The way a free market works that I learned long ago in Economics class is the people that put up the money hire managers for the business and the managers hire labor. The three legs of this stool have roughly equal bargaining power so are able to work out an agreement that allows them all to profit from the enterprise.
This idealistic theoretical notion has never worked very well in modern reality for labor absent strong unions and in modern life large business enterprises that dominate the economy also have disenfranchised ownership somewhat. In large business enterprises managers have developed disproportionate power. Ownership is diffuse and inattentive. Corporate management has become an exclusive club that looks after its own. Every Corporation is run by a Board of Directors composed mostly of top managers from other corporations. The Board of Directors govern how much top managers get paid, and often the road to becoming a member of the board of directors is through management. Since shareholder power is diffuse and difficult to organize the typical Board of Directors is pretty free to run the company as they see fit. And the evidence suggests for the last 20 years or so they seem to believe that showering money on their fellow club members is the best was to run the company.
Financial publications like the Economist have been noting for years the extraordinary rise of wages for corporate management in the United States. This isn't because companies are rewarding managers who have performed spectacularly, raising their company above all of their competitors, after the fact. Its all top managers. Management that run companies into bankruptcy got multi-millions in annual compensation, then make millions more with their golden parachutes. Managers whose companies muddle along in the middle of the pack of competitors make millions of dollars.
Government has failed to structure financial incentives in a manner that keeps the relative power of owners, managers and workers in alignment.
Evidence for this theory?
Even in this recession big corporations are making piles of money. But neither owners nor workers are benefiting.
Owners get little - big Corporations pay peanuts in dividends to their shareholders (the owners), many tech corporations don't even pay dividends. The only way to make money on stocks is by clever buying and selling of stocks, there is little money to be made in the next decade or so by buying and holding stocks since decades of rising stock prices have pushed stock prices well above their historical averages. When you do own a stock you face the risk management is pursuing short term policies to pump up stock prices so they can pay themselves millions, even though they are destroying the long term viability of the corporation. How many corporate bankruptcies in the last couple years have been accompanied by news of corporate CEO's parachuting out with their multi-million dollar severance packages?
Workers are perhaps the biggest losers. Managers use the Company's financial clout to undermine the bargaining power of workers. Managers use the threat of job loss to drive down wages for workers, then lay them off anyway to ship production overseas.
The law has been twisted to coddle this form of crony capitalism that is hollowing out our middle class and enriching anybody who can glad hand their way into the club. Management has used the financial power of the corporations to control the political debate in this country and set the rules in their favor. Their influence sends the US military around the globe to protect the commercial interests of large business enterprises on borrowed money they want taxpayers to repay. When big enterprises make stupid mistakes they get bailed out by Government, or run into the bankruptcy court to dump losses on investors, suppliers and workers, but I have never heard of a bankruptcy court requiring top management to return some of their salary. Corporations pour money into candidates who protect the ability of wealthy folks to make as much money as possible from large business enterprises at the expense of security for old working people. They undermine efforts at reforming our ridiculously expensive and inefficient private health care system.
Crony Capitalism will always be with us. Business will always largely be run by those among us who are the most obsessed with money, status and their own self interest. They will never control their own tendency to choose what is best for them in the short term. Their cleverness, energy and ambition can be a benefit to all, but we need to channel it.
That is government's job - to set rules that insure a fair and prosperous future for all. Government best tool for controlling business excess is not through dictating how business behaves, Governments role is to structure the law in a manner that aligns financial incentives away from short term get rich quick thinking and maintains a balance of power between the stakeholders. For example:
1. To re-balance the power of owners and management government should create a graduated tax structure for corporate taxation. Companies with fairly flat compensation plans that spread wealth broadly across the whole range of employees pay lower taxes than companies that are used to enrich the top management. Use a mean, median and mode test that will insure the Board of Directors won't be able to indulge in handing out excessive compensation to management without bumping up the Corporate tax rate - with all the negative ramifications that will have on the stock price and corporate profitability. So in the end the market of owners will have the power to control managers.
2. To remove the extraordinary political power management has developed through the use of corporate funds, we have to make an end run around the nonsense notion that the Supreme Court has burdened us with that Corporations have the same rights as people under the Constitution. Corporations don't exist in nature, they are created by law. Congress could pass a law linking the limited liability that makes Corporations such a valuable tool for business to limitations on political activities. So if a corporation wants to engage in political activism the owners and/or managers are no longer exempt from personal liability for any damages they cause in their business activities.
3. Restructure the personal income tax law to go back to something like the 1954 tax code. Lots of marginal tax rates, some so high as to be confiscatory as a disincentive to folks seeking to pad their pockets through corporate cronyism. Then allow companies to create a "stock trust" for their executives, where as compensation to entice good performance the Board of Directors can reward managers by depositing a special class of stock into trust for the managers that is lower priority than regular stock and the first wiped out in bankruptcy. The trust holds the stock until 5 years after the manager leaves or retires at which point it can be transferred directly to the retired manager as ordinary common stock. The goal is to align the managers self interest with the long term interests of the company.
4. Reform the Bankruptcy Code to make top managements perks as vulnerable as labor retirement obligations, and/or make bankruptcy automatic anytime top management does not to fully fund promised worker wage or retirement obligations.
Monday, December 26, 2011
Monday, December 19, 2011
Crossroads for Occupy Wall Street
All social movements began as an effort to get peoples attention, to mobilize people to address some problem that has not been on the agenda of the powers that be. Appealing to emotion and physical involvement are crucial in this stage. Emotion is our motivator, without it we tend to do nothing, so marches, rallies, and other events where people of like mind can gather and emotionally connect are crucial.
But emotion is a beast that sometimes can be hard to corral. Emotion is a real problem because when any of us has a emotional belief something is correct it is very difficult to change that belief through logic without something bad happening first to counteract the strong emotional link associated with the belief. The Tea Party movement turned emotion loose a couple years ago and has made no attempt to rein in the emotion. They rode emotion, reveled in it, celebrated inflammatory, accusatory speech, encouraged the view that those that were not with them were evil or diabolical. The short term final result is still in doubt but it appears to me the Tea Party emotional indulgence has, for the longer term, pulled the Republican party into a groupthink trap that is moving them down the road toward electoral irrelevance.
The Civil Rights movement is a great example of a movement the corralled and controlled emotion. It had leaders that recognized that though emotion gets the ball rolling, it is facts, logic and - perhaps most importantly - restraint - even in the face of provocation - that swings public opinion to the point where the movements goals become public opinion.
The anti-war movement of the Vietnam years never developed leaders with that level of intellectual sophistication. In my estimation the anti-war movement of the 60's and early 70's was an abject failure. Even though they had really valid points about the Viet-nam war, the movement never went beyond emotion. They vilified those that disagreed with them. They were so self-rightous they had no problem inconveniencing everybody else to indulge their desire to vent their anger. The riot their confrontations sparked in Chicago in 1968 crippled the Democratic Party - handing the Presidency to the man they loathed, Richard Nixon. In the end the war ended in 1975 more despite the anti-war movement than because of it. The war had gone on so long the average voters realized it was crippling the economy, accomplishing nothing, and killing thousands of our young people. I believe the anti-war movement, in the end, probably made the war last longer because for the decade the movement existed many voters focused more attention on the negative emotions they experienced from the movements self-indulgent tactics than on the facts that demonstrated the war was not a wise course of action.
I think Occupy Wall Street is at a crossroads. A broad agreement that extends even into parts of the Republican party supports most of their basic points, but they do not seem to have developed the leadership that can channel their energy in positive and respectful directions. The anarchy of the movements leadership is very much like the deliberate anarchy that the anti-war protests embraced so enthusiastically back in the 1960's.
I think Occupy Wall Street has done a marvelous job of piercing through the political slogans the politicians infatuated with wealthy people have used for years to prevent serious discussion of economic issues. But when OWS shut down the Port of Oakland all I could think was "what purpose did that serve beyond gratifying their sense of power because they could do it?" They deprived a lot of working folk of work, inconvenienced thousands of citizens of Oakland and the only thing the shut down accomplished that I can see was to gratify their sense of importance. The image that pops into my head is a grown up version of a kid flopping around in the Supermarket aisle throwing a tantrum because Mom won't buy the sugar cereal the kid wants.
They are in danger of terminal group think, they all hang around talking to each other all day and are becoming oblivious to the wider world. Occupy Wall Street, if it developed some real leadership who understand the public relations value of restraint could turn this country around. But if they degenerate into a self indulgent obstructionist movement, they could help the existing order survive for years longer than it otherwise would.
But emotion is a beast that sometimes can be hard to corral. Emotion is a real problem because when any of us has a emotional belief something is correct it is very difficult to change that belief through logic without something bad happening first to counteract the strong emotional link associated with the belief. The Tea Party movement turned emotion loose a couple years ago and has made no attempt to rein in the emotion. They rode emotion, reveled in it, celebrated inflammatory, accusatory speech, encouraged the view that those that were not with them were evil or diabolical. The short term final result is still in doubt but it appears to me the Tea Party emotional indulgence has, for the longer term, pulled the Republican party into a groupthink trap that is moving them down the road toward electoral irrelevance.
The Civil Rights movement is a great example of a movement the corralled and controlled emotion. It had leaders that recognized that though emotion gets the ball rolling, it is facts, logic and - perhaps most importantly - restraint - even in the face of provocation - that swings public opinion to the point where the movements goals become public opinion.
The anti-war movement of the Vietnam years never developed leaders with that level of intellectual sophistication. In my estimation the anti-war movement of the 60's and early 70's was an abject failure. Even though they had really valid points about the Viet-nam war, the movement never went beyond emotion. They vilified those that disagreed with them. They were so self-rightous they had no problem inconveniencing everybody else to indulge their desire to vent their anger. The riot their confrontations sparked in Chicago in 1968 crippled the Democratic Party - handing the Presidency to the man they loathed, Richard Nixon. In the end the war ended in 1975 more despite the anti-war movement than because of it. The war had gone on so long the average voters realized it was crippling the economy, accomplishing nothing, and killing thousands of our young people. I believe the anti-war movement, in the end, probably made the war last longer because for the decade the movement existed many voters focused more attention on the negative emotions they experienced from the movements self-indulgent tactics than on the facts that demonstrated the war was not a wise course of action.
I think Occupy Wall Street is at a crossroads. A broad agreement that extends even into parts of the Republican party supports most of their basic points, but they do not seem to have developed the leadership that can channel their energy in positive and respectful directions. The anarchy of the movements leadership is very much like the deliberate anarchy that the anti-war protests embraced so enthusiastically back in the 1960's.
I think Occupy Wall Street has done a marvelous job of piercing through the political slogans the politicians infatuated with wealthy people have used for years to prevent serious discussion of economic issues. But when OWS shut down the Port of Oakland all I could think was "what purpose did that serve beyond gratifying their sense of power because they could do it?" They deprived a lot of working folk of work, inconvenienced thousands of citizens of Oakland and the only thing the shut down accomplished that I can see was to gratify their sense of importance. The image that pops into my head is a grown up version of a kid flopping around in the Supermarket aisle throwing a tantrum because Mom won't buy the sugar cereal the kid wants.
They are in danger of terminal group think, they all hang around talking to each other all day and are becoming oblivious to the wider world. Occupy Wall Street, if it developed some real leadership who understand the public relations value of restraint could turn this country around. But if they degenerate into a self indulgent obstructionist movement, they could help the existing order survive for years longer than it otherwise would.
Thursday, December 15, 2011
Does Government do housing finance better than the private sector?
In my adult lifetime we have had two financial blow ups in the private housing finance market. The Savings and Loan debacle in the 1980's cost taxpayers somewhere around 700 billion dollars. The final tab for the more recent blow up is still in doubt but it could cost the taxpayers trillions, but for the sake of making a point I will conservatively estimate it will cost at least as much as the 1980's event. So in the last 40 years taxpayers have been dinged for at least 1.4 trillion dollars to bail out private housing financiers.
That of course doesn't consider the cost of the lost economic output, the dislocation in millions of lives from foreclosures, and the ongoing cost to people trapped in underwater mortgages.
On the other hand...
Ever since at least WW II, maybe before, California has had a stand alone home loan program for Veterans. As far as I know it never cost taxpayers a dime. Unlike most Federal programs California's program doesn't create screwball public private partnerships that guarantee loans made by private lenders. Instead California issues bonds, then uses the money from the bond sales to make loans directly to veterans to buy a home. The Veterans mortgage payments are used to repay the bondholders. The program has plugged along for at least 60 years putting a lot of people into homes without any cost to taxpayers.
Hmmm......seems to me the evidence would suggest that direct government financing of home loans is a pretty safe and sane way to help people buy homes.
I know some of my Republican friends are jumping up and down thinking "what about Fannie Mae and Freddie Mac - they are government programs that were a big part of the problem in the current housing collapse". Well, Fannie Mae and Freddie Mac aren't really government programs - they are both "public-private partnerships" - those designed by committee entities that usually end up exhibiting the worst characteristics of the constituent parts. Fannie Mae and Freddie Mac are not owned by the government, they are owned by stockholders, government just guarantee's them against any loss. So with Government guaranteeing they won't lose money, the stockholders and management of Fannie-Mae and Freddie Mace got greedy and went out and took crazy risks.
I think a government direct lending program that uses the power of governments to sell bonds and provide tax free returns could play a big part in bringing the housing market back to some degree of health. Perhaps the best solution would be a program that operated at the city level, where the city can take an equity interest for a reduced mortgage payment in cases where the people want to stay in the home but are underwater.
This is a constructive goal occupy Wall Street could take on. Making big banks irrelevant.
That of course doesn't consider the cost of the lost economic output, the dislocation in millions of lives from foreclosures, and the ongoing cost to people trapped in underwater mortgages.
On the other hand...
Ever since at least WW II, maybe before, California has had a stand alone home loan program for Veterans. As far as I know it never cost taxpayers a dime. Unlike most Federal programs California's program doesn't create screwball public private partnerships that guarantee loans made by private lenders. Instead California issues bonds, then uses the money from the bond sales to make loans directly to veterans to buy a home. The Veterans mortgage payments are used to repay the bondholders. The program has plugged along for at least 60 years putting a lot of people into homes without any cost to taxpayers.
Hmmm......seems to me the evidence would suggest that direct government financing of home loans is a pretty safe and sane way to help people buy homes.
I know some of my Republican friends are jumping up and down thinking "what about Fannie Mae and Freddie Mac - they are government programs that were a big part of the problem in the current housing collapse". Well, Fannie Mae and Freddie Mac aren't really government programs - they are both "public-private partnerships" - those designed by committee entities that usually end up exhibiting the worst characteristics of the constituent parts. Fannie Mae and Freddie Mac are not owned by the government, they are owned by stockholders, government just guarantee's them against any loss. So with Government guaranteeing they won't lose money, the stockholders and management of Fannie-Mae and Freddie Mace got greedy and went out and took crazy risks.
I think a government direct lending program that uses the power of governments to sell bonds and provide tax free returns could play a big part in bringing the housing market back to some degree of health. Perhaps the best solution would be a program that operated at the city level, where the city can take an equity interest for a reduced mortgage payment in cases where the people want to stay in the home but are underwater.
This is a constructive goal occupy Wall Street could take on. Making big banks irrelevant.
Friday, December 9, 2011
The Melting Pot and Income Disparity
I read an item recently (didn't note the source unfortunately) suggesting that income inequality correlates with the homogeneity of a countries population. The more homogeneous, the less income inequality, the more diverse the greater the income inequality. It is an interesting notion. When we feel like our countrymen are like us we are more inclined to insure that everyone gets a piece of the pie. When we start dividing ourselves in different "tribes" on political and ethnic lines we become less concerned about other American "tribes" and more of a winner take all society.
Looking back over more recent American history certainly doesn't contradict this theory. The last time income disparity became so glaring was in the 1920's leading up to the great depression. The decades before 1920 had been marked by a huge wave of immigration that filled our cities with ethnic enclaves and politically often faced off city dwellers against the largely home grown rural and small town folk.
Then the income disparity shrunk greatly after WW II. Perhaps the war effort made people become American's first and all the political and ethnic divisions faded in significance? Guys from all parts of the country, all ethnic and political views bunking next to each other in the barracks, or sharing a foxhole, can certainly break town tribal instincts.
The high levels of income disparity disappeared in the years after WW II. Clearly there was a different attitude then as the tax code imposed marginal rates of up to 90% on the most wealthy Americans as part of the effort to pay off the deficit from WW II and the great depression. The capstone of this tax effort occurred with the 1954 tax code passed by Congress which was, amazingly, passed during the only session between 1932 and 2000 where the Republicans controlled both houses of Congress and the Presidency. (Clearly the Republican party of 1954 was not the Republican party of 2011). Income disparity was then relatively low for the next couple decades - it began to grow again in the late 1970's, and accelerated greatly in the 1990's and 2000's, a time when immigration has become a hugely controversial issue and politics is bitterly partisan.
Why don't we maintain institutional memory - why do we have such different attitudes today than we did in after WW II? Probably because each new generation starts from our brains tendency to break the world in groups of us and them. Until each new generation has some learning experience to teach them the value of inclusiveness they see others outside their immediate group as less human and threatening.
I hope we don't need WW III to pull us back together as a country. Might not work anyway, since we abolished the draft after the Vietnam War. In WW II everyone served. In modern US warfare generally only the folks at the bottom of the income spectrum serve in the military, the kids of the well to do go to college and on to careers, seldom interacting with people who are not similarly blessed.
Looking back over more recent American history certainly doesn't contradict this theory. The last time income disparity became so glaring was in the 1920's leading up to the great depression. The decades before 1920 had been marked by a huge wave of immigration that filled our cities with ethnic enclaves and politically often faced off city dwellers against the largely home grown rural and small town folk.
Then the income disparity shrunk greatly after WW II. Perhaps the war effort made people become American's first and all the political and ethnic divisions faded in significance? Guys from all parts of the country, all ethnic and political views bunking next to each other in the barracks, or sharing a foxhole, can certainly break town tribal instincts.
The high levels of income disparity disappeared in the years after WW II. Clearly there was a different attitude then as the tax code imposed marginal rates of up to 90% on the most wealthy Americans as part of the effort to pay off the deficit from WW II and the great depression. The capstone of this tax effort occurred with the 1954 tax code passed by Congress which was, amazingly, passed during the only session between 1932 and 2000 where the Republicans controlled both houses of Congress and the Presidency. (Clearly the Republican party of 1954 was not the Republican party of 2011). Income disparity was then relatively low for the next couple decades - it began to grow again in the late 1970's, and accelerated greatly in the 1990's and 2000's, a time when immigration has become a hugely controversial issue and politics is bitterly partisan.
Why don't we maintain institutional memory - why do we have such different attitudes today than we did in after WW II? Probably because each new generation starts from our brains tendency to break the world in groups of us and them. Until each new generation has some learning experience to teach them the value of inclusiveness they see others outside their immediate group as less human and threatening.
I hope we don't need WW III to pull us back together as a country. Might not work anyway, since we abolished the draft after the Vietnam War. In WW II everyone served. In modern US warfare generally only the folks at the bottom of the income spectrum serve in the military, the kids of the well to do go to college and on to careers, seldom interacting with people who are not similarly blessed.
Monday, December 5, 2011
Constructive goals Occupy Wall Street could pursue - the housing market
We are not going to find a solution to the housing crises that involves either Wall Street or the Federal Government any time in the near future and our economy will not recover until we deal with the housing mess. In any economy the driving force is the people from 35 to 50, people still young and energetic, but with the experience and maturity to build or grow an economy. To use the latest Republican buzz word, the job creators. In my experience it seems it is the people in this group that have been hammered the worst by the housing market collapse. The hard working, imaginative and ambitious who got to the point where they felt like they could finally buy a house in the middle of the last decade are now locked into houses they can't afford to own the way they are currently financed, but also can't afford to sell. We are financially crippling the dynamic heart of our economy.
Government is not going to solve the problems in the housing market, for both partisan ideological reasons and structural reasons. The feds have created programs to refinance loans with great fanfare, then virtually no loans get refinanced. Occupying foreclosed houses will get some publicity and wring some concessions out of banks in the short term on individual properties but will not result in any action by the private sector or government that will begin to solve the problem.
What is the problem? It appears to be twofold.
1. The political problem - Republicans are living in an economic fantasy world and Democrats are ineffectual without Republican help. It really doesn't matter why Republicans policies are so out of touch with reality - whether it is an irrational belief that making money is proof of goodness, or simply they see rich folks as their constituency and are protecting their constituency the result is the same. They will not consider any plan to address the housing market that doesn't involve laws benefiting the same folks that caused the problems.
2. Structural problems - Getting a home loan used to be pretty simple, you went and talked to the bank, if they thought you were reliable and had the income to make the payments, they made the loan then held the mortgage in their portfolio until it was paid off. Gradually all those smart people on Wall Street started making it more and more complicated. No bank, to my knowledge, holds loans they make to maturity anymore. Banks make loans anticipating the mortgage will be sold in secondary mortgage markets, maybe sold repeatedly. So now instead of having to convince the banker across the desk from you that you are reliable and can pay the mortgage back, that guy across the desk from you has to meet the criteria set by a bunch of different people you never met. The old simple transaction has become a complex and tangled bureaucratic minefield, so even if you had the money in the bank to buy the house outright you still might not qualify for the loan.
On top of the complexity of the transaction the banks that control the process are understandably not enthusiastic about converting a bunch of loans on which they are getting interest of 6, 7 or 8% to loans on which they will getting somewhere around 4%. So they are perfectly happy to just wring their hands in sham sympathy and quietly let the complex process not work.
So what can OWS do? Here are some ideas:
1. Start organizing all the people out there who bought houses at the peak of the boom, are struggling to keep the house, and could keep the house with some financial restructuring. When they are dealing with the banks one by one they are helpless. But if hundreds or thousands get organized and are prepared to take concerted action, they could have the power to strike fear in the heart of Wall Street. Suppose half a million homeowners pledged to stop paying their mortgage payments on March 1 if some real refinance option was not in place.
2. A back up strategy (because it would take longer to implement) would be create an fund to make direct refinancing loans using local or state government bonds working through refinance agencies set up by branches of government. Local governments, for example, can offer tax free status on their bond issues to make the bonds attractive. Local governments could perhaps reduce the loan balances in some cases and take back an equity interest in the home as a way of protecting property values within the community.
At the State level an option that could get refinancing up and running pretty quickly in California would be to open up the Cal-Vet loan program to allow refinancing, and maybe even open up the program to non-veterans due to the dire economic situation in the State. The Cal Vet loan program has been around for decades, it is entirely funded by bonds paid off through the payments on the loans.
A non-government option would be to create a non-profit that little folks can invest in to create a pool of money, then use the money to refinance home loans, starting with those with the highest interest rates first. Google, Apple or other tech companies are making a lot of money off the generations that have been hurt by the housing collapse, why can't they kick in some money to create a fund to provide an alternative to the banking system?
Until there is an option to the banking system that threatens to damage the banks bottom lines, the banks are going to keep dragging their feet. If private sector banks started to see their highest interest rate loans disappearing from their balance sheets, and their loan portfolio's shrinking they might discover that maybe refinancing loans isn't such a bad idea.
Government is not going to solve the problems in the housing market, for both partisan ideological reasons and structural reasons. The feds have created programs to refinance loans with great fanfare, then virtually no loans get refinanced. Occupying foreclosed houses will get some publicity and wring some concessions out of banks in the short term on individual properties but will not result in any action by the private sector or government that will begin to solve the problem.
What is the problem? It appears to be twofold.
1. The political problem - Republicans are living in an economic fantasy world and Democrats are ineffectual without Republican help. It really doesn't matter why Republicans policies are so out of touch with reality - whether it is an irrational belief that making money is proof of goodness, or simply they see rich folks as their constituency and are protecting their constituency the result is the same. They will not consider any plan to address the housing market that doesn't involve laws benefiting the same folks that caused the problems.
2. Structural problems - Getting a home loan used to be pretty simple, you went and talked to the bank, if they thought you were reliable and had the income to make the payments, they made the loan then held the mortgage in their portfolio until it was paid off. Gradually all those smart people on Wall Street started making it more and more complicated. No bank, to my knowledge, holds loans they make to maturity anymore. Banks make loans anticipating the mortgage will be sold in secondary mortgage markets, maybe sold repeatedly. So now instead of having to convince the banker across the desk from you that you are reliable and can pay the mortgage back, that guy across the desk from you has to meet the criteria set by a bunch of different people you never met. The old simple transaction has become a complex and tangled bureaucratic minefield, so even if you had the money in the bank to buy the house outright you still might not qualify for the loan.
On top of the complexity of the transaction the banks that control the process are understandably not enthusiastic about converting a bunch of loans on which they are getting interest of 6, 7 or 8% to loans on which they will getting somewhere around 4%. So they are perfectly happy to just wring their hands in sham sympathy and quietly let the complex process not work.
So what can OWS do? Here are some ideas:
1. Start organizing all the people out there who bought houses at the peak of the boom, are struggling to keep the house, and could keep the house with some financial restructuring. When they are dealing with the banks one by one they are helpless. But if hundreds or thousands get organized and are prepared to take concerted action, they could have the power to strike fear in the heart of Wall Street. Suppose half a million homeowners pledged to stop paying their mortgage payments on March 1 if some real refinance option was not in place.
2. A back up strategy (because it would take longer to implement) would be create an fund to make direct refinancing loans using local or state government bonds working through refinance agencies set up by branches of government. Local governments, for example, can offer tax free status on their bond issues to make the bonds attractive. Local governments could perhaps reduce the loan balances in some cases and take back an equity interest in the home as a way of protecting property values within the community.
At the State level an option that could get refinancing up and running pretty quickly in California would be to open up the Cal-Vet loan program to allow refinancing, and maybe even open up the program to non-veterans due to the dire economic situation in the State. The Cal Vet loan program has been around for decades, it is entirely funded by bonds paid off through the payments on the loans.
A non-government option would be to create a non-profit that little folks can invest in to create a pool of money, then use the money to refinance home loans, starting with those with the highest interest rates first. Google, Apple or other tech companies are making a lot of money off the generations that have been hurt by the housing collapse, why can't they kick in some money to create a fund to provide an alternative to the banking system?
Until there is an option to the banking system that threatens to damage the banks bottom lines, the banks are going to keep dragging their feet. If private sector banks started to see their highest interest rate loans disappearing from their balance sheets, and their loan portfolio's shrinking they might discover that maybe refinancing loans isn't such a bad idea.
Constructive Goals Occupy Wall Street could pursue - engaging Republicans
The emotion and outrage that fuels occupy wall street is a powerful force, but I feel like the reason we have a disfunctional Congress is because we have too many people in this country whose views have been cast in concrete by linking ideas with the strong emotions that are generated by confrontation.
Back in the 1960's and 1970's the social movements of that time galvanized young people on the left side of the political spectrum, who really felt like they were on the side of all that is true and right and anyone opposed to them deserved to be dismissed.
History has shown their was a degree of truth to their beliefs - much of what were radical ideas at the time - particularly in civil rights - are now commonly accepted as truths of what America stands for.
But I believe the dismissive and somewhat arrogant attitude of the leftish movements are to some degree the source of the irrational group-think and obstructionism that marks current Republican politics. People of a Conservative persuasion who are running the Republican party now were young folks growing up during those years and got pummeled for expressing Conservative views. So they learned to express their views among themselves rather than trying to engage the left. You see the results in the extraordinary Republican primary playing out before our eyes, where political views that ignore history, objective data and common sense cannot even be expressed by a candidate without the candidate being marginalized in the party for not toeing the party line. Republican ideology has become the political equivalent of a bulldog - so inbred it is littered with genetic defects.
Occupy Wall Street should avoid going down that same road. OWS should be arranging discussions of basic policy questions in a format that protects participants from abuse and inviting Republican organization to join to present their views. A format for discussions that focuses on data rather than ideology and encourages people to think about whether their political beliefs actually accomplish the goals they seek can be found at www.Theidp.org
I believe if this kind of engagement could occur in enough parts of the country we could break the logjam in Washington in a few years, and it would certainly contribute to a more civil and productive government in the longer term.
This is not a path to be pursued by those just out for the experience. Engagement requires discipline, research and tolerance. You have to want to be a force for good.
Back in the 1960's and 1970's the social movements of that time galvanized young people on the left side of the political spectrum, who really felt like they were on the side of all that is true and right and anyone opposed to them deserved to be dismissed.
History has shown their was a degree of truth to their beliefs - much of what were radical ideas at the time - particularly in civil rights - are now commonly accepted as truths of what America stands for.
But I believe the dismissive and somewhat arrogant attitude of the leftish movements are to some degree the source of the irrational group-think and obstructionism that marks current Republican politics. People of a Conservative persuasion who are running the Republican party now were young folks growing up during those years and got pummeled for expressing Conservative views. So they learned to express their views among themselves rather than trying to engage the left. You see the results in the extraordinary Republican primary playing out before our eyes, where political views that ignore history, objective data and common sense cannot even be expressed by a candidate without the candidate being marginalized in the party for not toeing the party line. Republican ideology has become the political equivalent of a bulldog - so inbred it is littered with genetic defects.
Occupy Wall Street should avoid going down that same road. OWS should be arranging discussions of basic policy questions in a format that protects participants from abuse and inviting Republican organization to join to present their views. A format for discussions that focuses on data rather than ideology and encourages people to think about whether their political beliefs actually accomplish the goals they seek can be found at www.Theidp.org
I believe if this kind of engagement could occur in enough parts of the country we could break the logjam in Washington in a few years, and it would certainly contribute to a more civil and productive government in the longer term.
This is not a path to be pursued by those just out for the experience. Engagement requires discipline, research and tolerance. You have to want to be a force for good.
Saturday, December 3, 2011
Grab bag of tax proposals
The tax code should have an income tax exemption for veterans, so $600 for each year of service up to a maximum of 5 years. Often veterans give up more than they realize. The people that don't serve are often further along in their careers when veterans begin their non-military working career - a head start that may make it almost impossible for the Veteran to ever make up the lifetime income gap. That sacrifice should be recognized in the tax code.
We should raise taxes on the wealthy, in particular stop encouraging rampant speculation and asset bubbles with low capital gains taxes. But we should also bring back income averaging, so those people who first hit the big strike can keep more of the income than those whose high income is a long term phenomanen.
Any organization that is granted limited liability should have to abide by a salary standard - mean, median and Mode - across the range of all employees.
We should raise taxes on the wealthy, in particular stop encouraging rampant speculation and asset bubbles with low capital gains taxes. But we should also bring back income averaging, so those people who first hit the big strike can keep more of the income than those whose high income is a long term phenomanen.
Any organization that is granted limited liability should have to abide by a salary standard - mean, median and Mode - across the range of all employees.
Wednesday, November 30, 2011
Labor relations shouldn't be adversarial
Labor relations in the US are built on an adversarial basis. Labor against management. This seems counterproductive to me. In virtually every other aspect of business we strive to build teams, not encourage adversarial relationships. It is sort of like a football coach on a road trip pitting his linemen against his ball handling players to negotiate who sleeps in a motel and who sleeps on the bus, and then expecting them to go out and play as a team in the game.
We didn't develop an adversarial system intentionally. Nobody figured out the best way to encourage productivity and competitiveness, then devised a system to make it work. It is an accident of history. Business people were allowed to exploit men, women and children for competitive advantage. When the exploitation got really bad, the workers rebelled and formed unions to protect themselves.
Unions are not a really a good solution for the problem of worker exploitation. Unions have a history of abuse by their management, they have a history of being oblivious to the health of the underlying enterprise, and many people don't like be forced to join a union to work.
We should use tax policy to encourage companies to organize themselves as teams in a way that makes unions irrelevant. Create a qualification mechanism - if the payroll structure spreads the company wealth fairly (mean, median and Mode) and grants employees's a say on working conditions, the company can qualify to pay a lower corporate tax rate.
Qualifying for a lower tax rate will be very attractive to investors, since it makes a bigger pie available for them to take a piece of, and a little side benefit of qualification is it will reduce the ability of CEO's to use their power over the Corporation to extract excessive salaries and golden parachutes.
We didn't develop an adversarial system intentionally. Nobody figured out the best way to encourage productivity and competitiveness, then devised a system to make it work. It is an accident of history. Business people were allowed to exploit men, women and children for competitive advantage. When the exploitation got really bad, the workers rebelled and formed unions to protect themselves.
Unions are not a really a good solution for the problem of worker exploitation. Unions have a history of abuse by their management, they have a history of being oblivious to the health of the underlying enterprise, and many people don't like be forced to join a union to work.
We should use tax policy to encourage companies to organize themselves as teams in a way that makes unions irrelevant. Create a qualification mechanism - if the payroll structure spreads the company wealth fairly (mean, median and Mode) and grants employees's a say on working conditions, the company can qualify to pay a lower corporate tax rate.
Qualifying for a lower tax rate will be very attractive to investors, since it makes a bigger pie available for them to take a piece of, and a little side benefit of qualification is it will reduce the ability of CEO's to use their power over the Corporation to extract excessive salaries and golden parachutes.
Saturday, November 19, 2011
The Middle Way
Surveying the last 200 years of economic history the single most dominant theme is the theoretical battle between capitalism and collectivism.
Largely unfettered Capitalism, following the theoretical underpinnings of Adam Smith that individual self interest was the most efficient economic engine, ruled the 1800's (albeit often with a huge dose of state support). Growth and development often bordered on manic, but it chewed up workers with little regard for their welfare.
The sheer brutality of its treatment of workers provoked the worker backlash that produced the communist revolutions of the early part of the 20th Century that led to the biggest chunk of the worlds population living under despotic communist regimes for much of the 20th Century.
In the United States the worker backlash was channeled into laws to protect workers that moderated the tendency toward exploitation that the markets produce. While much of the world was turning communist we enacted workers compensation laws, minimum wage laws, payroll laws, worker safety laws and laws to give labor unions more bargaining power in the early part of the 20th century. That calmed the worker unrest, but didn't address the tendency of unfettered capitalism to speculate itself into a crisis, so our unfettered free markets let the scramble to get rich obscure good judgment and we led the world into the stock market crash of 1929 and the subsequent depression. After the stock market blew up in 1929 and we sank into the great depression, we enacted a series of laws to put some limits on unfettered capitalism. This mix of capitalism with state regulation (which also occurred in most other western democracy's) proved to be much more conducive to growth than the communist state planning approach. For the rest of the 20th Century we enjoyed a long period of economic stability and growth.
But late in the 20th Century, probably because times were good for so long, people drifted away from labor unions and capitalists chaffing under the government restrictions put in place after the 1929 Stock Market collapse began to sound sensible to voters. When the Soviet Union collapsed in 1989, the true believers in unfettered free markets declared the total victory of Capitalism over collectivist notions and over the next decade and a half dismantled much of what had been enacted after the 1929 crash. The unfettered market did what it always does, lost sight of common sense in the scramble to get richer and richer and in 2007-08 we led the world economy into disaster once again.
So now we are back in what will probably be years of high unemployment and slow growth, and are seeing worker unrest again. The Occupy Wall Street protests in the US, and workers unrest around the world are sort of aimless shouts of pain at this point. Will they coalesce into some pendulum swing toward a collectivist future in some countries?
We need to hash out a middle way. A coherent body of theory that recognizes the ability of capitalism to organize people and generate growth, but also recognizes that the human emotions that drive capitalism sometimes need to be restrained and channeled.
The notion of a middle way is timeless, from Aristotle teaching moderation in all things, to traditional Chinese culture based on yin and yang, the balance of opposites. As individual voters we need to cultivate more recognition of Yin and Yang and try not to allow the excesses of the last two decades toward free markets push us into excesses in collectivism.
Largely unfettered Capitalism, following the theoretical underpinnings of Adam Smith that individual self interest was the most efficient economic engine, ruled the 1800's (albeit often with a huge dose of state support). Growth and development often bordered on manic, but it chewed up workers with little regard for their welfare.
The sheer brutality of its treatment of workers provoked the worker backlash that produced the communist revolutions of the early part of the 20th Century that led to the biggest chunk of the worlds population living under despotic communist regimes for much of the 20th Century.
In the United States the worker backlash was channeled into laws to protect workers that moderated the tendency toward exploitation that the markets produce. While much of the world was turning communist we enacted workers compensation laws, minimum wage laws, payroll laws, worker safety laws and laws to give labor unions more bargaining power in the early part of the 20th century. That calmed the worker unrest, but didn't address the tendency of unfettered capitalism to speculate itself into a crisis, so our unfettered free markets let the scramble to get rich obscure good judgment and we led the world into the stock market crash of 1929 and the subsequent depression. After the stock market blew up in 1929 and we sank into the great depression, we enacted a series of laws to put some limits on unfettered capitalism. This mix of capitalism with state regulation (which also occurred in most other western democracy's) proved to be much more conducive to growth than the communist state planning approach. For the rest of the 20th Century we enjoyed a long period of economic stability and growth.
But late in the 20th Century, probably because times were good for so long, people drifted away from labor unions and capitalists chaffing under the government restrictions put in place after the 1929 Stock Market collapse began to sound sensible to voters. When the Soviet Union collapsed in 1989, the true believers in unfettered free markets declared the total victory of Capitalism over collectivist notions and over the next decade and a half dismantled much of what had been enacted after the 1929 crash. The unfettered market did what it always does, lost sight of common sense in the scramble to get richer and richer and in 2007-08 we led the world economy into disaster once again.
So now we are back in what will probably be years of high unemployment and slow growth, and are seeing worker unrest again. The Occupy Wall Street protests in the US, and workers unrest around the world are sort of aimless shouts of pain at this point. Will they coalesce into some pendulum swing toward a collectivist future in some countries?
We need to hash out a middle way. A coherent body of theory that recognizes the ability of capitalism to organize people and generate growth, but also recognizes that the human emotions that drive capitalism sometimes need to be restrained and channeled.
The notion of a middle way is timeless, from Aristotle teaching moderation in all things, to traditional Chinese culture based on yin and yang, the balance of opposites. As individual voters we need to cultivate more recognition of Yin and Yang and try not to allow the excesses of the last two decades toward free markets push us into excesses in collectivism.
Tuesday, November 15, 2011
History has made Republicans reactive
Historically in my lifetime there have always been more voters registered Democratic than Republican. I don't know how far back in history that situation has existed, but it certainly has been the case in the last 60 years.
Ideologically I have always understood that Republicans champion individual self responsibility and government fiscal responsibility. Those are goals that I certainly think are basic and fundamentally required to formulate good public policy. But as I contemplate political history for the last thirty years I find Republican fingerprints on virtually all the really major policy mistakes we are currently trying to clean up.
I have began to understand, I think, why Republicans have made such major mistakes in public policy matters, from the Reagan tax cuts in the 1980's that first exploded the deficit, to the Republican changes in tax law and financial regulations laws that led to the great recession, to the Bush II tax cuts and changes in Congressional rules that redirected the trajectory of the deficit skyward early in the last decade.
Republicans have become reactive. Because there are more Democrats, Democrats controlled the agenda. Between 1955 and 1980 Democrats controlled both houses of Congress - the period when most the current Republican political leadership, and most current voters, were developing their political ideas. So to the extent there were good policies to be enacted, Democrats got to claim them. Republicans were left trying to distinguish themselves from Democrats by looking for mistakes and hammering on them. They become so focused on being something different than Democrats they picked up ideas that are contrary to Democratic positions without really critically thinking through the consequences.
The first example is the Reagan tax cuts in the early 1980's. Republicans had found a chink in the Democratic electoral armor - everyone likes paying less taxes. They found an economic theory that would allow them to make tax cuts without making sufficient cuts to offset the loss of revenue - supply side economics, the theory that giving more money to rich folks would cause it to "trickle down" to the rest of us. Mr Reagan sold the theory to American voters with slogans like "a rising tide raises all boats". I voted for Ronald Reagan, and his willingness to embrace supply side was one of the things that turned me into Democrat. I respected Mr. Reagan, and still do. I believe he had the best intentions, and I think he was masterful in his handling of the Soviet Union. But even at the time I had a hard time understanding how a "conservative" could build his view of how to build an economy on an Ivory Tower theory that seemed to contradict history, human psychology and common sense. How could cutting government revenues without cutting expenses produce anything other than a deficit?
Immediately after the Reagan Tax cuts the deficit skyrocketed. And now a couple decades later the "rising tide" data is in. To continue the rising tide analogy, the rising tide only lifted the yachts, the rest of the boats are now submarines. Virtually nothing trickled down over the last 25 years.
I think what happened was Republicans rejected the Keynesian economic theories of the time that tolerated small deficits because it was associated with Democrats. Republicans had been out of power so long they were in an emotionally reactive mode where they latched onto something, not because it was sensible, but because it was different, and it allowed them to promise voters tax cuts. Sort of like giving out candy to curry favor with the kids. It is effective but not good for the kids in the long run.
In foreign policy George Bush II came into office in 2001 determined to do foreign policy differently. The Clinton years had been marked by worldwide engagement, largely avoiding muscle flexing in favor of soft power. We were highly admired around the world, Mr Clinton helped broker the (hopefully) final resolution of the problems between Ireland, Northern Ireland and England, and came close to resolving the Palestinian issue. Although this approach seems to me to be carrying forward the policy of the great Republican Teddy Roosevelt (walk softly and carry a big stick) Republicans had predictably taken an anti-Democrat stance, arguing we should be tough guys. Mr Clinton was to nice.
Mr. Bush came into office with the notion we were the biggest kid on the block and everyone else needed to respect that. He made a point of snubbing the Palestinians, basically turned his back and stopped all efforts to solve the problem. The rest of the worlds view of the US began sinking. Then 9/11 happened and the world extended their support and sympathy, but it evaporated as we threw our weight around, and then invaded Iraq. By the time Mr. Bush left office in 2008 Iraq had become widely viewed as a terrible mistake and the rest of the world disliked and distrusted us. Mr. Bush seems to be a likable guy, whom I believe acted from good, if mistaken motives. As I try to understand how he, with all the assets and knowledge afforded a President, could have made this kind of mistake, I find myself back to the notion that people emotionally attached to the Republican party have to be the anti-Democrat. They have to find theories that distinguish them from Democrats, and become so focused on Democratic flaws they don't allow themselves to question the sensibility of the policies they are pushing.
In economic policy the Republicans obsession with being "not democrat" gave us the Bush II tax cuts. The data was already trickling in that trickle down theory did not in fact work and the Reagan tax cuts had blown up the deficit, but Reagan's tax cuts had worked wonderfully politically. So even though we were engaged in two wars, Mr Bush and the Republican Congress went back to supply side theory - big tax cuts, no effort to insure spending would match the loss of Revenue.
Now here we are, three years into the economic doldrums, carrying a huge debt load and Republicans are still obsessed with being the anti-Democrat, espousing proposals that history, economic data and common sense notions about human behavior say are almost certain to make things worse.
Voters need for Republicans to stop obsessing about distinguishing themselves from Democrats and start formulating policies with an eye to history, economic data and common sense about human behavior. The fundamental Republican message is important but has been ill served by their reactive policies of the last three decades.
Ideologically I have always understood that Republicans champion individual self responsibility and government fiscal responsibility. Those are goals that I certainly think are basic and fundamentally required to formulate good public policy. But as I contemplate political history for the last thirty years I find Republican fingerprints on virtually all the really major policy mistakes we are currently trying to clean up.
I have began to understand, I think, why Republicans have made such major mistakes in public policy matters, from the Reagan tax cuts in the 1980's that first exploded the deficit, to the Republican changes in tax law and financial regulations laws that led to the great recession, to the Bush II tax cuts and changes in Congressional rules that redirected the trajectory of the deficit skyward early in the last decade.
Republicans have become reactive. Because there are more Democrats, Democrats controlled the agenda. Between 1955 and 1980 Democrats controlled both houses of Congress - the period when most the current Republican political leadership, and most current voters, were developing their political ideas. So to the extent there were good policies to be enacted, Democrats got to claim them. Republicans were left trying to distinguish themselves from Democrats by looking for mistakes and hammering on them. They become so focused on being something different than Democrats they picked up ideas that are contrary to Democratic positions without really critically thinking through the consequences.
The first example is the Reagan tax cuts in the early 1980's. Republicans had found a chink in the Democratic electoral armor - everyone likes paying less taxes. They found an economic theory that would allow them to make tax cuts without making sufficient cuts to offset the loss of revenue - supply side economics, the theory that giving more money to rich folks would cause it to "trickle down" to the rest of us. Mr Reagan sold the theory to American voters with slogans like "a rising tide raises all boats". I voted for Ronald Reagan, and his willingness to embrace supply side was one of the things that turned me into Democrat. I respected Mr. Reagan, and still do. I believe he had the best intentions, and I think he was masterful in his handling of the Soviet Union. But even at the time I had a hard time understanding how a "conservative" could build his view of how to build an economy on an Ivory Tower theory that seemed to contradict history, human psychology and common sense. How could cutting government revenues without cutting expenses produce anything other than a deficit?
Immediately after the Reagan Tax cuts the deficit skyrocketed. And now a couple decades later the "rising tide" data is in. To continue the rising tide analogy, the rising tide only lifted the yachts, the rest of the boats are now submarines. Virtually nothing trickled down over the last 25 years.
I think what happened was Republicans rejected the Keynesian economic theories of the time that tolerated small deficits because it was associated with Democrats. Republicans had been out of power so long they were in an emotionally reactive mode where they latched onto something, not because it was sensible, but because it was different, and it allowed them to promise voters tax cuts. Sort of like giving out candy to curry favor with the kids. It is effective but not good for the kids in the long run.
In foreign policy George Bush II came into office in 2001 determined to do foreign policy differently. The Clinton years had been marked by worldwide engagement, largely avoiding muscle flexing in favor of soft power. We were highly admired around the world, Mr Clinton helped broker the (hopefully) final resolution of the problems between Ireland, Northern Ireland and England, and came close to resolving the Palestinian issue. Although this approach seems to me to be carrying forward the policy of the great Republican Teddy Roosevelt (walk softly and carry a big stick) Republicans had predictably taken an anti-Democrat stance, arguing we should be tough guys. Mr Clinton was to nice.
Mr. Bush came into office with the notion we were the biggest kid on the block and everyone else needed to respect that. He made a point of snubbing the Palestinians, basically turned his back and stopped all efforts to solve the problem. The rest of the worlds view of the US began sinking. Then 9/11 happened and the world extended their support and sympathy, but it evaporated as we threw our weight around, and then invaded Iraq. By the time Mr. Bush left office in 2008 Iraq had become widely viewed as a terrible mistake and the rest of the world disliked and distrusted us. Mr. Bush seems to be a likable guy, whom I believe acted from good, if mistaken motives. As I try to understand how he, with all the assets and knowledge afforded a President, could have made this kind of mistake, I find myself back to the notion that people emotionally attached to the Republican party have to be the anti-Democrat. They have to find theories that distinguish them from Democrats, and become so focused on Democratic flaws they don't allow themselves to question the sensibility of the policies they are pushing.
In economic policy the Republicans obsession with being "not democrat" gave us the Bush II tax cuts. The data was already trickling in that trickle down theory did not in fact work and the Reagan tax cuts had blown up the deficit, but Reagan's tax cuts had worked wonderfully politically. So even though we were engaged in two wars, Mr Bush and the Republican Congress went back to supply side theory - big tax cuts, no effort to insure spending would match the loss of Revenue.
Now here we are, three years into the economic doldrums, carrying a huge debt load and Republicans are still obsessed with being the anti-Democrat, espousing proposals that history, economic data and common sense notions about human behavior say are almost certain to make things worse.
Voters need for Republicans to stop obsessing about distinguishing themselves from Democrats and start formulating policies with an eye to history, economic data and common sense about human behavior. The fundamental Republican message is important but has been ill served by their reactive policies of the last three decades.
Wednesday, November 9, 2011
Fair taxes - An income disparity hypothetical
The media chatter about the gap between the wealthiest 1% and the rest of us continues unabated, particularly since the CBO confirmed how much the gap has grown in the last 30 years or so. We hear some folks talking about taxing the rich, other folks talking about class warfare, but very little real problem solving. No one I have heard is asking how the gap between the very rich and the rest of us over the last twenty years has affected our economy.
From the little bit of evidence I have seen it appears that in developing economies big income gaps can help generate faster growth, but in developed economy's big income gaps retard growth.
This makes sense to me. In a developing economy people have a lot more needs than they do money. So the consumer market is small but bursting with potential to grow rapidly. Allowing those with an entrepreneurial bent to gather wealth provides capital to pick up the good ideas and run with them. We are seeing this happening across the parts of the world we have traditionally thought of as undeveloped nations.
But in a developed economy we have more money than needs. I heard a statistic the other day to the effect that studies show that most people in the United States, once they have about $70,000 a year in household income, don't really want to work longer hours to try to make more money. I assume $70,000 reflects the point where people have what they need plus some extra, so lets assume $70,000 is the US threshold for a comfortable life. It is the point where you spend nearly all of your income, but there isn't much you need that you can't afford. Unlike a developing economy where they need everything, in the developed economy many of us have all we need.
Since economies are mind bogglingly complex, I find a simple hypothetical can help me grasp fundemental relationships quickly. Here is a little hypothetical about income distribution that popped into my head.
Operating on the assumption the $70,000 figure quoted above is the point where people in the US have their primary wants and needs filled, suppose the net income available to Podunk, a town of 10 people, is $700,000. If all 10 Podunkians get $70,000 of that income (i.e. no disparity in income) the the full $700,000 of income available to the society is circulating around supporting the economy of Podunk as people spend their income.
But suppose Joe finds a way to take home $200,000 of the $700,000 income in Podunk. The other 9 persons take home the remaining $500,000 ($55,555 per person, down about $14,500). Even if Joe has more extravagant wants and needs and spends twice as much, $140,000, as anyone else in Podunk , that still leaves Joe with $60,000 in extra income. So he looks for somewhere to invest it. But Podunk now has $60,000 less money in the economy, and the other 9 Podunkians are now $14,500 poorer, so Joe can't start a new business, because there are no Podunk consumers with the money to buy new products. So what does Joe do? He probably just pays more to buy up local property. He inflates the value of some asset local asset without adding any real value.
This sounds really familiar to me. Stock prices have been inflating and deflating precipitously, but overall for the last 15 years stock prices have spent most of the time at higher valuations than the historical average would suggest were prudent. Gold prices are inflated, house prices are inflated. In short, we have lots of investment capital scrambling around to make some money, and big corporations sitting on huge piles of money, but few people willing to start new businesses, or expand existing businesses in the US because US consumers don't have the money to support new ventures. The consumer market in the United States has been shriveled by the wealthiest people taking a bigger and bigger slice of the pie. We disguised this result for years (and drove the world economy) by consumers taking on a bigger and bigger debt load, but that bubble has also popped.
The chattering political class is all abuzz about job creation, and how can we get people back to work. I suspect the US is going to be in the economic doldrums until more of the income this country generates starts making it into the hands of the regular folk that spend most of what they earn, and less income goes to the people who have everything they could possibly need or want - except more.
From the little bit of evidence I have seen it appears that in developing economies big income gaps can help generate faster growth, but in developed economy's big income gaps retard growth.
This makes sense to me. In a developing economy people have a lot more needs than they do money. So the consumer market is small but bursting with potential to grow rapidly. Allowing those with an entrepreneurial bent to gather wealth provides capital to pick up the good ideas and run with them. We are seeing this happening across the parts of the world we have traditionally thought of as undeveloped nations.
But in a developed economy we have more money than needs. I heard a statistic the other day to the effect that studies show that most people in the United States, once they have about $70,000 a year in household income, don't really want to work longer hours to try to make more money. I assume $70,000 reflects the point where people have what they need plus some extra, so lets assume $70,000 is the US threshold for a comfortable life. It is the point where you spend nearly all of your income, but there isn't much you need that you can't afford. Unlike a developing economy where they need everything, in the developed economy many of us have all we need.
Since economies are mind bogglingly complex, I find a simple hypothetical can help me grasp fundemental relationships quickly. Here is a little hypothetical about income distribution that popped into my head.
Operating on the assumption the $70,000 figure quoted above is the point where people in the US have their primary wants and needs filled, suppose the net income available to Podunk, a town of 10 people, is $700,000. If all 10 Podunkians get $70,000 of that income (i.e. no disparity in income) the the full $700,000 of income available to the society is circulating around supporting the economy of Podunk as people spend their income.
But suppose Joe finds a way to take home $200,000 of the $700,000 income in Podunk. The other 9 persons take home the remaining $500,000 ($55,555 per person, down about $14,500). Even if Joe has more extravagant wants and needs and spends twice as much, $140,000, as anyone else in Podunk , that still leaves Joe with $60,000 in extra income. So he looks for somewhere to invest it. But Podunk now has $60,000 less money in the economy, and the other 9 Podunkians are now $14,500 poorer, so Joe can't start a new business, because there are no Podunk consumers with the money to buy new products. So what does Joe do? He probably just pays more to buy up local property. He inflates the value of some asset local asset without adding any real value.
This sounds really familiar to me. Stock prices have been inflating and deflating precipitously, but overall for the last 15 years stock prices have spent most of the time at higher valuations than the historical average would suggest were prudent. Gold prices are inflated, house prices are inflated. In short, we have lots of investment capital scrambling around to make some money, and big corporations sitting on huge piles of money, but few people willing to start new businesses, or expand existing businesses in the US because US consumers don't have the money to support new ventures. The consumer market in the United States has been shriveled by the wealthiest people taking a bigger and bigger slice of the pie. We disguised this result for years (and drove the world economy) by consumers taking on a bigger and bigger debt load, but that bubble has also popped.
The chattering political class is all abuzz about job creation, and how can we get people back to work. I suspect the US is going to be in the economic doldrums until more of the income this country generates starts making it into the hands of the regular folk that spend most of what they earn, and less income goes to the people who have everything they could possibly need or want - except more.
Saturday, November 5, 2011
The deficit - a pertinent fact
Lots of apocalyptic buzz these days about our national budget deficit. I am one who believes Washington has been pretty irresponsible at times over the years, and we should work toward reducing our budget deficit, but the hyperbole on the political front sometimes begs for a reality check:
Normally we judge how serious our debt situation is comparing how much income our country generates in a year (gdp) against how much debt we have. It is sort of like your personal finances. If you owe $50 and only make $20 a month you have a much bigger problem than if you owe $50 and make $100 a month.
31 countries in this world have more debt than we do as a percentage of gdp. Of course that includes the high profile debtors such as Greece, Italy and Portugal, but it also includes countries we think of as economically solid and responsible, like Germany, Israel and Canada.
Source: San Francisco Chronicle Insight section for Sunday, October 16, 2011
Normally we judge how serious our debt situation is comparing how much income our country generates in a year (gdp) against how much debt we have. It is sort of like your personal finances. If you owe $50 and only make $20 a month you have a much bigger problem than if you owe $50 and make $100 a month.
31 countries in this world have more debt than we do as a percentage of gdp. Of course that includes the high profile debtors such as Greece, Italy and Portugal, but it also includes countries we think of as economically solid and responsible, like Germany, Israel and Canada.
Source: San Francisco Chronicle Insight section for Sunday, October 16, 2011
Thursday, November 3, 2011
Thoughts on Immigration Laws
Immigration laws are an odd sort of law.
Being an illegal Immigrant is not a crime in the same sense as murder, robbery or other acts that are intentionally directed at harming someone else. Immigrants (generally) come here to work, because they can't support their families or feel it is too dangerous in their home country. The are generally motivated by values we respect.
The main purpose of immigration laws are to protect our selfish economic interests. They are basically about the fact we've got a good deal and we don't want the rest of the world muscling in.
Immigration hawks lately argue illegal immigrants are acting illegally so they won't consider amending the law until everyone is obeying it. Their view seems to be "its the law so it must be obeyed, and we can't talk about changing the unfair, impractical of just plain dumb parts of the law until everyone is obeying the law".
Every time I hear an immigration hawk say something like that I hear echos of the Syrian Government shooting its peacefully demonstrating people because they are breaking the law. Or Ghadaffi, or Hosni Mubarek.
I don't think Jesus would find violation of immigration laws a very compelling sin. That's not to say we don't have a right to enforce immigration laws, or that some restrictions on immigration aren't prudent. But much of the overheated rhetoric about immigration is misplaced.
Our economy, whether we like it or not, depends on cheap labor from Mexico and Central America to work for low pages in low end, low paying jobs that Americans won't do. Would you or any of your kids be willing to spend 8 to 10 hours a day bending over in a strawberry field for something close to minimum wage day after day, month after month? Anybody you know be willing to do that?
Immigration hawks in the last couple decades have substituted emotion for analysis. Instead of recognizing immigration laws as laws about economics they have treated them the same as laws against murder, rape and robbery - drumming up emotional outrage (because that is what gets votes) then making it tougher and tougher for people to come to this country. Politicians and media personalities build huge ratings on this emotion based opinion bending. It is very successful politically but does not prepare you to actually govern, because once you play the emotion card in your own head, it is very hard to get past it.
A couple decades ago we had a program that allowed people to come North to work in the fields, then go home. We eliminated that program and at the same time made it tougher and tougher to immigrate legally. People have kept coming (now illegally) because there were jobs here and there were no jobs in their homelands, and they have been helped out by employers who needed them. Perversely tougher laws probably resulted in vastly more immigrants in this country because, as academic studies have shown, most illegal immigrants would prefer to go back home where their roots are (and their earnings make them relatively much wealthier) when their work ends. But crossing our borders has become so difficult and dangerous people who once came to work and then went home to their families between growing seasons, now stay and look for any kind of semiskilled labor job so they don't have to go back and forth across the border. Or they bring their families up here.
It seems to me Immigration hawks have not approached immigration law in a constructive manner because they get a lot more mileage out of it as an emotional issue to get people fired up to vote for them. Unfortunately when they get enough votes to get elected they often do something stupid, like the immigration laws recently passed in Georgia and Alabama that seriously damaged their states agricultural economy, before they realized maybe they made a mistake. Good government figures those things out ahead of time, but good government doesn't come from fired up emotions.
Friday, October 28, 2011
Republicans and defense spending
Republican Presidential candidates continue talking like cuts in defense spending are off the table, and, astoundingly, not ruling out increases in defense spending.
The relationship Republicans have with defense spending is a lot like the relationship a hypochondriac has with a Doctor. They always feel threatened and think they need more, no matter how irrational the fear.
I wish someone would ask them some questions like:
Republican President Dwight D. Eisenhower (a professional soldier who knew a little about defense) said, as he was leaving office, that we should beware the military-industrial complex. What did he mean?
How do you explain the fact the average American taxpayer pays nearly $2000 a year in taxes to support Defense spending while the average European (and almost everyone else in the world) pays under $500 a year? What extra margin of safety are we buying with the additional $1500 per person per year?
What are we protecting by maintaining bases thousands of miles away from our shores? How does having those bases help protect us from attack?
The relationship Republicans have with defense spending is a lot like the relationship a hypochondriac has with a Doctor. They always feel threatened and think they need more, no matter how irrational the fear.
I wish someone would ask them some questions like:
Republican President Dwight D. Eisenhower (a professional soldier who knew a little about defense) said, as he was leaving office, that we should beware the military-industrial complex. What did he mean?
How do you explain the fact the average American taxpayer pays nearly $2000 a year in taxes to support Defense spending while the average European (and almost everyone else in the world) pays under $500 a year? What extra margin of safety are we buying with the additional $1500 per person per year?
What are we protecting by maintaining bases thousands of miles away from our shores? How does having those bases help protect us from attack?
Tuesday, October 25, 2011
Responding to some current Republican economic arguments
I start this blog by with a preface - Democrats are far from perfect. But these days Republicans are the problem.
I used to be Republican. I wish they could really be an advocate for fiscally responsible government to counter the tendency of politicians to hand out government money to get elected. But Republicans talk the talk but seldom walk the walk and the current crop of Republicans is living in a fantasy world where the answer to every problem is tax cuts. Republicans discovered cutting taxes plays really well with voters - just like handing out candy plays well to kids. The candy strategy has become an obsession.
I used to be Republican. I wish they could really be an advocate for fiscally responsible government to counter the tendency of politicians to hand out government money to get elected. But Republicans talk the talk but seldom walk the walk and the current crop of Republicans is living in a fantasy world where the answer to every problem is tax cuts. Republicans discovered cutting taxes plays really well with voters - just like handing out candy plays well to kids. The candy strategy has become an obsession.
Fact: the Federal Governments income right now is the lowest it has been (in real dollars) since the 1950's - even though we have had two wars going on for nearly a decade. The Republican approach to economics is sort of like quitting your job just as your kids are starting college.
Republicans try to paint Democrats as the reason we have a big deficit, saying Obama hasn't submitted a balanced budget in three years. Here is my problem with this statement - it is factually correct but way out of context. Its like accusing a fireman that has been trying to pull you out of a burning building of messing up your hair. It ignores the fact Obama walked in the door facing the worst economic crisis since the great Depression. If we had tried to balance our budget immediately we would probably be in a depression right now. I would be real surprised if you could find even one reputable Republican economist (outside a partisan think tank) who would disagree with that assessment. Not to mention a Congress full of Republicans many of whom seem to care more about defeating Obama than in making government work.
Some facts - the budget was balanced in 2001 when Mr Bush walked in the door and Republicans took control of both houses of Congress. Republicans continued to control both houses of Congress and the Presidency until 2007 by which time the economy was already starting to melt-down and the deficit had already exploded. That events of that six year period, coupled with the bailout to stop the free fall in financial markets, are the source of our current financial morass. Mr Bush was the only President in history to cut taxes while a war was going on. Mr Bush never vetoed a single spending bill of any kind, because they were filled with the kinds of handouts and freebies Republicans prefer.
Republican commentators are fond of saying that the Democrats are paying for current spending with our children's money. Here is an easily documented fact - lots of charts and graphs on the internet - since WW II the budget deficit has increased twice as much during Republican administrations as it has during Democratic administrations. The biggest deficit explosions in the last thirty years happened during the Reagan/Bush administrations and the Bush Jr. administration. The fact is Democrats have spent much of the last 30 years trying to patch up fiscal messes made by Republicans.
The current deadlock in Congress is remarkably similar to what was going on in Congress in 1990 to 1993. Republicans had set the agenda during the Reagan years when they controlled the Senate and Mr Reagan was President. They enacted big tax cuts without making cuts in spending and the deficit immediately began to shoot up. In 1987 Democrats regained control of both the House and the Senate. Republicans whose policy's had caused the big jump in the deficit suddenly became deficit hawks, lambasting Democrats as the cause of the deficit. A budget deal was struck in 1990 that brought us to a balanced budget by late in the decade. But by that time Republicans were already at more tax cuts and the cuts in regulation that triggered the financial collapse in 2008. By 2001 Republicans had gained control of the House, Senate and Presidency (for the first time since 1921 to 1933). They cut taxes and started handing out government money left and right, once again exploding the deficit. Then they get out of power and suddenly they are deficit hawks again. Only this time there policies are idiotic as well as hypocritical. In 1990 the economy was basically pretty strong, although we did go into a recession. Now we are flirting with a replay of the great depression. Government spending is what has kept us afloat. And they think now is the time to deflate the life raft.
Wednesday, October 19, 2011
Is there a correlation between income disparity and growth?
The news is full of data these days about how over the last thirty years the gap between the wealthiest Americans and the working folk in America has exploded. The rich have gotten way richer, while the middle class has seen no growth in real income.
No one outside of the partisans on each side of the political spectrum seem quite sure how to treat this fact. The partisans on the right talk about class warfare, and that the rich got that way because they earned it. The partisans on the left say we are all in this together, that this simple fact in itself justifies....something...no one seems quite sure. Higher taxes on rich people maybe?
I find some data from a couple different fields raising a question I believe should be the focus of consideration of the increased disparity in income across our society.
First, I know that psychological studies have found that generally what makes rich people happy is not how much they have, it is how much they have relative to other people. It is an ego boost, a way of proving they are special. It is not, I suspect, that the super rich are competing with the middle class, they are competing with one another, with other people that judge self worth in monetary terms. I am not being judgmental here - I draw no conclusions about whether building your self image around how much money you make is good or bad. We all need to have ways to make ourselves feel special. I am just noting this is what psychology suggests is what motivates people to keep accumulating wealth far beyond what they need to live comfortably and securely.
Second, one of the historical facts frequently cited to prove that we have in fact developed into a much more stratified society economically is that the gap between the middle class and the wealthy has not been this large since the 1930's.
This intrigues me because our current situation tracks so closely to the situation in the 1930's. In the decade leading up to the 1930's Republican ideology that focuses on turning individual initiative loose from the constraints of government was very popular, Republicans controlled both houses of Congress and the Presidency from 1922 to 1932. During that period we went through an enormous, largely unregulated boom that caused the gap between the wealthy and the middle class. In 1929 the stock market crashed and we began sinking into the great depression that, among other things, aggravated the income gap. The country turned more toward the Democrats view that a society that used government to control individual excesses in 1933. For the next half a century we went through a prolonged period of growth that spread benefits across the income spectrum. The gap between the wealthy and the middle class was a fraction of what it is today. In 1980 Ronald Reagan invigorated the Republican ideological counterattack and the gap between the rich and the middle class began to grow again during his administration. Public sentiment seemed to swing toward Republicans and they gradually began regaining control of the nations agenda, culminating with the election of George W. Bush in 2000 along with Republican majorities in both houses of Congress. For 6 years Republicans controlled both houses of Congress and the Presidency, and pursued policy's reflecting their ideological belief that individuals needed to be released from the constraints imposed by government. The current economic collapse was beginning as the Republicans lost their total control over government, and the current gap between the incomes of the rich and the middle class seems to be entirely a product of the policies pushed by Republicans to free individuals from the constraints of government.
So here is where all this leads me? It leads me to wonder if there any research out there correlating economic growth with the degree of income disparity in the countries population.
Do Country's that have relatively small disparities in income between the wealthy and the middle class grow faster or slower than countries that have a large disparity in income between rich and middle class?
Is there an optimum level of disparity where growth is maximized?
Would the wealthy care if it became apparent the country could grow faster and be stronger, if they shared more of the wealth with the middle class? This is a particularly compelling question now that the wealthiest folks are now global. The really wealthy in the US didn't seem to have a problem with shipping jobs to other countries and closing down their operations in this country. Of course one can argue they were compelled by the markets. But in terms of their personal wealth, will they see trying to help their country remain a dominant economic power as a distraction from their effort to climb the global wealth ladder?
I'm betting, given the fact this income disparity issue has been an issue for awhile, that if there isn't any data out there yet, there will be soon. If anyone runs into it please share it.
Postscript: there evidently is some data - as explained in an email from my cousins:
In his book, “The Darwin Economy,” Robert H. Frank of Cornell University cites a study showing that among 65 industrial nations, the more unequal ones experience slower growth on average. Likewise, individual countries grow more rapidly in periods when incomes are more equal, and slow down when incomes are skewed.
No one outside of the partisans on each side of the political spectrum seem quite sure how to treat this fact. The partisans on the right talk about class warfare, and that the rich got that way because they earned it. The partisans on the left say we are all in this together, that this simple fact in itself justifies....something...no one seems quite sure. Higher taxes on rich people maybe?
I find some data from a couple different fields raising a question I believe should be the focus of consideration of the increased disparity in income across our society.
First, I know that psychological studies have found that generally what makes rich people happy is not how much they have, it is how much they have relative to other people. It is an ego boost, a way of proving they are special. It is not, I suspect, that the super rich are competing with the middle class, they are competing with one another, with other people that judge self worth in monetary terms. I am not being judgmental here - I draw no conclusions about whether building your self image around how much money you make is good or bad. We all need to have ways to make ourselves feel special. I am just noting this is what psychology suggests is what motivates people to keep accumulating wealth far beyond what they need to live comfortably and securely.
Second, one of the historical facts frequently cited to prove that we have in fact developed into a much more stratified society economically is that the gap between the middle class and the wealthy has not been this large since the 1930's.
This intrigues me because our current situation tracks so closely to the situation in the 1930's. In the decade leading up to the 1930's Republican ideology that focuses on turning individual initiative loose from the constraints of government was very popular, Republicans controlled both houses of Congress and the Presidency from 1922 to 1932. During that period we went through an enormous, largely unregulated boom that caused the gap between the wealthy and the middle class. In 1929 the stock market crashed and we began sinking into the great depression that, among other things, aggravated the income gap. The country turned more toward the Democrats view that a society that used government to control individual excesses in 1933. For the next half a century we went through a prolonged period of growth that spread benefits across the income spectrum. The gap between the wealthy and the middle class was a fraction of what it is today. In 1980 Ronald Reagan invigorated the Republican ideological counterattack and the gap between the rich and the middle class began to grow again during his administration. Public sentiment seemed to swing toward Republicans and they gradually began regaining control of the nations agenda, culminating with the election of George W. Bush in 2000 along with Republican majorities in both houses of Congress. For 6 years Republicans controlled both houses of Congress and the Presidency, and pursued policy's reflecting their ideological belief that individuals needed to be released from the constraints imposed by government. The current economic collapse was beginning as the Republicans lost their total control over government, and the current gap between the incomes of the rich and the middle class seems to be entirely a product of the policies pushed by Republicans to free individuals from the constraints of government.
So here is where all this leads me? It leads me to wonder if there any research out there correlating economic growth with the degree of income disparity in the countries population.
Do Country's that have relatively small disparities in income between the wealthy and the middle class grow faster or slower than countries that have a large disparity in income between rich and middle class?
Is there an optimum level of disparity where growth is maximized?
Would the wealthy care if it became apparent the country could grow faster and be stronger, if they shared more of the wealth with the middle class? This is a particularly compelling question now that the wealthiest folks are now global. The really wealthy in the US didn't seem to have a problem with shipping jobs to other countries and closing down their operations in this country. Of course one can argue they were compelled by the markets. But in terms of their personal wealth, will they see trying to help their country remain a dominant economic power as a distraction from their effort to climb the global wealth ladder?
I'm betting, given the fact this income disparity issue has been an issue for awhile, that if there isn't any data out there yet, there will be soon. If anyone runs into it please share it.
Postscript: there evidently is some data - as explained in an email from my cousins:
In his book, “The Darwin Economy,” Robert H. Frank of Cornell University cites a study showing that among 65 industrial nations, the more unequal ones experience slower growth on average. Likewise, individual countries grow more rapidly in periods when incomes are more equal, and slow down when incomes are skewed.
Tuesday, October 18, 2011
Globalization - the long term picture
Historically economy's have usually been local, and locals have fought to keep competition from outside the local area even as they sometimes are seeking to sell their goods and services to others outside their area. Economists believe that knocking down all those local barriers will make everyone better off.
Globalization is the buzz word we use for the process of knocking down local barriers to commerce. Globalization is one of those things that is great in economic theory but presents horrendously thorny problems when we try to find ways to get there.
The basic conundrum is as long as big parts of the worlds workers are climbing out of abject poverty, they are happy with a life style workers in developed economies find unacceptable. But the process pursued in the last 150 years that has brought workers in less mature economies up out of poverty has involved developed world companies moving jobs to less developed countries. Sometimes this is driven only by the desire to make more profits, but often it is forced by realities of the market place. If a company doesn't do it some one else will and the companies products will then be overpriced.
The result has been progress toward globalization has waxed and waned. There is lots of enthusiasm for awhile, but eventually the process causes job losses and economic slowdowns which kill enthusiasm, particularly in democratic states, for globalization.
There is lots of irony involved in the Globalization process. American consumers have made Wal-Mart one of the worlds most successful retailers because of its low prices, but Wal-Mart - and other similar companies - have dropped prices by producing their goods outside the United States and gradually undermined the economic viability of many of the industries that employed those same consumers.
So the fundamental problem can be posed - how can you deal with the job losses in developed countries that are inherent in the process without condeming the undeveloped world to decades of further poverty. How do you replace the jobs in western countries that are migrating to less developed economy's?
Supporters of globalization (mainly either rich folks not threatened with job loss or idealistic economists) often argue that the free market can replace those lost jobs with the proper incentives. I'm dubious - I think the free market can dream up some new products or services that can provide jobs for workers in developed countries, but I suspect that won't happen nearly as fast as job losses will occur. Our world is already full of products and services many of us wouldn't buy, finding really new products that appeal to masses of people is really hard.
One possible way to alleviate the gap between job losses and creation of new private sector jobs is to use Government jobs. Hire people, particularly young people and older folks, to do the things that contribute to a richer life but that the private sector can't do effectively (or profitably). All my life I have marveled at the beautiful and functional infrastructure built by the WPA during the great depression. It seems to me that offers a path to offset the negatives of globalization.
However the Civil Service laws that have built up over the last century create a problem with using Government. If the primary purpose of the government program is to create jobs, direct government hiring is handicapped by the protections the law gives to Government workers. Government jobs seeking to stimulate the economy should be focused on giving people a lifeline and experience. They should pay less than the private sector, and provide fewer long term benefits, so people will be motivated to move out of the government job and into the private sector as soon as possible.
Globalization is the buzz word we use for the process of knocking down local barriers to commerce. Globalization is one of those things that is great in economic theory but presents horrendously thorny problems when we try to find ways to get there.
The basic conundrum is as long as big parts of the worlds workers are climbing out of abject poverty, they are happy with a life style workers in developed economies find unacceptable. But the process pursued in the last 150 years that has brought workers in less mature economies up out of poverty has involved developed world companies moving jobs to less developed countries. Sometimes this is driven only by the desire to make more profits, but often it is forced by realities of the market place. If a company doesn't do it some one else will and the companies products will then be overpriced.
The result has been progress toward globalization has waxed and waned. There is lots of enthusiasm for awhile, but eventually the process causes job losses and economic slowdowns which kill enthusiasm, particularly in democratic states, for globalization.
There is lots of irony involved in the Globalization process. American consumers have made Wal-Mart one of the worlds most successful retailers because of its low prices, but Wal-Mart - and other similar companies - have dropped prices by producing their goods outside the United States and gradually undermined the economic viability of many of the industries that employed those same consumers.
So the fundamental problem can be posed - how can you deal with the job losses in developed countries that are inherent in the process without condeming the undeveloped world to decades of further poverty. How do you replace the jobs in western countries that are migrating to less developed economy's?
Supporters of globalization (mainly either rich folks not threatened with job loss or idealistic economists) often argue that the free market can replace those lost jobs with the proper incentives. I'm dubious - I think the free market can dream up some new products or services that can provide jobs for workers in developed countries, but I suspect that won't happen nearly as fast as job losses will occur. Our world is already full of products and services many of us wouldn't buy, finding really new products that appeal to masses of people is really hard.
One possible way to alleviate the gap between job losses and creation of new private sector jobs is to use Government jobs. Hire people, particularly young people and older folks, to do the things that contribute to a richer life but that the private sector can't do effectively (or profitably). All my life I have marveled at the beautiful and functional infrastructure built by the WPA during the great depression. It seems to me that offers a path to offset the negatives of globalization.
However the Civil Service laws that have built up over the last century create a problem with using Government. If the primary purpose of the government program is to create jobs, direct government hiring is handicapped by the protections the law gives to Government workers. Government jobs seeking to stimulate the economy should be focused on giving people a lifeline and experience. They should pay less than the private sector, and provide fewer long term benefits, so people will be motivated to move out of the government job and into the private sector as soon as possible.
Friday, October 14, 2011
What to make of Occupy Wall Street
It certainly is not going to have much short term effect beyond a lot of media frenzy. Wall Street regards it as a nuisance, nothing more. Washington is locked in mortal combat over the next election, both sides afraid to do anything that might hurt their election chances. In the longer term OWS may provide an emotional counterweight to the tea party on the right, a mixed blessing, since that will tend to pull Democrats out of the sensible center, even as it takes some steam out of the media fascination with the Tea Party.
The irony is OWS has the tools to make Wall Street sit up and take notice right now. I would imagine a huge percentage of the OWS protestors, and the people who support them have bank accounts with Bank of America, Chase and the other big retail banks.
This country is full of little regional banks, who survived the 2008 crash because they are run by sensible management, they didn't get sucked into doing whatever stupid mortgage trick increased their bottom line a little bit. If all those OWS protestors and supporters pulled their money out of the to-big-to-fail banks and moved to a regional bank, Wall Street would be scrambling all over to please OWS.
Of course the to-big-to-fail banks would then start trying to buy up the local regional banks to get their customers back, so OWS should be working to turn the big bank brands into a liability, wherever the brand goes, OWS supporters go elsewhere. If a big bank buys out a regional bank, dump that regional bank and move to a still independent bank.
We have two tools with which we can influence Wall Street. Our votes are one, indirectly through the people we elect. But the far stronger tool, in the short term, is our money. We can all vote against Wall Street and the to-big-to-fail banks with your dollars by switching to bank with regional banks.
The irony is OWS has the tools to make Wall Street sit up and take notice right now. I would imagine a huge percentage of the OWS protestors, and the people who support them have bank accounts with Bank of America, Chase and the other big retail banks.
This country is full of little regional banks, who survived the 2008 crash because they are run by sensible management, they didn't get sucked into doing whatever stupid mortgage trick increased their bottom line a little bit. If all those OWS protestors and supporters pulled their money out of the to-big-to-fail banks and moved to a regional bank, Wall Street would be scrambling all over to please OWS.
Of course the to-big-to-fail banks would then start trying to buy up the local regional banks to get their customers back, so OWS should be working to turn the big bank brands into a liability, wherever the brand goes, OWS supporters go elsewhere. If a big bank buys out a regional bank, dump that regional bank and move to a still independent bank.
We have two tools with which we can influence Wall Street. Our votes are one, indirectly through the people we elect. But the far stronger tool, in the short term, is our money. We can all vote against Wall Street and the to-big-to-fail banks with your dollars by switching to bank with regional banks.
Friday, October 7, 2011
Corporations aren't people
100+ years ago the US Supreme Court said that Corporations are people entitled to the protections of the Constitution. Recently the Supreme Court relied on that old case to say that means government can't regulate campaign contributions by Corporations.
Here are some basic facts about Corporations. They do not exist in nature. They are artificial entities that are created by government (in the United States each individual state has its own Corporations law) to allow investors to pool their money to engage in investing. Their purpose is to encourage risk taking and the way that they do that is provide special rules for Corporations. If you or I invest money in something on our own, and something goes really wrong and it really hurts some other people, those people can sue us for everything we have. Corporations were created to allow people to pool their money and if the worst happens, and everything goes really wrong, only the money they put in the Corporation is at risk.
This limited liability protection is a huge benefit that will sometimes result in unfairness to people that are injured. That is how lots of the guys who made millions by selling the borderline fraudulant mortgages that blew up the economy a couple years ago are still sitting on their millions while millions of homeowners suffer. They are protected because they pulled lots of money out while times were good and the Corporations are now insolvent.
That is why the Supreme Court decisions are so non-sensical. Government created these organizations. They could abolish them tomorrow if they wanted. The first Supreme Court decision over 100 years ago was grounded in the right of free association guaranteed in the Constitution. The Supreme Court was evidently unable to figure out that regulating corporations has nothing to do with the right of the people who own corporations to associate, it only regulates the economic terms upon which they are granted limited liability status.
The result is our political process is drowning in so much money it has become almost completely disfunctional. People who want to be in politics spend their lives raising money, they can't make any decision without thinking how it is going to impact their reelection war chest.
We need to start moving toward reversing those Supreme Court decisions. It is unlikely the Supreme Court will do it any time soon. We could move toward an amendment to the US Constitution to clarify that the bill of rights does not apply to Corporations or other entities authorized by the State for economic purposes. But that is a slow process.
It might be quicker to do State by State. Each state has the right to dictate the terms of by which Corporations operate within the State. An initiative measure in California that specified that a Corporation doing business in California is not a person or protected form of association would be a good start toward bringing some sanity to our political system.
Here are some basic facts about Corporations. They do not exist in nature. They are artificial entities that are created by government (in the United States each individual state has its own Corporations law) to allow investors to pool their money to engage in investing. Their purpose is to encourage risk taking and the way that they do that is provide special rules for Corporations. If you or I invest money in something on our own, and something goes really wrong and it really hurts some other people, those people can sue us for everything we have. Corporations were created to allow people to pool their money and if the worst happens, and everything goes really wrong, only the money they put in the Corporation is at risk.
This limited liability protection is a huge benefit that will sometimes result in unfairness to people that are injured. That is how lots of the guys who made millions by selling the borderline fraudulant mortgages that blew up the economy a couple years ago are still sitting on their millions while millions of homeowners suffer. They are protected because they pulled lots of money out while times were good and the Corporations are now insolvent.
That is why the Supreme Court decisions are so non-sensical. Government created these organizations. They could abolish them tomorrow if they wanted. The first Supreme Court decision over 100 years ago was grounded in the right of free association guaranteed in the Constitution. The Supreme Court was evidently unable to figure out that regulating corporations has nothing to do with the right of the people who own corporations to associate, it only regulates the economic terms upon which they are granted limited liability status.
The result is our political process is drowning in so much money it has become almost completely disfunctional. People who want to be in politics spend their lives raising money, they can't make any decision without thinking how it is going to impact their reelection war chest.
We need to start moving toward reversing those Supreme Court decisions. It is unlikely the Supreme Court will do it any time soon. We could move toward an amendment to the US Constitution to clarify that the bill of rights does not apply to Corporations or other entities authorized by the State for economic purposes. But that is a slow process.
It might be quicker to do State by State. Each state has the right to dictate the terms of by which Corporations operate within the State. An initiative measure in California that specified that a Corporation doing business in California is not a person or protected form of association would be a good start toward bringing some sanity to our political system.
Tuesday, October 4, 2011
Factoids from the media regarding the economy
The Economist of August 20, 2011, p. 67 figures out which of the big rich countries have been hardest hit by the recession. Britain is worst. The US and Italy are next on the misery list, then Canada is slightly better, Japan better still, France even better and Germany has fared the best. All the countries have seen negative growth in GDP per person since 2004 excerpt Germany where GDP per person has grown slightly.
Factoids from a Robert Reich article in the Sep 4 San Francisco Chronicle Insight section, p.E5:
1. The last decade has been the worst in a century for American workers. Wage gains in the last 10 years have even lagged behind wage gains during the great depression.
2. Big American corporations make more money, and create more jobs, outside the US than in.
3. CEO pay has soared. The median value of CEO compensation at the 350 biggest Corporations was $9.3 million a year, not including stock options.
Factoids from a Robert Reich article in the Sep 4 San Francisco Chronicle Insight section, p.E5:
1. The last decade has been the worst in a century for American workers. Wage gains in the last 10 years have even lagged behind wage gains during the great depression.
2. Big American corporations make more money, and create more jobs, outside the US than in.
3. CEO pay has soared. The median value of CEO compensation at the 350 biggest Corporations was $9.3 million a year, not including stock options.
Saturday, October 1, 2011
Educating ourselves on the real tax issues
Preface - Few things the government does affects the average citizen more than taxes. When we are wage earners we are often a little oblivious to taxes since they are taken out of our paycheck before we ever see the money. When you are in business you have a little bit different experience - you are confronted with the amount of taxes you pay, and have to actually write a check, on at least a quarterly basis.
Politicians have little incentive to figure out what taxes actually make sense - that takes time, and is hard to explain to people - not to mention it takes a lot of time and thought to figure out what makes sense. So generally whatever lobbying group has a good theory will get their way eventually.
Putting aside the contentious issue of how much taxes to pay, it is in our interest as taxpayers to understand taxes and figure out what taxes make sense, and what taxes don't make sense. All taxes are first and foremost intended to raise revenue for government operations, but different types of taxes have different characteristics, justifications and impacts on our economic well being as a nation.
History - After the great depression and World War II we as a nation had a huge national debt. After nearly a decade of wrangling Congress in 1954 made huge revisions to the United States Tax Code. They built a tax code that balanced the needs of government against the needs of the public well enough that our economy took off and grew for 50 years. Over that 50 years life has been really good here in the United States, so we as voters haven't really paid a lot of attention to taxes, so Congress has gradually let the expediencies of the day (satisfying lobbyists) undermine the carefully negotiated balance that made the 1954 tax Code work.
We are now at a point in our history where we need to make major changes in the way we do government, including a major revision of our tax law, but we are stuck with a Congress still clinging to the self indulgent politics of self satisfied people. We need to go back to basics and remind ourselves that, while all taxes raise revenue, some taxes exacerbate problems in society while others lubricate the smooth functioning of society. Here are some things we need to keep in mind on the three most prominent types of taxes.
The Capital Gains tax - probably more than any other tax the nature of Capital Gains tax insures that it directly impacts economic development. A good Capital Gains tax should encourage people to make the investments in time and energy to build or expand enterprises. This type of investment contributes to building a stronger and more prosperous world for all of us. On the other hand it should not encourage market speculation that is essentially a zero sum game - where for every winner there is a loser and no long term benefit is provided to anyone other than the winner.
One of the big ongoing problems of the Capital Gains tax is we have never indexed the Capital Gains tax for inflation. So Joe, who bought a farm for $50,000 thirty years ago and now wants to retire, sells his farm for $250,000. In the view of the tax code Joe has a $200,000 in Capital Gain. In fact the $50,000 Joe paid 30 years ago may be the equivalent of $250,000 in current dollars, so in fact Joe has no real gain and is essentially being asked to pay tax on his initial investment. We should demand from Congress that any Capital Gain tax should be indexed for inflation.
Another problem of the Capital Gains tax has been many speculator's engaging in zero sum financial market speculation, who provide no real gain to society pay far less tax on their income than folks working 40 hours a week doing productive, necessary work. Speculative gains should be treated no differently than the income wage-earners take home as their way to make a living. This particular issue has become prominent thanks some very wealthy people stepping forward and pointing out the unfairness of this tax.
Income taxes - We want to structure the income tax law to encourage hard work - we don't want to discourage people from taking the time and making the effort to commit themselves to being as productive as possible. On the other had we don't want to income tax to be used in a manner that allows some to benefit more from while paying less tax.
One of the factors that has allowed Congress to undermine the 1954 tax code is folks have sold us on the notion that to be fair we all should pay the same amount on each dollar of tax we paid. That notion is predicated on the assumption we all benefit equally from each tax dollar. Yet many programs are of great value to some and no value to others. The income tax should, to the extent possible, match tax to benefit.
The lack of indexing for inflation has also been a big problem in the income tax, probably the single biggest reason for the taxpayer anger that has resulted from the current mess that is our tax code. Over the years people who's real incomes aren't really increasing get bumped into high tax brackets by inflation. It has been an effective hidden tax for decades. We should demand that Congress index tax brackets for inflation.
Property taxes on land and buildings - The primary reality of property taxes is that they represent the ultimate finite asset. There is only so much property. The free market generally does a good job of relative pricing on land, a house on the Beach at Malibu is always going to be more desirable and vastly more expensive than a house in suburban Riverside. If you want to live in Malibu it is going to cost you.
Inflation also impacts property taxes and has created many of the problems with property taxes in the public mind. People who buy an house and expect to pay a certain level of taxation find their taxes rising through inflation as their home values rise. If they are people on fixed incomes, or find themselves in some area that becomes popular so prices rise rapidly they may be forced out of their house. Not a situation that will create happy voters.
One way to deal with the problem of inflation on property taxes would be to allow people the option of not paying additional tax attributable to inflation and give the taxing authority a lien on the amount of the accumulated additional taxes at the time the house is sold.
Politicians have little incentive to figure out what taxes actually make sense - that takes time, and is hard to explain to people - not to mention it takes a lot of time and thought to figure out what makes sense. So generally whatever lobbying group has a good theory will get their way eventually.
Putting aside the contentious issue of how much taxes to pay, it is in our interest as taxpayers to understand taxes and figure out what taxes make sense, and what taxes don't make sense. All taxes are first and foremost intended to raise revenue for government operations, but different types of taxes have different characteristics, justifications and impacts on our economic well being as a nation.
History - After the great depression and World War II we as a nation had a huge national debt. After nearly a decade of wrangling Congress in 1954 made huge revisions to the United States Tax Code. They built a tax code that balanced the needs of government against the needs of the public well enough that our economy took off and grew for 50 years. Over that 50 years life has been really good here in the United States, so we as voters haven't really paid a lot of attention to taxes, so Congress has gradually let the expediencies of the day (satisfying lobbyists) undermine the carefully negotiated balance that made the 1954 tax Code work.
We are now at a point in our history where we need to make major changes in the way we do government, including a major revision of our tax law, but we are stuck with a Congress still clinging to the self indulgent politics of self satisfied people. We need to go back to basics and remind ourselves that, while all taxes raise revenue, some taxes exacerbate problems in society while others lubricate the smooth functioning of society. Here are some things we need to keep in mind on the three most prominent types of taxes.
The Capital Gains tax - probably more than any other tax the nature of Capital Gains tax insures that it directly impacts economic development. A good Capital Gains tax should encourage people to make the investments in time and energy to build or expand enterprises. This type of investment contributes to building a stronger and more prosperous world for all of us. On the other hand it should not encourage market speculation that is essentially a zero sum game - where for every winner there is a loser and no long term benefit is provided to anyone other than the winner.
One of the big ongoing problems of the Capital Gains tax is we have never indexed the Capital Gains tax for inflation. So Joe, who bought a farm for $50,000 thirty years ago and now wants to retire, sells his farm for $250,000. In the view of the tax code Joe has a $200,000 in Capital Gain. In fact the $50,000 Joe paid 30 years ago may be the equivalent of $250,000 in current dollars, so in fact Joe has no real gain and is essentially being asked to pay tax on his initial investment. We should demand from Congress that any Capital Gain tax should be indexed for inflation.
Another problem of the Capital Gains tax has been many speculator's engaging in zero sum financial market speculation, who provide no real gain to society pay far less tax on their income than folks working 40 hours a week doing productive, necessary work. Speculative gains should be treated no differently than the income wage-earners take home as their way to make a living. This particular issue has become prominent thanks some very wealthy people stepping forward and pointing out the unfairness of this tax.
Income taxes - We want to structure the income tax law to encourage hard work - we don't want to discourage people from taking the time and making the effort to commit themselves to being as productive as possible. On the other had we don't want to income tax to be used in a manner that allows some to benefit more from while paying less tax.
One of the factors that has allowed Congress to undermine the 1954 tax code is folks have sold us on the notion that to be fair we all should pay the same amount on each dollar of tax we paid. That notion is predicated on the assumption we all benefit equally from each tax dollar. Yet many programs are of great value to some and no value to others. The income tax should, to the extent possible, match tax to benefit.
The lack of indexing for inflation has also been a big problem in the income tax, probably the single biggest reason for the taxpayer anger that has resulted from the current mess that is our tax code. Over the years people who's real incomes aren't really increasing get bumped into high tax brackets by inflation. It has been an effective hidden tax for decades. We should demand that Congress index tax brackets for inflation.
Property taxes on land and buildings - The primary reality of property taxes is that they represent the ultimate finite asset. There is only so much property. The free market generally does a good job of relative pricing on land, a house on the Beach at Malibu is always going to be more desirable and vastly more expensive than a house in suburban Riverside. If you want to live in Malibu it is going to cost you.
Inflation also impacts property taxes and has created many of the problems with property taxes in the public mind. People who buy an house and expect to pay a certain level of taxation find their taxes rising through inflation as their home values rise. If they are people on fixed incomes, or find themselves in some area that becomes popular so prices rise rapidly they may be forced out of their house. Not a situation that will create happy voters.
One way to deal with the problem of inflation on property taxes would be to allow people the option of not paying additional tax attributable to inflation and give the taxing authority a lien on the amount of the accumulated additional taxes at the time the house is sold.
Monday, September 26, 2011
The Common sense economics test
Here is a simple question that I find useful in evaluating the political rhetoric coming out of Washington.
What is the root of our current economic problems:
1. Are there not enough products or services for people to buy?
Or
2. Is there not enough money in peoples pockets to buy products?
Each time some politician floats some notion about how to "create jobs and get our economy going" you should ask which (if either) of these two problems that solution will address.
For example -
1. Cutting Corporate taxes - Relevant data - American Corporations have been making record profits the last couple years and are sitting on big piles of money. Will giving them another tax cut cause them to suddenly start hiring? Is it possible the reason they aren't hiring is because they know there aren't enough consumers to buy more products?
2. Cutting the deficit by cutting the size of Government - The same data as above that suggests companies aren't hiring because there aren't enough consumers with money to spend also seems to undermine any claim cutting government is going to somehow boost the economy. Common sense says what this will do for sure is take more money out of the pockets of more potential buyers - from private company employees who get laid off because the company lost a Government contract, to Government workers laid off because their agencies budget got axed. A balanced budget is a goal we should strive for, but doing it right now would be like tearing out an "extra" wall in your house in the middle of an earthquake.
What is the root of our current economic problems:
1. Are there not enough products or services for people to buy?
Or
2. Is there not enough money in peoples pockets to buy products?
Each time some politician floats some notion about how to "create jobs and get our economy going" you should ask which (if either) of these two problems that solution will address.
For example -
1. Cutting Corporate taxes - Relevant data - American Corporations have been making record profits the last couple years and are sitting on big piles of money. Will giving them another tax cut cause them to suddenly start hiring? Is it possible the reason they aren't hiring is because they know there aren't enough consumers to buy more products?
2. Cutting the deficit by cutting the size of Government - The same data as above that suggests companies aren't hiring because there aren't enough consumers with money to spend also seems to undermine any claim cutting government is going to somehow boost the economy. Common sense says what this will do for sure is take more money out of the pockets of more potential buyers - from private company employees who get laid off because the company lost a Government contract, to Government workers laid off because their agencies budget got axed. A balanced budget is a goal we should strive for, but doing it right now would be like tearing out an "extra" wall in your house in the middle of an earthquake.
Sunday, September 25, 2011
Rush Limbaugh is Amazing
He was disdainful of those who objected to the 1997 changes to the Capital Gains tax that turned the housing market in a casino for speculators and helped bring down the economy within a decade.
He dismissed those who opposed the repeal of Garn-St Germain, the banking law enacted after the 1929 stock market crash to keep banks from mixing their banking functions with their investing function. Within a decade taxpayers were laying out hundreds of billions of dollars to bail out banks whose stupid investments had undermined their ability to function as banks.
He riduculed the people who suggested that invading Iraq might not be a good idea.
He was a big cheerleader for the Bush era tax cuts that played a big part in our current deficit and continued the ongoing process of lining rich peoples pockets with money that otherwise would have reduced the government debt.
Rush has consistently been on the wrong side of every major policy decision in the last twenty years, and he still has millions of devoted followers. He is an amazing entertainer.
He dismissed those who opposed the repeal of Garn-St Germain, the banking law enacted after the 1929 stock market crash to keep banks from mixing their banking functions with their investing function. Within a decade taxpayers were laying out hundreds of billions of dollars to bail out banks whose stupid investments had undermined their ability to function as banks.
He riduculed the people who suggested that invading Iraq might not be a good idea.
He was a big cheerleader for the Bush era tax cuts that played a big part in our current deficit and continued the ongoing process of lining rich peoples pockets with money that otherwise would have reduced the government debt.
Rush has consistently been on the wrong side of every major policy decision in the last twenty years, and he still has millions of devoted followers. He is an amazing entertainer.
Thursday, September 22, 2011
Nature v. Nurture
My entire adult life all of social and biological science has been engaged in the dispute that either DNA or Socialization can explain everything about human behavior. The biologists can explain a lot at one end of the spectrum with DNA. The Social Sciences can explain a lot at the other end of the spectrum with learned experience. But for all of my life it has been equally apparent that neither, nor both, explanations can begin to account for the richness and diversity of humanity.
It drives me crazy. The data is out there to fill in the gap between nature and nurture, and, to me, has been for years, decades in some cases.
When I was in college nearly 40 years ago I learned that our brain has lots of different systems for processing data that all overlap in the mass of wiring in our head. Different systems use different chemicals (nuerotransmitters) to differentiate their communications from the overlapping systems communications. At that time people had known for decades the many of these neurotransmitters were cyclical. Some would be more prevalent in the spring or fall, whereas others might be more prevalent in the summer and the winter. Some of the cycles were complementary, other of the cycles seem unconnected to other cycles. For some neurotransmitters there are daily and yearly cycles, for others there are monthly and yearly cycles.
Being a non-scientist I was free to leap to the conclusion this sounded like astrology to me. The fluctuations of these chemicals in the first year of developing life would be different for every person, as we would all start from a slightly different mix than anyone else. I wasn't the only one to see this intriguing connection. In the early 1980's a researcher reporting on a study at the National Institute of Health on nuerotransmitter cycles was quoted as saying something like ...this sort of sounds like astrology - isn't that amusing, we aren't of course taking that seriously - I knew at the time he couldn't say there might actually be some core truth to astrology because that would have ended his career.
40 years later DNA or learned experience are still the only options on the table for explaining personality for the social and hard sciences. This despite the fact biologists have discovered that women born in the spring reach menopause well before women born in the fall. Recent studies have found humans exhibit three different mixes of bacteria that live in our gut, the variation between people doesn't seem to be related to DNA, upbringing or life style. Your blood type can't really be explained with DNA, upbringing or lifestyle.
Business has not been so timid. Auto insurers have done studies and discovered that Gemini's are the worst drivers, Capricorns the best. A fact that was floated out into the media land then disappeared.
I'ts unfortunate that science has ceded astrology to commerce. Astrology predated modern science by hundreds, if not thousands, of years. Commerce in astrology by folks quite willing to go far beyond what traditional astrology is capable of doing was established long before science came on the scene. The folks willing to say whatever you need to say to make the sale are still profiting in the little books in the supermarket checkout line, the blurbs about your daily horoscope in the newspaper, even the charts done by professional astrologers. If science could get beyond its disdain for rampant commercial hucksterism the underlying body of observational data could be a road map toward research delineating how variations in nuerotransmitter cycles impact our development and personality.
It drives me crazy. The data is out there to fill in the gap between nature and nurture, and, to me, has been for years, decades in some cases.
When I was in college nearly 40 years ago I learned that our brain has lots of different systems for processing data that all overlap in the mass of wiring in our head. Different systems use different chemicals (nuerotransmitters) to differentiate their communications from the overlapping systems communications. At that time people had known for decades the many of these neurotransmitters were cyclical. Some would be more prevalent in the spring or fall, whereas others might be more prevalent in the summer and the winter. Some of the cycles were complementary, other of the cycles seem unconnected to other cycles. For some neurotransmitters there are daily and yearly cycles, for others there are monthly and yearly cycles.
Being a non-scientist I was free to leap to the conclusion this sounded like astrology to me. The fluctuations of these chemicals in the first year of developing life would be different for every person, as we would all start from a slightly different mix than anyone else. I wasn't the only one to see this intriguing connection. In the early 1980's a researcher reporting on a study at the National Institute of Health on nuerotransmitter cycles was quoted as saying something like ...this sort of sounds like astrology - isn't that amusing, we aren't of course taking that seriously - I knew at the time he couldn't say there might actually be some core truth to astrology because that would have ended his career.
40 years later DNA or learned experience are still the only options on the table for explaining personality for the social and hard sciences. This despite the fact biologists have discovered that women born in the spring reach menopause well before women born in the fall. Recent studies have found humans exhibit three different mixes of bacteria that live in our gut, the variation between people doesn't seem to be related to DNA, upbringing or life style. Your blood type can't really be explained with DNA, upbringing or lifestyle.
Business has not been so timid. Auto insurers have done studies and discovered that Gemini's are the worst drivers, Capricorns the best. A fact that was floated out into the media land then disappeared.
I'ts unfortunate that science has ceded astrology to commerce. Astrology predated modern science by hundreds, if not thousands, of years. Commerce in astrology by folks quite willing to go far beyond what traditional astrology is capable of doing was established long before science came on the scene. The folks willing to say whatever you need to say to make the sale are still profiting in the little books in the supermarket checkout line, the blurbs about your daily horoscope in the newspaper, even the charts done by professional astrologers. If science could get beyond its disdain for rampant commercial hucksterism the underlying body of observational data could be a road map toward research delineating how variations in nuerotransmitter cycles impact our development and personality.
Sunday, September 18, 2011
Red State / Blue State - The odd case of biting the hand that feeds you
I have previously alluded to the curious fact that Republicans, who are seeking to cut government spending get their greatest support in States who actually receive more money back from the Federal Government than they pay in taxes, while the Democrats who defend government spending generally represent the states that pay more than the get back.
A September 11 opinion piece by Robert Reich broke it down into detail, using statistics from the Tax Foundation. Mr. Reich did not specify which figures from the Tax Foundation he used but it appears he used the figures from 2005, the most recent data they have (see link to the study itself below).
Kentucky, Alabama, Louisiana, Alaska and Mississippi all get more than $1.50 back from the Government for every dollar they pay in taxes. The top beneficiary is Mississippi at $2.02 back for every dollar of taxes spent, followed closely by Alaska at $1.84 back per $1 paid. Pretty good return on investment I would say.
Arizona, Oklahoma, Arkansas, Montana, Nebraska, Wyoming and Kansas all get back between $1.10 and $1.50 per $1 paid.
The Red State exception is Texas who get only $.94 back for every dollar paid.
The largest Blue States on the other hand, are footing most of the bill. Californians get back 78 cents for every $1 paid. New York 79 cents, Massachusetts 82 cents and Oregon 92 cents.
Here is the link to the actual compiled data by State for the period from 1961 to 2005 (they say they are compiling more current data) http://www.taxfoundation.org/research/show/22685.html
A September 11 opinion piece by Robert Reich broke it down into detail, using statistics from the Tax Foundation. Mr. Reich did not specify which figures from the Tax Foundation he used but it appears he used the figures from 2005, the most recent data they have (see link to the study itself below).
Kentucky, Alabama, Louisiana, Alaska and Mississippi all get more than $1.50 back from the Government for every dollar they pay in taxes. The top beneficiary is Mississippi at $2.02 back for every dollar of taxes spent, followed closely by Alaska at $1.84 back per $1 paid. Pretty good return on investment I would say.
Arizona, Oklahoma, Arkansas, Montana, Nebraska, Wyoming and Kansas all get back between $1.10 and $1.50 per $1 paid.
The Red State exception is Texas who get only $.94 back for every dollar paid.
The largest Blue States on the other hand, are footing most of the bill. Californians get back 78 cents for every $1 paid. New York 79 cents, Massachusetts 82 cents and Oregon 92 cents.
Here is the link to the actual compiled data by State for the period from 1961 to 2005 (they say they are compiling more current data) http://www.taxfoundation.org/research/show/22685.html
Monday, September 12, 2011
A balanced budget amendment
Republicans in the House have been arguing for a balanced budget amendment. I believe this is a good idea and merits serious attention.
It is a simple truth about democracy that it is politically difficult to impose taxes and politically easy to spend money. We the voters pretty much all dislike paying taxes and we all like getting things from the government. History demonstrates the universality of the result from that basic truth. Democratic Governments around the world are saddled with pension and debt obligations they can no longer hide behind accounting tricks and rosy economic forecasts.
This is not a good time for the US to start trying to immediately balance its budget. In our current economic condition it would cause further economic weakness and higher unemployment. But it is an opportunity to begin the long process of having States adopt a balanced budget amendment that would take effect in the future. For example the amendment could be worded so it would not take effect until the US economy hit some specified targets in unemployment and GDP growth.
What else might we want in a balanced budget amendment package?
How about requiring Congress to index tax rates so they can't use inflation and the subsequent bracket creep to impose stealth taxes? In the same way benefits should be indexed to whatever assumptions they are based on. For example the life expectancy data that Social Security is based on should adjust automatically as our data about life expectancy changes.
How about we require Congress enact any appropriation, tax credit or other monetary benefit be enacted in a separate bill from substantive law provisions, and provide an item veto for the President to give voters one person to hold accountable for nonsensical earmarks? Congress currently passes thousands of little perks and tax cuts every year that almost nobody knows about until after the fact because they are buried in huge bills that are hundreds, or thousands of pages long.
I know that some argue a balanced budget amendment is unnecessary, that Congress could/should create rules to impose the necessary discipline on the process. But the historical reality is Congress won't. In the last thirty years the only time having a balanced budget became an important political issue is when Republicans are out of power and have used the issue to bully the Democrats into paying attention to the deficit. But the biggest deficits have been generated by the Republicans when they have taken over the Congressional agenda. All the rules the Republicans and Democrats imposed in the early 1990's that led to balanced budgets in the late 1990's have been repealed, sidestepped or ignored from 2002 to the present.
A balanced budget amendment would remove the issue from political football status. It would limit the ability of both Republicans and Democrats to buy votes ( - ooops, I mean "serve their constituents") by spending government money now and forcing voters of the future to deal with the paying the bill.
It is a simple truth about democracy that it is politically difficult to impose taxes and politically easy to spend money. We the voters pretty much all dislike paying taxes and we all like getting things from the government. History demonstrates the universality of the result from that basic truth. Democratic Governments around the world are saddled with pension and debt obligations they can no longer hide behind accounting tricks and rosy economic forecasts.
What else might we want in a balanced budget amendment package?
How about requiring Congress to index tax rates so they can't use inflation and the subsequent bracket creep to impose stealth taxes? In the same way benefits should be indexed to whatever assumptions they are based on. For example the life expectancy data that Social Security is based on should adjust automatically as our data about life expectancy changes.
How about we require Congress enact any appropriation, tax credit or other monetary benefit be enacted in a separate bill from substantive law provisions, and provide an item veto for the President to give voters one person to hold accountable for nonsensical earmarks? Congress currently passes thousands of little perks and tax cuts every year that almost nobody knows about until after the fact because they are buried in huge bills that are hundreds, or thousands of pages long.
I know that some argue a balanced budget amendment is unnecessary, that Congress could/should create rules to impose the necessary discipline on the process. But the historical reality is Congress won't. In the last thirty years the only time having a balanced budget became an important political issue is when Republicans are out of power and have used the issue to bully the Democrats into paying attention to the deficit. But the biggest deficits have been generated by the Republicans when they have taken over the Congressional agenda. All the rules the Republicans and Democrats imposed in the early 1990's that led to balanced budgets in the late 1990's have been repealed, sidestepped or ignored from 2002 to the present.
A balanced budget amendment would remove the issue from political football status. It would limit the ability of both Republicans and Democrats to buy votes ( - ooops, I mean "serve their constituents") by spending government money now and forcing voters of the future to deal with the paying the bill.
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