Still Waiting

About a month ago I brought you a short rant (short for me, anyway) about the realty of how corporate governance works, and in particular how the people who own and operate for-profit companies are under no obligation to act in the public interest rather than their own. Indeed, one could argue that the senior management personnel of any corporation have a fiduciary obligation to act in the best interest of their stockholders, regardless of any outside expectations, and should probably be fired if they do anything else. But apparently, no one has bothered to explain this concept (or share my post about it) with the current Administration, any of their more ardent followers, or the business reporters at The Atlantic…

The magazine appears on that list because earlier this week they published another article on the subject, explaining how Starbucks could have given every one of their employees a $7,000 raise with the proceeds from their tax break, and how Home Depot could have given out raises as high as $18,000 per employee. I’m not going to bother checking their math – somebody else almost certainly has, and the precise number isn’t important anyway. None of these companies are going to start offering people massive increases in salary any more than they are going to start manufacturing vast amounts of product that they can’t sell, because that’s not how a free-market economy works…

Companies don’t set their prices by calculating the very lowest amount they can charge without going bankrupt, they work out the highest price they can charge at which customers will still buy the product. Salaries work the same way – no employer is trying to offer its workers the highest possible amount of money, they’re trying to calculate the lowest amount they can pay before people will decide that the job isn’t worth the effort and walk away. These amounts may rise during times of high employment, or drop during downturns, but expecting a company to give away money when it doesn’t absolutely have to doesn’t even work in Command economies, let alone free-market ones…

Now, I don’t imagine that any of my readers (assuming I have readers) are really unclear on these concepts; all of this stuff is extremely basic economics. What seems to be getting lost on a lot of people who should really know better is that this is precisely why the idea of giving money to the owners and leadership of a company and expecting them to distribute it to their employees (or the public) for no apparent reason – the infamous “Trickle-Down Economics” – will never work. It’s not difficult to imagine why the tax reduction scam would be attractive to very wealthy people who will benefit from it directly, or to the elected officials who will be rewarded for passing it; what continues to baffle me is why anyone else would support this measure…

As I mentioned in my last post, I understand that economics can be a daunting subject, particularly for people who have spent decades being told that economics is difficult to understand. But the truth is, Trickle-Down economics can’t work in much the same sense that water won’t run uphill, trout don’t live in trees, and the ocean is not above the clouds. It didn’t work when the Reagan Administration tried it; it didn’t work when either Bush Administration tried it, and it isn’t going to work this time either. But it will suck $1.5 trillion out of our budget at a time when we supposedly can’t afford to heal the sick, feed the hungry, or educate anybody, let alone take care of the rest of the world…