Today I’m ranting about today’s news. The business section of the Dallas Morning News reports that Texas Instruments (TI) is cutting 350 jobs. Reading the article this is a result of “synergies” resulting from a $6.5 billion dollar purchase of National Semiconductor Corp. I’m sure that this makes sense for TI and its stockholders. It probably makes sense to TI employees, but not those 350 employees of National Semiconductor. The article mentions that TI will employ 35,000 workers, including 5,300 former National Semiconductor employees. So the cut is quite small (1%) given total employment.
But reading this, I see yet another reason why the Republican contention that taxing corporations and wealthy individuals “cost jobs” and that it is corporations and wealthy individuals who “create jobs.” What in fact happened in this case is that a $6.5 billion in expended corporate assets resulted in the loss of 350 jobs. That’s not a lot in the greater scheme of things, but it still is a negative in terms of getting America back to work. But it is symptomatic of the problem with the Republican argument.
What economists know is that substantial wealth and assets are not being plowed back into the American economy. Much of the couple of trillion dollars in corporate accounts will be used not to create jobs, but to underwrite corporate acquisitions and mergers. Even in the best of cases such acquisitions and mergers do not create jobs, they have the opposite effect–they destroy jobs due to “synergies.” In the worst cases, the “winner” of an acquisition or merger pumps the assets of the victim and then dump it. Generally speaking acquisitions and mergers do not “create” wealth or jobs; innovation is more likely to create wealth and jobs.
Don’t get me wrong. TI is a company with a long history of innovation. Among its pioneering firsts was the transistor and the integrated circuit. It still designs innovative analog and digital devices found everywhere from cell phones to automobiles, from TVs to washing machines. But acquiring National Semiconductor isn’t innovation.
The news did not say how many of those 35,000 TI employees were in the United States. I know that TI has shut down plants in the U.S. and moved operations to Thailand and other countries. That is another problem with the Republican argument. If American Widget moves its plant from the U.S. to Indonesia, it may mean more employment in Indonesia, but less employment in the U.S. When Boeing moves a plant from Washington to South Carolina it may not result in a net loss of American jobs, but it does result in better compensated union jobs going away and being replaced by lower compensated non-union jobs. That is a net loss the the American economy; it tends to exchange middle income workers with low income workers and lower the median standard of living AND to increase income to Boeing executives and stockholders.
The evidence over the past 30 years is that low taxes for corporations and the wealthy do not create jobs. If they did, then we would not have 8+% unemployment in the U.S. “Discretionary dollars” for corporations and wealthy individuals does not go to innovative investments that create jobs. It goes for domestic acquisitions and mergers which destroy jobs. But even worse, it goes to various forms of foreign speculation and investment–like moving a plant from the U.S. to a foreign country. It involves playing games with speculation in foreign currencies.
Let’s consider and example that is also in the news. The Italian government faces a debt crisis. Earlier this week Italian government bonds were getting 7+% interest. The Italian government introduced austerity measures which resulted in the interest on their bonds dropping about 1%. Yes, those bonds are still risky. But they also draw wealth from the U.S. to Italy. Currently U.S. Treasuries are going for about 3%. My bond mutual fund is drawing a bit less. Now if you are wealthy enough to afford to gamble, the return on those Italian bonds is far better than on American bonds. And, of course, for the wealthy, those earnings are not taxed at 35%, they are taxed at 15% or not at all if one leaves those profits in foreign banks. One of the things that is worrying U.S. bank regulators is how heavily invested in those Greek and Italian bonds are American banks–either directly or indirectly through holdings in French and German banks. The regulators acknowledge that should Italy default on its bonds, it would impact American banks and our economy.