More Or Less?
Phil Angelides of the Washington Post makes the liberal argument for tax increases. It is similar to the one made by Robert Reich in this video. Essentially the story goes like this. All the profits in the economy have been captured over the past decades by a small number of capitalists. This is reflected in growing income inequality in America. Middle class wages have stagnated because they haven’t shared in the wealth. The deficit, according to this narrative, is primarily caused by a refusal of the capitalists to pay higher taxes. If taxes were raised then most of the fiscal problems of the country would be over and much of the entitlement crisis would go away.
Angelides argues it is time to take some of that money out of the hands of the hoarders and ‘put it to work’. He writes:
Over the past decade, we squandered trillions of dollars on rampant speculation rather than on making investments — in technology, infrastructure, clean energy and education — that increase our productivity and economic strength. The financial sector’s share of corporate profits climbed from 15 percent in 1980 to 33 percent by the early 2000s, while financial-sector debt soared from $3 trillion in 1978 to $36 trillion by 2007. With tens of millions still unemployed, isn’t it time to shift from an economy based on money making money to an economy based on money creating jobs and genuine prosperity?
I have several questions about the accuracy of this narrative. First, if the capitalists made all this money and it has remained untaxed because it largely subject only to capital gains, it should have been reinvested in the economy. The rich do not consume as great a proportion of their income as the rest of us. So that money should have been ‘put to work’ and everything should be going great guns. Second, what in the narrative broke the economy to make it change its behavior so drastically? Did it happen by itself, or did it occur due to some political development which the Democrats now intend to rectify. The third question goes from the second: who is this “we” who is going to fix the economy? Who is this we who is going to take the money from the rich and ‘put it to work’? Is it the people in the administration?
I’d like to offer up an alternative narrative largely on intuition. If markets worked well we would not observe the results posited by Reich and Angelides. Money would be reinvested according to its highest marginal return and the economy would grow — and incomes with it — as fast as possible. Nor would we see the sudden emergence of a class of super-rich. The scenario being described by both is much more consistent with a crony capitalist scenario. If at some point rent seeking beyond market rates became possible, resources would be driven to uses that were economically unproductive but monetarily lucrative. The financial services industry and housing come to mind, but others may suggest themselves to the reader.
That would also give sudden rise to a group of super rich. America, in short, would begin to look like a Latin American economy because a crony class had emerged. This is an important problem to consider because even if the voters were to grant President Obama the power to tax away all that money and ‘put it to work’ it would only serve to increase, not decrease, the trend towards crony capitalism. Cronyism arises when the government becomes so powerful that it becomes imperative for industry to capture the regulator in order to prosper. That tendency will be exacerbated, not diminished, by giving government ever more power.
If the government were much less able to influence the market, there would be little point to lobbying government. Anyone who made a profit would face the choice between consuming the profit or reinvesting it. If he decides to reinvest it, there he would have little choice but to choose the alternative with the highest margin return, which in a well functioning economy, corresponds to actual productivity.
One of the problems with both Angelides narrative and the alternative presented above is that is a contrast between ideals. In the real world, nothing is ideal. But which point of view will predominate? That is the intellectual question behind the budget ceiling debate. The President wants taxes raised so he can fix the economy and probably help a few friends along the way. The GOP, perhaps not for the purest of reasons, wants no further taxes. Thus, the lines are roughly drawn around the question of “more” or “less” government. Within that larger choice, there’s probably a lot of fine print to be considered. But those are the choices.
“No Way In” print and Kindle edition at Amazon
This is irony on steroids: Angelides IS a crony capitalist — in the extreme.
He made his fortune buying up bottom lands — zoned to prohibit structures since they are in the flood plains near Sacramento — flood plains that have been swamped time and again in recent history.
He had his pals simply re-zone them during the housing boom — and over night his property went up 1,000 times in value.
So the next thing you know, the local fish-wrap is demanding vast new spending by the Corps of Engineers to stop the inevitable.
And so it is, a huge spending campaign is underway to shore up all of the levees.
All of the profit went to Phil — and the downside goes to the public purse.
He should be stripped of all his money — it being sent to the Corps of Engineers.
His scam is no different than AGI FP; taking the front money and hiding the risk.
The natural way to bring the billionaires to earth is to let them go bust — and in particular sue them in civil courts for their corruption.
Criminal cases this complicated cannot succeed. Since the damage is financial — civil justice is more than adequate.
It’s like Ruthless People: Sam Stone’s entire being is of his money. You never need pen him up for him to feel real pain.
All systems can and will be gamed.
The bigger the system, the bigger the game.
The smaller the system, the smaller the game.
Only a sharpened system can be simultaneously small and effective.
So the Left can make the argument that the rich have too much and this is unjust. “Property is theft,” “to the barricades,” “to each according to his needs,” yadda, yadda, yadda. However, the economy is weak, and they need to explain how punishing people — entirely separate from the justice of punishment — will do anything helpful for the economy.
We just had this argument last December, when the President caved on a campaign promise and a lame-duck Congress with a Democrat majority in both houses extended the Bush tax cuts. Are they going to take the opposite tack now — closer to the election.
Clearly, the debt limit raises the stakes this time around, but the President still has a hard sell. Will he veto a spending cut bill that extends the debt limit because it doesn’t have tax increases? He’ll likely get the opportunity. I doubt Sen. Reid will be able to keep it off his desk given how many vulnerable Democrat Senators there are. How will that play with the American people?
“The third question goes from the second: who is this “we” who is going to fix the economy? Who is this we who is going to take the money from the rich and ‘put it to work’? Is it the people in the administration?”
Why the learned Marxist elite, that’s who. The ones who know to invest responsibly taking “sustainability” and all sorts of “sensitivities” into account. In other words, hyperpolitized central planning. Look at how well it works in Cuba and North Korea.
Neither Angelides nor Reich have outgrown their 1970′s Ivy League Marxist indoctrination. Imagine spending your entire life dedicated to an ideology that was meant to address income inequalities during the pre-Civil War Industrial Revolution, then trying to apply it to economic problems 160 years later. Wait…sounds like every Dem in Washington…
I just finished reading Reckless Endangerment. It outlines how crony capitalism/political policy caused the housing bubble and resulting financial meltdown. Tax policy, labor policy, entitlement formation, pro-labor court rulings, EPA overreaching, Clean energy (wind/solar), etc. are all driven by Democrap party fantasy politics. All have much more impact on the REAL market and how business allocates/reacts than this specious hypothesis of Angelides. His whole purpose is to propogandize and protect Democrat/socialist ideas. A classic case of misdirection away from the real cause of this economic distortion; BIG GOVERNMENT !
Does anybody besides me smell flop sweat and suspect that fear is motivating these vacuous statements?
The scenario being described by both is much more consistent with a crony capitalist scenario. If at some point rent seeking beyond market rates became possible, resources would be driven to uses that were economically unproductive but monetarily lucrative. The financial services industry and housing come to mind, but others may suggest themselves to the reader.
absodamnlutely, wretchard.
let me go one further. let’s say some greedheads discovered they could monetize and pocket the entire wealth of this country by selling it piecemeal to the Chinese. evidence of this would be 10,000,000 jobs moved from the US to China.
gung hay fat choy
w: Cronyism arises when the government becomes so powerful that it becomes imperative for industry to capture the regulator in order to prosper.
The issue is balance. Government grew in size and power as a direct counterweight to the deficiencies of the Industrial Revolution – labor laws, work conditions, and the big one, profit distribution between labor and management. Government did not spontaneously combust in a vacuum devoid of exigent content.
Now it needs to be peeled back – to the 20% level. Some structural fixes to SS and reconfiguring the ME engagement from full blown military to targeted intelligence operations will bring us a third to half way back. Asking the Warren Buffett class to pay the same tax rates as the middle class is packaged as an issue of fairness, which is fine, but loaded with populist critique. In reality it’s an issue of common sense. There’s no ‘soak the rich’ element here. It’s simple math.
Obama makes another good point. His teen and pre-teen daughters, 13 and 9, manage to do their homework without ‘pulling all nighters.’ Why can’t Congress? Learning how to sweat diligently for the cameras?
I would add to W’s points:
1) I will wager that they have indulged in a bit of goalpost moving as regards the so-called “inequality” of the distribution of wealth by “class”. It would be a real service to have someone knowledgeable look at their methodology here. My guess is that they have manipulated categorizes at least to some extent. There is another factor though that effects this statistic: immigration, legal or illegal. I would guess that we are allowing in a lot more poor people than rich ones.
It would be best to divide it into 20 levels and look at growth of things such as income, size of each level and economic sector (and party affiliation as well). This can be mapped against taxation, GDP and inflation. My guess is that if we should do this, much of what they say will be proved to be nothing but propaganda.
2) Along with #1 there is a bit of rhetorical dishonesty. It involves using percentages of growth. If I make $5 an hour and you make $1 and we both double our income, then, even though you have doubled you income, “the gap” has widened. Again, what is their data? What is their method?
3) Even of we accept their figures–a dubious proposition, I know–how do they account for government caused inflation. The accusation that “the rich” are to blame seems not to have been honestly dealt with at all. One can also throw in support for matters of outsourcing, outright obstructions of commerce, such as the drill moratorium, stifling energy policies and to be fair, trade agreements. None are considered.
4) What about unions and regulations?
5) The actual wages has been going up in dollar terms. How do they account for the notion that it is “Stagnant”?
5) They always use the New Deal as the starting point for these figures and do not include any period before that. This shows an unacknowledged bias that assume that the looting of the “upper classes” during their sample window is both moral and natural. Neither is the case: It is artificial and immoral,
6) They refuse to mention the effects of the growth of government spending, taxes or regulations on the Middle class proper.
7) Related to #1 and #6, quite subtly, they have shifted the definition of the “middle class” to mean “working class”. The notion of the “middle class” being SME owners, which has been the traditional one, here evaporates.
One could go on.
So: their methodology is as questionable as is the sincerity of their arguments.
Thus they are lying yet again. It needs to be strongly argued against for it is just the same old hustle. After they have stolen that money nothing will have changed other than more wealth destruction.
In truth, they have not change one whit since the great depression. It is still the same old rhetoric. There is a real danger that they will get away with it again.
Looks like yet another con job; Looks like more agi-prop, and it is straight out of the 1930′s.
And sadly, it works. People have this idea that their is this new class of Rockefellers and Morgans out there. I rather doubt it is true, but if they are I bet that their well derives from government, and it is even more likely that they are Democrats.
We seem to be relivong the interwar period all over again.
It goes to show that they cannot be reasoned with; they must be ousted.
W: The President wants taxes raised so he can fix the economy
Huh?
Oh come on W, you cannot really believe that, can you?
Let’s be clear here. They just don’t want to tax The Rich more but they want to tax them more and have them sell their mansions and yachts and invest the money in, oh, say, “Green” energy projects or recycling efforts or electric cars, or General Electric, or educational foundations run by 60′s radicals or car companies run by the government and the UAW. Communists want to butcher the cow; socialists want to milk it. The Reiches and Angelides want to do both.
And aside from that inherent impossibility, as I have said before, I have no idea how you “horde” anything. Even if you buy up real physical assets and lock them up in the Batcave under Stately Wayne Manor, you are still supporting the currency as well as the industry required to create said assets. Even if they are foreign made assets the middleman in the US and the government gets their cut.
Oh, if it works, they should go play it in Greece.
While I’m waiting for the IRS to go after everyone who is underwater … due to the real estate bubble bursting … And, then making those homeowners cough up their “profits.”
Loons.
Maybe, when governments CUT BACK on socialism, the patients will begin getting cured.
But taxing people? It’s up there with sticking leeches on their backs. Will the new medicine be the old medicine?
Great. What Reich is giving us is another “stash” narrative, the same one that Michael Moore gave us a couple months ago. If only the rich and the big corporations would “invest” their “stash” in “creating jobs,” the economy would boom, and would do so “equitably.” The rich are “holding out on us” or something, like the money belonged to us (well, admittedly, in the case of crony capitalism, some of it does belong to us if the big corporation, like GE, made money on big and unneeded federal programs).
isn’t it time to shift from an economy based on money making money to an economy based on money creating jobs
Now that’s the other huge fallacy the left always falls into: it’s not about creating jobs, but it’s about creating goods and services that people actually want and will pay for; That creates jobs and prosperity.
YBR: Government grew in size and power as a direct counterweight to the deficiencies of the Industrial Revolution…labor laws, work conditions, and the big one, profit distribution between labor and management
This is false in premise, surmise and conclusion.
None of these conditions were the cause of the so-called Industrial Revolution, and in fact it was that “revolution” that mitigated those “conditions” and not “government” in the large or the small. You comments smack more of Union and leftist propaganda than historical fact.
The growth of government is due the growth of Collectivist movements and parties in the modern period, mostly cause by the Crisis of WW1 and the effectiveness of these movements in manipulating “mass opinion” in the Western world, particularly in the interwar period. That crisis allowed the fringes to come to the fore when in normal times they would have not been taken seriously at all. It also, highly correlates to the growth of mass democracy, which, of course, is a direct result of the wealth generates by the “industrial Revolution” and a narrowing of relative wealth between the “classes”. It is a case of opportunistic Marxist class warfare and not the “inequities” of the Industrial Revolution and Modern Capitalism.
Most particularly in the USA there is not much correlation at all with the growth of government and your imagined deficiencies of “the Industrial Revolution”. The 1930′s are far from this revolution in time, and the independent middle class was vast.
You have to take the crony out of the system. You also need to prevent the creation of both entitlement class and the inherited wealth bluebloods. Change inheritance taxes to 0 for the first 10 mill, 100% for the rest. Put that money in a separate fund and establish criteria for 2nd and 3rd generation welfare recipients to withdraw start-up capitol. Stick it under the SBA to avoid creating another bureaucracy and see if it works.
For the here and now, we need a run on the banks. That will collapse the whole corrupt system, leaving a lot of cronies looking for shovel ready work. Not least among them that big crony in the Oval Office.
The hint of a bank run will remind the cronies that the Sheeple have the real power, when they choose to exercise it. We need to schedule the bank run so as to take out loans the week before. Just like the cronies do.
I think that growing income inequity is the sign that something is wrong in the economy. The question is what is wrong. Markets do fail, very often from lack of information, but more often, I think, when the playing field isn’t leveled.
One of the roles of government is to provide a “level” playing field through the legal framework. Often it achieves precisely the opposite. What constitutes a level playing field is a specific policy question. What interests me is whether more government is necessarily better government.
There’s probably an optimum between the “law of the jungle” and planned society. We find that point by heuristics. So in some sense the question is an empirical one. Is more government going to ‘put money to work’ or is it going to basically gum up the works even more?
More interestingly, how would we know if we’re moving in the direction of improvement. One reason why the Federal system is so interesting is that it allows real-life laboratory experiments. What has experience in the last decade shown about the relationship between government’s role and the economy?
I think there is now a consensus that deficit spending at this rate is unsustainable. The real issue is now how to cut the deficit. The Democrats offer up a solution based on increasing taxes coupled with some cuts. The Republicans tend to push the cuts. The heuristic that is driving this choice in the direction of no-tax-increases comes from the apparent failure of the first two years of the Obama administration to “fix” the problem. It tends to tell even the poor that “we tried government and it didn’t work”. Had it worked then the pressure would be all on the Republicans to raise taxes. It is this experience plus the Euro debacle which is sending the message that maybe more government is not the best solution for this problem. Some will say, “it ain’t so”, but it sure looks that way.
MA15: None of these conditions were the cause of the so-called Industrial Revolution
Nowhere did I say that. Nowhere. I suspect you mean to say: “the Industrial Revolution caused none of these conditions” in which case we have a dispute.
As for “imagined deficiencies”, hogwash. Black lung disease. To long for a return to those days is industrial strength insanity.
The wealth disparity is entirely the mathematical effect of the leveraged class vs the prudent class.
LTCM blew-up more than a decade ago.
http://en.wikipedia.org/wiki/Long-Term_Capital_Management
It was the acme of the leveraged class.
What happened is — they were wrong.
But instead of letting the millionaires eat their pudding — the Fed lubed up Wall Street.
The only way forward is to drive these hyper-punters broke.
Instead, the Fed keeps ratifying their wagers.
We also need a Tobin tax, ASAP, to stop the front-running algos from flat-lining the markets — all of them.
——
Greenspan permitted the Great Immoderation — and thusly fueled the Congressional money narcosis.
Structured to end bank runs — the Fed has devolved into AIG FP on steroids.
The Bernanke has boxed himself in — yet keeps jerking on the controls.
——-
For politicians the buzzword is always job creation. Ironic, no? No politician ever creates jobs — they burn them down with taxation and red tape.
What the nation needs is profits. The reason the Great Depression ended: profit margins were restored!
Yes, it’s that simple.
Solid profits make the system run.
Bank on it.
————
So now comes the Wan. He’s a profit destroyer. The result of marxist sand in the gears is predictable: crunch time.
————
Consider the controversy between Amazon and California. California wants to put a sales tax on Amazon referrals.
Now what is the correct public policy in this case? Is this a tax on Amazon or is it a tax on the consumer? The California residents would have had to pay income tax on their income from Amazon referrals anyway, but it may have been harder to collect than a sales tax on Amazon. The devil is in the details.
#17 Wretchard
First, the Democrats vastly overstate the increase in income disparity, mostly by using household income statistics rather than income per capita or income per worker.
Second, the American founders rightly held the opinion that smaller government was better government. They distrusted the idea that cronyism could every be held in check because they thought it inherent to human nature. Cronyism was controlled by keeping the government as modest as possible, which reduced the opportunities. Keeping government small was itself a guarantee of freedom in their eyes.
The founders created a system to keep the government small which itself has been dismantled over the course of American history:
1) Limited Tax Power — Originally taxes were restricted to customs and excise taxes. This was overturned by the 16th Amendment.
2) Robust State Power to Counteract Federal Authority — State interests controlled the US Senate via the election process. This was overturned by the 17th Amendment.
3) The Commerce Clause Limiting Federal Power — The Supreme Court has written this out of the Constitution, although it was probably doomed after the 17th Amendment because enforcement was always more through Congress than the courts.
4) Watering Down of Legislative Power and the Rise of the Administrative State — The courts now allow any number of federal agencies to exercise regulatory powers that are indistinguishable from legislation.
The upshot is that Pandora’s box was opened. The field of endeavor open to cronyism has expanded a thousandfold since the founding. The Federal Government is necessary and proper within its prescribed bounds. But it left those long ago.
Black lung disease? A non sequitur. You imagine that before the industrial revolution that people lived “healthy lives” and therefore there was no “big government”? If they made it to 35 they were lucky prior in the old agricultural regime.
Now that is hogwash.
That there were unsafe working conditions during the industrial revolution is not in dispute, there are always unsafe conditions, the point is that the Industrial Revolution did not cause most of them and that the growth in government was not a legitimate attempt to counter these conditions. Moreover, for every miner there were at least 10,000 whose lots improved.
You evaded all my points. Perhaps that is because you have your nose in Dickens, Sinclair or some other Left-wing or Progressive agi-prop. Your response is weak, and my points still stand.
Again, you are wrong in premise, surmise and conclusion.
Regurgitating agi-prop and foot stomping will not change this.
Hogwash indeed.
Perhaps that is because you have your nose in Dickens, Sinclair or some other Left-wing or Progressive agi-prop.
Dickens? Sinclair, yes, but Dickens? Charles Dickens was witness to the same abuses as was Karl Marx, but he had a decidedly un-Marxist approach to reform. Dickens was a champion of the emerging middle class, and believed that the path to industrial reform wpuld be eased by a growing and civilizing British middle class, which happened in the so-called Victorian era that followed the period covered in Dickens’ earlier novels. He loathed revolutionaries and radicals, and wrote Tale of Two Cities at a time when he was alarmed at the possibility of open rebellion in Britain.
‘Tax the rich’ is a lame cover for taxing the upper middle classes. The truly rich’s wealth is mostly sheltered and in invested capital. The upper middle classes are the successful small business owners, professionals and upper middle managers. All living mostly on salary or retained earning.
Some, perhaps Rober Reich, might be too daft to think this through, other’s know exatly that they’re trying to marginalize or even destry the self reliant middle classes.
w@17: The heuristic that is driving this choice in the direction of no-tax-increases comes from the apparent failure of the first two years of the Obama administration to “fix” the problem. It tends to tell even the poor that “we tried government and it didn’t work”.
Part of the Obama administration “fix” included extending the Bush tax cuts.
Which were part of what “didn’t work.”
“Does anybody besides me smell flop sweat and suspect that fear is motivating these vacuous statements?”
Yes. Thugs live by fear an intimidation. That is because thugs are fearful and easily intimidated. That is why I like the bank run as an idea. Banks create phoney wealth.
Assets = Liabilities + Owners Equity Or in it’s pristine form (Assets – Liabilities = Owner’s Equity)
Loans go on a bank’s books as assets because they create a revenue stream. At the same time that loan goes on the bank’s book’s as a liability, since the actual loan will be spent. That puts it in circulation. Which in turn the money that is spent has to be paid by the bank that wrote the loan. Sounds funny? It is.
Say L3 borrows 20K for a new car to replace his Yugo with 229,000 miles. That loan goes to the dealer, who then writes a check to the factory, paybhecks for his employees, etc. The banks have to honor those checks, so it’s a liability to the original bank. The bank doesn’t have any money. They have a promise to pay. They take L3′s promise to pay and spread it around.
On the way home to show the little wife the new humpmobile the transmission falls out. While waiting for the tow truck, L3 calls his lawyer who then calls the dealer and tells them the deal is off. Now the bank has a problem. L3 is no longer an asset. The liabilities are still outstanding. Remember our formula? Assets down, liabilities up means Owners Equity goes south. Thanks to the Federal Reserve Bank ( Which is not federal, a bank or has any reserves) we taxpayers pick up the tab.
My back hurts. I’m just as tired of picking up tabs as Angelides or Reich.
I have serious doubts about soaking the rich. It has been tried in the past and never works.
Back when there was a serious shelf on income taxes, Movie Stars that were making millions would only work the first part of the year. Work 4 months make 6 mill, pay 3 in taxes. Work 8 months make 12 mill pay 10 in taxes. What would you do? The stars were never really hurt. IT was the grips, camera and sound guys, stage hand, etc that got hurt. Worse comes to worse, the Billionaires will get together and buy a country and run it they way thay want. Monaco anyone?
Anyway, soak the rich is a Socialis’s dream. It will never happen. What we can do is remind the rich that their wealth is based on the poor. Since they have been doing such a bad job of succoring the poor, we need to give them a kick in the arse.
Vote with your checkbook. Go take ALL your money out of your bank.
Taxing Amazon, eh … well, they’ll find out that Amazon will just abandon their Associates in California, thus lowering wealth creation in the the Golden State … Just what the Demos and Jerry Brown would want!
While we’re on the subject, how about a renewed ‘beard tax’ … it worked for the very small government Tudors!
M@22: That there were unsafe working conditions during the industrial revolution is not in dispute, there are always unsafe conditions, the point is that the Industrial Revolution did not cause most of them
Because same [unsafe conditions] existed in prior times? Presumably without the benefit of profit going to a small(er) group of management. The Industrial Revolution introduced workplace hazard as soon as money exchanged hands. Self interest became a shared commodity defined by gold.
The early version of contingent valuation.
“This is reflected in growing income inequality in America. Middle class wages have stagnated because they haven’t shared in the wealth. ”
This is misguided. Unless they are storing cash in their mattresses, they are probably investing their money. If they put it in a bank the bank lends it to businesses that hire workers. If they invest in corporate stocks, those corporations hire workers. If they buy corporate bonds those, companies hire workers. If they let the government spend the money for them they waste money on bureaucracy that is not economically productive – it isnot producing wealth. If they give the money away that creates a disincentive for the recipients to create wealth for themselves.
The problem in the economy is that we need more free market policies so people can start business and hire workers. Big Government, high taxes, and “pro business – crony capitalism” are the problems – using resources inefficiently, restraining free commerce, createing obsticals to entrepreneurship, and creating disencentives to creating wealth.
Tax increases do not increase government revenue, and generally are not intended to do so. They are almost always used as, and are intended to be used, as revenue enhancment opportunities whereby tax breaks for the rich and poliitically connnected are enacted in exchange for campaign contributions to deserving Congressmen and state legislators.
Government is like a gas that expands to fill a volume. The only effective way to reduce the size of government is to reduce taxation AND force government to spend only money that it actually has, i.e. a balanced budget amendment.
Reject socialism! Starve the beast!
Also, an income tax is an affront to personal privacy and liberty. The income tax amendment should be repealed. If not, then a flat tax should be implemented. Democracy is founded on the principle of equality. One vote and tax rate for all citizens.
“Is this a tax on Amazon or is it a tax on the consumer?”
It is a tax on the consumer and if enacted nationwide, would severely damage Amazon’s business model and by extension, those of it affiliates.
On the other hand, brick and mortar outlets cannot compete with companies that do not have to pay local sales taxes. On the third hand, states and localities force this burdon, not Amazon.
You have got to be kidding!
Carol #13:
As a matter of fact, I understand the following is true:
Say you buy a house for $400K and the bottom drops out of the market and the house becomes worth $250K. This foils your plan to flip it or refinance it when it gets to be worth $600K. Then you then go to the bank and they agree to let you sell it for $250K and get out of the loan. The bank then issues you a 1099 for the $150K worth of “income” you got when you paid only $250K for house that was valued at $400K. So then you also have to pay capital gains on that $150K.
From the thermodynamic viewpoint this makes perfect sense. The alternative would be to go to the guy who you bought the house from for $400K and get $150K back. But if he was a developer or home builder he’s probably already bankrupt anyway.
I think that growing income inequity is the sign that something is wrong in the economy.
Absolutely.
First, I agree that there *is* a growing income inequality, pretty much at the expense of the middle class and in favor of the (very) rich.
Second, that this is a breakdown of the basic American social contract. The inequality is unfair, ugly, besides any functional problems it may have.
s @ 16: Change inheritance taxes to 0 for the first 10 mill, 100% for the rest.
Works for me. We could quibble on the number. This is pretty much how it was taught to me in a mildly Keynesian Econ 1 circa 1975, that large fortunes were socially destabilizing, whatever else they might or might not do. Of course this favors the state. I guess I still think that is a good principle. And many rich people agree – they do not pass the whole bundle onto their kids, lest they be destroyed by it.
Of course the money does not want to be destroyed and will tend to slip out of the country and into other jurisdictions, so the question is whether you *can* have such a tax, even if you favor it.
Inequality of incomes doesn’t mean much all by itself. Rich and poor countries both show inequality of incomes. What matters is not being relatively poor but whether or not you are living in absolute poverty. If the poorest people in a country are well fed, well clothed; have cars, TV’s, cell phones etc they might complain about being relatively poor. But they cannot claim that they are having their souls destroyed from living in absolute poverty
Here’s a list of “A” countries:
Hong Kong, Singapore, New Zealand, Switzerland, Chile, USA, Canada, Auatralia, Mauritius, UK.
Here’s a list of “B” countries:
Algeria, Congo(Democratic Republic), Burundi, Guinea-Bissau, Central African Republic, Congo(Republic), Venezuela, Angola, Myanmar, Zimbabwe.
According to Koch Foundation the poorest people in list A countries have an income that is ten times the income of the poorest people in list B countries. The average income of list A people is eight times that of list B people.
Because same [unsafe conditions] existed in prior times? Presumably without the benefit of profit going to a small(er) group of management.
Um, a modest size Board of Directors and a few managers would be several times larger than a single monarch, so by my reckoning the Industrial Revolution did a fine job of spreading the wealth around, versus the prior eons of all profit going to The King. The Industrial Revolution introduced the idea of profit sufficient to raise standards of living, wealth creation if you will.
I concur with Mongoose.
2R@37: The Industrial Revolution introduced the idea of profit sufficient to raise standards of living, wealth creation if you will.
This is why I hate this subject. Nowhere did I dispute the statement above. Nowhere.
I concur with Mongoose.
About what? The long-trend benefits of the Industrial revolution, which I do not believe to be in dispute, or that it introduced labor problems that remained without recourse until government stepped in?
The movement came with liabilities. That remains a taboo subject for reasons that fail to surmount the low bar of ideological differences.
Income equality is a symptom. The disease is the crushing of US-based dynamic activity. GE and the rest of the rent seekers will be victims of their loss of real-world capability. The problem, for the US, is that the competitors who take them down will be operating off-shore. Beyond the reach of the alphabet soup of NLRB, EPA, et al.
Josh, Stoi, I would have hoped for better from you two. Your proposal is called a ‘taking” and prohibited by the Constitution. The rampant “takings” in their many forms by our government is a major reason we are in this depression. Let’s not add another take from rich scheme to the Left’s playbook, please. Besides, many of super rich are full fledged members of the Crony Class. Cronyism is how they got their dough. Go after cronyism and the problem disappears.
YBR – introduced labor problems? INTRODUCED???? That, right there, is an irony-proof statement.
Unsk @ 40, I hear you. Takings are bad. Yet taxes are not takings, cuz we declared them not takings. Slippery slope no doubt.
My preferred solution is fairness in acquisition, the levels of executive compensation and rent-seeking in the big financial firms is the problem. If you want to say that’s crony capitalism, then I’m with you on fixing it, whatever that fix may be. I do NOT like using the tax system to try to fix economic problems after the fact, because I don’t believe you can make it work.
I’ve exercised the Ayn Rand option any number of times, in greedhead Internet startups trying to pay going hourly rates to make them millions. Nowhere is the breakdown in the social contract more obvious than in these situations. And it wasn’t like that, even twenty years ago. Microsoft made how many people multi-millionaires? New startups are nowhere near as generous with their stock. They can all bite me, and you can quote me on that.
It’s tough. Should a ballplayer make $20m/year? Well, … the money is there, from advertising, tickets, merchandising. Nobody has been extorted. So they play for five years and end up netting $50m. Say they manage to live on the interest. Do we force them to give it away in $10m chunks or let the government seize it? Well, … just as nobody was extorted in assembling the $50m, nobody is really harmed by accepting a $10m gift, and, y’know, you can’t take it with you.
So, I think one can have a reasonable discussion about it, at least.
irony-proof
Right up there with Efficient Market Hypothesis.
The other hypothesis is that high income inequality is the equilibrium state, at least for now, in the market as it exists, largely due to the effects of globalization. The large “middle class” of the previous decades was therefore the result of special conditions or barriers, which when removed tended to push the level of income of the American unskilled laborer nearer that of the Colombian unskilled worker.
In that world, unskilled is unskilled wherever you are. And the wages are just as crummy because unskilled labor is immobile — it cannot be transported over modern comms, unlike capital and skill. Logistics and distributed production have obviated the advantages of proximity that used to be enjoyed by people local to a place. So, for First World countries to keep a facsimile of their past social structure government must use a heavy hand. So goes that theory.
A couple of thoughts come to mind in such a scenario. The first is whether, globally speaking, middle class incomes the world round have been rising and whether that trend will continue. If so, then when unskilled wages have equalized they will rise, which may not console anybody. The second question is why the newly mobile capital and knowledge classes should bother trying to transfer incomes within countries seeing as they effectively no longer belong to those countries.
Because if location has been annihilated for both capital and skill, then there are only two classes left in the world: the global elite and the global unskilled. Sooner or later, the global elite will run the world for their benefit and being American or French will have no more meaning than wearing a blue or a green t-shirt.
The answer I think is paradoxical. In a world where things can be aggregated without limit — then the equilibrium state might well be a global elite and a global unskilled. A world with bigger and bigger government will not be a more equal world, but a less equal one. The elite will rule of the unskilled in a system Too Big to Fail. Look at the EU. Has it brought greater fairness or has it resulted in the emergence of a new aristocracy? Look at Washington and ask the same question. Only a return to subsidiarity can reverse this trend.
I am doubtful of projects by the elite to amass power for the object of making things “fair”. Any project which gives a select group of people power to make things “fair” by definition makes things unfair. In fact, I tend to think that globalization as it is now defined is unusually aggregated because of gatekeepers. It leads to cronyism and creates artificially large markets for a single producer. Once these gatekeepers are weakened, there will still be a global economic system, perhaps even more integrated than before, by one which consists of many, many smaller markets in which there is no such thing as a “globally unskilled” person.
So while I am not sure that deficits and income inequality can be wholly explained by resort to the small vs big government paradigm, I think the narrative that government must provide equality is a suspect one, if only because it never does.
I have a different view. The portion of government revenues from payroll taxes has now increased to the point where payroll taxes are on par with income taxes. To put things into perspective, a married filing jointly couple earning like incomes with no deductions and earning $216,000 per year will pay 37.5% of their earnings to the federal government, including the payroll taxes. The marginal rate is much higher, perhaps even over 50%. The top 400 income earners paid 17% on their realized gains and earnings.
I think the Alan Greenspan and Patrick Moynihan agreement to increase payroll taxes that have funded, to some extent, the increase in government has had a very bad side effect. Now, the very wealthy get a net return on their government investment, as the military makes world trade possible, outsourcing, and many other things, and the middle class has to pay for it. This is similar to illegal immigration. Here in CA, the average Hispanic household makes about $40,000 per year, the average female hispanic has 3 kids, and those three kids cost upwards of $400,000 dollars merely to educate. That money is going to come from ordinary taxpayers, yet the ownership class benefits greatly.
In my view, the result has been to exclude a powerful ally in the fight against government growth: the ownership class, or if you prefer, those who own the means of production in the US.
A back of the envelope calculation shows that the welfare component of the married filing jointly couple is roughly 22.5%. At a minimum, the wealthiest should pay that. But they don’t, and so why should wealthy individuals care about their relatively low tax rates.
blert @19,
A transaction tax (Tobin) will dry up liquidity, and the bid-ask spread will go back to what it was in the late 1950′s. That was OK then because buy-and-hold made sense, but it doesn’t now and won’t again until a replacement for fossil fuels becomes available. If the bid-ask increases dramatically, you will see a downward spiral in the market. A Tobin tax is exactly the prescription to flat-line the market.
By the way, my trading method works exactly the same today as it would have 10 years ago, according to my backtesting. High frequency trading has not changed the characteristics of price movement that my model identifies, i.e., hasn’t changed anything fundamental. The Wall Streeters have always had an edge, whether the spread or front-running. That’s inevitable. An individual must simply work around the disadvantage.
If you really want to impede capital formation, institute a fat transaction tax.
w@44: I think the narrative that government must provide equality is a suspect one
Not equality.
The ‘message’ of government has become mixed (not unlike the ‘message’ of business) and I would agree that ‘fairness’ seeking runs in tandem with rent seeking.
Regulated markets are a requirement. There can be no enterprise without contract. As business picks up – and people prosper, the community begins to consider the ‘left behind’ and the neglected (environment.) It’s a critical mark of prosperity when society reaches a point of sufficient wealth to engage on those levels.
Globalization brought that rite of passage to a crashing … plateau. Presumably it will rise again at the right time. Until the ‘right time’ emerges, government serves no ill purpose in pressuring for a consideration of ‘the commons’ as a mark of a civilized people whose value system transcends rewarding the strong over the weak for favoring strength tempered by grace, self interest tempered by a love or belief in something greater than oneself and an innate understanding that the human condition cannot be reduced to political sound bites.
Is the Singapore office of Goldman Sachs more to blame than your average greenie or Warren Buffett and his 17% tax bracket or GE? That’s way beyond equality.
OK, I’ll try it one more time. Yes, the Industrial Revolution was born with the stain of Original Sin. Workers, who moved from a world of zero options to a world of extremely limited options, were treated poorly. For most, being treated poorly was a significant step up, but I digress. I reject outright the static view that government, and only government, was an effective ‘recourse’ then, or is an effective recourse now. Note the word ‘effective’. Yes, they cleaned up the stockyards. Noted. Nice anecdote. The truly effective recourse then, as it COULD be again, was to continue to give people options, real options. That can only happen in a dynamic environment. Government and dynamic do not happily coexist. Threatens a lot of cozy arrangements. Whether dastardly plot, or misguided notion, we are living in a non-dynamic economy at the moment.
At no time did I use the words “effective” or “dastardly plot” or “misguided notion.” That’s your reconstructed narrative.
You all are animals competing for resources.
The next phase of Human Evolution is the same as the Last.
Kill Something and Eat It.
There is no commonly accepted argument for equality of incomes, or no standard by which we can determine how much equality or inequality society should or should not accept. Most people believe that hard work and effort should be rewarded by extra income, status and opportunity and that those working less should not by right share on an equal basis.
Of course at the extremes, people feel there is something deeply wrong about a society in which some people cannot feed their children while others cannot count their fortunes. That’s where social safety nets come in for those countries that are rich enough to afford them.
It is when status and income differentials come about largely because of unearned privileges, that anger about inequality of incomes is justified. In this case the resentment is fairly based on more than envy. In the western countries run by a “progressive” ruling political class this is exactly what has happened. The problem is the unearned privilege.
The Bully State in America has created a political class that enjoys unearned status and incomes through privileges gained simply from membership of an anointed insider club. Get rid of the Bully State.
Trying to abolish poverty and relative poverty through income distribution results in nothing of the sort. When poverty is abolished through economic growth, something real and desirable has occurred.
I think the narrative that government must provide equality is a suspect one, if only because it never does.
How about the narrative that the government needs to regulate markets?
Because what we saw in 2008 really is one for the ages, when the biggest players in capitalism could not govern their own greed and did an epic fail.
Do not kid yourself, this is a huge kick in the butt for anything like the rational market hypothesis. Not that size was ever a synonym for either smarts or virtue, or we’d all worship the brontonsaurus, but even so.
Here’s a challenge: A miracle occurs and you suddenly find yourself in the possession of a billion dollars, tax free. What happens next? With any reasonable investment advice you will have at least a 5%, tax free, return on your principal. This amounts to a million dollars a week true income – forever. Go spend it.
O.k. buy a mansion somewhere. Buy several mansions and a big ranch. That takes up maybe half a year’s dividends. Buy a really big yacht – or two or three. A few more months dividends down the drain. Hire a staff to care for all of this, maybe one or two months out of the year for salaries. What next?
Like the Sorcerer’s Apprentice you can’t stop the money from rolling in. Oh darn! I guess you will have to make some more investments. The money compounds with successful investments, or you quickly go broke with the other kind. In the first case you have benefited society – and, you are much richer than when you started – still more weekly money to dispose of. In the second you are out of the game but at least other folks have received a billion dollars in income.
What’s wrong with being filthy, stinking rich?
#52 Josh
2008 is a story of government regulation short-circuiting markets. The government mandated that more poor people and more people of color would own homes. This produced pressure to lend on regulated banks. After all, it isn’t exactly intuitive to lend to those who you know can’t repay. It wasn’t likely to be profitable, but it was a government-imposed cost of being in the lending business. And of course, once the government found out that certain costs could be absorbed, it raised its mandates to do good for the poor and discriminated against.
The pressure this placed on banks and lending institutions was released through the sale of the bad mortgages. The mortgages were packaged into pools by Fannie Mae, Freddy Mac, and investment banks and then securitized. The notion was that the resulting securities would be safer than any of the individual mortgages through the power of diversification. Although the quasi-governmental housing agencies were able to sell this notion to the credit rating agencies, the borrowers’ ability to pay was suspect. Still, with real estate prices rising nationwide, the players calculated that the risk of serious losses was slight. And at any rate, the government demanded that these loans to the poor and underserved continue, so the supply of dubious paper increased.
Of course, the bottom eventually fell out, and the costs of this government policy were fully realized. Government couldn’t just demand loans for everyone after all. Although the private players worked to minimize the risks, when the economy slowed, the stresses became too great and millions suffered.
The moral of the story is that there is a cost to government demands on regulated entities to direct money to favored groups. Billions and billions of dollars were misallocated and lost because of government policy. Not exactly a case study for government regulation.
r @ 54: 2008 is a story of government regulation short-circuiting markets.
Every executive of every major bank and wall street firm violated civil and criminal codes and fiduciary responsibility to their stockholders, employees, and customers.
CRA had little or nothing to do with AIG or most of the “derivatives” markets in synthetic nonsense. Barney Frank had no leverage to make the Chinese buy who knows how many billions in bad instruments.
In the way of rent-seekers everywhere, the financial crowd took their percentage and then acted shocked when it turned out there was gambling in the back room. They had every responsibility to act more intelligently, if not more ethically. They utterly failed in business, leadership, and citizenship.
Worst of all, they violated their own enlightened self-interest, and what worse crime is there than that?
Go ahead, just *try* and guess how I really feel about it!
wretchard:
Here are two alternative arguments for higher taxes (that you won’t hear from liberals).
We need to cut entitlement spending. However, since cutting entitlements would hurt poor and middle income people more than the rich, we need to levy higher taxes upon the rich so their sacrifice is commensurate to the sacrifice the rest of our society will necessarily need to make.
The United States needs to keep its credit rating, and the United States will default on its debt this fall without an increase in the debt ceiling. To meet this obligation, the Republican Party demands budget cuts while the Obama administration demands tax increases. The problem at present is that each side is playing Chicken with the American economy. In Chicken, if neither side blinks, both sides lose. In such a scenario, it may be the least bad scenario for both sides to accept draconian cuts in entitlement spending and scrapping Obamacare while also raising taxes and closing loopholes for billionaires. In other words, split the difference.
When looking at balancing a budget or changing the tax structure, we need to consider factors other than economics. We need to consider that taxing the rich may have less to do with helping the economy than with signaling to poorer people that the rich are making sacrifices too.
For example, think about Lent. Lent just happens to come at a time when poor people in agrarian medieval Europe would have eaten through most of their winter supplies of food. Even within my own family, there’s a saying, “Taste pretty good come spring.” In other words, something that didn’t taste good at harvest time would taste good when there’s nothing else to eat. At such a time, rich people found it wise to show their piety by fasting – at least in public.
Taxing the rich as part of class warfare is a bad idea. Taxing the rich as a means to legitimize sacrifices made by poor and middle class people, as well as government workers, becomes a means for rich people to engage in conspicuous self-sacrifice to show that they belong to the greater community. In wartime, higher taxation is important as a means for people to feel invested in the war effort, with poor and rich sacrificing alike.
If liberals truly want higher taxes, they would do well to support the war effort against our Islamist enemies rather than attempting to foment civil strife.
Where will the wealth of the world be putting their money next:
http://www.guardian.co.uk/world/2011/jun/29/saudi-build-nuclear-weapons-iran
I’m wondering it they will actually build or just purchase a complete package from France or “giggle” Israel.
All the world’s a stage and right now it is packed with clowns and weapons.
The Devil is always in the details and unintended consequences are out there. A Balanced Budget Amendment could backfire if it becomes a wedge to raise taxes. What is needed are three things.
1. A peacetime GDP cap on each level of government, 14% Federal and 6% State.
2. A separate peacetime limit for Defense/ Homeland Security, 5% Federal and 1% State.
3. Provision for a lifting of the caps in #2 during time of declared war through use of a Super Majority, 2/3 vote.
I would solve the Medicare/Social Security problem with a 25 year straight line write down. If you are under 40 you will not get it. You will pay for anyone still around who is now over 65 and a sliding percentage of those now between 40 and 65. My belief is that almost everyone under 40 takes this for granted. We simply need to stop the ability of the Democrats to demagogue this issue and scare old folks.
High taxes for the rich can be an effective means to legitimize aristocracy. It isn’t about promoting the economy; it isn’t about fairness. It is about showing people who aren’t rich that the rich are not abusing their power.
Rich and powerful people are caught between two goals. One is to seek more money and power. The other is to legitimize one’s money and power. In many respects, the second can be more problematic than the first. When a rich person is cut off from the realities of hardship, he is unable to legitimize his power.
Attempts to legitimize privilege can be as laughable as wearing overalls (1984) or throwing charity balls (Pam Beach). As a rule, privileged people don’t know any better than to offend the rest of society.
When the government heavily taxes rich people, rich people are then off the hook for legitimizing their wealth. The problem comes when government creates the privilege. When wealth is created by proximity to government and privilege is conferred by membership in a ruling brotherhood, the burden of legitimizing privilege is conferred upon the government. That’s easy enough when the government is popular and legitimate – not so easy when the government demonizes large segments of the population and is close to maxing out its credit limit.
The Obama administration talks of taxing billionaires, but does anyone believe that the Obama administration would actually confiscate 90% of the fortune of George Soros? It’s easy to talk of taxing billionaires, but it would be hard to imagine Barack Obama listing each billionaire by name and calling upon each one to pay more in taxes.
Furthermore to #59. Alexis’ final paragraph, were Obama to even take all the wealth of America’s billionaires, it will still not fund the USG for more than a few months.
More likely, the very minute the call went out, all monies possible would be moved electronically to the Cayman Islands. That’s the problem with the aristocracy, they’re mobile in a fashion serfs or even landed peasantry are not. The middle class has partial mobility, in that their wealth is/was normally based on exercise of practical skills. Modern white-collar bureaucratic jobs excepted.
Now, I call shenanigans on the whole issue, because the premise the Democrats are relying on is fundamentally flawed: that not raising the debt ceiling would somehow cause a default. Indeed, Federal debt is backed by the full force and faith of the USG. Guess what isn’t: federal agency budgets. If push comes to shove Treasury will shut down everything except debt payments and revenue collection functions. But, in full “don’t-let-a-crisis-go-to-waste” fashion the Administration is pursuing Constitutional chicken with Congress. They think it was a successful electoral strategy with Clinton, but that he got small change in benefits. Upside now is, if Dems get their way, never having to worry about ceilings or budgets at all, ever again!
–JC
They think it was a successful electoral strategy with Clinton, but that he got
35. Josh Just a wild, out-of the box idea. While I agree that the actual percentage is open to negotiation And it is a taking ( as are taxes and inflation ) you passed on what I consider the meat in the sandwich. creating a capital pool for those with no other access to capital. It is almost impossible for a 3rd generation welfare recipient to aquire the capital needed to start a small business. If you have Roman numerals after your name, it is almost impossible to be turned down for a loan.
The inheritance laws combined with welfare create a criminal lower class. That’s not good.
AS the flash mobs grow larger, more frequent and better co-ordinated you will agree with me if you don’t already.
For those worried about government taking, meet Rufus. Rufus is an Iraqi combat vet (2 tours). He de-mobed and came back to an America with no jobs. His best job skill set is Guerrilla. Knows how to set a flash mob on a grocery store and an electronics store to tie up the cops while his buds and him hit the Bank on the other side of town.
Taking with an AR-15 converted to full auto is not very different from what the government does but it is more casualty intensive.
Remember that somebody that spent 2 years dodging IED’s has a much better idea of what works and what doesn’t then the local cops.
Sooner or later the system MUST collapse. It is inevitable. SO we either take another hit on the financial crack pipe, or we go cold turkey. Cold turkey is rough, but the sooner it’s done, the sooner it’s over. While NO debt cap extension would be the best way to go, I doubt that Congress has the courage for that.
A bank run takes the decision out of the establishments hands. The economy is a shared delusion. It’s time to let the Establishment ( cronies all) know that the sheeple no longer support their delusion and they are toast.
“More likely, the very minute the call went out, all monies possible would be moved electronically to the Cayman Islands.”
I have money there. Didn’t do it electronically, since that leaves a record. I know a IV, who picked up about 150 million when pops kicked off. Back in the 80′s when a mill was real money, not a down payment on a house. We took his Yacht ( also inherited) from Tampa to the Caymans. Opened my second off shore account. So I know how easy it is. I also know that bankers are the same everywhere.
If the US Government really wants the banks to co-operate, those banks will.
Feds have too many tools. You really think the guys that wrote Stu-net would have in trouble sucking out the E-vaults at any 3rd world bank?
Or there is the medium Chicago style scenario. The president of the bank in question is having pre-church breakfast on his patio when the bushes part and 3 scary guys with seal team 6 patches step onto his patio. They ask him to co-operate. He does.
Bankers understand that it isn’t “real” money. The huge amounts tossed around are just bookkeeping entries. They can be converted into objects of value but until that happens they are just Bits and Byts. Data.
A bank run will make the Data useless by eliminating the banks ability to convert to objects of value. Just don’t be last at the ATM.
Increasing taxes increases government power…and it’s a situation where I lose power as government gains it. Why is that good?
In the recent financial meltdown, whatever else happened, some made out while the rest of us (taxpayers, that is) paid for it. Why?
From Robert Heinlein: “an elephant is just a mouse built to government specifications.”
A@56: Taxing the rich as part of class warfare is a bad idea.
Very.
Taxing the rich as a means to legitimize sacrifices made by poor and middle class people…
I can respond in all honesty with my best Rhett Butler impersonation. The law applies to everybody. The law must be legitimized. The III’s and IV’s can fly pink balloons over Antarctica.
#55 Josh
Not so. AIG was taken down by credit default swaps it issued to hedge the securitized bad mortgages. Turns out that these things were a great deal less secure than they imagined. Yeah, it bought into the hype surrounding these things, but it was still collateral damage from the initial government-led market distortion.
The problem here is that the government figured out — through regulation — to carry out its agenda using private money. We’ll set a target for mortgages to the poor and minorities and someone else will be forced, via regulatory pressure along with quite a bit of implicit government money from Fannie Mae and Freddy Mac, to meet that target. It’s a cute trick and was done off the federal budget. No wonder that Rep. Frank, Chairman of the House Financial Services Committee, when questioned about this before the crisis indicated his desire to “roll the dice” in order to help the disadvantaged.
You do raise the essential issue: “Every executive of every major bank and wall street firm violated civil and criminal codes and fiduciary responsibility to their stockholders, employees, and customers.” If this true — if it is even remotely close to true — where are the trials? President Obama can’t find A SINGLE scapegoat on Wall Street to prosecute? Is it because he loves Wall Street that much? (You wouldn’t know it from his speeches.) Or is it because government’s true role will be revealed?
You can’t avoid the fundamental truth that this whole crisis is driven by government pressure to grant mortgages to people who couldn’t repay them. Without the billions and billions in bad mortgages, there’s no need to hustle dubious securities.
“Angelides argues it is time to take some of that money out of the hands of the hoarders and ‘put it to work’”
By opposing Angelides and prohibiting him and Reich and Obama from working out their dreams (“A dream to some, a nightmare to others!”), we delay the day in which we may rise up against these fools and work justice upon them. Instead our alleged representatives compromise on the fashionable middle ground:
They propose: “the government should own almost everything and tax everything else.”
Fools reply: “let us compromise:the government own 5% and set the taxes at 1%”
They propose: “the government should own almost everything and tax everything else.”
Fools reply: “let the government own 10% and set the taxes at 5%”
…
They propose: “the government should own almost everything and tax everything else.”
Fools reply: “let the government own 50% and set the taxes at 95%”
etc.
Without the billions and billions in bad mortgages, there’s no need to hustle dubious securities.
Banks were drawn to consumer debt because of a decline in their traditional role as custodians of savings and deposits, as this was increasingly assumed by pension funds and mutual funds, and also by a drop in the share of their earnings coming from traditional corporate finance. Between 1997 and 2007, the share of total financial sector assets accounted for by the assets of depository institutions plummeted from 56.3 per cent to just 23.7 per cent, while the share of pension funds and mutual funds rose from 21 per cent to 37.8 per cent. Freed by deregulation [Glass-Steagall repeal], the banks found new business by converting consumer debt into tradeable securities and then selling those securities to the funds (or other banks). In order to finance this operation the banks themselves took on more debt, blithely assuming that the return on the securities would be comfortably above their cost of borrowing, and that they would anyway soon sell on the securities to someone else, in what was known as the ‘originate and distribute’ model. It was difficult for anybody to know what was going on, or how justified these assumptions might be, because much of the action was registered only on the banks’ ‘invisible balance sheet’ in a ‘shadow banking system’.9 Jane D’Arista argues that these trends also conspired to undermine traditional policy tools, since the latter, especially interest rate changes and great dollops of extra liquidity, work in and through their impact on banks as depository institutions.
Robin Blackburn, The Subprime Crisis.
44. Wretchard – “Because if location has been annihilated for both capital and skill, then there are only two classes left in the world: the global elite and the global unskilled.”
Perhaps what we are seeing is the dividing of classes that H.G. Wells envisioned as the Morlocks and the Eloi. If unskilled labor is to survive it must specialize in the local habitat, producing tasty cakes and serving coffee to themselves in their own micro economic sphere and to serving and entertaining the Morlock producing class. The new global economy has made cheap clothing and electronic devices available to the Eloi consuming class so they can continue to rock the vote and live in ever intermeshing social communities, evolving towards barter trade and collectivism. This class will naturally cleave towards progressive causes and will be placated by the producing class enough that they will eventually become passive like well fed lambs.
The producing class will be at constant odds with the consuming class because the sheep dogs amongst the sheep will constantly agitate against the producers who themselves eventually go John Galt and move to an island nation of producers. The producers will entice the consumers with new forms of entertainment while the sheep dogs will preach community programs and low energy consumption and ascetic minimalism for the environment mediating against those efforts. Eventually all contracts will be negotiated between the producers and the sheep dogs and the sheep will do what they are told through aggressive progressive education. A tenuous and shaky equilibrium will be struck but the peace will wax and wane on the strains of supply and demand as evidenced by the organization of festivals and riots.
As the sheep delve deeper and deeper into community organization they will reach across borders and seek kindred spirits so that they can link up and increase their numbers into a global Coca-Cola swilling drum circle. As this happens the Galts will have entangled themselves deeper and deeper into global conflicts by selling one another useless financial instruments to capitalize the acquisition of strategic resources necessitating a final and bloody war. The Galts will gather up the sheep and stuff them hard into the breaches for cannon fodder; a feast for a hungry god.
Realizing that increasing taxes can never match out-of-control spending, the Republicans have dug in.
Our income-tax system doesn’t tax wealth as such.
It taxes income.
Most people in the highest bracket have been in every tax bracket.
They were not in highest bracket ten years ago and they may well not be in it ten years from now.
Is there anything more defining of what this country is all about than the ability and the freedom to prosper as a result of one’s own efforts? Shouldn’t we be able to win this argument with the American people?
The Fairness Argument
Spending cuts are smarter and fairer than soak-the-rich tax hikes.
The average person must wonder what the Democrats are thinking. Even the most casual observer knows that U.S. debt projections foretell disaster.
With spending at 24 percent of our economy, a modern record, how can Democrats expect to avoid substantial spending cuts?
The answer, of course, is that they expect that, when push comes to shove, they can raise the taxes necessary to cover the problem — specifically, that they can tax the people who don’t vote for them to pay for the programs that primarily benefit those who do.
Even when the taxes inevitably dip into middle-class pockets, it will be easier to tax than to cut spending.
And the rhetoric will still be about taxing the rich and made easier with a little help from the media.
— Fred Thompson
“If you really want to impede capital formation, institute a fat transaction tax.”
The goal isn’t reducing Capital formation, the Goal is running the Get Rich Quick artists out of town. On a rail, tarred and feathered. Being filthy rich is good, I suppose. I’ll never get there. Unless of course, I figure out a way to steal a bunch of money. Like Madeoff, Lay, et.al. You clear the hustlers out of Wall street by Making “get rich quick” a crime. OR taxing it out of existence. I prefer the taking method, since the Jails are both crowded and unprofitable. Those looking to get rich quick won’t get there by paying 30 million in taxes on a 10 million deal.
With the crooks ( which is the ONLY way, other then hitting the lotto to get rich quick) out of play. More normal people, who just want a return on investment and understand that uncontrolled geed is a mental issue, will be able to invest without getting boned by some shark.
Wall Street should be broken up anyway. Financial markets should be limited to local issues, with Congress defining local.
No of these solutions would be as effective as a Marine Engineering company with extra flamethrowers.
The thing here is both Wall Street and the banking cartel are socially useful or they are not. IF they were destroyed tomorrow, they would be replaced the next day. Or not. If not, they weren’t needed and we are better off without them. As far as the people working there, they deserve a LOT worse then whatever happens to them.
First of all, those who have made huge fortunes honestly in America, have helped build America and have made was it is ( or was until Obama). There is nothing wrong with making lots of money and passing it on to your kids. That inheritance should not be taxed at all. It has already been taxed once, no need to tax it again just because it’s there for the taking in Buraq’s way of thinking.
The problem I think is that many of the people making those huge fortunes today are part of the Crony class that plies their trade in and around government or through benefit of government intervention or regulation. Starting from the financiers, bankers, lawyers, government administrators, all the way down through cushy public sector union jobs like the Newport Beach Lifeguards who make well in excess of 100K a year; these jobs with outsized earnings have created the rational perspective that something is amiss. The government has tilted the playing field in their favor creating a “fairness” issue between those who do actual productive work and those who are benefiting from government largesse.
Addressing that imbalance is what we should be doing instead of taking away the fortunes of the super rich and their kids.
What Geithner and Buraq are trying to do with their latest tax proposals is to not only perpetuate the corrupt imbalances of big crony government largesse, but make those imbalances much bigger and in the process take away permanently the opportunities to make money through small businesses and entrepreneurial activity.
Buraq and Geithner have effectively declared war on small business. Their recent tax proposals are only the latest in a long list of efforts to curtail small business activity through burdensome financial controls and regulations designed to raise the cost of running a small business to the breaking point. From a purely political point of view in a weird marxist sort of way it makes sense because from small businesses across the country have always come the most vehement opposition to the Corporatist Nanny Police State that Buraq and Geithner want to create. Wipe out small business and you have wiped out the heart and soul of the conservative small government movement.
Never you mind that small business create the vast amount of private sector jobs. We’ll just have to endure astronomically high unemployment, in a shrinking barren economy with roving violent gangs stalking and extorting the innocent everywhere. It will be well worth it! We will achieved the hope and change we always dreamed of: a tightly controlled Police State with absolute no freedoms ever again.
s @ 62: It is almost impossible for a 3rd generation welfare recipient to aquire the capital needed to start a small business.
I do not believe this is the case. Especially if they are of an oppressed skin color or gender, anyone with a well-written business plan today in America has access to all the cash in the universe. Is it “unfair” that they don’t have easy access to capital to blow a million or ten on a bad idea, like rich people do, as it was “unfair” that poor people couldn’t buy big homes? You decide.
r @ 66: You can’t avoid the fundamental truth that this whole crisis is driven by government pressure to grant mortgages to people who couldn’t repay them. Without the billions and billions in bad mortgages, there’s no need to hustle dubious securities.
It didn’t take a Flemish Barney Frank to extort people into spending thousands of dollars on tulip bulbs, economic bubbles have a long, strange history. Even well to do people paid absurd prices for houses, both to live in and as speculation. Banks passed these on through. Barney Frank was not involved. And the CDS and CDO and SIV had little to do with home mortgages at all. Bear Stearns and Lehman’s leverage levels were not set by Congress. Countrywide made liar loans to rich people. I rate the government loan programs a weak third in creating the bubble. And the government had nothing to do with the market failure.
One of the main cudgels used by the left is the claim that the “wage gap is widening”. This implies that the poor are getting poorer and the rich are getting richer and that the obvious answer is to tax the rich even more to battle the trend. They are able to make this claim by using a statistical trick. They base their wage/income data on household income, not per capita income. If per capita data were used, this claim would not stand up. The USA has experienced a long trend of an increasing proportion of single-parent (single-income) households which, logically, has less income than two-parent housholds. Household income data does not separate economic phenomena from the social phenomenon of the breakdown of the family and the postponment of marriage.
We are told the “working poor” need to be supported by the “rich” by taxing even more of their discretionary income. Well, if discretionary income no longer belongs to the individual, I propose the working poor have all of their income confiscated by the government to pay for their basic needs, you know, just to see where the line between need and want lies. Then, and only then, should the “rich” see additional taxes levied to make up the difference. I will boldly predict very little additional taxes will be needed. The problem is the lowest wage earners want everything for nothing.
Out of deference to Robin Blackburn, I repeat @68 with more clear attribution.
……………..
r@66:Without the billions and billions in bad mortgages, there’s no need to hustle dubious securities.
Robin Blackburn, The Subprime Crisis:
Banks were drawn to consumer debt because of a decline in their traditional role as custodians of savings and deposits, as this was increasingly assumed by pension funds and mutual funds, and also by a drop in the share of their earnings coming from traditional corporate finance. [cont. @68]
Adam Carolla holds the Guiness record for the most downloaded podcast.
Carolla is a California resident who has received significant benefit from Amazon click throughs by his faithful listeners.
Jerry Brown’s minions “win” Carolla loses.
I’m guessing Adam won’t leave the state.
Many will.
One percent of Californians pay over 40% of the income taxes, perhaps as few as 360,000 out of some 36 million in the state. Each time one of these golden gooses flies east to no-tax Nevada, we lose about $50,000-80,000 in state taxes—or the money to keep a felon in the Corcoran prison house fed, housed, medicated, and counseled for a year.
Do the math: one small businessman escapes to Tahoe or Reno, one lifer has no support.
Historical Source of Revenue as Share of GDP
Total Tax Receipts
(% GDP)
1934 4.8
1935 5.2
1936 5.0
1937 6.1
1938 7.6
1939 7.1
1940 6.8
1941 7.6
1942 10.1
1943 13.3
1944 20.9
1945 20.4
1946 17.7
1947 16.5
1948 16.2
1949 14.5
1950 14.4
1951 16.1
1952 19.0
1953 18.7
1954 18.5
1955 16.5
1956 17.5
1957 17.7
1958 17.3
1959 16.2
1960 17.8
1961 17.8
1962 17.6
1963 17.8
1964 17.6
1965 17.0
1966 17.3
1967 18.4
1968 17.6
1969 19.7
1970 19.0
1971 17.3
1972 17.6
1973 17.6
1974 18.3
1975 17.9
1976 17.1
TQ 17.7
1977 18.0
1978 18.0
1979 18.5
1980 19.0
1981 19.6
1982 19.2
1983 17.5
1984 17.3
1985 17.7
1986 17.5
1987 18.4
1988 18.2
1989 18.4
1990 18.0
1991 17.8
1992 17.5
1993 17.5
1994 18.0
1995 18.4
1996 18.8
1997 19.2
1998 19.9
1999 19.8
2000 20.6
2001 19.5
2002 17.6
2003 16.2
2004 16.1
2005 17.3
2006 18.2
2007 18.5
2008 17.5
2009 14.9
2010 14.9
ESTIMATES
2011 14.4
2012 16.6
2013 17.9
2014 18.7
2015 19.1
2016 19.3
66. rodomontade
AGI FP was UNDERWRITING — absorbing the risk of default.
They were taking on a risk exposure they couldn’t possibly cover.
When you purchase insurance from an insurer that can’t insure — you’ve paid for a nothing burger.
Goldman Sachs got the US Government to make their wagers against the world good.
All of those winnings should have long been clawed back.
Good work, YBR:
Revenues are DOWN because of the Pelosi/Obama War against Freedom and Opportunity Economy.
Not because of “Tax Cuts” because there have been none.
blert said…
“Goldman Sachs got the US Government to make their wagers against the world good.
All of those winnings should have long been clawed back.
What has been understood to be “Crony Capitalism” pales in comparison to the largess bestowed on the TBTF darlings, like Goldman.
But Buraq and Geithner really have a big problem with a difficult answer.
All those pesky guns!
Not sure where all the talk of “making the rich pay their share” comes from. Right now in the US, people in the top 5% income bracket pay about 60% of all Federal Income Taxes. That means the other 95% pay only 40% of the Federal Income tax burden.
The top 5% carry 60% of the load. Where does class warfare end?
A Tobin tax is a transaction based tax. Before 1975 New York City imposed a ‘Tobin tax’ on every trade on the NYSE, AMEX. It was given up as a consequence of NY City’s bankruptcy negotiations — Wall Street hated it.
Today the Tobin rate should be $ 0.002 per share. At that rate the general public scarcely feels it. However, the algos can’t tolerate two mills per share.
The insane notion that the algos are harmless to the market — where does that faith come from?
Goldman Sachs admits that its black boxes are taking / taxing about $ 1,000,000.00+ per trading day — EVERY day. Trading with no losing days at all. That’s not trading. That’s front running. It’s as illegal as one can get.
Beyond that, GS has rigged the rules such that the exchange, itself, is shunting them rebates ( aka cash ) because GS is providing liquidity.
It’s total nonsense. The algos back away in the blink of an eye if the trend goes south. That’s why we’re witnessing chronic flash-crashes. Liquidity, my eye.
The Fed is ruining the money markets and the commercial banks by taking their bread and butter away from them.
The Great Depression ended only when profit margins were restored.
This Greatest Depression can end only when credit spreads are restored.
What we’re witnessing is a collapse in the borrower pool and systemic default risk. Throwing money at but the favored few does not permit the many to restore their credit power. It also guts the profit margin / interest spread which is at the heart of commercial lending.
Right now, the money market is so stressed — for lack of quality in quantity — that the funds are destined to break the buck! They can’t earn enough to pay for their overhead! The only solution is for their shareholders to withdraw money and send it elsewhere. The problem is that elsewhere also has no viable interest rate.
This is but one sign that the Obamanation has his foot on the throat of the global economy.
The Wan is so doctrinaire that he can’t imagine that his gambits are not confined to our shores. They immediately flow to the furthest point of the globe. The entire planet is US centric — specifically Federal Reserve centric.
The USD is international money, the reserve currency and the crossing currency for ALL other trade.
So naturally the Wan is making the case for hyperinflation.
BTW, accounts are trickling in WRT Spanish inflation. It’s steep. Brutal. Too much money is circulating — permitting the leveraged class to benefit while the prudent class is getting crushed.
Likewise, inflation in Red China is brutal. The Regime has had to rejigger minimum wages just so that the public can feed themselves. That’s living at the margin.
Here is a quote from another article that is relevant to this post:
“This is why raising taxes won’t help. The amount of private wealth available to be taxed is insufficient, even if taxation could be raised to 100% without suppressing all economic activity. In practice, raising taxes leads to increases in spending which more than consume the increased revenue (by a ratio of 1.17:1 in the U.S. since the 1940s).”
Worth repeating: ” In practice, raising taxes leads to increases in spending which more than consume the increased revenue”
From:
Why the political class needs a Greek bailout
http://esr.ibiblio.org/?p=3363
Read the whole thing (it’s not long).
D@80: Revenues are DOWN because of the Pelosi/Obama War against Freedom and Opportunity Economy.
Revenues are down because we are fighting wars on three fronts in the ME to support the rent-seeking defense industry and the web of terrorist financiers who would like nothing more than to bleed this “arrogant” and “young” country dry and humbled; and because we continue to elect a feckless Congress who has neither the b@lls nor the brains to fix SS, let alone health care, let alone the regulatory debacle that quietly opened the door for a struggling banking industry to ‘leverage’ their newly acquired investment opportunities with Wall St’s newly acquired capital base leading directly to the growth of ‘shadow banking’ in order to avoid the regulatory framework which contained exposure of high risk investment vehicles….. I think the picture is pretty clear – amateurs (Congressional ideologues) vs professionals (Wall St.) As I said before, the first two alone would get this country a third to half way back to where we need to be.
Not because of “Tax Cuts” because there have been none.
Except for the 2010 Obama extension of the Bush tax cuts (2001 and 2003.) The numbers are percent GDP, not absolute revenue.
wc@83: Not sure where all the talk of “making the rich pay their share” comes from.
He started it.
ybr @ 76/68: Banks were drawn to consumer debt because of a decline in their traditional role as custodians of savings and deposits, as this was increasingly assumed by pension funds and mutual funds, and also by a drop in the share of their earnings coming from traditional corporate finance.
That is muddled, most US banks being consumer banks and having been mainly involved with consumer debt since the beginning.
The banks were disintermediated when the money market funds were invented and legalized circa 1980. Ever since the US banking industry has been basically a public/private government agency more or less like Fannie and Freddie, gains pocketed, losses socialized. Just nobody noticed until the early 2000′s when they all went nuts on leverage and, yes, the CRA pressures.
But it is all leveraged on our other financial bubbles run by Greenspan and the Fed since 1990. The US economy has been in slow collapse for fifty years, bubbles doing far more to sustain us than even the giant Wintel/Internet surges.
If we’re going to have another surge anytime soon I think it will have to be domestic energy, fracking, thorium, natural gas.
48. 2009Refugee: “Yes, they cleaned up the stockyards. Noted. Nice anecdote.”
I agree with your overall point. The problem with all these regulatory bodies looking to “do good” is they never disband when they accomplish their initial goal. They start looking around for other causes and if they can’t find one, they create it.(see AGW for reference). The NAACP has not closed shop since the first black president has been elected. Nope, they can still use their implied power to demand ever more. And don’t even think of creating a NAAWP. (not that I want one, I prefer the color-neutral politics of Dr.King)
IMHO, the inequality issue stems from a disconnect between what is actually needed and what can be extorted. A return to state government control of everything not specified to the Federal Government in the original Constitution is the only way it works effectively. If tax payers had to pay as they go for services, they would demand less services. Luxuries would still be purchased by the uber-rich but the less rich would benefit from the purchase. For example, the $100k/year lifeguards. Local swimmers might accept the risk of swimming without one and drowners beware, just as in earlier, non-nanny-state days. But a group of wealthy swimmers might purchase the services of the lifeguard because they can. The non-wealthy swimmers would benefit from that purchase without paying for it. But it should not be forced onto those who do not want to pay for it, just because the lifeguard is Pelosi’s nephew and needs to work on his tan.
J@88: That is muddled…
No it’s not. It’s out of context – the growing debt crisis of the 1990′s under the sanguine supervision of Federal Reserve. Blaming CRA is a near context-free interpretation of the times, not to even get into the independent development of derivatives as ‘structured investment vehicles’ ala Fischer Black (Black & Scholes model 1973) who designed early versions. Below are the two graphs immediately preceding selected cite above:
………………….
According to the Federal Reserve’s Flow of Funds data, total debt in the us economy rose from 255.3 per cent of gdp in 1997 to 352.6 per cent of gdp in 2007. Debt growth was strongest in the household and financial sectors. Household debt grew from 66.1 per cent of gdp to 99.9 per cent of gdp over the decade to 2007. But the most rapid growth was in the debt taken on by banks and other financial entities which grew from 63.8 per cent of gdp in 1997 to 113.8 per cent of gdp in 2007.7 A succession of asset bubbles fuelled this growth in debt.
Notwithstanding his famous remark about ‘irrational exuberance’ in 1996, Alan Greenspan, the Federal Reserve Chairman, took no stern measures to dampen the share bubble of the late 1990s. Robert Rubin and Lawrence Summers at the Treasury did even less, with Summers insisting that ballooning share prices should be viewed as an increase in US saving.8 In the early 2000s Washington found compelling reasons to pursue a cheaper money policy—it wished both to devise a ‘soft landing’ from the share bubble and to demonstrate that the US powerhouse was unscathed by terrorism. It became a national security priority to inflate the purchasing power of US consumers. In the aftermath of 9/11 Americans had a patriotic duty to take on more debt in order to keep consumption rising, and banks and regulators to make this possible.
Banks were drawn to consumer debt because of a decline in their traditional role as custodians of savings and deposits…
………………..
Another point being that as one revenue stream dries up, alternatives become more important, particularly those with fantastic returns.
Whenever Buffett whinges about taxes being too low — remember that he’s an estate tax arbitrager.
Which is to say that his PRIMARY one-way investment bet has been to acquire significant, successful closely held ( family ) businesses at a great market discount as the patriarch leaves his mortal coils.
That’s why Buffett made bank on See’s Candies, Blue Chip Stamps, Dexter Shoes, etc.
During 2010 the estate tax rate was zero. He was entirely unable to get his way. Imagine that!
Instead, his right hand man — and implied successor — got caught front-running a sweet deal.
BTW, Berkshire-Hathaway is on the edge of being a Personal Holding Company. The tax consequence if breached are brutal. That’s why Buffett is frozen. He simply HAS to hold his percentage ownership where it is. Ditto for Charlie Munger and the rest of the inside crew.
Mr. High Taxes Are Good — entirely ducks said taxes by tendering partial ownership of B-H for cash at Capital Gains Rates. In this, he is mimicked by Bill Gates, both billionaire and anti-trust sinner.
If anyone muck-rakes this duo they’ll have an Augean Stable to clean out.
SE@89: The problem with all these regulatory bodies looking to “do good” is they never disband when they accomplish their initial goal.
God’s work is never done.
(I joke.)
Termination is a problem. Someone mentioned earlier the use of sunset provisions in the establishing legislation, which are worth a try.
The public debate may be excused for falling at random all over the rhetorical map of ‘what needs to be done’ but the leadership should never be given such a ‘failure to prioritize’ pass. For example, annual operating budget for NAACP is $20 million while Goldman’s annual ‘take’ from algorithmic trading is $250 million (using blert’s number of one mil/trading day.) The real problem is too protected to reform.
The Reason USA is Bankrupt:
The total cost [of illegal immigration] is a whopping $ 338.3 BILLION DOLLARS A YEAR.
I didn’t confirm all of the numbers, but, assuming they are correct, the total annual cost excluding Item 9. which is iffy: $ 138.3 billion. [I note also there is economic feedback from the presence of 20 million illegals in country. How that balances the urban crime and other direct costs is not perfectly quantified here so there are simplifying assumptions inherent in simple expense presentations.)
I don’t beat this drum too often but it’s now a system leakage that has become expensive, quite simply. How much is, say, $100 billion to the current budget? Here’s the annual welfare expenditures from 1950 to present.
#57 Toadlod
“I’m wondering it they will actually build or just purchase a complete package from France or “giggle” Israel. ”
and I’m rather wondering why the Americans will not supply it, hmmm remember Pakistan…. and the Saudi are the american’s best friends !
YBR, There are a lot of intangibles built into that number but while we piffle over the take-over of the construction trades which what used to pass as blue collar work here in California imagine how much automation would have been brought into the food service and farming communities and what the impact would have been on high tech jobs. We are in effect eschewing high technology and automation by importing what is in effect an underclass with separate laws, rights and responsibilities as non-citizens. Here in San Diego doctors were totally candid as to why the hospitals were closing one by one. Illegal aliens had to be cared for under federal law. One time governor Pete Wilson made an attempt to bill the federal government something on the order of 2 billion a year for blatant and quantifiable costs of illegal immigration. California is now broke. One is left wondering why the government is doing it. Is it out of love for the middle class?
RE: #93 The Reason the USA is Bankrupt
It’s not the only reason, but it the reason that must be fixed and fixed soon, or the other solutions won’t be possible. Welfare, Medicaid, Education, Food Stamps, Suppressed Wages, the list goes on and on. And the list did not include the Unemployment Benefits and other government expenses incurred due the large number of Legal American Citizens who are Unemployed Due to the Massive Influx (Invasion) of the USA by Illegal(s). Also, what about the income taxes that citizens would pay, that illegals don’t pay as they get paid under the table?
And finally how do you put a cost on the nearly 1 Million Sex Crimes committed against our Women & Children?
AM@95: We are in effect eschewing high technology and automation by importing what is in effect an underclass with separate laws, rights and responsibilities as non-citizens.
Interesting point. The urban violence should be a concern for everyone – not just the SW, but I separate the drug issue from the labor issue – two different sets of people. Curious if you support amnesty for some/all?
What gets my attention the most is the failure of Washington to control the problem with a reasonably simple set of fixes. It’s the SW, not the ME. Feds can’t execute. Anything.
bc@96: And finally how do you put a cost on the nearly 1 Million Sex Crimes committed against our Women & Children?
The violence has always been the core issue for me. The labor pool can have amnesty but drug-related violence, crimes of personal assault and property damage threaten the stability of the social fabric. Give them all to Sheriff Joe.
bc@96: It’s not the only reason,…
Nor do I endorse the contextual hyperbole. But it has become a significant issue of expense as the numbers indicate (refinements required.)
Back to Phil Angelides and his tax con. One thing lost in the current deficit debate is that over half ( 900 plus billion) of the deficit is directly tied to the current economic depression due to increased unemployment insurance and the loss of tax receipts ( a cool 500 bil thanks to YBR’s nifty chart). Obviously from that fact, the fastest way and perhaps the only way to really cut the deficit is to bring back the economy. Talk of tax increases in this economic environment is pure insanity. That will only kill off more of the economy and increase the deficit more.
The only bullets left in the stimulation barrel to bring back the economy are tax cuts, bringing back Glass Steagall ( to bring back deposits and thus lending to local banks) and the big one – massively cutting regulation to stimulate new business. In an environment where there is actual lending to small business and where a company need not get some g- d government approval for every move they make, you’d be surprised how fast businesses can grow, particularly in this internet age. If only the Nanny Police State would get out of the way …..
Peter DeFazio’s proposed transaction tax is 0.25 % of the transaction. On a purchase of 500 shares at $20 per share, Blert would have the government rake off $1 ($.002 x 500), while DeFazio would take $25 (.0025 x $10,000). A roundtrip would pay $50 in tax. See details here: http://en.wikipedia.org/wiki/DeFazio_financial_transaction_tax
When this idiocy is enacted, which rate do you think will be used? This is a dangerous idea that would impose major costs on mutual funds and pension funds in managing their portfolios. Blert’s antipathy to Goldman Sachs is understandable, but he is supporting DeFazio’s anti-capitalist agenda.
And Blert, as to the source of my faith that HFT has not deformed the market, as I said in my first post, I developed a model that analyzes price movement, and the model works equally well today as it does in backtesting to 1997. That is evidence, not faith.
YBR – ‘Curious if you support amnesty for some/all?”
My default position as a Californian who grew up travelling to Mexico and rubbing shoulders with Mexicans families and friends is that the system is broke and needs to be fixed. Ignoring the problem and, in effect, having laws that go into effect when US citizens are involved and are summarily waived if they are broken by an illegal alien, have created a two class system here in California.
I have long supported a guest worker program that resembles the now defunct Bracero Program. I am constantly reminded that the program was a failure but the underlying cause of the failure if I understand correctly is that the US paid the worker indirectly by passing on the earnings to the Mexican government. You can imagine how that turned out.
The anchor baby is a problem because pregnant women would hide in the trunk of a car and show up at the emergency room. Instant citizen and a foothold to citizenship for the family.
A close friend of mine was a ‘Brown Beret’ in the 60’s with his wife (pro-Chicano radical) was against NAFTA because it served to act as a safety valve for the corrupt Mexican government. He thought that things should be allowed to get worse before they would get better.
My same friends who were radicals in the 60’s are now involve in Latino advocacy and are deeply involved in making sure that their blood relatives, which is all Mexicans, get there piece of the pie. They subscribe to the notion of Atzlan. In fact, when you scratch the surface of any Latino advocate, eventually they say the Southwest belongs to them and was stolen.
The amnesty issue is a national catastrophe. If the necessary reforms were put into place when Reagan sponsored the first amnesty we wouldn’t be in a situation were high school students live in fear of being repatriated back to their country of origin. Heartbreaking really.
That said –
1) close the borders like a steel trap
2) Require proof of citizenship for work and social services and instate tuition
3) Close the anchor baby loop hole
4) Issue work permits temporarily but easily
5) Work with Latin countries to repatriate hardworking citizens
6) Make these reforms work and then give amnesty to anyone who was brought up in the US by illegal parents who has not been arrested and convicted of a felony.
7) family reunification to hardship cases and those who follow the law
8) Prosecute anyone who does not follow and respect the law of the land
The current situation is predicated on US law being immoral therefore entirely legitimate to ignore.
Anywho… that is my two cents.
Wretchard:
This is the closest I’ve seen Wretchard come to discussing the ‘New World Order’ hypothesis — not in the way that brother Alex Jones discusses it, but simply as elites designating themselves as too big to fail even when their way of life (i.e. strong support for welfare/warfare states AND population control) patently undermines itself and lends itself to severe social decline if not tyranny.
The question that has occurred to Senor Equis in the last few weeks, as he has observed Utah, Texas and other states begin to form not only interstate compacts on health care, but also energy is the following. Perhaps the real threat to the dollar and euro as global fiats will not ultimately come from the supranational globalist currency that Soros has been dreaming of imposing, nor a juiced up Chinese yuan. Rather, perhaps it will arrive in the form of a gold/silver coinage held in vaults in Salt Lake City, in Singapore, in Panama City, with debit cards issued by the First National Gold Bank of Mormonistan.
In addition to gold and silver, you can also have your supraregional Western U.S. constitutional money be backed by oil and gas deposited in exhausted old fields in Texas. Call it the U-Tex. After all, as the person interviewed in this ZeroHedge article pointed out (and he can’t be easily dismissed as a crackpot, since he’s argued cases before the U.S. Supreme Court), the states are only banned by the Constitution from issuing their own paper money. The Constitution says nothing about gold and silver coinage as that was money in the U.S. territories not yet admitted to the Union at the time of the Founding.
At any rate, the Mormons clearly have a plan. Beck said the other day after he suggested he was moving to Texas (and the news reports seem to confirm this) that there were only two groups he would say will be the least hard-hit in the event of economic collapse: Mormons and the Amish.
Not all conspiracies appear to be moving us inexorably towards (mis)rule by the Dominique Strauss Kahns of this world. There are, as Gandfalf told Frodo, other forces at work in this world. And pehaps conspiracies (for good) to resist monetary chaos and collapse. The real wild card however will be if the Chinese start trying to put some of their dollars into U-Tex or some supra regional equivalent — perhaps the Asero that the Aussies, Vietnamese and Indonesians are discussing. But Indonesia’s one of the world’s largest gold miners. It will be interesting to see if anyone proposing alternative currencies is denounced as an agent of Muscovy and Beijing and/or a domestic terrorist ala that poor bastard in the Carolinas who had the book thrown at him for selling silver coinage.
Sorry, here’s the link: http://www.zerohedge.com/article/guest-post-us-monetary-system-and-descent-fascism-interview-dr-edwin-vieira
“I have long supported a guest worker program that resembles the now defunct Bracero Program. I am constantly reminded that the program was a failure but the underlying cause of the failure if I understand correctly is that the US paid the worker indirectly by passing on the earnings to the Mexican government. You can imagine how that turned out.” Utah as it turns out has just introduced legislation to create a kind of state-level bracero program. That may also be on the Texas agenda. Whether any of these interstate things have been discussed between the Perry and Huntsman camps, I don’t know. But there’s definitely something going on between Mormonistan and Texastan*.
(*the joking name Senor Equis made up in Moscow when he was told by Russian colleagues that Texas ought to secede, and he replied that we don’t endorse secessionism — in the Caucasus or anywhere else — at this Russian workplace, even if the Kremlins want to retaliate in kind for the ‘American Committee for Peace in Chechnya’ and other American silovik front groups)
hmmm of topic, about Boeing running short of money for their Tanker
http://seattletimes.nwsource.com/html/businesstechnology/2015420023_tanker25.html
BTW, Strauss Kahn might get released, cuz the accusation was a big mess
http://www.nytimes.com/2011/07/01/nyregion/strauss-kahn-case-seen-as-in-jeopardy.html?pagewanted=2&_r=1&seid=auto&smid=tw-nytimesglobal
re: Freddy and Fannie (not being at fault).
I maintain they were at fault in the same way that a small catalyst goes a long way in chemical reaction.
These GSEs bundled mortgages (written by others) into securities they sold. They made lots of money in this business and were competitors to commercial banks, who were then held by their stockholders and boards to profit goals of the same magnitude if not more. The GSEs were believed to have a government guarantee long before they did in practice, if not in law, which pushed the commercial sector into even more inventive competitive behaviors – concomitant with regulatory capture by the GSEs which resulted in rules for the entire community (not just the GSEs) which made for even more risky behavior – consider the extension of the Basel low reserve requirements for traditional mortgage loans (with large percentage down) to NIV loans, and securitized bundles of those loans with none of that rigor. And we then politically removed the normal corrective / purgative by not permitting TBTF institutions go into receivership and be processed thru bankruptcy (giving haircuts to investors, funds and institutions who did not supervise or discipline their money managers – who would then choose more wisely in the future).
Government is like phosphorus. Absolutely required for life. But more than a few percent from any and all sources will kill you. And the more you differ from the “just enough” amount (~1.2% by mass) either too little or too much the less healthy you are.
In our case we start out with parents as 100% governance (and dependence) as a child, and should wean our way down to less than 10% (for those of us capable of being independent and responsible) – from all measures, be it direct taxes, indirect taxes (regulation that limits the freedom to vote with our wallet), and law and punishment that constrain arguably market neutral behavior. Granted, once we lose civil society (more precisely the will to insist on a civil society), no amount of money, process, law or punishment can make up for its loss. This is also marks when a civilization dies.
Where did the profits for “middle class” productivity gains go? Into spending decisions made for them by others. Just chart number of pages of regulations, number of lawyers, etc.. all below-the-line costs of business that are absorbed by someone – and when not just the customer, it’s paid by the employee (similar to how unions just shift income between groups, they don’t/can’t impact ROI – if a company is to stay in business). E.g. The middle class has government (EPA) to thank for billions of dollars spent on (no clear health impact of) arsenic reduction that only became visible when (moore’s law helped) test equipment improve enough to see another 2 digits of precision. As well as various forms of mandated (unemployment, disability, social security, …) “insurance” on the assumption that the citizen is more dependent than independent and responsible enough to manage these needs themselves. The rich don’t care, the costs of regulation are largely “per head” and if they go from $5,000 per year to $25,000 the rich don’t even notice. But the middle class does (and it look to me like about 25K/year since 1990 – including at least 10K/yr of this in borrowing from our children). Not good.
‘even if the Kremlins want to retaliate in kind for the ‘American Committee for Peace in Chechnya’’
I always thought we screwed the pooch on that one.
AT@108: re: Freddy and Fannie (not being at fault)…..I maintain they were at fault…
F/F were definitely ‘at fault.’ Whether they were fully causative is in dispute, and likely always will be.
The financial context was ‘complicated.’ Which was more determinative: that commercial banks had lost a major revenue stream to pension funds and mutual funds or that the GSE’s provided pressure to pursue an alternative – and ultimately – hazardous course of securitized derivatives trading to replace lost income? I think it is very much a classic chicken-egg question. The ‘reception’ of the banks to assuming additional consumer debt was no doubt facilitated by exigent circumstances, beyond the F/F pressure to competitively ‘match’ profits.
These GSEs bundled mortgages (written by others) into securities they sold.
That is a misstatement. The securitized mortgages were created and ‘bundled’ in the private sector and sold to F/F without due diligence. They did not, for the most part, originate within the GSE’s. See the history on MERS.
Fannie, Freddie, The Fed, Barney, Dodd, Rubin, Gorelick, Clinton, Reno, Carter, Greenspan, and etc are minor actors.
Yep, and grandma coulda been a streetcar if she had had wheels.
Blockheads, all.
Strauss Kahn released, his $6 millions back, free to travel in the US until 18th of july, when, probably he will be definitly aquitted !
re: MERS. Hmm. My understanding is F/F bundled – so they also were responsible for assessing (not just the originating firm) – and therefore had a role in representing the risk to investors (if only in the information they passed onto the rating agency). Afaik / been able to determine / the originators were truthful about the poor quality of many loans – they didn’t hide the fact that no income verification was done or insufficient down-payment was received (to qualify for 3% Basel handling), and investors were fully exposed if valuations ever dropped (since the U.S. permits jingle mail – unlike almost all other countries – where the assumption is the collateral + down-payment is sufficient to make the note good)..
And the mix changed because the originators were driven by the CRA to write more risky loans (when they were not written, they were sued).. And here’s where the invention of bundling into various instruments (allowing the originator to escape from the liability) representing more return for higher risk intersects with the moral hazard of an apparent taxpayer guarantee and “I’ll close my eyes to what must be a bubble” – with a wink and a nod.
One (admittedly poor) reference:
http : //www.usatoday.com/money/economy/housing/2008-07-12-facts-fannie-freddie_N.htm
..Fannie Mae and Freddie Mac bundle the loans they buy into securities, which are sold, with a guarantee of payment, to investors worldwide. The two companies also guarantee mortgages and pay owners of the loans when there is a default…
People forget that the only thing large companies fear is unfettered competition. They tend to favor regulation, especially financial institutions (big pharma, telcos, etc.), because they raise barriers to entry and protect incumbents – and transfer risk to someone else (“I implemented at great cost exactly the security you, the Treasury Department demanded, so you, the gov/taxpayer have to hold me harmless when it fails – because I was able to substitute your process for having to depend on my own wiles – intellect and judgment”)
Ari Tai: here’s where the invention of bundling into various instruments
Goes back to Fischer Black (1973.)
See my posts under the Bean Counters thread.
The environment was loaded to the gills with snakes and scorpions.
The ideologues were little more than Sister Theresa touring with the Rykers’ boys.