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  July 27, 2016

Mountains of Uninvested Corporate Cash, Not Mexico, Most Responsible for Job Loss

Heiner Flassbeck tells Paul Jay that unspent and uninvested wealth held by the elites is a bigger drag on employment than free trade with Mexico
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Mountains of Uninvested Corporate Cash, Not Mexico, Most Responsible for 
Job LossPAUL JAY: Welcome to The Real News Network. I'm Paul Jay in Baltimore and we're continuing our series of discussions on President Trump's trade policy, his opposition to NAFTA and when he says put America first what kind of trade agreements might he want. And we're going to focus a little bit more on Mexico in this discussion and joining us again now is Heiner Flassbeck.

Heiner is the Director of Flassbeck Economics. It's a consultancy for global macroeconomic questions. Heiner is the former Chief of Macroeconomics and Development of the United Nations Conference on Trade and Development, UNCTAD. Co-author of the book, Against the Troika; Crisis and Austerity in the Euro Zone.

Thanks for joining us again, Heiner.

HEINER FLASSBECK: Thanks for inviting me.

PAUL JAY: Before we get into the Free Trade Agreement with Mexico, and in the first part of this interview we talked about China, off-camera you started sort of continuing a point in the first part about how crazy it is, the mountains of cash that corporations are sitting on. So why do they have so much cash and where are they sitting on it, and what does this do to the economy?

HEINER FLASSBECK: Well, one reason is that all of the world, as I said, it's not just the U.S. phenomenon, we have it for 25 years in Japan, for example. That's why the Japanese government debt is so high. We have it now in Germany for 10 years. We have it in most of European countries, in the United Kingdom, everywhere companies are not fulfilling their macroeconomic role in terms of investment and debt. And so the old idea of private households accumulating savings, so withdrawing some part of their income to bring it to the bank, and the bank will lend it on to investors, and investors will take on the debt, and then the market economy's flourishing is plain nonsense nowadays because companies are not playing their role.

PAUL JAY: So why aren't the companies investing?

HEINER FLASSBECK: Yeah. Because the overall dynamics of the economy is too small and the overall dynamics of the economy is too small because we have permanent pressure on wages. Because we do not have a normal wage dynamic. I said in the first part that if you look at in average real wage increase and they might say, sorry... nominal wage increase in the United States has been peaking at two and a half percent something like that in the last December, this December. So, four years of the beginning of the recovery that nominal wages have reached two percent. Now January I think they were down again. So, we have something like two percent in nominal terms, which is absolutely nothing, you see.

PAUL JAY: And we know, I think the number was at 90% of the post-recession income increase went to one percent of the population. So, we have this massive increased concentration of wealth at the upper end, wages barely moving, so there's not enough going on in the basic economy to make it worth investing in. And companies, what are they sitting on this cash waiting for the next crash so they can start monopolizing more and buying up more of the economy?

HEINER FLASSBECK: I don't know what they're waiting for, but definitely it gives them a good feeling, if you're sitting on a huge amount of cash while you're not endangered by nothing, but as I said, you're killing the market economy. You're killing the whole idea of the role of the companies in a market economy and you're pushing the government into debt. The government is the only sector that can take on debt and can invest. And this is not the role the government should normally have.

PAUL JAY: And Trump's policies are taxing lower corporate taxation, not to define policy, is doing make corporations invest more in the economy.

HEINER FLASSBECK: Yeah, but will it work? They will not invest more that will increase their piles of cash. And this will force the government further down the road to take on more debt. So, the government debt will rise indefinitely. I gave the example of Japan. Japan you have exactly that situation for 25 years. 25 years the company sector is a net saver and the government debt has reached now, meanwhile 250%, or more than 250%, of GDP. So this is then the outcome and so far neo- liberals has killed itself by giving too much power to the company sector. By taking away all the power from the workers by producing this permanent unbalanced relationship between capital and labor, capitalism is killing itself.

PAUL JAY: So billionaires and corporations are sitting on mountains of cash, the wages are relatively stagnant, the government goes into debt because it's the only institution that can actually invest in the economy in one way or the other.

So, then Trump blames, in fact, all this situation on, first and foremost, Mexico. That the free trade agreement with Mexico is actually the underlying problem here and that's what's taking the jobs away and what's lowering American wages.

HEINER FLASSBECK: No, that's definitely not true. I mean, if you took just look in quantitative terms the Mexican trade is nothing. And I think the current account of Mexico towards the United States is something like $60 billion a year, the surplus that Mexica has, the same as Germany, for example. Germany has exactly $60 billion also. So I don't say it's nothing, but it's not the solution to the American economy. It's ridiculous to believe that the American economy will flourish if you change these relationships. Although, it is needed, on a global scale, it's very much needed in Europe that we rebound our economies, but it's not the solution for the United States. And so far this is very much overdone. Although, in principle, there is a point.

But the crucial point, I come back to that, is that you have a long period of zero interest rates, you have companies sitting on piles of cash and you have no acceleration of investment. You have no acceleration of private investment and that is the point that has to be tackled. Unfortunately, the problem here is, and it's a theoretical problem as well, the problem is no country ever, Japan hasn't tried it, no country ever has tried, to get the company sector back to normal, so to say. Bring the company sector back to its normal role in the market economy and push it to become the net debtor, the most important net debtor and give relief to the government. No country ever has tried it and there's no instrument. There is no theoretical idea how to do it. My best guess is that increasing taxes for companies would be a good idea because lowering taxes for companies have brought them to this strange situation.

But overall, it's no clear solution for this problem, and so far, there is no way out. For some governments it works, like the German government has found a solution by having huge current accounts surpluses so then the others out there are the debtors and the problem is solved. But that can only be done by one country. For the United States it's absolutely geared that if you don't change that situation, if you don't get rid of the companies as net savers, then the government has to take on debt, whatever it is. Because otherwise you cannot keep the economy going.

PAUL JAY: Now what exactly the trade policy of the Trump administration is seems to be confusing everyone, including people in the Republican party. And you've got Republicans in California that represent areas of agriculture and people there are extremely concerned about the immigration policy that may undermine their ability to hire cheap labor, undocumented labor, and that's threatening California agriculture. And Texas Republican members of congress are concerned about a trade war with Mexico. Mexico, apparently, is already looking at alternate ways to purchase rice from Argentina and Brazil, which is concerning those ...and soya, I believe and it's concerning American producers about that. So, all sectors of the economy have somewhat different interests here.

But, the simple message of Trump in the Rust Belt, the simple message that got him votes in the States that made him president because of the electoral college vote, was simple. Was that you've lost jobs and plants have closed down and they've gone to Mexico. And even if one says that overall the amount of the Mexican trade is not that significant given the size of the American economy, it is certainly perhaps disproportionately affected places like Ohio and Pennsylvania and others, Indiana, places around that used to have a much more thriving industrial base. So, what do you say to those workers when Trump says, "We're going to stop plants from doing this, from closing and moving to Mexico?"

HEINER FLASSBECK: Well, the first thing I would definitely tell him that this is not the main reason for their problems. You have huge changes, structural changes that more or less naturally bring down industry to a lower level than it was before. And give more leeway to services and other kinds of production in this modern world. And so, you cannot fully avoid it. But, one point I would say has to do with foreign trade, one point is that you have, I mentioned already in the first part, you have exchange rate changes, you have dollar valuations that is absolutely irrational that has nothing to do with the fundamentals of the country. So, one good thing would be, and this is much more important than trade agreements, bilateral trade agreements in particular, much more important to have and to work for a global monetary system, you have a currency system where you get fair evaluation. That is absolutely needed.

And there the United States should engage and United States should intellectually engage. They haven't done that for well, 60 years, 70 years, more, because they were afraid that they could interfere with the interests of Wall Street. Here he could make a good point and say, "Let's get rid of the speculation with currencies." So then we have much less irrational forces that could hurt our industries. That is very important.

PAUL JAY: So let me just emphasize, get really clear. So the currency speculation is one of the things that drives sort of irrational monetary system globally.


PAUL JAY: Driving the cost of certain kinds of currency up.

HEINER FLASSBECK: There is very clear evidence that is speculation and, you know, as a Deputy Finance Minister of Germany, I try to talk about that only to talk about it and to question whether this is reasonable or not. And there the resistance of Wall Street was extremely strong, extremely strong. And the president, at that time, Clinton never wanted to touch it. Larry Summers didn't want to touch it, nobody wanted to touch it because they knew that their enormous vested interests behind this kind of trade. But this trade is anti-market, it's running against the fundamental. It's killing economies at a certain point in time. Even like Brazil in the past, but it's also hurting certain industries in developed economies like the United States. So, if you would heal that, if you would bring about a reasonable system, that would do really something to make international trade much fairer than it is now.

PAUL JAY: So given the political power of both Wall Street and parasitical finance, the political power of the corporations that are benefiting from this kind of globalization of trade and lowering wages, not only here but also, this has not raised wages in Mexico. Mexican wages have actually gone down not up over the last several years. So you're saying capitalism is killing itself. Well, maybe it is. Maybe that is the natural arc of capitalism, that eventually it kills itself. Are we in that stage of it?

HEINER FLASSBECK: Yeah, we're definitely very close. You see if, let me make my example again, if you have a Republican party and a president of the United States who would say, let's imagine for a moment would say, "Well, additional government debt is totally out of world. We have reduced our debt. We will not increase our overall debt level and percentage of GDP." Then the American economy is dead. It's very simple like that. And the American economy will not move or will even go into recession. If it goes in recession the government will have to be active again and have to take on additional debt.

So, this is the permanent game that you have to play. If you don't want to play that then you have to address the companies, as we said before. And you do not have to shy away to really address the critical question, "What are these companies doing with the cash? And is it justified that in a market economy there's so little competition, obviously, that huge corporations are sitting on extraordinary piles of cash and are making profits without being pressured by external competition." So, this is the crucial question you have to face. If you don't face it then sooner or later you go into not market-driven but government-driven economy.

PAUL JAY: Okay. We'll talk more about that next time we get together.

Thanks very much for joining us, Heiner.

HEINER FLASSBECK: Thanks for having me.

PAUL JAY: And thank you for joining us on The Real News Network.




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