ARE CORPORATIONS SHORT-CHANGING THE ECONOMY?

The linked article, by Hendrick Smith, When Capitalists Cared, in today’s The New York Times, http://www.nytimes.com/2012/09/03/opinion/henry-ford-when-capitalists-cared.html?ref=opinion, provides an interesting look at Corporate History in the U.S. I believe that it points-out today’s Corporate Greed, as compared to the Benevolence of Capitalists in Decades Past.

A short summary of how the Economy works is appropriate.  Economic Activity (or GDP) is composed of Consumer Spending, which is generally in the 70% range, with the remainder being Business and Government Spending. So, as we went through The Great Recession (2007-2009), both the Consumer and Business components were cut-back significantly. Unfortunately, many in Congress failed to adequately fund the Stimulus Package that President Barack Obama called for, which would have helped keep the Economy in better shape than without it.

Another key point can be explained if we consider a hypothetical City with a population of 100,000, and let’s assume an Average Family Income of $75,000. If there were a three percent cut in taxes, the average family would have an additional $2,250, much of which could be spent–let’s say on things that were cut back on when the Crisis first arose.

With additional “Disposable Income”, Families could go out to eat a bit more, go to hair salons a few more times per year, perhaps buy those shoes for the kids that were deferred, etc. This is that “Virtuous Circle of Growth”, that is noted in the article.

And, the Cycle grows because, if a number of families in the hypothetical situation visit restaurants, hair salons and retail store a bit more, those stores would be able to hire more employees who, in turn would visit some of those same establishments. So, when Consumer Spending is reduced, the Economy contracts–as it multiplies when Consumers can afford to consume (spend) more.

Henry Ford’s idea of paying a Living Wage, besides enabling employees to buy Model T’s, also permitted them to spend on other things and that expanded through the Economy. As we have seen recently, Corporate Profits have grown quite nicely over the past few years; however, that prosperity has not passed-through to the Average Worker. More money has gone into Technological Advances, Reduced Wages and jobs moved overseas.

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