What Romney Never Told You, Why Business Is the Problem & Not the Solution
By Shlomo  Maital  

   Dead money

 

  Among the many things candidate Romney never told us, is this:  Business is not the solution to the jobs and unemployment problem, it is more likely the problem.  Here is why.

 

   Companies all over the world, especially American ones, are sitting on mountains of cash —  retained earnings, or undistributed profits, which they simply refuse to invest or spend.   The reason, The Economist says, is four “grey swans” (dangers we know about, unlike black swans, which come as a surprise):  the euro crisis, the Mideast instability, slowdown in China and America’s fiscal cliff. 

   Firms in the S&P 500 held $900 b. in cash at the end of June 2012, 40 per cent above the level in 2008.  American firms’ savings (unspent profit) comprise a bigger fraction of the nation’s total saving than in Germany or China. Apple, for instance, holds hundreds of billions of dollars in cash profits abroad, where they are sheltered from tax.    Japanese companies’ liquid assets total a staggering $2.8 trillion.  “Dead money” (unspent profits), a term invented by the Bank of Canada Governor Mark Carney, amounts to $300 b. in little Canada.  “Put your money to work,” Carney admonished, “if you can’t think of what to do with it, give it back to the shareholders.”

   General Electric alone has $85 b. in cash stockpiled.  Nor will they spend it. “It’s not burning a hole in our pocket,” said GE CEO Jeff Immelt. 

    Why would businesses invest, if they can already produce all the stuff they can sell?  Why would they invest, if they are pessimistic about future scenarios?  Romney never mentioned this, never mentioned that the lack of investment demand is in fact the largest brake on the US economy (and other economies), while government spending and consumer spending are the only things holding the economy up.   Did he have a magic wand for persuading businesses to begin spending their cash?  If so, he never revealed it. 

    Economic momentum is the product of the amount of money times the rate at which it circulates. By keeping their money out of circulation, businesses are slowing the economy’s momentum.   Why not apply a special one-time tax on cumulative retained earnings (as much as a third), while offering a huge tax credit for business capital formation?  

   Somehow that dead money has to be revived.  I wish someone had asked Romney that question, how to do it, in any of the debates.

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