The United States of Accounting Fraud

Recently, Robert Z. Lawrence, Fellow at the Peterson Institute for International Economics published a report titled, 'Blue Collar Blues: Is Trade to Blame for Rising US Income Inequality'.  After watching the video of the presentation on the report, it appears to be a classical example that proves the point:

Economics is the art of selection of the variables one needs to make a political case when the objective is counterintuitive to simple logic and common sense.

It’s a rather perverse treat to listen to him because his logic is so incredibly tortured.   And I especially enjoyed watching the Svengali hand gestures - Lawrence must have taken lessons from David Copperfield because he's good.  Watch his hands - especially when he does that palms up, wiggling finger thing.  He uses that at points when what he is saying makes no sense whatsoever.  It's a difficult job to argue against obvious evidence to the contrary - that it is your own lying eyes that are deceiving you so I suppose he should get an ‘E’ for effort. 

Rather than listen to the detail of what Robert Lawrence is trying to prove to you, pay attention to the types of data he chooses to include in his analysis, the timing of the selected data, how he relates it to other data and listen carefully to the conclusions he draws from it.   Then apply your own common sense and you'll see the misrepresentations in his every word. 

First, it is an absurd proposition that you can analyze the relative benefits or negative impact of ‘free trade’ as it is implemented using worker wages in isolation.   In fact, the way that most ‘free traitor’ economists analyze the impact of ‘free trade’ is absurd even apart from Robert Lawrence’s ‘new thinking’.   When these economists present data showing how great ‘free trade’ is for the economy, they are using profits reported in this country from sales which excludes their costs for production and administration which are in a different country.   It is accounting and intellectual fraud to pretend to do an analysis on trade impact when only selective data is included and the scope of the alleged analysis excludes the full measure of the context.  They also mix and match statistics for manufacturing (products) vs services sometimes changing subjects without even drawing a breath.  


The sales and profits earned from offshore production and administration shouldn’t be included in any calculations that include worker productivity or income distribution in this country.  When you have shrinking market sectors (manufacturing AND Information Technology Services) due to offshoring and skyrocketing profits from sales, the real effect on the U.S. economy is a net drain.   The impact of the net drain is masked by the spreading of profits from sales over U.S. domestic production and income statistics except as it pertains to the isolated costs of selling and transportation of goods.  The drain on the economy is evident in the current account deficit which reflects the balance of trade payments.  The U.S. is going deeper in the hole by nearly a trillion dollars per year.     The size of deficit indicates a structural defect in U.S. trade policy so the questions an economist should be asking is "who is getting the money reflected in the trade deficit and why does the deficit exist?'


Getting back to Robert Lawrence’s presentation, it is so Chock Full O’ Crap that one could spend a week pulling it apart to highlight the deceptions and distortions so I’ll just cover a couple of issues.  Since the objective of economics is to make a political point, you can always take their conclusions and backtrack to analyze what statistics they used to make their case that leads to the conclusion.     


During the synthesis of his presentation he said the following:   

“Profits are the third part of the story.  As I will elaborate in a moment, actually, over the period - for two decades from 1981 until 2000 basically there was no increase in the share of profits in GNP.  It has a cyclical volatility but no big increase.   Since 2000, the big story in inequality  is profits and it’s because - heavily in my view,  this is a cyclical phenomenon and normally what we see is that during recessions, wages are sticky  and basically, profits are very volatile so labor’s share rises in the course of the recovery, what we see is that the profits recover and so profit shares rise once the recovery matures - hopefully we can keep people working for long enough then the wages catch up.” 


It appears that he’s contradicted himself with the mention of ‘business cycles’.  But actually, he hasn’t.  He just neglected to mention what cycle he is talking about in each case because to do so would completely blow his case out of the water. 

Between 1981 and 2000, those were normal U.S. business cycles.  In 1995, the United States ascended to the World Trade Organization with the signing of the Uruguay Trade Round.  The Uruguay Trade Round included Generalized Trade in Services (GATS) - which translates to ‘free trade’ in services - meaning trade in people and service jobs.  

Between 1995 and 2000, Harris Miller, then CEO of the Information Technology Association of America (ITAA) worked with Indians (east) to establish the infrastructure and training facilities needed for Indian workers to take the exported Information Technology jobs from the American economy.  Those service jobs included not just call center jobs as the propaganda claims - they included software programming and engineering jobs which was the real focus of the ITAA.   Now, if you consider that the average wage of an American programmer was about $70,000 compared to around $5,000 to $7,000 for an Indian programmer, that’s where you find the skyrocketing profits following the year 2000 - some of which reached levels as high as 60% increases in the financial sectors such as insurance where they are heavily dependent on information.   Each job exported netted the company a roughly $60,000 increase in profits and that’s just on wages.  Other overhead costs like health benefits, taxes etc.  would add conservatively, 15% or so on top of the $60,000.    

The second business cycle that Lawrence called a “cyclical phenomenon”  when he said the big story was profits - was actually first cycle of a whole new operating environment for the U.S. economy.  It is the cycle of profits earned from destroying the white collar labor market of the U.S. economy through the exportation of jobs.  Except that it’s not going to be a cycle where there is a recovery and worker’s wages catch up - because the increase in profits from the exports of those jobs was essentially one time for the corporation and a permanent loss to the U.S. economy.   Corporate profits will level out over a few years time, and using Lawrence’s method of just looking at worker wages - without looking at the aggregate number of workers in the category, it will appear that he was right - that it was just another business cycle. This is the means by which the wealth of the American middle class and of the U.S. economy as a whole is being transferred to the bank accounts of multinational corporations and shareholders as well as the fractional benefit that the foreign country and workers are allocated from it. 

The proof of the loss to the United States economy came in a House Budget committee hearing in 2004 when the CBO finally compiled the tax revenue data for 2001.   According to Congressman John Spratt, tax revenues were at their lowest point since the 1950’s.   This is not rocket science.  If you export jobs, it’s not only the American worker that loses.  The tax base is exported with the job - and since the Congress is always in deficit spending anyway, the export of jobs increases the deficit and diminishes U.S. prospects as a first world country for the future. 

When one considers the price differential between Indian wages and American wages, there simply is no argument that trade is to blame for rising U.S. income inequality and it is a result of the exportation of high value knowledge jobs in addition to manufacturing - leaving the United States with a hollowed out economy of sales jobs, retail jobs and transportation jobs - none of which produce anything of value to sell on the global market.

As a demonstration of how the external factors affect economic analysis, look at this diagram that Lawrence used in his presentation and in particular that nearly vertical line beginning in 1992:
In a different part of the presentation and in a different context, Lawrence tells us that  executive stock options when exercised, count as wages for tax purposes. 



The tax law was changed in 1992.  I know because I redesigned and rewrote the Keyman Stock Option Grant system for a major corporation to accommodate the tax law change in 1992.  Keymen are the corporate officers and they get hundreds of thousands of stock options issued in a grant so there

is every incentive to inflate the value of the stock - to increase their compensation.  As a side issue, when exercised, these stock options devalue the existing shareholder stock - transferring it to the pockets of the Keymen - making virtually all holders of stock in the United States... suckers to be fleeced.  

But for the purposes of looking at the issue of trade and Robert Lawrence's presentation, it's important to look at the 'coincidence of timing' for when those stock options were exercised - the dot.con boom of the mid 90's coincided with the set up for the export of white collar, knowledge jobs to India.  After 2000 when the dot.con boom went bust, that's when the real corporate profits started rolling in and it was due to the export of the knowledge jobs to India but - because of the timing of government information on tax receipts, again, the impact on the white collar labor market was not known until 2004.  And for the purposes of economists doing presentations like Robert Lawrence, they only look at economic changes over time... so the huge increases in wage compensation for the keymen, masks the income losses to the American white collar work force. 

We're going to have to change the name of this country.... to the United States of Accounting Fraud. 

I can't really finish this now because I'm sick to my stomach. 

Robert Lawrence's agenda is to support the corporate elite agenda of continued decimation of our economy through the fraud of free trade.  Their solution to wage inequality is to drive down the wages of white collar workers and to eventually break the back of the American middle class.   The ultimate goal is the return to a feudal system of the ultra super rich, and the poor - enslaved by an economic system that provides no opportunity to escape poverty - unless you are selected as a show dog for the American Dream propaganda.

The rising cost of health care is also due to accounting fraud and it's being done to make the option of universal health care mandatory.  Because these megacorporations have to continue to grow, they have to keep cannibalizing everything to keep profits flowing into the bottomless pit of the corporate coffers.  Once there is a single payer system, they can control who gets medical care and what type of care they will get.  Basically, you can count on getting a brochure that tells you to eat your broccoli. 

The other objective is to break the American school system and privatize it - not for purposes of increasing quality.  Rather it's  because it's a cash cow waiting to be milked and for the social change agents, the purpose is the control of knowledge, social conditioning and the behavioral control that comes from having a planned and controlled economic system (aka communist). 

End of Story.   Actually, there is more to the agenda but this is enough for now. 

Oh... and if you were wondering about the title of this commentary.  It makes as much sense as Robert Lawrence's presentation.. so there you have it.