A Story for May Day: The Fed, Apple, and Trickle-Down Economics

The Fed’s policy of keeping interest rates near zero is another form of trickle-down economics.

For evidence, look no further than Apple’s decision to borrow a whopping $17 billion and turn it over to its investors in the form of dividends and stock buy-backs.

Apple is already sitting on $145 billion. But with interest rates so low, it’s cheaper to borrow. This also lets Apple avoid U.S. taxes on its cash horde socked away overseas where taxes are lower.

Other big companies are doing much the same on a smaller scale.

Who gains from all this? The richest 10 percent of Americans who own 90 percent of all shares of stock.

But little or nothing is trickling down. The average American can’t borrow at nearly the low rates Apple or any other big company can. Most Americans no longer have a credit rating that allows them to borrow much of anything.

It would be one thing if Apple and other giant companies were borrowing in order to expand operations and create new jobs. But that’s not what’s going on. Apple, remember, is still sitting on $145 billion.

The reason big companies aren’t creating more jobs is consumers aren’t buying enough to justify the expansion. And government is cutting back on spending.

Big corporations are borrowing simply in order to push stock prices up and reward their investors.

It’s a sump pump with the Fed on one end buying up bonds to keep interest rates low, and shareholders on the other end raking in the returns.

Get it? Easy money from the Fed can’t get the economy out of first gear when the rest of government is in reverse.

Trickle-down economics is the first cousin of austerity economics. Austerity is nuts when so many millions are out of work. And as we’ve learned before, trickle-down is a fraud. Nothing ever trickles down.

This piece is cross-posted from Robert Reich.org with permission.

7 Responses to "A Story for May Day: The Fed, Apple, and Trickle-Down Economics"

  1. carlyle   May 5, 2013 at 5:08 pm

    The opposite of "trickle down" is ' push up". An easy way to get a push up is to make a radical increase in the minimum wage. The minimum wage is the base of all wages in the country.Many fast food and hospitality companies pay the minimum. Employers that want a more permanent work force pay a little more than the minimum wage and give promotions to take their employees a dollar or so above the minimum. A significant increase in the minimum wage will push up all wages.
    Walmart, that sets the wage or at least holds back all wages in the retail industry hires employees at eight dollars and gradually gets them up to ten or eleven dollars. A three dollar increase in the minimum wage would have Walmart hiring at eleven dollars and all the companies that compete with Walmart could give their employees a raise.
    A three dollar minimum wage increase and the push up effect may even increase the median wage for all Americans by fifty cents to a dollar. One hundred fifty million workers with thirty five dollars more a week will pump up the economy and drive many off food stamps, and off the poverty rolls.

    • Robert Patterson   May 7, 2013 at 12:31 pm

      I disagree with your statement that a raise in the minimum wage at WalMart would force a significant number of companiies to raise their wages. When Henry Ford offered a substanial wage premium, he did not attract workers from his competitors, but hordes of farm workers., And a rise in the minimum wage would result in companies reducing the number of jobs to keep their total labor expenditures at the same level. That is how they think. Remember what happened when medial insurance cost started to climb exponentialy?

      • carlyle   May 7, 2013 at 10:00 pm

        A large increase in the minimum wage would not force Walmart's retail competitors to increase their wages but would allow them room for an increase. Every retail company in America competes in some degree with Walmart and Walmart, as the eight hundred pound gorilla sets retail wages.
        California food chains took a strike to beat off the unions prior to Walmarts coming. They knew what Walmart meant to them and had to fight to keep labor costs down with Walmart competition. Walmart in effect sets wage levels for most of the entry level jobs in the country. Walmart is the largest private employer in America, it used to be General Motors. Those were the days.

  2. Robert Patterson   May 7, 2013 at 1:12 pm

    In my experience, companies have been expanding at a tremendous rate overseas. For example, just in China, both Intel Corp.(new tech – four plants, plus an R&D center) and Cabot Corp. (old tech- four plants) have made massive investments. You also seem to be ignoring the "investment by proxy". Using contracts to local entities to enable them to build plants (under customer supervision and specifications). As soon as the plant costs are amortized (including generous subsidies from local governments), it is easy to relocate. You just start over in a new location with the same plan. With easy credit, you can avoid the threat of local goverrnment actions regarding wages, taxes and siezure. You can even avoid the likelihood that local conditions may increase wages, and chase the lowest labor costs without moving a single piece of equipment. And add to those attractions the fact that no local employee or entity can reasonably take any sort of action against the customer company, (usually with the cooperation of the local government).

  3. Robert Patterson   May 7, 2013 at 1:13 pm

    Were you aware the WalMart licensed the General Electic name and logo for small appliances, put prodution of such small appliances out to bid in China, and then markets them as GE items in their stores? Check out their "GE" toasters.

  4. Allan   May 9, 2013 at 12:03 pm

    Raising the minimum wage will likely put more people out of jobs. Instead of paying the min wage worker an extra 3 dollars/hr the employer would be better off paying another worker who earned a bit more than the min wage a little more and getting him/her to do the work. In this environment, who would refuse the extra work?

    • carlyle   May 9, 2013 at 8:52 pm

      Overtime is a federal labor law and time and a half pay is currently required. Of course an employer can change methods, train employees or even get new equipment to keep labor cost down.
      Perhaps our desire for cheap labor is a drag on the economy. There is some chance that trading high paying manufacturing jobs for low paying service economy jobs may be holding up the recovery, the slowest ever.
      If American workers earn less now than they did then, how is the economy going to grow?