The Fruit Company

Guest Post by starfcker

Tired of listening to all the paid for economist shills such as Hilsenrath, Krugman, Zandi, pretending to not understand why our economy doesn’t take off? They understand. The function of our economy is a simple thing. And if you have been confused by their attempts to confuse you, this should simplify your understanding of how our economy worked, when it was working. I’ll give it two quick stories, and class will be over.

First, a real life example. I had a cash sale one day. quite rare for a wholesale business. The gentleman paid for his purchase with three 100 dollar bills. I immediately took the money and paid a man that I owed. The next morning, that guy went to another friend of mine’s business, and spent the same three hundred dollar bills. That friend went and paid his property taxes that afternoon in cash, including those same three hundred dollar bills. in less than 24 hours, that $300 had skipped through four sets of hands before ending up in the tax assessor’s office.

If you ever hear terms like velocity of money, and multiplier effect, this is what those terms mean. That $300 got spent 4 times in 24 hours, so it actually counted as $1200 in business activity, GDP, whatever you want to call it. So the multiplier was x 4, in a mere 24 hours. Let’s just call it a week, multiply that $1200. x 52. Even weekly, at that rate, those measly three 100 dollar bills could multiply to over $62,000. a year. And everybody got their piece of that pie through effort, by getting out there and chasing it, no redistribution necessary. And that’s just one example, and a tiny example at that.

Let’s take a second example. I’m going to make this one up. What if you had a giant publicly traded multinational company, let’s call it the Fruit Company. What if, the Fruit Company had all of its factories overseas, chock full to the brim with slaves, so they didn’t have the burden of wages? What if, the Fruit Company structured its business so it appeared as if all its profits were from its overseas operations, so it paid no taxes? What if, the Fruit Company shafted its owners, the shareholders, and didn’t want to pay dividends? And what if the government that hosted the fruit company’s operations, gave the young and dumb, gigantic, un-payable loans to buy the fruit companies products? And let’s just say the Fruit Company could borrow at virtually no cost, as much money as they desired to pay their bills. And what if, despite all that, the Fruit Company was given access to the greatest consumer market in the world tariff free?

Well, you might end up with a situation where the Fruit Company would begin to stack up unimaginable amounts of money, since most of the costs businesses face have been eliminated. So, let’s just say the Fruit Company stacked up more money than any company ever in the history of the world. I’m going to keep my numbers round, just so this is easy. Let’s pick a big number say, 200 billion dollars. Good for them, right? Wrong. Companies like the Fruit Company would indeed kill the goose that lays the golden eggs. Think about how a real company might operate in a real world economy. Let’s just say the Fruit Company paid taxes at a rate of 25% on that money. You may or may not think that’s a good thing, but that’s 50 billion dollars helping to fund the operation of our country.

Let’s just say the Fruit Company paid out 50 billion of those dollars in dividends to its owners the shareholders. I mean think about it, who owns that money, the fruits that run the place, or the shareholders? I always hear the worn trope, corporations exist to make their shareholders money, no other reason. Not my opinion, but for the sake of this argument, ok, whatever. And what if instead of having slaves, the Fruit Company actually paid people to build its products. Let’s just say they spent 50 billion of those dollars on wages. Let”s just say the average Fruit Company working stiff made 20 bucks an hour, or 40 grand a year. Do you realize that 50 billion would pay 62,500 people 40 grand a year for 20 years? 40 grand a year is enough to buy a home and raise a family. We wouldn’t have to bicker about the minimum wage, would we? And at the end of this onslaught of taxes, dividends, and wages, the Fruit Company would still have 50,000 million dollars left of idle cash just sitting in the bank. No velocity or multiplier happening there. But Hilsenrath doesn’t think you should save.

In the meantime take all those taxes, dividends, and wages and start putting a multiplier to them the way I did with my three 100 dollar bills. Remember, now we’re talking about 150,000 million dollars. Do you think a multiplier of that money might help our economy? This is only one imaginary company . Look at the damage this sort of behavior would do to the actual functioning of our economy. Ok, enough fairy tale. In real life,there is such a thing as a fortune 500. I’m sure they don’t all have 200 billion dollars sitting in the bank, but they certainly could all be contributing to the American economy in ways that they currently choose not to. Economic treason, i believe Pat Buchanan called it. So, if you ever wonder why our economy doesn’t work, think of my three 100 dollar bills and my imaginary Fruit Company.

Any questions?