Christmas Shopping Down Turn

Christmas shopping is down in 2004. The experts say it will pick up. Are they right?

Originally published 2004

A Downward Trend

The nightly business news reported that the Thanksgiving Weekend (typically a huge shopping weekend) was a big bust for retailers in 2004. An “expert” predicted that things would pick up though. After all, he said, businesses were showing better profits, and there was still room to increase worker productivity, so he was ready to bet that there will be much more spending before the season is done.

I’ll take that bet. He just doesn’t get it. Most of the financial experts don’t, in fact, because the numbers they’ve depended on for so long are now lying to them.

Why the “Numbers” are Up

Sure, corporate profits are up. But they’re not up because corporations are selling more (which means that people are buying more, which means that the economy is improving). They’re up because corporations are avoiding taxes, laying off employees, and sending jobs offshore! They’re sending millions of dollars to offshore “owners” of their intellectual property, which can’t be taxed, when in reality, the owners are themselves, in their offshore incarnation, and they originally sold the patents and formulas that constitute the intellectual property for a buck — as in one dollar. And they’re further reducing costs with layoffs and outsourcing.

The net result is improved profits. But the profits don’t go into workers’ hands. They don’t even go into investors’ hands. They go into executive perks and corporate investments. The wealth created in the process is concentrated in very few hands, and there’s a limit to how much any one individual can spend.

Meanwhile, the jobs numbers have gone back up a bit. But those numbers are lying to the people that read them, as well. They don’t count people who have stopped receiving unemployment, who have stopped looking for work. More importantly, they don’t count the average wage, so a person working part time for $20 an hour is “employed”, the same as someone working full time for $50 and hour.

In the past, when pay scales were pretty standard, a given number jobs meant that some percentage were low paying, some were high paying, and the rest were in the middle. As jobs went up or down, therefore, the money in consumers hands went up or down an equal amount. So financial analysts could simply look at jobs, and see how the economy was doing.

Not so today. Today, as jobs go over seas and the Walmarts of the world keep people on part time employment so they don’t have to pay for health insurance, job numbers that go up don’t mean the same thing that they once did. Instead of tracking job numbers, we should be tracking an aggegate wage index, say as the number of people employed multiplied by their average wage. That number would give us a better idea of what’s truly happening to the economy.

We don’t have that number, though, so financial analysts are effectively blind.

So along comes the shopping season, and guess what? Shopping is way, way down. But corporate profits are up! Big surprise for the folks reading the numbers. Unfortunately, there’s a feedback effect here. Lack of spending hurts the economy by reducing sales and lowering profits. Corporations then engage in another round of tax avoidance schemes, layoffs, and offshore workers to stem their hemorrhaging profits. Their numbers go up yet again, while the economy continues its trend downward in a vicious spiral.

You see it. I see it. But the financial analysts don’t see it, because the game has changed. The numbers they have depended on for so long don’t tell them what they need to know, so they don’t even see the problem. After all, how can you even begin to correct a problem until you’re aware of it?

Only Luxury Shopping is Up

Clearly, the financial numbers are misleading economists. Better business numbers aren’t translating into a better economy, because the money isn’t showing up in consumer’s pockets.

Now comes an Associated Press article by Anne D’Innocenzio, printed in the Sun, 19 Dec 2004  edition of the S.F. Chronicle. It shows that luxury stores are doing well, but both discount stores and department stores are lagging far, far behind.

Basically, corporate profits are rising while average income falls — which means that executives are being reward handsomely, while others go begging. The resulting concentration of wealth means that haves are well off, while the have nots are becoming penniless. The inevitable result of this trend is a new feudalism — a Corporate Feudalism.

Copyright © 2004-2017, TreeLight PenWorks

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  1. The Systems View, Part II – Financial Markets and Corporate Short-Term Thinking | Treelight.com May 16, 2017 (6:03 pm)

    […] part-time work when nothing else was available. As total wages drop, so does spending power. (See Christmas Shopping Down Turn.) The result, in the long term, is a declining economy that erases the profits generated by their […]

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