The Progressive Ensign

insights and analytics to build an economy that works for all

Tag: economy

GOP Administration Unreality and Policies Are Creating an Authoritarian Executive Branch – Dangerous to Our Democracy and Economy

(Editor Note: this is the fifth post in a series examining the policies of the new GOP administration)

“How will what confusion takes for truth
In any sense be different from a mirage
Things, then bodied forth by magic spells,
And that which is displayed by dint of causes,
Whence have these arisen? We should ask ;
And where they go to, we should examine!”

Shantideva – 700 AD

The Story:

The GOP White House is employing campaign tactics of intimidation, dis-information, half-truths, bullying, scapegoating and chaos to govern the country.  Democratic governing is different.  Governing requires thoughtful leadership, an ability to build consensus to formulate policies and lead large bureaucracies. Plus, we live in a tightly integrated global economy built over the past 70 years where any broken economic link will unleash a negative domino effect worldwide and back to us.

The administration’s stream of falsehoods creates a world of unreality to make their policies look like they are fixing problems which in reality don’t exist.  The White House is trying to convince us that their delusional world is real with a constant stream of falsehoods including:

POTUS 45 actually won the popular vote because 2.9 million votes in California were fraudulent votes by illegal immigrants (no evidence presented for this allegation)

Millions of people attended his inauguration more than Obama (photos provide evidence the crowd was much smaller)

Buses of liberals were sent from Massachusetts to New Hampshire to tip the vote (no evidence presented)

Immigrants are taking US worker jobs (in fact immigrants are 2x more likely to be entrepreneurs starting companies and creating jobs for US workers, plus immigrants are the fastest growing segment of our labor force)

The main reason manufacturing jobs were lost was companies moved these jobs overseas (research shows that 88% of all manufacturing jobs over the past 10 years were lost due to automation)

Old manufacturing jobs can be brought back by just browbeating companies to bring them back (jobs are automated overseas too, it is highly unlikely they will brought back – it is too expensive a transition)

All Muslims are bad people because a few terrorists are if this faith, and need to be monitored and barred from entering the country (Muslims are good citizens, only a very few extremists are terrorists – not more so than another other religious or racial group)

The economy was a mess when POTUS got it (GDP at 2.1%, unemployment at 4.8%, unemployment claims at lowest rate in 8 years, good but still highest level of income inequality since the 1980s)

The unemployment rate is 46% (not even when discouraged workers and those who have quit looking for work are added in is about 9%)

Most refugees are terrorists, and will harm us (no evidence for this allegation)

Vaccines cause autism (only one study proposed this link, which has been debunked by many scientific papers from recognized medical researchers since)

The list goes on as the Washington Post counts 132 false or misleading claims in the first 33 days of the presidency.  Where did all this disinformation come from?  Our President does very little reading but likes to get his news from television, social media and blogs – like Infowars. Infowars is growing fast from just a handful of staff two years ago to 50 – 75 people today. Quantcast in January reported, Infowars had 8.7 million global visitors with 50 million page views.  Ad revenue is growing from water purification companies, foods supplement firms and virility enhancer promoters. The ultra-right blog is edited by Alex Jones, who is a conspiracy theorizing, provocateur who in the past threw out allegations like:  9/11 was an inside job, the Sandy Hook shooting was a ‘fake’ and in 2015 said mainstream media were the ‘enemy of the people’.

So it was not a surprise last week when POTUS tweeted: “ABC, CBS, CNN, NBC and the New York Times were the enemy of the American people”.  Carl Bernstein, who helped break the Nixon Watergate story at the Washington Post, warned: “Trump’s attacks on the American press as ‘enemies of the American people’ are more treacherous than Richard Nixon’s attacks on the press. There is no civic consensus in this country like there was at the time of Watergate about acceptable presidential conduct. Trump is out there on his own, leading a demagogic attack on the institutions of free democracy. We are into terrible authoritarian tendencies.”

Wake up America thus is a fight for our democracy! This admin does not want a democracy for all, only a government for the elite. The oligarchy has now placed their leaders in charge of Executive branch departments and is determined establish rules to keep them in power for years to come.

The oligarchy has embraced falsehoods and unreality as tools for obtaining and maintaining power.  This demagogic behavior creates a dangerous situation where credibility will be crucial to managing a crisis requiring public support.   Eliot Cohen, a senior State Department official under President Bush and a participant of his National Security Council, declares “No matter how clever they think it is to attack the very notion of truth itself, a time will come when they want people to give the president some kind of credit for being truthful when the evidence is not in front of us, that they will not get.”

The Solution:

We can’t treat this situation like business as usual for the Democratic Party.  We need to setup an opposition shadow government and cabinet. The British have a long history using this style of opposition – we can learn from their approach. We need to be on the mainstream media, blog sites and social media with alternatives to the demagogic attacks being launched every day.  We need to drive the narrative on where our country is today and the real problems it faces with solutions that work for all. The Progressive Platform that Democrats adopted for the 2016 Presidential election is a good place to start, with updates focused on building a jobs economy for upset inland voters who feel the party left them out of the plan. We need to bring together key leaders, workers, researchers and political leaders into a series of regional jobs summits.  Define solutions then go on the campaign trail to win support for those regional job plans. We need to be building coalitions with independents and the Trump Regrets voters.  We need to connect all the resistance and progressive positive energy into political power. Whatever we focus on gets bigger to turn the tide and win majorities again!

Finally it helps to step back a moment, maybe we start by agreeing on the weather:

 

(Editor Note: references for this post are in the Research tab – under GOP Unreality)

 

Stock Buybacks Spike Executive Pay at Expense of Workers & Economy: End Buybacks

Bank Run 1873 Frankfurt_1873

The View:

While CEO pay is at an all-time high at 290 times average worker pay (vs 20 times in the 1950s), CEOs are boosting their stock incentive base pay by offering corporate bonds (increasing corporate debt) to create cash to make stock purchases. By making stock purchases, they can artificially soak up shares in the stock market, manipulating an increase in share price and thus boost their pay.  Corporations are spending $391B year to date ($553B all of 2014) on these stock buyback programs according to Birinyi Associates. Since 2004, corporations have spent $6.9 trillion in stock buybacks and 54 % of their profits over the last decade, according to the Academic Research Industry Network.  Between 2006 and 2014, 500 of the highest paid corporate executives received 76 % of their income from stock based compensation. Finally, stock purchases correlate with the surge of the S & P 500 stocks over the past 7 years since the Great Recession, in analysis by Business Insider. Though, for the past few months stock buybacks have fallen off to 2012 levels, which may mean market share prices will fall without these corporate buying programs propping prices up.

What’s the problem with these buybacks?  First, executives are putting their corporate viability at risk by borrowing at low interest rates to build cash when at the same time over the past 6 quarters S & P 500 companies have seen a decline in earnings by an average of 3.5 %.  As earnings decline combined with debt servicing can cause a future cash flow crunch. Second, they are not spending this cash to make investments in employees, equipment or research and development to increase productivity – which would raise the standard of living and help bring employee pay back into line with the norms prior to the 1980s. Third, this practice is really a form of insider trading (timing not disclosed to average investors) of up to 25 % of daily trading volume. Executives are violating their fiduciary responsibility to shareholders to ensure investments are made for the future viability and growth of the enterprise versus their own financial gain. Fourth, in 1993 the Clinton administration gave companies permission to deduct from corporate taxable income executive pay over $1M if it was linked to corporate performance – stock price.  So, in effect we are all subsidizing corporate executive pay, when we pay our fair share of taxes and corporations do not. Fifth, these buybacks are artificially inflating stock share prices, making it difficult for average investors to know what the real price of stocks should be, and creating a market bubble that will eventually burst.

Let’s end corporate stock buybacks:

  1. Support Senator Tammy Baldwin’s request to SEC Chair Mary Jo  White     to tighten stock repurchases regulations and to gather stock repurchase information from corporations by writing to the SEC.
  1. Work with major university endowment administrators to stop purchasing stock of top stock buyback firms including: Apple, Microsoft, Pfizer, Gilead Sciences, Boeing and others, until they eliminate the stock buyback practice (sign a pledge too).
  1. Identify and develop plans with progressive corporate executives to not perform stock buybacks, and take a pledge not to in the future.
  1. Run a US financial community PR campaign highlighting the successes of non-stock buyback corporations, identify surrogate spokespersons, and run ‘events’ to keep the topic in the mainstream media to shift the public discourse on stock buybacks.

The Story:

Stock buybacks were viewed by the SEC from 1934 to 1982 as stock manipulation and fraud, with a limit of 15 percent of share volume on any given day, and required disclosure when buybacks were made. In 1982, John Shad, SEC Chairman, was previously the vice chairman of EF Hutton, and the first SEC Chair to be named from the industry in 20 years by President Ronald Reagan. Mr. Shad was a major contributor to Mr. Reagan’s New York campaign. Shad removed these stock buyback restrictions allowing CEOs to perform buybacks in secret, with disclosure only in hard to find filings at the end of the each quarter. In that year, the SEC adopted rule 10b-18 which holds corporations harmless from allegations of stock price manipulation due to stock repurchases. Plus, conformance is voluntary and does not require repurchase data reporting! Voluntary reporting was noted by the current SEC Chair Mary Jo White to Senator Tammy Baldwin in a reply to an earlier request for increased policy enforcement of stock purchase regulations.

There is a correlation with stock purchases by corporations and stock market performance.  This chart that appeared in Business Insider shows a correlation that is hard to miss (right click to enlarge image):

Stock buybacks correlate to Stock Market ride

While, it can be argued that stock buyback purchases are not the only factor driving the market (Federal Reserve keeping interest rates near zero is another), certainly to any reasonable observer the pumping of $6 trillion dollars into the stock market since 2004 and 54 % of corporate profits of S & P 500 corporations has to have some impact.

Earnings are fading, at an average of – 3.5% per quarter for the last 6 quarters.  So, where do corporations get the cash to do stock buybacks?  By issuing corporate bonds, which in the month of August have hit a new record high for just the first six days of the month at $70 billion, when an in an average month is $125 billion. Here is a chart on the just the month of August compared to past years ( right click to enlarge image):

Corp bond issuance hit new highs in Aug 16

So after getting the cash they need, CEOs perform stock buybacks and get well compensated for doing so. The pumping up of stock prices to increase executive pay is a standard executive compensation practice, some examples are particularly capricious.  Pfizer CEO, Ian Read between 2011 and 2015 enjoyed $76.8 million in compensation, of which 63 % was in stock shares. During this time Pfizer made $44.7 billion in stock buybacks.  For the same period Pfizer only paid $16 billion in US income taxes. This $44.7 billion is not invested in research, development, cost reductions in operations or employee pay – instead is used for stock price manipulation.  It is not hard to fathom given the magnitude of the miss application of investments that more effective and productive investments would benefit all patients, employees, stockholders and give us lower drug prices!  Plus, the US government would have more tax generated funds if a provision adopted in the Clinton administration in 1993 were eliminated to allow corporations to to deduct from corporate taxable income executive pay over $1M if it was linked to corporate performance (stock price).  Finally, when executives allocate resources that benefit only themselves and a few shark investors, they are acting in violation of their fiduciary responsibility to all shareholders, employees, customers and the public to focus on ensuring the future growth and development of the enterprise.

Some industry observers see the perils of stock buybacks to the stock market and economy.  Ben Silverman, VP of Research at Insider Score, that tracks buybacks says that buybacks mask managements’ inability to grow the business and be innovative thinkers.  Professor William Lazonick, University of Massachusetts, further observes that buybacks have the potential to push the economy into a recession, as companies are using stock buybacks to boost share prices instead of investing in their business for future stability and long term growth.

What should be done about stock buybacks by corporations?  Professor William Lazonick, recommends that we recognize that the ‘safe harbor’ provision 10b-18 is really a shelter for stock manipulation.  He suggests the provision be repealed.  Agreed.  Let’s take stock price manipulation by corporate executives out of the markets so we can have a fair stock market setting prices on real demand and supply, rather than price set by corporate manipulation. Since July of 2015, Senator Tammy Baldwin has been working on this issue with SEC Chair Mary Jo White.

The Action:

  1. Support Senator Tammy Baldwin’s request to SEC Chair Mary Jo  White     to tighten stock repurchases regulations and to gather stock repurchase information from corporations by writing to the SEC.
  1. Work with major university endowment administrators to stop purchasing stock of top stock buyback firms including: Apple, Microsoft, Pfizer, Gilead Sciences, Boeing and others, until they eliminate the stock buyback practice (sign a pledge too).
  1. Identify and develop plans with progressive corporate executives to not perform stock buybacks, and take a pledge not to in the future.
  1. Run a US financial community PR campaign highlighting the successes of non-stock buyback corporations, identify surrogate spokespersons, and run ‘events’ to keep the topic in the mainstream media to shift the public discourse on stock buybacks.

 

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