Category: Socializing Losses

Monday Wake Up Call – June 29, 2015

Mylan, a generic drug maker based outside Pittsburgh, abandoned its status as a US corporation, gaining tax advantages by moving its headquarters to the Netherlands. The move reduced the taxes the company pays on profits from sales of drugs overseas, but Mylan continues to maintain most of its operations in Pennsylvania.

Mylan was viewed by some in Congress and the Obama administration as a symbol of corporate greed when they undertook a corporate inversion that placed profits above any commitment to its home country.

But now, Mylan is demanding that the US Federal Trade Commission (FTC) protect it from a hostile takeover bid by an Israeli company, Teva Pharmaceuticals. Mylan asked the FTC to examine Teva’s purchase of Mylan stock for possible violation of the requirement that large purchases of stock of US firms must be reviewed by antitrust authorities, because Mylan is still listed on the NYSE. The company claims that its principal office remains in Pennsylvania, which makes it a “US issuer” of stock for federal anti-trust purposes.

The irony of this is not lost in Washington. Rep. Chris Van Hollen (D-MD), the senior Democrat on the House Budget Committee said:

Mylan is trying to have its cake and eat it too…It is an intolerable abuse of a loophole when US corporations pretend they are based overseas in order to get out of paying their fair share and duck their responsibilities to the United States. It’s just plain hypocrisy when one of those same inverted companies claims that it is actually a US company because it needs the special protections US law gives to American companies.

Mylan may have a case. Its plea for help from the US government could pass legal muster but, the optics of a company that abandoned its US citizenship in order to pay less in federal taxes, and then seeking the protection of a federal agency is problematic.

Compounding the farce, Mylan is attempting its own hostile takeover of Perrigo, in order to stave off Teva.

Mylan’s unabashed lack of shame is impressive. Maybe the FTC’s decision-making on this case should take quite a while.

So, wake up Congress, and deal conclusively with corporate inversions! Our wake-up calls for the next few weeks will be songs about summer. We start with the Lovin’ Spoonful’s only #1 hit, “Summer in the City”:

For those who read the Wrongologist in email, you can view the video here.

Monday’s Hot Links:

The return trip often seems shorter than the initial trip, even though the distance traveled and the actual time spent traveling are identical. This is called the “return trip effect”. Two studies say it is real, but you already knew that.

Trucker jobs will be the first casualty of driving robots. Trucker salaries average $40,000/year. Most truck accidents are due to user error: Driving too fast, driving while tired, or driving while intoxicated. Robots don’t drink, don’t get tired, and won’t drive unsafely in order to get to a destination faster. Drivers will still be needed for inner-city driving (at least initially), but most long-haul operations will quickly vanish as soon as licensing is complete in most states.

Three years ago, Saudi Arabia announced a goal of building, by 2032, 41 gigawatts of solar capacity by 2032, slightly more than Germany has today. The Saudis burn about a quarter of the oil they produce—and their domestic consumption has been rising at 7% a year, nearly three times the rate of population growth. According to a British think tank, if this trend continues, domestic consumption could eat into Saudi oil exports by 2021 and make the kingdom a net oil importer by 2038.

Privail Diagnostics, has developed a simple, portable blood test that can detect the HIV virus (not antibodies) for the first time. That means an earlier diagnosis, and reduced infection rates. Privail’s at-home testing device is like a diabetes test, needing only one drop of blood. It shows the results in a color bar, like an at-home pregnancy test or digital output, like a diabetes meter. Invest at your own risk.

Hackers have apparently cracked the computer systems responsible for issuing flight plans to pilots of every airline. The apparent weak link? The flight plan-delivery protocol used by every airline. Ground computers calculate the appropriate flight plan for planes, and someone on ground approves the plan before distributing it to pilots. Pilots receive plans before taking off, as well as enroute, when a change occurs during a flight. Plans are uploaded to planes via a datalink. Once a hacker figures out those protocols, it is possible to issue a bogus flight plan. But, the industry says, not to worry.

Your thought for the week: Giving money to poor people is socialism, or even communism…..giving money to AIG or Goldman Sachs is capitalism, and that’s what made this nation grrrreat!!!

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Socializing The Losses: Part Infinity

The Wrongologist often writes about privatizing profits and socializing losses, a system where businesses and individuals can benefit from the profits earned by their business, while the public gets stuck with the consequences, the long-term bill. Governments all over America play into this, from doing deals to bring or keep jobs in the state, to underwriting the costs of sports areas, to building infrastructure when a new business comes to town.

Here is another object lesson in socializing the losses. Some towns in North Dakota (ND) are beginning to worry about the debt that they have incurred to build infrastructure to support the boom in shale oil production.

Oil Price reports that oil production in ND exploded in the past five years to well over a million barrels/day, making North Dakota the second largest oil producing state in the country. The likely fallout from the recent fall in oil prices may have serious financial side effects for ND’s towns.

Consider Williston, ND, a town in the center of the shale oil patch that finds itself planning for the worst. The town is deciding how to cope with $300 million in debt, money it borrowed to build infrastructure to meet the rapid growth of people and equipment working in the oil patch. That meant building new roads, schools, and a water-treatment plant, all of which were paid for by the city. The debt was expected to be repaid from increased sales and real estate taxes that suddenly may not be flowing into local and state coffers.

Williams County Commissioner Dan Kalil told NPR that he fears the town has overreached and won’t recover quickly, as global demand for oil is expected to grow slowly over the next few years, and shale oil prices may not bounce back to the mid-2014 levels. He may be correct. Production is down about 5% from its all-time high of 1.2 million barrels per day in December 2014. But more declines are expected with drillers pulling rigs and crews from the field. Rig counts in ND have fallen to 76, far below the 130 that state officials believe is needed to keep production flat.

And ND is experiencing the negative side effects of an oil boom. The huge increase in drilling brought a wave of cash and people to once sleepy towns, fueling a boom not only in oil, but also in crime, prostitution, and drug trafficking. Consider that Williston went from a population of 14,000 in the 2010 census to an estimated 24,000 in 2014.

On June 3rd, the US DOJ, in conjunction with ND’s Attorney General, announced the creation of a “strike force” that would target organized crime in the state. The effort is a direct response to the rise in crime in the shale oil field towns in ND and Montana, which has been fueled by:

Dramatic influxes in the population as well as serious crimes, including the importation of pure methamphetamine from Mexico and multi-million dollar fraud and environmental crimes.

Too many people, too much money, too little economic security in the local economy. The weak oil players pull out, and the debt, crime and now unemployment, remain. And the towns and state government have to sweep up after the companies go.

That’s not all. The boom/bust cycle makes estimating the future population of Williston difficult. How many kids and spouses of oil field workers will settle permanently in the area? Does the school district build, or stand pat? Will more classrooms be paid for by more taxes, or will they be a money loser? In a boom, most oil field workers are temporary; towns need permanent residents in order to build schools.

Even if a semblance of the oil boom returns, and Williston attracts more workers who come to stay, Dan Kalil fears another boom would mean even more people, traffic and crime.

So, who pays? The taxpayers. The people who don’t pull out when the companies leave. The people who stay have to cover the hole in the budget, and tolerate fewer services when the money guys hit the road. Williston isn’t Detroit, but in both cases, the little people are left holding the bag.

Once again, a town makes a long-term investment, hoping for a return down the road in the form of increased sales taxes and property tax revenues. They sacrifice quality of life, looking for a return in the form of more and better jobs, and better house values. They pay higher prices for most things.

On the other hand, Williston’s Walmart is hiring at $17/hour.

But when you think about it, that is now a subsistence wage in Williston.

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Why Don’t Low-Wage People Get Better Jobs?

Regarding Tuesday’s post, “More About Taxpayers Subsidizing Corporations“, which deals with taxpayers subsidizing the low-wage employees of restaurant chains, long-time blog reader Kevin asks: “Why don’t the folks who flip burgers go out and get better jobs?” Excellent question.

Two thoughts. First, they should move up whenever possible, and the chart below about restaurant employee turnover should lead us to believe that they do move out, if not up. When it comes to workplace changes, everyone deserves the chance to move up into higher positions and therefore, this will increase the rate of employee turnover. Research from Work Institute has suggested that 22% of turnover was due to career development and a higher chance of job growth. Being able to excel in your chosen career can only happen if these people decide to make this change. But, whether they leave or not, those jobs will remain at or below minimum wage, and the taxpayers will continue to subsidize these restaurant corporations who underpay them. It falls to the social safety net to make up the difference. Take a look at restaurant employee turnover statistics:

Restaurant employee turnover

Source: People Report, a division of TDN2k

The burger flippers turnover is the highest among restaurant hourly employees, and it is growing. These are the people who don’t even get tips, so since employee turnover is the highest where wages are the lowest, it’s the burger flippers who move on. This could also be due to job satisfaction they may feel in the workplace. It could be argued that they do not feel the same level of appreciation within a service profession as they would in an office environment that would buy gifts for employees in order to boost their morale in an attempt to keep them for longer.

A second thought is, what jobs can they move up to? Here is a little background:

The US lost more than 8.84 million private sector jobs in the Great Recession. Now, five years after employment hit bottom in February 2010, private sector employment has returned to prerecession levels. The National Employment Law Project (NELP) indicates in a study that low-wage job creation didn’t just happen in the first phases of the recovery, but today, five years in, job growth is heavily concentrated in lower-wage industries. Lower-wage industries accounted for 22% of job losses during the recession, but 44% of employment growth.

Worse, low-wage jobs account for 100% of the net job growth in the economy. Today NELP reports that there are:

• 958,000 fewer mid-wage jobs than at the start of the recession
• 976,000 fewer high-wage jobs than in 2008

The National Restaurant Association’s 2015 economic forecast says the restaurant industry in 2014 added 1,000 jobs per day. It is projected to provide a record 14 million jobs in 2015.

So, where do the motivated, striving burger flippers go?

The glibertarians say the burger flippers should work hard, save money from their minimum wage jobs, get a better education, and move on to a higher paying job, maybe in an office or a laboratory. OK, that’s possible for some.

They say that Mr. Market determines what the value of a burger-flipping job should be. And, if it isn’t a living wage, the burger flipper should study some more.

But when they move on, odds are that they will move to another low-wage job, more likely than not, in the restaurant industry.

And regardless of what new low-wage job they take, the taxpayers’ subsidy of the Corporatists will continue.

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