Sunday, February 27, 2011

The Economy - Stupid?

I took college courses in both micro- and macro- economics. Since then I have read a number of books on economic policy. I pay attention to the debates on economic policy. If I understand one dominant position in current policy debate, the primary obstacle to economic growth and progress is government taxation and regulation. If only we will free up more money for businesses and corporations, they will expand and hire, putting people back to work.

Forgive me for being puzzled, then, when I read this story last week in The Minneapolis Star and Tribune. Medtronic, a Minnesota-based company, earned $924 million for the quarter ending January 28. This represents earnings of 86 cents per share, and compares to earnings of $831 million or 75 cents per share for the same period last year. According to the story, analysts were expecting the company to earn 84 cents per share, so this seems good news. What puzzles me is the other part of the story. Medtronic announced that it will reduce its workforce by 4 to 5 percent or 1,500 to 2,000 positions.

Higher profits and layoffs. That isn’t supposed to be how it works. I know that things are more complicated than the simple models in economic courses or in public policy debates. The story indicated that Medtronic’s earnings were based on lower taxes and that sales had declined in this quarter. Companies need to look to the future and not just to the past. But if the matter is more complicated, then why are we feed the story that all we need to do is free up more money for corporations and they will hire? Why are taxes singled out as the primary reason companies don’t hire? Am I just economically ignorant?

I am not singling out Medtronic for bad behavior. From what I know of the company, it has been a pretty good corporate citizen. What I question is the way our system seems skewed toward increasing profits at the cost of employment. Granted companies need to show profits to exist, is increasing profit the single bottom line to be considered? Last month an article in The Atlantic noted that the top twenty-five hedge fund managers earned, on average, one billion dollars in 2009. This while unemployment remains uncomfortably high.

I yearn for a richer debate on the place of profits in our economic system. I yearn for a richer debate on social policies that will combine to help companies be profitable while providing for the kind of public services and infrastructure that prepare our citizens for productive participation in our economy and a safety net for those on the margins. Simply slashing taxes, without considering more complex issues about profits and public and private good, doesn’t seem to be the prudent way forward, or maybe when it comes to the economy I am just stupid.

With Faith and With Feathers,



jeffj said...

I once was a believer in the "trickle down theory". The "old timers" I worked with before I became an "old timer" told me that employment was better during republican administrations because large companies were "taken care of". Today not much thought is given to Henry Ford's theory .... Make your product as cheap as you can and pay your workers the most that you can, as workers have to be able to buy your product.

David said...

I remember hearing that about Henry Ford. Whatever his faults, and he had some, that economic thinking makes sense to me.