious employers – maybe one in a million.  The fallacy of composition misleads honest knee-jerk opponents of government intervention: if such a policy is good for a company, it must be good for the economy, or at least for all companies.

Unemployment reduces demand, because workers are also consumers. Fewer people working means fewer goods and services being bought, so that even those companies who have done well by trimming their workforce may ultimately see losses.

The United States has gone through this cycle many times. The Obama administration stimulus efforts – which should be much bigger – attempt to ameliorate or undo its effects.

I commend and support the effort to reform the government in Albany, as our forthcoming book, Tales from the Sausage Factory, makes very clear. However, the economic health of our country must be at the forefront of our concerns. Therefore, exercise caution before supporting candidates for New York State office simply in order to replace the political party currently dominant in our State, the Democrats.

Democrats tend to support employment initiatives, while Republicans tend want to let business do whatever it wants, such as letting unemployment increase in the face of short-term corporate profits. There are exceptions on both sides, and the Democrats, in my view, have done far less than enough. Still, before supporting a Republican, I would want reassurance on his or her views on this issue. If you are considering volunteering for or contributing to candidates, Election Day, November 2, is not so far away; you may want to make those decisions now.

You may feel that unemployment and corporate profits are not so relevant to New York State races. But state office victories for Republicans who prize short-term corporate profits well above the need to employ the jobless win state office build strength for national Republicans of similar ilk. How New Yorkers vote for members of Congress will have more direct impact, but that should be obvious.

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