You should be glad to sacrifice yourself to hurt the enemy!
Posted by aogWednesday, 08 December 2010 at 08:39 TrackBack Ping URL

Let’s start here, which links to Joe Weisenthal writing about “the ridiciulousness of the Democratic Party’s position on taxes” with regard to the latest proposed tax deal. Weisenthal gets some good points but I think one he missed is that being willing to stick the middle class with a $385B tax bill in order to hit the “rich” with a $75B tax bill is, well, regressive. Isn’t that exactly the kind of tax policy the Democratic Party rails against? Yet, there they are, promoting it as a moral crusade.

What we are seeing is that MAList tax policy isn’t about helping the middle class, but punishing the “rich”. If the middle class has to take an even bigger one in the shorts to get there, so be it. Making omelets and all that.

P.S. Isn’t it amusing that these are still the Bush tax cuts? The MAList hate is so strong that they’re not even trying to get the name changed.

P.P.S Given that this is occurring during a lame duck session with massive Democratic Party advantage in Congress and the White House, why isn’t it being labeled “bi-partisan”? Is it because that label can only apply to Democratic Party initiatives?

Comments — Formatting by Textile
erp Wednesday, 08 December 2010 at 10:37

bbbut haven’t we been told that the enemy is us?

Annoying Old Guy Wednesday, 08 December 2010 at 11:02

For the Gentry Class, the enemy is everyone who thinks they can live their lives without the Gentry Class.

One key thing to note is that high income and estate taxes aren’t a big burden to the rich — who gets hurt is the striving middle class trying to acquire family wealth. They get worked over and so you end up with a more stratified and class based society, which suits the Gentry Class. That’s why their propaganda focuses on the very richest, even though their policies hit much further down the wealth / income scale.

David Cohen Wednesday, 08 December 2010 at 11:31

I tend to think that tax policy comes down to two related ideas. The first is that Republicans see taxes as a revenue tool with policy implications, while Democrats see taxes as a policy tool with revenue implications. The second is that Republicans see government as them where Democrats see government as us. Thus, Republicans want to keep the bill small, as with any consumer. Democrats want to maximize revenue, as does any supplier.

This almost entirely explains the debate over the estate tax.

Annoying Old Guy Wednesday, 08 December 2010 at 11:54

I disagree. I think you policy vs. revenue point is good, but you contradict it later by stating that the Democratic Party wants to maximize revenue. Why, if revenue is secondary to them? As President Obama himself stated, it’s more important to be “fair” (i.e., punish private sector success) than to maximize revenue.

erp Wednesday, 08 December 2010 at 13:12

Now that the the race card has become an object of derision, all they have left is class envy.

o/t — nice to have you back!

AVeryRoughRoadAhead Thursday, 09 December 2010 at 05:22

…being willing to stick the middle class with a $385B tax bill in order to hit the “rich” with a $75B tax bill is, well, regressive.

1. A link to the $385B/$75B data is here. The linked wizbang piece doesn’t mention it.

2. It’s not regressive. Per taxpayer, middle class payers would pay less of an absolute increase than would rich payers. Further, on a percentage basis, middle class payers would face only an increase in their marginal tax rate of two percentage points, whereas rich payers would shoulder a burden increased by three & 3/5 percentage points at the margin.

3. Most Federal income tax revenue comes from the middle class, (right around 60%, 1999 - 2008), just as does most of Wal-Mart’s revenue. Why? ‘Cause there’re so very many more middle class households than there are rich households. That’s where the money is, and so they’ll always pay more, as a group.

One key thing to note is that high income and estate taxes aren’t a big burden to the rich — who gets hurt is the striving middle class trying to acquire family wealth.

True that.

However, the middle class also consumes far more gov’t services than do the rich, especially if one counts gov’t retirement benefits - which I do. If the middle class would stop tryin’ to get somethin’ for nothing, and truly supported cutting gov’t spending, then they could also get a lower tax burden.

erp Thursday, 09 December 2010 at 07:46

Rough, define “getting something for nothing.”

Annoying Old Guy Thursday, 09 December 2010 at 10:27

AVRRA;

Thanks for the link update. As for point 2, your own link shows that the top 10% of income earners pay roughly 70% of the federal income tax. That leaves at most 30% for the middle class to pay. Where are you getting 60% for the middle class?

erp;

I have to agree with AVRRA on that, by presuming he means things like social security, Medicare, Medicaid, plus the massive jobs program that is the federal bureaucracy. For decades the middle class has in fact demanded every more government (via various programs) without wanting to pay for them. See California for the epitome of that.

AVeryRoughRoadAhead Saturday, 11 December 2010 at 03:36

erp:

What AOG says. More services than are paid for. In this regard intra-governmental debt is more insidious than is external debt, for the former can fool the unwary into assuming that there exist surpluses or prefunded programs, when in fact EVERYTHING is being funded out of current tax revenues & borrowing. Therein lies the problem.

With regard to SS & Medicare, they made up ~33% of Federal spending in fiscal ‘10, before the Boomers have started to retire en masse. When the cuttin’ time comes for the Federal budget - and it will - SS & Medicare will be on the chopping block, simply because the budget can’t be cut enough if they’re held sacrosanct. David M. Walker, former Comptroller General of the United States & head of the U.S. Government Accountability Office, has been warning about that for the past five years.

AOG:

Well, that depends on how one defines “middle class”. For the linked data, the top 10%, paying 70% of Federal income tax, starts at an average Adjusted Gross Income of $100K. While that’s very nice in most places in the U.S., there are locales where that’s very middle class, and in no place in the U.S. would that make one “rich”. Even the top 1% starts at an average of only $335K in Adjusted Gross Income, which may reflect income derived from being “rich” in assets, but if that’s compensation for labor or services then, again, that’s only upper middle class. (Although with good personal choices and luck, should such compensation continue for long enough one could become rich.)

Alternatively we could define “middle class” as the middle two quartiles of income distribution, in which case “rich” starts at $60,000/year in AGI, and they pay 85% of Federal income taxes.

But the debated “$385B middle class tax bill” structure defines “middle class” as those households having gross income of less than $250K. According to the IRS, about 3% of tax-filing households made more in ‘07; estimating from the linked National Taxpayers Union data, that 3% pays maybe 50% of Federal income taxes.

Maybe it’s just me, but $250,000 in gross annually doesn’t strike me as being “rich” in any classic sense. Now, a quarter-mil in annual disposable income, that’s rich.

Harry Eagar Monday, 13 December 2010 at 12:56

Thanks to what Guy humorously calls private sector success, boomers are not going to be retiring en masse if they can help it.

Some will retire early, some will retire on time and some will have retirement forced on them. But any who were foolish enough to suppose that investing in America would support them in their declining years are going to want to keep working.

If wealth continues to flow up — which it has — there soon will not be a big middle class to pay large revenues in comparatively small chunks.

I am sure Thought Mesh and its allies will continue to bewail the suffering of America’s pitiful billionaires.

Annoying Old Guy Monday, 13 December 2010 at 14:44

Thanks to what I accurately describe as destructive government interference in the economy, retirement is looking quite dicey for the Boomers. They thought they could arrange to have the government take care of everything for them, but as people grounded in reality recognized from the start, that just doesn’t work.

Actually, I invested in America and could probably retire right now if I wanted. Certainly I couldn’t retire on what I was promised by government programs.

Wealth flows up when the government gets involved. As I noted, it is current government policies and interventions that is contributing most strongly to eliminating the middle class.

bewail the suffering of America’s pitiful billionaires

Care to provide an actual cite, or is this yet another talking point check off?

Hey Skipper Monday, 13 December 2010 at 16:50
But any who were foolish enough to suppose that investing in America would support them in their declining years are going to want to keep working.

I have done just that. I must retire in ten years. On current form (that is, post financial schlamozzle), I will be doing quite well when I hit sixty-five. Heck, I’m doing quite well now.

You are right. I must be a fool.

Harry Eagar Monday, 13 December 2010 at 17:52

Yeah, wealth never flowed up when government wasn’t involved. It started flowing strongly after the Reagan “reforms.”

If your job was exported to China, there’s a good chance the place the dynamic economy made for you through creative destruction pays half what your old one did, if there is a new job.

Hey Skipper Monday, 13 December 2010 at 19:01

Supply and demand is not just a good idea, it is the law.

Annoying Old Guy Monday, 13 December 2010 at 20:52

OK, just another talking point check off then. Is that some sort of affirmation therapy?

Yeah, wealth never flowed up when government wasn’t involved.

Your logic is faulty in imputing to me the corollary of my statement. As always, my claim isn’t that the Bad Thing only happens due to government intervention, but that it is made worse by such intervention.

Annoying Old Guy Tuesday, 14 December 2010 at 11:36

Look at that — the Democratic Party gets complete control of the federal government and Wall Street bankers get record revenue. Clearly evidence that it’s the GOP that shovels money to the big boys.

Harry Eagar Tuesday, 14 December 2010 at 12:27

Uh, I don’t recall that the Democrats has COMPLETE control of the federal government when the bailout was done.

AVeryRoughRoadAhead Thursday, 16 December 2010 at 02:26

…retirement is looking quite dicey for the Boomers. They thought they could arrange to have the government take care of everything for them, but as people grounded in reality recognized from the start, that just doesn’t work.

Actually, if the Boomers had had the good sense and intestinal fortitude to pull the purse strings tighter during the latter Bush era, both personally and of the gov’t, then maybe it could have worked. From the day that W. Bush took the oath of office, ‘til the day he surrendered the White House to Obama, in nominal terms the current national debt nearly doubled, swelling by FIVE TRILLION dollars. In real terms, it increased an astounding 50% in eight short years, from $5.72 to $8.5 trillion, in year 2000 dollars.

Those trillions would come in real handy-like for paying for Boomer retirement benefits, if they were still available for future borrowing.

On current form (that is, post financial schlamozzle), I will be doing quite well when I hit sixty-five.

Well, that’s the problem with predicting how well your investments will have performed fifteen years hence - we’re not post financial schlamozzle, we are MID financial schlamozzle, and neither Obama nor Congress (lame duck or incoming) inspire any confidence in me that they have any insight or ability to navigate this crisis.

It reminds me of the old joke about the guy who falls off of a forty-story building and is heard to say, passing the tenth floor, “So far, so good!”

Look at that — the Democratic Party gets complete control of the federal government and Wall Street bankers get record revenue. Clearly evidence that it’s the GOP that shovels money to the big boys.

Both parties shovel money to the big boys. Given the tepid expression of anger by voters in the mid-terms, that ain’t gonna change anytime soon. Maybe 2012.

AVeryRoughRoadAhead Thursday, 16 December 2010 at 03:07

Banana Republic Finance: Why Keynes Is Rolling in His Grave | by David Stockman - Minyanville

We have had a 30-year referendum on federal spending, starting with President Reagan’s failed effort to shrink the welfare state in 1981 and culminating in the Bush-era ratification of all the spending that was there — plus a healthy add-on for education and Medicare drug benefits. So why relieve the middle class of the obligation to pay for the government it apparently wants at the cost of showering the rich with tax cuts paid for by Uncle Sam’s credit card?

Via the inestimable Automatic Earth.

Harry Eagar Friday, 17 December 2010 at 10:43

We could go back to letting old people starve to death.

Annoying Old Guy Friday, 17 December 2010 at 11:41

Yes, clearly, that’s only option for cutting government spending.

AVeryRoughRoadAhead Friday, 17 December 2010 at 18:21

Starve, no. Letting them die of treatable but expensive conditions, almost certainly.

AVeryRoughRoadAhead Saturday, 18 December 2010 at 04:58

Here’s a very interestin’ chart…

The Market Ticker Corporate Leverage Index

[L]et’s assume a mythical company with $100,000 in equity outstanding. Let’s further assume that it earns $10,000. The P/E would be 10.

There is a further valuation measure often applied, which is known as “PEG”, or P/E/G - that is, the price-earnings multiple divided by the growth rate. If the company’s earnings are growing by 10% a year then the PEG ratio is 1.0. Below 1.0 is often thought of as “undervalued” with over 2.0 thought of as “overvalued.”

These metrics are, to a large degree, subjective.

Note that nowhere up above did I look at the actual tangible assets of the firm, nor did I look at debt levels. Yet I’d argue that both are important. Tangible assets are, of course, things of value (like a building) that the company uses in the conduct of its business. Debt is used to finance operations or growth - and sometimes to buy those assets. […]

So let’s look at the … value of equity compared to the tangible asset values of these companies less their outstanding debt.

We will call this The Corporate Leverage Index.

That index reflects the amount of leverage that is inherently in the equity price of stocks, or the number of dollars of equity valuation that “stands for” each dollar of liquidation value of the firms in the equity markets.

It is thus a measure of leverage, otherwise known as risk, in the equity market.

When this value is under 1.0, stocks are by any measure undervalued. You could liquidate the companies and you would receive more as an owner than the equity value in the market.

When the value is 1.0, you have a market where equity prices exactly reflect the actual ownership interest you have in that company.

And as the value exceeds 1.0, you have “ownership interest” that is in fact only a fraction (the arithmetic inverse) of the market’s price. If, for example the index is 2.0, then you have two dollars of equity value for each dollar of liquidation value - that is, despite what the market tells you, you actually own 50 cents of tangible “things” for each dollar of stock investment you hold. If the ratio is 4, you have a quarter for each dollar of stock investment, and so on.

Remember that equity is ownership, so any time the value is over 1.0, all of the “value” beyond that 1.0 level is in fact speculative premium and is at risk.

During recessions this value should contract markedly. Firms that are over-levered should go bust, and in doing so their debts are erased. While stock valuations also fall outstanding credit should either be paid down or defaulted at a faster pace that equity values, bringing these values into line.

Note that this data is not perfect. There are probably distortions in The Fed’s reporting, but this is the most-accurate data we have, and more importantly, if there are distortions they should be more-or-less constant over time. That is, if there’s a distortion in the reported numbers in 2005, it probably also exists in 2010, and since we’re interested in relative numbers here rather than absolutes, we can probably ignore that.

So what’s the historical view of this index look like? [see above]

Uh, yeah.

Go ahead and try to tell me that stocks do not represent lots of risk with The Corporate Leverage Index at this level. […]

If you’re wondering where that spike came from, it’s from the decrease in the valuations of property, plant and equipment - largely corporate-owned real estate and other tangible assets. Government policy changes, mostly related to mark-to-market accounting, has enabled financial institutions to lie about the underwater nature of these loans. This in turn has resulted in a monstrous Corporate Leverage Index, which is clear evidence that in fact there has been no recovery in the underlying asset valuations behind these loans - that is, this is yet another form of “shadow leverage”, and it is hiding extreme!!! levels of risk.

On this valuation basis, stocks represent three times the risk today than they did at the top in 2007! […]

Does this mean the market can’t go higher? No, it does not. Manias are funny things - markets often ignore extreme levels of leverage (that is, risk), sometimes for quite a while. Indeed, Tulip Mania went on longer than many thought it could, and reached valuations that most people thought, in hindsight, were ridiculous. So did the Internet Bubble.

But this chart does mean that … reversion only to levels seen in 2005-2007 before it all fell apart, which were clearly bubble prices, will cut equity valuations by 2/3rds from where they are today!

A reversion to levels seen before the Internet bubble really took off, to around 2.0, would result in a valuation loss of more than 80%.

And God help you if we were to revert to levels seen from 1951 to 1990, a level somewhere around 1.0-1.5, as such would represent a loss of some ninety percent - or more - from today’s prices…

But not to worry, ‘cause IT’S DIFFERENT THIS TIME!!!

Harry Eagar Saturday, 18 December 2010 at 10:50

And, not all those tangible assets will continue to have value.

This came up with electric utilities back in the ‘90s, you’ll recall, with the issue of stranded assets. If all your customers switch to wind from Texas, then your coal plant in Illinois tnat the county zssesses at $2 billion cannot be sold for anything.

Not all markets clear.

Ali Choudhury Saturday, 18 December 2010 at 13:52

A lot of that leverage is associated with financial firms who had to take on huge debt from the US government to survive in 2008. You also need to consider how much the share prices of those firms tumbled in 2008. AIG was trading at at about $1,000 a share in 2007. It’s now at $52. Citigroup lost nearly 95% of it’s value. Even GE, a v. solid industrial, went down 50% because of fears over GE Capital, it’s financial arm. Both of those factors contribute to the huge spike seen.

It’s not symptomatic of the broader economy, where plenty of companies have paid down debt and are sitting on pretty healthy balance sheets.

Unless the US government decides to call in all it’s loans at once, there’s not as much risk as you think.

I think what’s a matter of interest now is how unenthusiastic people are about in the stock market. It’s like the 1950s where it was seen as a sure-fire money pit. Here in the UK at least, individuals are far more concerned with buying properties for rent than shares.

Bret Saturday, 18 December 2010 at 15:35

The “Corporate Leverage Index”?

Hmmmmmm. Let’s consider a couple of examples.

Let’s say there are 2 companies (company A and company B), both have $100M in “tangible” assets, and have a market value of $10M. The only difference between the two companies is that A has $90M in debt and B has $95M in debt. The Corporate Leverage Index for A is 1 and for B it’s 2.

B may have twice the “leverage”, but the companies are really in pretty similar shape. If the economy (or their industry) gets badly hit, the value of those wonderful “tangible” assets could easily plummet and they’ll both be in similarly bad shape.

Now take company C with $2M is assets, no debt, and a market value of $10M. C is very profitable but distributes all of its earnings. Its Corporate Leverage Index is 5. Yet the risk of C to the economy as a whole certainly isn’t 5 times that of A.

As time has marched forward and less of the economy is involved in farming (which relies on land) and manufacturing (which relies on lots of capital equipment), there are more and more companies like C.

IMO, the Corporate Leverage Index has quite limited value.

Harry Eagar Sunday, 19 December 2010 at 11:55

Time appears to be marching backwards. We are developing a combination of the 18th c. English model in which a small group of men made a precarious living by taking in each others’ washing; and 18th c. France, where the top class that owned property exempted itself from taxation.

I thought the corporate leverage index was interesting, although I find it more interesting that US large corporations are sitting on $2T with no idea of what to do with it. The current boomlet reminds me of the Little Bull Market of ‘31.

Ali Choudhury Sunday, 19 December 2010 at 13:54

Living standards for the average person now are far higher than in centuries past, at least in the industrial world. So granted, the top 1% is becoming hugely more wealthy but it’s not like the rest of us have to sell our kids to brothel-owners to survive.

What kept the Depression going so long was the money supply being repeatedly tightened before any recovery could find its’ feet. That’s not a policy mistake that will be repeated. I’m concerned at the level of US unemployment though. Never thought it would stay high for so long.

Harry Eagar Sunday, 19 December 2010 at 23:30

It was higher than anybody wanted to admit even before the recession. It’s not just employment, it’s more or less steady employment, and that’s what’s been eroding — to the cheers of the rightwingers.

Interesting you should pick selling children to brothels, as I am reading Yamazaki Tomoko’s ‘Sandaken Brothel No. 8’ about that subject.

The problem isn’t that the top 1% are wealthy but that the middle is being hollowed out. I dunno who is supposed to buy those 18 million empty residences. Anybody care to write a 30-year mortgage to people who have no good prospect of regular employment for even 10 years?

Yeah. That’s what I thought.

The other problem, and I bring it up here for the first time, though I’ve been thinking it over for five or six years now, is whether in fact a global financial system with instantaneous price information transmission is compatible with producers. If all money is hot money, where are makers of dull necessities like, say, cellophane going to get capital?

Hey Skipper Monday, 20 December 2010 at 14:16
Time appears to be marching backwards. We are developing a combination of the 18th c. English model in which a small group of men made a precarious living by taking in each others’ washing …

Just one example: BMW has just started a $750,000,000 expansion of its manufacturing plant in South Carolina, which was already plenty big to begin with.

… and 18th c. France, where the top class that owned property exempted itself from taxation.

And just what proportion of federal taxes is paid for by the wealthiest five percent?

—-

As Ali noted above, there has been an incredible flattening of living standards between rich and poor: the rich are more lavishly, but not better, provisioned than almost everyone else.

Which is just like 18th century France.

erp Monday, 20 December 2010 at 16:01

Skipper, you’re so right. We just came back for a two week trip around the fruited plain. Everywhere almost everyone including young kids had a some sort of hand held device, everyone was well dressed, nary a ragged beggar in sight.

o/t In the accumulated mail was a check for $250 to make up for the fact that my husband is in the Medicare Part D doughnut hole for nearly two thou. It’s ridiculous. We neither want nor need it just like to we don’t want any of the other “freebies” foisted on us and like other similar checks, we give it to really needy people like the local children’s library and the local humane society.

Harry Eagar Monday, 20 December 2010 at 18:49

Come with me and I’ll show you ragged people. I spend an hour or so every week hanging out at the counter of my friend’s pawn shop.

I am not surprised that prosperous people don’t go where the unprosperous are.

Hey Skipper Monday, 20 December 2010 at 18:53

Still waiting.

What proportion of federal taxes do the richest 5% pay?

erp Monday, 20 December 2010 at 19:40

Skipper,

Per The Tax Foundation, the top 5% pay more than 50% of taxes.

Harry,

As you know, The poor you will always have with you for various reasons, many of which are related to mental illness or alcohol and drug related. We can thank Carter for releasing these people to fend for themselves.

Billions, if not trillions, of tax payer dollars have been spent by the government you so admire to help these unfortunates, but as is usual when the compassionates get their hands in our pockets, they only helped themselves, while those in whose name they confiscated our funds, are still left to their own devices.

My comment was about those in mainstream society.

Hey Skipper Tuesday, 21 December 2010 at 01:58
Per The Tax Foundation, the top 5% pay more than 50% of taxes.

But how can that be? According to Harry, the top 5% are exempt, and it is the poor who pay all the taxes, just like in 17c France.

Are you telling me it is exactly the opposite?

Tres horrible!

erp Tuesday, 21 December 2010 at 08:46

Skip, I only tells ‘em as Google finds ‘em.

Harry Eagar Tuesday, 21 December 2010 at 11:38

And that 50 is paid on what fraction of national wealth?

It’s true that a lot of the ragged bums at the pawn shop are mentally sick or drunkards. But it’s also true that a lot aren’t.

When the number of people in America for whom the economy had no use went up by 15 million or so, the number of mentally sick and drunkards did not also go up by 15 million.

I don’t think our fundamental economic problem is that not enough Americans don’t have BMWs.

erp Tuesday, 21 December 2010 at 13:00

Harry, Are you among those who feel that taxes should be punative … because if you aren’t why would you care what the percentage of their wealth was paid by the top five percent of taxpayers. The point is they paid more than 50% of the taxes.

Our fundamental economic problem is too much government where it isn’t needed, i.e., in our lives and marketplaces and too little where it is, i.e., putting the mentally ill, including drunks and drug addicts, and the mentally disabled in custodial care and off the streets.

AVeryRoughRoadAhead Tuesday, 21 December 2010 at 14:07

If all money is hot money, where are makers of dull necessities like, say, cellophane going to get capital?

By offering credulous investors naifs hundred-year bonds, like Norfolk Southern railroad?

…a two week trip around the fruited plain. Everywhere almost everyone including young kids had a some sort of hand held device, everyone was well dressed, nary a ragged beggar in sight.
Come with me and I’ll show you ragged people … at the counter of my friend’s pawn shop.
My comment was about those in mainstream society.
  • The long-term unemployed would be shocked and appalled to hear that not only have they gone from being middle class to destitute, now they’re dismissible as “not in mainstream society.” “Unclean, unclean!!
  • Now comes ragged beggars:

[All emph. add.] Oregon aid agencies brace for tens of thousands losing unemployment benefits | by Richard Read - The Oregonian

Oregon’s social-services safety net is in danger of snapping as unemployment benefits expire for tens of thousands in the coming months. Each week, about 600 Oregonians exhaust jobless benefits. In January, about 4,000 a week will lose coverage. And state officials expect those numbers to spike in April when more than 35,000 people will exhaust benefits in a single week. […]

Oregon social-service agency managers say they don’t know how they’ll handle the fallout, the size of which catches some by surprise. Already they can’t provide enough rent and energy assistance for thousands. “I had heard there’d be an increase, but I had no idea it was going to be that much,” said Sharon Hills, executive director of the Society of St. Vincent de Paul’s Portland council, whose utilities-assistance program is already overwhelmed. “I don’t know where we’re going to get more money to handle that, unless some huge donations come in.”

The mass exhaustion of benefits, an echo effect of the great recession, is unprecedented in Oregon as the jobless rate remains stuck at 10.5 percent, state Employment Department officials say. Other states expect similar effects, including Washington, where officials don’t yet have specific projections. In Oregon, almost one out of five people already is on food stamps. A record 741,419 Oregonians are on the supplemental nutritional assistance program, a number bound to increase as more people lose unemployment benefits, said Gene Evans, Human Services Department communications officer. […]

Jean DeMaster, executive director of Human Solutions, an east Portland and Multnomah County nonprofit, sees people in desperate straits after their unemployment runs out. “They’re unable to pay the rent, unable to keep their utilities on,” DeMaster said. “We see parents who are trying and trying and trying to find jobs, and they just can’t find anything in this economy.” […]

Salvation Army managers in Oregon see people who used to give donations coming in for help. Maj. James Sloan, who oversees Portland-area operations, says the organization helps an average 3,100 families a month. That’s up 30 percent from three years ago. Salvation Army workers are bracing for increased demand if as many unemployed workers exhaust benefits as predicted. “I don’t know what those numbers you’re describing will actually do to us,” Sloan said. “At this point I’m not sure how we would handle that increase if it were to come at us.”

According to the U.S. Bureau of Labor Statistics, in 3Q 2010, the INCREASE in the number of involuntary part-time workers - individuals working part time because their hours had been cut back or because they were unable to find a full-time job (seasonally adjusted): 845,000. Total number: 9MM. Average number of involuntary part-time workers, ‘94 - ‘09: 4.5MM.

Also, the number of persons jobless for a year or more rose from 645,000 in the second quarter of 2007 to 4.5 million in the second quarter of 2010.

Chronic Joblessness Bites Deep: Long-Term Unemployment Hits New High, Cuts Across Income Levels, Demographics | WSJ

The job market is improving, but one statistic presents a stark reminder of the challenges that remain: Nearly half of the unemployed—45.9%—have been out of work longer than six months, more than at any time since the Labor Department began keeping track in 1948. [Emph. add.]

Even in the worst months of the early 1980s, when the jobless rate topped 10% for months on end, only about one in four of the unemployed was out of work for more than six months.

In the bleak midwinter: Poverty looms for the long-term unemployed | Dec 16th 2010 | The Economist

The programmes available for the poor are at once limited and helpful, meagre and costly. Food stamps, delivered these days in the form of debit cards for groceries, are available for any household whose gross income does not exceed 130% of federal poverty guidelines—for example, $28,668 for a family of four. In normal circumstances an unemployed, able-bodied worker below that level gets food stamps for no more than three months in a three-year period. Thanks to Ohio’s high unemployment rate, that limit has been waived until October 2011. In September the average recipient in Ohio got $141 a month for groceries, or $4.70 per day—not much, but more than usual thanks to the stimulus package.

Health care is another big problem. Medicaid provides health insurance for the poor. To qualify, a family of four would have to have a monthly income of no more than $1,654. And Medicaid is available only to specific groups of poor people, such as families with young children and pregnant women. In Ohio, children ineligible for Medicaid may qualify for a state programme. Others, however, are simply seeking care where they can. In Wilmington volunteers staff a free health clinic on Thursday evenings. Patients often begin to queue at 3pm. Denise Kleinhenz, a nurse who helps run the clinic, says that many come after months of neglect. Some have first tried treating themselves with cheap veterinary drugs.

Once a worker has exhausted unemployment benefit, the only form of cash assistance is through Temporary Assistance for Needy Families (TANF), the federal programme that replaced welfare in 1996. The recession, however, has been a strain. First, states receive TANF money as block grants from Washington, DC, so the funding does not rise with demand. The stimulus included an emergency boost, but this expired in September and is not being renewed. Second, states have long spent the bulk of their TANF money on programmes that encourage people into work, such as child care. This continued even as work was nowhere to be found. Last year Ohio spent only 25% of its TANF money on cash assistance.

Whereas unemployment benefits are based on a worker’s previous wages, TANF payments are much more modest. A family of four in Ohio, for example, gets a mere $536 in cash assistance each month.

And finally, from HuffPo:

[All emph. add.]: [F]ederal funds for the Temporary Assistance For Needy Families (TANF) program have entirely dried up for the first time since 1996, leaving states with an average of 15 percent less federal funding for the coming year to help an ever-increasing number of needy families.

TANF, the federal program that replaced welfare under the Clinton Administration, provides a lifeline for families and workers who have exhausted all of their unemployment benefits. […] Congress has passed legislation that will end funding for the TANF Contingency Fund in 2011.

So it’s very clear that at least one thing is EXACTLY the same in the 21st c. U.S., as was in 18th c. France: “Let them eat cake.”

Hey Skipper Tuesday, 21 December 2010 at 14:42
And that 50 is paid on what fraction of national wealth?

Stop the goal post shifting.

You clearly stated the rich in the US are exempt from taxation. That statement brings a whole new level of meaning to “wrong”.

erp Tuesday, 21 December 2010 at 15:53

Rough,

Unclean – cute. s/off

I’d be willing to bet that many of those mainstream people I saw at malls, theaters and airports are unemployed. They’re victims of Obama’s economic miracle, but courtesy of generous taxpayers. are collecting benefits, so are able to stay in mainstream society and not forced to travel to a pawn shop in Hawaii and, to quote Harry, become ragged bums.

What I can’t understand about Harry’s Hawaii is that if it’s a perfect paradise of nannyhood, why are there ragged bums there, matter of fact, why are there pawn shops there?

Bret Tuesday, 21 December 2010 at 16:04

Rough,

Except that cake is easy to be had, even for the destitute.

Would you really just as soon been unemployed in 18th century France as now?

Hey Skipper Tuesday, 21 December 2010 at 17:44
So it’s very clear that at least one thing is EXACTLY the same in the 21st c. U.S., as was in 18th c. France: “Let them eat cake.”

From the link:

In popular culture, the phrase “Let them eat cake” is often attributed to Marie Antoinette. However, there is no evidence to support that she ever uttered this phrase, and it is now generally regarded as a “journalistic cliché”.

Yep, exactly the same.

Harry Eagar Wednesday, 22 December 2010 at 15:40

Since Reagan, there has been a gigantic, untaxed transfer of wealth up — trillions and trillions of dollars.

If the top strata had done anything economically useful during this period, we would welcome this explosion of entrepreneurialism and contribution to aggregate wealth. That, however, is not generally a good description of what happened.

That the rich still pay a derisory amount to taxes is gladsome, but they and their unrich allies are working tirelessly to put a stop to it.

Since the Americans with no income are not going to be paying much in taxes, one wonders, where the revenue will come from?

It would be a good exercise for you guys to read Stendahl’s ‘The Red and the Black.’

AVeryRoughRoadAhead Thursday, 23 December 2010 at 22:47

I’d be willing to bet that many of those mainstream people I saw at malls, theaters and airports are unemployed, … but courtesy of generous taxpayers are collecting benefits, so are able to stay in mainstream society and not … become ragged bums.

Yes, the benefits are generous - but only for a limited time. The main point of my comment is that the ragged bums are coming, probably next year when, unless there is very unexpected and significant structural change in the way that government relief efforts are structured, there are going to be approximately nine million people in the U.S. whose only income is a few hundred bucks a month in food stamps.

Since clearly not all of those people have family or friends with whom they can stay, and given that it is absolutely impossible for existing homeless shelters or Section 8 to pick up the slack, we can expect to see a couple million more penniless, homeless people appear in 2011 - i.e., ragged bums.

Read that Oregonian piece again; in April 2011, the state of Oregon is expecting a 3,500% increase in the number of people who have exhausted their extended unemployment benefits.

Except that cake is easy to be had, even for the destitute.

Would you really just as soon been unemployed in 18th century France as now?

No, of course not. But the dread spectacle of Congress cutting already meager welfare benefits, in the teeth of the worst economic downturn since the Great Depression, WHILE SIMULTANEOUSLY showering insolvent Wall Street banks with hundreds of billions in taxpayer dollars, so that they in turn can pay their employees and especially the executives of these failed institutions tens of billions of dollars in BONUSES…

How is that substantially different from the complete detachment shown by the French aristocracy, powdering their wigs with flour while the common people starved?

And while the literal cake itself is easy to come by, aside from avoiding starvation there’s not much to be happy about, for the long-term unemployed. If you can’t find work, and your unemployment benefits run out, and you don’t qualify for TANF, and you’re too young for SS… Once your savings are gone and you’ve sold everything of value, how are you going to clothe and shelter yourself?

Almost every single one of those 4.5MM people who have been unemployed for over a year are going to stay unemployed until their unemployment benefits end, and beyond. They’re burning their savings staying mainstream, patronizing “malls, theaters and airports,” foolishly but understandably making their mortgage payments, hoping something happens to rescue them…

They’re broke, or soon will be, and the states are in the same boat. There are 31 states that are having to borrow Federal funds to pay for existing unemployment claims, the National Conference of State Legislatures’ new report finds that 15 states face combined budget gaps midway through FY 2011 of $26.7 billion, and 60 Minutes reports that there are likely to be one million more jobs lost in ‘11 due to deteriorating state finances.

If there are to be more relief efforts, more housing vouchers, more shelters and food pantries, extended Temporary Assistance for Needy Families (TANF) eligibility - in short, more of everything that there will have to be to prevent hundreds of “Obamavilles” from appearing, then the Feds are the only ones who can do it - except that they don’t seem all that interested.

It can all be paid for with borrowed money, loans that we’re not going to repay anyway, so why not?

Skipper:

I’m afraid that I don’t grasp the point of your apparently non-substantive reply - please break it down for me.

My best guess is that you are subtly suggesting that since the “cake” attribution can’t be substantiated, perhaps Marie Antoinette really did care about the plight of the peasants, far more so than the 111th U.S. Congress cares about despairing American peoples, and therefore your opinion is that the 21st century U.S. is actually worse than was 18th century France.

Hey Skipper Friday, 24 December 2010 at 01:31
I’m afraid that I don’t grasp the point of your apparently non-substantive reply - please break it down for me.

Your apparent reason for the rhetorical quote to Marie Antoinette was a quote that, as it turns out, was completely fictitious, as is any suggestion that 21c America has any parallel worth discussing with 18c France.

Just as Harry’s similar insistence that the rich in the US are exempt from taxation, or that somehow 5% of earners paying 50% of income tax is derisory, is also a fiction.

And that is before getting to the question of whether the economy would be better off for the government covering an even bigger chunk than it does now.

AVeryRoughRoadAhead Friday, 24 December 2010 at 03:25

Your apparent reason for the rhetorical quote to Marie Antoinette was a quote that, as it turns out, was completely fictitious, as is any suggestion that 21c America has any parallel worth discussing with 18c France.

Really?

A weak, indecisive leader; huge state debts and out-of-control spending; political crises; a suffering populace - you find these parallels to be “fictitious”?!?

The M.A. quote was indeed a rhetorical device; as such, it doesn’t matter in the slightest whether on not she actually spoke those words. What matters is that everyone, even people who know that she probably didn’t, knows exactly what are the implications of the phrase.

But amusingly, if we are to discount the mythos of Marie Antoinette, then we are left with the U.S. Congress cutting aid to the poor during the time of the poverty-stricken’s greatest need, with no corresponding evil acts by the French nobility. Thus my jest is made reality: “therefore your opinion is that the 21st century U.S. is actually worse than was 18th century France.”

Just as … that somehow 5% of earners paying 50% of income tax is derisory, is also a fiction.

Perhaps it is, and perhaps it isn’t. To know with certainty, we’d need to have more data than just that the top 5% of earners pay 60% of all Federal Income Taxes, especially since the penultimate 4% pay only 20% of all FIT. That the top 1% pay 40% of all FIT tells us nothing about what percentage of their income they pay in taxes.

erp Friday, 24 December 2010 at 09:31

1. What’s with the obsession about the % of income paid by top taxpayers? What difference does it make?

2. Providing long-term unemployment benefits just makes more people dependent on the dole and that’s not a good thing in the short or long term. Read Two Californias by Victor Davis Hanson to see how some new Americans have handled the problem.

3. I’ve read, and have no reason to doubt it’s true, that there are a couple of trillion dollars out there waiting to be invested, but few are brave/dumb enough to risk their capital during a time of such disruption as this administration is exhibiting.

4. The Republican leadership is being “scr*wed and tattooed” either willingly or because they are incredibly naive (I pick the former), so they’re no help and I have little hope the new congress will be any better.

5. There doesn’t seem to be any strong leaders in sight who are smart and brave enough to dismantle the immense/huge/gargantuan bureaucracy that we’ve allowed to grow into the monster than is crushing us and worse than that, a lot of us think the solution is to allow that monster to get even bigger.

6. Merry Christmas to all.

AVeryRoughRoadAhead Friday, 24 December 2010 at 12:12

Read Two Californias by Victor Davis Hanson to see how some new Americans have handled the problem.

Having read it, are you saying that you endorse what these “new Americans” are doing in their California? ‘Cause item No.2 reads to me as if you’re saying that one could learn from them how to avoid long-term dependence on the dole.

Merry Christmas!!

Harry Eagar Friday, 24 December 2010 at 13:24

thanks, erp, you make my point for me. The surface justification for extending the Bush tax cuts on the rich is that they will then have money to invest and create jobs. Since, as you say, they already have money and will not invest, giving them more money will do one of two things: Allow them to buy bigger yachts; or blow up a bubble somewhere as they search for some place to ‘place’ this money.

There are jobs going begging — thanks to creative destruction, which destroyed jobs for which there was a labor force without creating a labor force for the new jobs — but not even one-fifth as many as there are unemployed.

If everybody took any job on offer, under any conditions, at any pay, there would be no discernible reduction in the unemployed.

But thanks for caring. ‘Tis the season and all.

erp Friday, 24 December 2010 at 16:21

Rough, I’m not endorsing any behavior. I’m saying they are making what they can of a very bad situation. Something our forefathers would understand. The point Hansen makes is also pertinent. While mainstream citizens are besieged with rules and regs that, to quote Tevye, “would cross a rabbi’s eyes,” the sub-culture makes lemonade without even having lemons.

Harry, since I’ve already stated the reason people, including, very small investors like ourselves, are sitting on our money is that the Obama administration can’t be trusted not to change the rules of the game and destroying the playing field in the middle of the game. As for the stimulus, I don’t remember any support for it around here. If that makes your point for you, I’m glad to be of service and while we’re not buying a yacht, I am toying with the idea of buying an iPad when the new version comes out in the spring.

Suggestions, comments, advice on this radical move will be greatly appreciated.

Harry Eagar Saturday, 25 December 2010 at 10:27

the idea that uncertainty about Obama policy is retraining investment is absurd. Even in the depths of the Great Depression, capitalists floated new auto companies every few months, despite the presence of a dozen existing companies with vast overcapacity.

If people who can get 1% on deposit are not investing, it’s because they cannot think of anything useful to do with the money. That would be because, in a consumer economy, there are damn few consumers left, thanks to Reaganomics. The situation is just like the Great Depression. The rich do eventually become surfeited with BMWs. The unrich, without current income, without savings, and choking on debt, are not going to buy much.

erp Saturday, 25 December 2010 at 12:11

Harry, that’s utter balderdash!

… and BTW, you didn’t answer my question: Why are there ragged bums and pawn shops in nannyville and if the “rich” are buying yachts, why did Sea Ray, a major employer around here, just lay off a sizeable percentage of its work force?

Harry Eagar Sunday, 26 December 2010 at 12:44

I didn’t bother to answer your question for two reasons:

1. Hawaii is not ‘nannyville’

2. with an unbalanced economy based almost entirely on exports, our business results track the rest of the world, and especially California very closely.

Your question answers itself about the boats. SeaRay does not need many workers to build a few yachts. To be a mass producer of consumer boats (whcih is what its business model was), it needs mass consumers.

The financialization and globalization of the American economy has wiped out the mass consumer.

Let me put it to you in terms even a Republican should be able to understand. Imagine you have $200,000 to lend. Would you lend it to someone who works at Sea-Ray?

erp Sunday, 26 December 2010 at 14:09

Harry, as far as I can tell, there aren’t any Republicans who comment here and your analysis of the reason the non-rich aren’t buying boats from Sea-Ray is nonsense, especially since a couple of short years ago*, Sea-Ray was running three shifts.

You’ve been in paradise too long if you don’t realize that Hawaii is the nannyville of the south Pacific.

*B.BHO.

Bret Sunday, 26 December 2010 at 14:55

Harry Eagar wrote: “If people who can get 1% on deposit are not investing, it’s because they cannot think of anything useful to do with the money.

If you had wanted to be accurate (especially since you’re a business journalist), you would’ve wrote something more like, “…it’s because their calculation of the risk-adjusted ROI based on their admittedly subjective discount rate which takes into account their assessment of said risk (among other things), does not show a higher risk-adjusted ROI than the 1% their getting from, in their opinion, a safer investment (deposit).”

Even with that more accurate way of writing it, both you and erp have reasonable points. Your point is basically that if there was enough demand, then there would be enough potential profit to overcome an awful lot of perceived risk. Erp’s point is that for a given level of potential demand and profitability, increase perceived risk will reduce investment and therefore job growth and economic well being.

Both points are correct.

Harry Eagar Monday, 27 December 2010 at 17:49

Well, yeah, but the business about business confidence is just blather. Even in the depths of the Depression, projectors could raise money for specific ventures. Right this minute, I know people running established, solvent (so far as I can tell without looking at their books) businesses that they would like to expand, but they cannot get loans.

Making more money available to the uberrich will not make lenders lend to them, because the difficulty is not lack of hot money.

Nor is it lack of confidence in Obama, since no one in his right mind could have less confidence in Obama than in, say, the government of China, yet investment is not lacking in China.

You are right: the holdup is perceived lack of demand. Tax cuts for the rich will not increase demand perceptibly.

erp, a ‘couple of short years ago,’ people who believed (wrongly) that they belonged to an asset-owning middle class could easily borrow to buy boats,and they did. They did not, however, pay for them, and now Sea-Ray needs only a few workers to cater to the thin sliver of plutocrats who hold ever greater shares of the national assets.

Some of those will require more than one yacht. (When I lived in Iowa, the guy who started Bandag ordered two identical yachts.) But you can sell only a limited number of yachts to the top 300,000 Americans.

If your name is Herreshoff, that’s good enough. If your name is Sea-Ray and you want to sell millions of yachts, you need a consumer base of millions of people with assets and income. The absolute number of Americans who fit that description is shrinking and has been since Reagan came in, only now it is shrinking a lot faster than it was 10 years ago.

erp Monday, 27 December 2010 at 21:18

Harry, investors in their right mind have confidence that the Chinese won’t confiscate their investments like Obama did and is continuing to do and if the Chinese start doing it, investors will wave bye bye.

Harry Eagar Monday, 27 December 2010 at 21:23

What investments did Obama confiscate?

AVeryRoughRoadAhead Tuesday, 28 December 2010 at 00:26

What’s with the obsession about the % of income paid by top taxpayers? What difference does it make?

I shan’t answer the latter question because the answer is, or should be, obvious. But the first is also easy: ‘Cause we like to argue over whether that percentage is too much, or not enough.

Providing long-term unemployment benefits just makes more people dependent on the dole and that’s not a good thing… Read Two Californias by Victor Davis Hanson to see how some new Americans have handled the problem. …the sub-culture makes lemonade without even having lemons.

Well, that’s not exactly the case… According to Hanson, they’re all on the dole:

In two supermarkets 50 miles apart, I was the only one in line who did not pay with a social-service plastic card…

We could analyze the rest of the article in greater detail if you like, but the bottom line is that V.D.H.’s observations point out that the New Americans are surviving by constructing a third-world-slum society. While that’s better than starvation, is that really the BEST that America can do, to tell the nine million people who will be without income in 2011 to rebuild America in the image of Haiti??!!

Hawaii is the nannyville of the south Pacific.

You may be thinking of American Samoa.

…investors in their right mind have confidence that the Chinese won’t confiscate their investments…

Um, no. Investors in China are seduced by two things: A) they’re hopeful that they can eventually reach 1.2B consumers, and b) the China bubble can be compared to the dot.com bubble in ‘98, or the U.S. housing bubble in ‘04 - still going strong. But all bubbles pop, and the Chinese story will be no different. Then you will be right, “investors will wave bye bye.” With tears in their eyes from the shellacking they’ll have taken.

That’s why the “couple of trillion dollars out there waiting to be invested” isn’t going to China while they wait out Obama - the Chinese gov’t isn’t a better bet than Obama. In fact, most of that money is sitting in U.S. gov’t securities.

There doesn’t seem to be any strong leaders in sight who are smart and brave enough to dismantle the immense/huge/gargantuan bureaucracy that we’ve allowed to grow into the monster…

Key phrase: We’ve allowed. That leader won’t manifest until a majority of the electorate is fed-up enough to be willing to gore their own ox in the service of shrinking the bureaucracy.

Or until the American gov’t has borrowed so much money that further borrowing would be at prohibitively high interest rates; at that point spending implodes, taking the immense/huge/gargantuan bureaucracy (and half of American society) with it.

My money’s on the latter scenario, although the former would be a pleasant surprise.

erp Tuesday, 28 December 2010 at 09:17

Rough,

1. It can’t be to ease the tax burden on lower earners, because low taxes generate more income. so it’s obvious that the reason you and Harry and other class warriors are so concerned about the percentage of their income top taxpayers pay is that you want top achievers to be punished and forced to redistribute their earnings in the interest of misguided “fairness,” but then you knew that.

2. My point about China is/was that it’s safer to invest there than here in Obama’s world, not that it’s intrinsically safe and that’s why a couple of trillion dollars is tucked into mattresses across the fruited plain, but then you knew that.

3. Yes, many/most of the people about whom Hansen wrote are on the dole and yes, they’re turning their environment into a third world slum (the same can be said about inner cities), but that’s not the point, but then you knew that.

4. That Samoa may be a greater nannyville than Hawaii, doesn’t change Hawaii’s status, but then you knew that.

5. Brave and smart leaders? That’s a tough one. I’ve always liked Haley Barbour, but thought his incomprehensible southern accent a draw back, however lately he’s being smeared and demonized in the media, so perhaps he’s focus-grouping well and with some speech coaching might become a viable candidate. You might not have known that.

I’m beginning to think the youngest generation might be the salvation of our way of life. My 13 year old granddaughter is a fan of the founding fathers and the Constitution. She gave as good as she got in a conversation with her liberal father about the tea party and her old granny thought she’d died and went to heaven. Best Christmas present I ever got!

erp Tuesday, 28 December 2010 at 09:23

Harry, Obama’s confiscations are “obvious.”

Harry Eagar Tuesday, 28 December 2010 at 11:37

And it’s obvious Hawaii is in the north Pacific. Oh well.

Some people see what they want to see, whether it’s there or not.

I see China a bit differently, Rough. To the extent that investors there are rational (hard to tell), they know a crash is coming, but they think it won’t come for 24 months or so, and by screwing the workers they can repatriate their capital that soon. After that, every additional month before the crash is gravy.

Of course, the same people (to a first approximation) thought the same thing about their personal relationship to the dot.coms and the CDOs, and they were wrong then.

It’s a designed to fail situation. I wouldn’t care, if the shrapnel weren’t going to hit me, too.

It ain’t easy to save capitalism from itself, but somebody has to keep trying. Redistribution from the top is compensation for their efforts.

Ali Choudhury Thursday, 30 December 2010 at 06:33

What’s the Obama administration done that warrants such distrust in it’s handling of economic affairs? The TARP and auto-company bailouts it backed were continuations of the Bush administration’s policies and are likely to work out well for taxpayers. The healthcare and stimulus bills were bad legislation but trying to get similarly poor ideas through is unlikely given the GOP now cont

Ali Choudhury Thursday, 30 December 2010 at 06:36

rols the House.

Bret Thursday, 30 December 2010 at 07:57

Harry Eagar wrote: “…but the business about business confidence is just blather.

Your fellow journalists disagree: “The battle to extend the Bush-era tax cuts was politically divisive, and the process agonizingly prolonged. Yet the decision to continue the cuts—and throw in a few others—is already producing something the U.S. economy needs: optimism.”

Are you claiming that Hawaiian businesses are actually MORE confident than they were in, say, 2007? Because I’m definitely less confident, so even if they’re the same, overall there is less business confidence.

Bret Thursday, 30 December 2010 at 08:18

Ali asks: “…What’s the Obama administration done that warrants such distrust in it’s handling of economic affairs?

“Rule one: Never allow a crisis to go to waste.” Rahm Emanuel, November 2008.

It’s hard to have trust after a statement like that followed by attempts to ram (rahm?) a bunch of bad legislation through.

Secondly, the executive branch is encouraging widespread new regulations (such as regulating CO2) which will hamper business.

erp Thursday, 30 December 2010 at 09:21

Bret, apparently, the answer to what has Obama et al. done to destroy the economy is, like beauty, in the eye of the beholder.

If one is in favor of central control, punitive taxation, uber-regulation, etc. then one doesn’t see a problem with their power grabs.

I laughed so hard yesterday, when a front page article in our local liberal rag, referred to “so-called” Bush tax cuts! The media propaganda machine has gotten so byzantine that even the masters of semantics are having trouble keeping up with the narrative.

Harry Eagar Thursday, 30 December 2010 at 11:18

Yes, I know they are, Bret, but I read economic history, and I conclude two things:

1. Business confidence is a bad thing. As you note, it was never higher than in early 2007. It makes people stupid.

2. The level of general confidence has little to do with whether entrepreneurs are ready to go ahead with projects. I can pick up the phone and lead you to any number of people who believe they have ideas that will make money right now. It is a specific entrepreneur’s feeling of confidence in a specific project that counts, as far as confidence is concerned. Of course, prying investment money out of the uberrich may depend on their confidence, but there is no reason to think that theirs is a rational decision.

If it really is true that you should buy low and sell high, now is the time to buy, ain’t it?

AVeryRoughRoadAhead Friday, 31 December 2010 at 11:33

erp:

Thanks greatly for the implied compliment, but you give me far too much credit – I don’t really know everything except that you like Haley Barbour.

For instance, I don’t know what is your point about item No.3 - you started out by decrying “dependence on the dole” re: Long-term unemployment benefits, (and what reasonable person could deny that long-term benefits of any kind do have some moral hazard associated?), but then approvingly point to an article that contains diametrically opposed data. You agree, with inferred disapproval, that the New Americans in V.D.H.’s SoCal are surviving by creating unwelcome slums and environmental hazards…

So, seriously, what were you trying to say when you broached the subject?

Further, the V.D.H. article appeared to be a response to the plight and crisis of the estimated 9MM adults who will be without income by the end of 2011. Without offering long-term benefits of some sort, how is America to deal with that situation?

There is the 19th century solution, of course, but I for one categorically oppose its implementation.

…that’s why a couple of trillion dollars is tucked into mattresses across the fruited plain…

I think that you’ve misunderstood about those “sidelined” trillions. They’re not under the mattresses of middle-class retail investors, who collectively could scrape up only several hundred billion if an attractive opportunity presented itself - they’re held by mega-banks and the Fortune 500.

And as Mr. Eagar has written, those trillions aren’t being deployed in job-creating ways because the banks have a very clear picture of what their true balance sheets look like, and large corporations know what the future of consumer demand looks like: E.g., two of the largest sectors of the U.S. economy are autos and housing; sales of autos and light trucks in 2005: 17MM, sales in 2010: 11MM; sales of new homes in 2005: 1.4MM, sales in 2010: 0.3MM (which is also the lowest number of annual sales in the past 50 years).

…low taxes generate more income…

Sometimes.

Here is a conceptual model from NRO:

What this clearly indicates is that if rates are lowered from very high levels, it should result in higher tax revenues. However, once marginal tax rates pass a tipping point, then taxpayer behavior becomes inelastic; additional lowering of rates doesn’t induce people to work harder or produce more.

And here is a real-world example:

When theory meets reality, it can be seen that simply lowering tax rates isn’t a majick route to higher tax revenues.

…it’s obvious that the reason you and Harry and other class warriors are so concerned about the percentage of their income top taxpayers pay is that you want top achievers to be punished and forced to redistribute their earnings in the interest of misguided “fairness.”

You mean Hero of the Republic “top achievers” like these Titans of Industry?:

How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm

Two years before the financial crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank’s own traders, wanted to buy the supposedly safe portions of the mortgage-backed securities Merrill was creating.

Bank executives came up with a fix that had short-term benefits and long-term consequences. They formed a new group within Merrill, which took on the bank’s money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them. The division creating the securities passed portions of their bonuses to the new group, according to two former Merrill executives with detailed knowledge of the arrangement.

The executives said this group, which earned millions in bonuses, played a crucial role in keeping the money machine moving long after it should have ground to a halt.

“It was uneconomic for the traders” — that is, buyers at Merrill — “to take these things,” says one former Merrill executive with knowledge of how it worked. […]

One former executive called it bribery. The group was being compensated for how much it took, not whether it made money. The group, created in 2006, accepted tens of billions of dollars of Merrill’s Triple A-rated mortgage-backed assets, with disastrous results. The value of the securities fell to pennies on the dollar and helped to sink the iconic firm. Merrill was sold to Bank of America, which was in turn bailed out by taxpayers.

What became of the bankers who created this arrangement and the traders who took the now-toxic assets? They walked away with millions. Some still hold senior positions at prominent financial firms.

~ | ~ | ~ | ~

Confessions Of A Wall St. Nihilist

Corporate America’s boardrooms are stacked up these days in tight, intertwined relationships that turn public companies into crime scenes, plundering money from unsuspecting shareholders and divvying up the loot among the directors and top executives. In 2008, Chesapeake Energy’s stock price collapsed from $74 per share to $9.84, wiping out $33 billion in shareholder value. The CEO, Aubrey McClendon, gambled and lost 94% of his stock in the company on a margin call, personally losing about $2 billion.

So what did the board of directors do? They voted to award McClendon $112 million for 2008, the highest of any CEO in America.

Shareholders were outraged, calling it a “bailout,” and several pension funds tried suing Chesapeake, but the courts in Oklahoma blocked the lawsuits. That’s because Aubrey McClendon [has] a rich and powerful granddaddy—Robert Kerr, former governor and senator, and founder of Kerr-McGee—meaning plenty of VIP connections for the loser grandkid. So on Chesapeake’s board, you had Aubrey’s cousin, Breene Kerr; Frank Keating, Republican ex-governor of Oklahoma whose son Chip (and Chip’s wife) works for Chesapeake; Don Nickles, Republican ex-Senator of Oklahoma who co-funded [a political movement] with Aubrey…

##################################

Between May 2004 and March 2010, a handful of top drug companies like Pfizer, Eli Lilly and Bristol-Myers paid over $7 billion in criminal penalties for bribing doctors to prescribe drugs for unapproved uses, with sometimes deadly consequences. However, as a Bloomberg report noted, the fines are always a fraction of the profits—Pfizer alone paid almost $3 billion in criminal fines since 2004, yet that was just one percent of their total revenues.

Eli Lilly got busted bribing doctors to prescribe a schizophrenia drug, Zyprexa, to elderly patients suffering from dementia, even though company-run clinical trials showed an alarming death rate of 31 people out of 1,184 participants (double the placebo rate). Whatever—the market for elderly dementia patients meant billions in extra revenues. So Eli Lilly continued pushing Zyprexa on the elderly for another four years until it the Feds busted them. Eli Lilly got hit with $1.42 billion fine, but that was peanuts compared to the $36 billion it earned on Zyprexa sales from 2000-2008.

Next let us consider some of America’s richest people: Right at the top are the richest family in America, the Waltons (Wal-Mart); the second-richest family, the Mars (Mars candy co.); the richest company co-founders, Gates & Allen (Microsoft); the second-richest co-founders, Page & Brin (Google); Michael Dell (Dell computers); Jeff Bezos (Amazon); Phil Knight (Nike)…

What do they have in common? ALL of their fortunes are TOTALLY DEPENDENT on a mass consumer market of middle class people. They became successful due to hard work and native genius, but they became unfathomably uber-rich due to our actions. Asking them to toss a coupla extra bucks into the national pot doesn’t seem unfair, nor unreasonably burdensome, given that the commoners on whom they depend are suffering mightily.

Just as some attribute a perceived past decline in American society and productivity to the actions of labor unions, or in other words, to an unhealthy share of enterprise profits being appropriated by the labor component of production, so too is it unhealthy for the capital component to unbalance the production ratio. During the period of 1944 - 1984, according to data from the IRS, the share of total national pre-tax income received by the top 1% of Americans stayed fairly stable at between 8% - 12%. Perhaps during that era, adding additional tax burdens to top earners would have been counter-productive. However, now the share garnered by the top 1% has doubled, to 20% - a situation last seen in the Roaring Twenties. And it’s not as though that’s due to working either harder or smarter; in 2008, only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries.

Wealth, Income, and Power

Generally speaking, wealth is the value of everything a person or family owns, minus any debts. However, for purposes of studying the wealth distribution, economists define wealth in terms of marketable assets, such as real estate, stocks, and bonds, leaving aside consumer durables like cars and household items because they are not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale. … Once the value of all marketable assets is determined, then all debts, such as home mortgages and credit card debts, are subtracted, which yields a person’s net worth. In addition, economists use the concept of financial wealth … which is defined as net worth minus net equity in owner-occupied housing. As [economist Edward N. Wolff at New York University] explains, “Financial wealth is a more ‘liquid’ concept than marketable wealth, since one’s home is difficult to convert into cash in the short term. It thus reflects the resources that may be immediately available for consumption or various forms of investments.” […]

In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America. [Emph. add.] […]

A remarkable study [by Duke University Professor Daniel Ariely and Michael Norton of Harvard Business School] (PDF) reveals that Americans have no idea that the wealth distribution (defined for them in terms of “net worth”) is as concentrated as it is. When shown three pie charts representing possible wealth distributions, 90% or more of the 5,522 respondents — whatever their gender, age, income level, or party affiliation — thought that the American wealth distribution most resembled one in which the top 20% has about 60% of the wealth. In fact, of course, the top 20% control about 85% of the wealth. […]

Even more striking, they did not come close on the amount of wealth held by the bottom 40% of the population. … [T]he lowest two quintiles hold just 0.3% of the wealth in the United States. Most people in the survey guessed the figure to be between 8% and 10%, and two dozen academic economists got it wrong too, by guessing about 2% — seven times too high. Those surveyed did have it about right for what the 20% in the middle have; it’s at the top and the bottom that they don’t have any idea of what’s going on.

Americans from all walks of life were also united in their vision of what the “ideal” wealth distribution would be, which may come as an even bigger surprise than their shared misinformation on the actual wealth distribution. They said that the ideal wealth distribution would be one in which the top 20% owned between 30 and 40 percent of the privately held wealth, which is a far cry from the 85 percent that the top 20% actually own. They also said that the bottom 40% — that’s 120 million Americans — should have between 25% and 30%, not the mere 8% to 10% they thought this group had, and far above the 0.3% they actually had. In fact, there’s no country in the world that has a wealth distribution close to what Americans think is ideal when it comes to fairness. So maybe Americans are much more egalitarian than most of them realize about each other, at least in principle and before the rat race begins. […]

Percentage of wealth held in 2000 by the Top 10% of the adult population in various Western countries:

  • United States … 69.8%
  • Canada .….….… 53.0%
  • Germany .….….. 44.4%

So, if the argument is that retarding the wealth-accumulating ability of the top tiers of society will result in lower productivity and a lower standard of living, then how can the above be explained? The U.S., Canada and Germany have a very wide disparity in wealth distribution, but parity in productivity and living standards. Again, where theory meets reality, it can be seen that life en’t as simple and clear-cut as some seem to believe.

Paul Craig Roberts, Assistant Secretary of the Treasury during President Reagan’s first term, former associate editor and columnist for the Wall Street Journal, Business Week’s first outside columnist, former columnist for the Washington Times, contributor to the New York Times and regular feature in the Los Angeles Times, recipient of the Legion of Honor by French President Francois Mitterrand, recently wrote:

[I]f I were writing about the current Republican/Obama tax cut, I would not help the Republicans put Ronald Reagan’s name on it. … As Reagan’s first Assistant Secretary of the Treasury for Economic Policy, often labeled both in praise and derision “the father of Reaganomics,” I would like to offer a different perspective. […]

I did not support the Bush tax cuts, because they have nothing to do with the economy’s problems since the collapse of the Soviet empire two decades ago [and] the devastating impact on American incomes and employment of the offshoring of middle class jobs in manufacturing and professional services. The Soviet collapse caused socialist India and communist China to decide to get on the winning side of “the end of history.” Consequently, for the first time US corporations had access to the massive supplies of Indian and Chinese labor. The large excess supplies of labor in those countries meant that US corporations could hire workers at wages far below their productivity. Thus the savings from replacing American workers with Chinese and Indians translated into higher stock prices, higher shareholder earnings, and large bonuses for managements, thus worsening the income distribution.

It is the before-tax incomes of corporate CEOs that have exploded from 30 times the average wage to 300 times. Annual Wall Street bonuses from extreme debt leverage now exceed the lifetime earnings of workers. To blame the worsening income distribution on tax rate reductions is to ignore the facts.

Jobs offshoring has resulted in both manufacturing jobs and professional service jobs, such as software engineering and IT, being sent to India and China with a corresponding decline in US employment, income and consumer demand.

Mr. Eagar:

I agree completely: “I wouldn’t care, if the shrapnel weren’t going to hit me, too.” But the frauds and bubbles are so pervasive in American society today, and indeed in every developed nation and many developing, that I don’t see any escape route for people who can’t afford to cash out now and buy a fully-stocked remote ranch or bunker wherein to wait things out. There are only survival strategies left.

What’s the Obama administration done that warrants such distrust in it’s handling of economic affairs?

Primarily, they’ve continued the Bush administration’s policy of favoring Wall Street over Main Street, even though aiding Main Street is the key to job growth, which is our only hope of avoiding some very ugly social strife in the years to come. For example, the cut in payroll taxes is virtually certain to be almost entirely spent on consumer goods, as it disproportionately aids lower-earners, and it’s also a small enough sum per pay packet that few will think it worth it to apply to paying down debts. Therefore, it’s a very effective stimulus.

Contrastingly, the Fed’s policy of loaning money to banks at .25% has merely resulted in the banks buying Treasury securities to lock-in a guaranteed profit paid by the taxpayers, rather than to stimulate lending to the small businesses that are the engine of most job creation in America. That’s a lousy stimulus.

Harry Eagar Friday, 31 December 2010 at 13:38

Outstanding.

Roberts sounds a lot more sensible today than he did 25 years ago. I haven’t been following him since.

Agree about Obama economic policy, but it’s caught in a trap. Aside from the fact that the crazy Republicans are, even if just barely, in a position to torpedo any sensible approach, Obama inherited the financial equivalent of an earthquake-damaged building that is about to fall onto an immovable, irreplaceable national treasure. It can’t be dismantled and it can’t be allowed to fall.

Ali Choudhury Friday, 31 December 2010 at 16:40

The impact of offshoring is overstated when talking about domestic job losses. The real culprit is technology. It’s a lot easier now to run a factory with fewer people and to consolidate back-office functions into shared service centres. Even many of the smaller clients I see have opted to get rid of their receptionists and combine admin jobs because email and mobile phones have made them less necessary.

Harry Eagar Friday, 31 December 2010 at 22:17

Or so they think.

It has become very difficult to make your way into a company that doesn’t already know you, or that you don’t know. True, I am looking for information, not to buy something, but it is usually in the firm’s interest to have me get the information and that it be correct. Otherwise, people say bad things about the company, and the big, dumb company just lets it happen.

I agree that technology eliminates a lot of jobs. When the paper I worked on went from hot type to cold type, it eliminated 123 of 130 compositors.

But the shipping of jobs overseas is not trivial. I don’t think it is overstated.

Bret Monday, 03 January 2011 at 11:37

Rough:

In response to erp’s “…you want top achievers to be punished and forced to redistribute their earnings in the interest of misguided “fairness”” you wrote a lot of words (so many words that it should perhaps be a blog post of its own), but I’m not sure what your point is.

Indeed, you wrote, “[a]sking them [the “uber-rich”] to toss a coupla extra bucks into the national pot doesn’t seem unfair…”, so I assume that erp is right - it’s not that those “coupla extra bucks” will do anybody much good, it’s just that it’ll appeal to your personal sense of fairness. So is that all it is? A class warfare sorta thang? That will somehow bring you extra happiness?

Again, your words do not make the case that extra taxes would help. You seemed to try and phrase things to insinuate that, but with a little thought it’s clear that you fall short. For example, you wrote, “So, if the argument is that retarding the wealth-accumulating ability of the top tiers of society will result in lower productivity and a lower standard of living, then how can the above be explained? The U.S., Canada and Germany have a very wide disparity in wealth distribution, but parity in productivity and living standards.”

It can be explained in a whole bunch of different ways: smaller, more homogeneous populations and cultures; fewer recent, poor, and uneducated immigrants (especially Canada); free-rides on our military protection; relative ease of being followers; parity in productivity being due to higher average unemployment rates over the last thirty years (especially Germany); cherry picking those two countries for comparison; and on and on and on…

The remarkable thing is not that Canada and Germany are at productivity parity (sort of, depending on how you measure it), but rather that they’re not miles ahead of us given all the other factors. I’m not saying that somehow proves that lower taxes and more wealth disparity would be better, but it certainly doesn’t lend any support to the opposite.

If this isn’t about class warfare (where everybody loses big, in my opinion), then what is the mechanism (how are these “extra coupla bucks” collected and redistributed and how is it effective, efficient, and non-corrupting over the long-haul including all 2nd, 3rd, etc. order effects) by which the vast majority of us benefit and where is real, apples-to-apples empirical evidence that it will help?

Harry Eagar Monday, 03 January 2011 at 13:49

Hard to put the genie back in the bottle, but I take it to be beyond dispute that the concentration of wealth since 1980 — which was, I thought at the time, the real motive behind Reaganomics — has been bad socially, bad politically and (though this is harder to sort out) bad economically.

It is possible that international corporations can continue selling mass goods to rising middle classes in new countries, but Rough is right to say that they cannot sell them to the shrinking middle class in America.

If you are a global economist, presumably you don’t care.

Bret Monday, 03 January 2011 at 14:55

Harry Eagar: “…the concentration of wealth since 1980 … has been bad socially…

In what ways is it objectively bad socially?

Harry Eagar Monday, 03 January 2011 at 17:25

35-45 million :Americans unable to contribute to the economy, coming or going.

Bret Monday, 03 January 2011 at 20:03

That’s economically (and redistribution wouldn’t change that because if you’re just making work for people via redistribution or whatever, they’re still subtracting, not adding, to the economy).

But, how about socially?

erp Monday, 03 January 2011 at 21:18

Re: Class warfare

Michael Barone makes a lot of sense.

Harry Eagar Tuesday, 04 January 2011 at 11:46

Peeps gotta have a stake in society or they’ll turn against the ones who do.

And you’re wrong about the economic effects. There’s nothing wrong with having an economy that makes returns to labor. There’s plenty wrong with a theory of pure capitalism that assumes that all returns go to capital and labor is treated as if the Iron Law were really a law.

It is beyond question that the current system is incapable of allocating labor returns in a sensible manner. Even if you don’t believe that’s true at the bottom end of the pay scale, I doubt even you would defend what goes on at the top.

Bret Tuesday, 04 January 2011 at 12:41

Harry Eagar wrote: “There’s nothing wrong with having an economy that makes returns to labor.

No, it’s true that there’s nothing objectively wrong with making an economic system smaller and less efficient and making people, on average, worse off, in order to increase returns to various classes of labor.

But it is class warfare. Except for those in the lucky classes who have, through the political system, their returns for their labor artificially increased, everybody else is worse off, and IMO in the long run, they and their descendants will be worse off as well.

But no, nothing inherently wrong with that. I agree completely. But I’ll continue to vote against it.

Harry Eagar Tuesday, 04 January 2011 at 14:11

How artificially increased? That can only be if you think that the market always correctly assesses the value of labor. Surely you don’t believe that?

Curiously enough, the most prosperous period in American history coincided with the brief effloresence of the union movement.

You can explain that or explain it away, but you do have to deal with it.

erp Tuesday, 04 January 2011 at 14:41

… it coincides in the same way that a leech’s prosperity coincides with the prosperity of its host and in turn, when it kills its host, the leech dies with it.

Boehner has just announced he’s going to share power with the minority thereby insuring that the host, in this case, We, the People, will go really, really fast.

AVeryRoughRoadAhead Wednesday, 05 January 2011 at 05:07

Re: Class warfare

Michael Barone makes a lot of sense.

Mr. Barone appears to be FOR it, which is presumably sensible:

[All emph. add.] [George Mason University economist Tyler Cowen] is worried that high earners in financial industries benefit hugely when they bet correctly but are sheltered from losses by government bailouts when they bet wrong. It’s a problem that the financial regulation bill passed by the outgoing Congress addressed but, in his opinion and those of many others I respect, did not solve.

Bret:

I’ll address those points when I have time to do more than a drive-by.

In the meantime, I’ll say this: Tax policy is fun to argue about, but at this point in history it’s also moot. If one looks at the current nat’l debt, the current and projected Federal budget deficits, and then cast an eye at the retirement benefits promised to the Boomers, it’s crystal-clear that The American Future Will be One of Higher Taxes.

Ali Choudhury Wednesday, 05 January 2011 at 07:14

“Curiously enough, the most prosperous period in American history coincided with the brief effloresence of the union movement.”

It’s not too hard to do well when most of your competitors are recovering from a world war.

Harry Eagar Wednesday, 05 January 2011 at 11:16

True enough but the same could have been said of the 1920s, when US manufacturing was just short of half of world manufacturing (and virtually 100% came from just 8 countries), but that did not help the 40% of Americans who weren’t in manufacturing. Although America exported a lot in the ‘50s and ‘60s, exports were just a fraction of consumption. The prosperity was mostly internal.

One thing that drove it was a sustained housing (and associated commercial construction) boom (which did not become a bubble, for reasons that deserve study), which in turn was supported by prosperous workers who would borrow money for 30 years — and be lent money for 30 years — on the expectation that they would have a reasonably steady stream of income to repay.

No banker in his right mind will lend money to an American worker for 30 years today.

Bernanke, in ‘The Great Depression,’ has some interesting regressions on worker income, employer pay strategies and the countercyclicality of worker pay, and how it changed character after World War II. Curiously, real wages rose secularly during the Depression. I had thought they rose just because of deflation, but Bernanke shows pretty convincingly that they just rose.

He cannot explain it. But it was a good thing, no doubt.

Bret Wednesday, 05 January 2011 at 14:19

Harry Eagar wrote: “How artificially increased?

Fair enough - I agree that “Artificially” wasn’t clear.

There are a number of ways that the decisions to transfer scarce resources are made: price (willing buyer and seller), lottery (randomly choose who gets what), queueing (get in line and when your turn comes up, you get the resource), fiat (the government or other authority decides who gets what), and/or theft.

I personally consider all of those to “artificial” EXCEPT “willing buyer and seller” (i.e. price), but I understand that you probably don’t see it that way.

Anyway, I do personally consider the government deciding who gets what as a particularly onerous method that is inherently corruptible and inefficient. Since that’s your proposed solution to just about everything, we’ll simply be in disagreement about how the economic system ought to be structured.

As far as the “increased” part of your questions goes, isn’t your whole point that some are paid too little (and/or unemployed)? In which case their return for their labor would be “increased” by government fiat, no?

Harry Eagar: “That can only be if you think that the market always correctly assesses the value of labor.

Heavens no. For example, if all methods of allocating resources were absolutely terrible, but price was the least terrible, that would be good enough.

But even in absence of that, the freedom you take from people when by fiat the government decides who should do what work for how much money makes the “willing exchange” approach much more palatable to me even if it produced far worse economic results than other choices.

Bret Wednesday, 05 January 2011 at 14:22

Rough wrote: “…it’s crystal-clear that The American Future Will be One of Higher Taxes.

Only if we vote for that. Otherwise it won’t be one of Higher Taxes.

Harry Eagar Wednesday, 05 January 2011 at 19:58

National bankruptcy, then? It wasn’t so very long ago that we were being told that we could borrow our way to prosperity because the economy would grow so insanely huge that even lower taxes would generate more revenue.

That was nonsense in the ‘80s and nonsense again in the ‘00s. It was not, you know, leftists or Democrats who were shopping that idea around, as most of them were — presciently as it turned out — pessimistic.

More generally, if my freedom is to be restricted by government, where I have a vote; or the market, where I haven’t, I’ll take government. It is strange that it is not OK for labor to bargain for wages (according to erp) but it is OK for capital to impose conditions without bargaining. I think there was a fork that Hayek didn’t notice in the road to serfdom. You took it.

Bret Wednesday, 05 January 2011 at 21:51

Harry Eagar wrote: “National bankruptcy, then?

How about massive cuts in entitlements and services? Reducing the size of the Federal Government? Shifting responsibilities back to the states? That’s where my vote’ll be.

Bret Wednesday, 05 January 2011 at 21:54

Harry Eagar wrote: “…that we could borrow our way to prosperity … was nonsense in the ‘80s …

Maybe. It depends.

If your right hand borrows money from your left hand, you, as a whole, are neither worse off nor better off. That’s true regardless of the quantity of money transferred between your hands or the interest rate charged.

It’s when your right hand deploys that money that your net worth changes. If your right hand makes fabulous investments with huge payoffs, then that’s great, your left hand will be repaid, your right hand is rich and you as a whole are better off. If your right hand squanders the money on booze and babes, then that’s a much different situation.

So long as the government uses the money it borrows to invest in the country and those investments are adequately fruitful, there’s no downside to borrowing the money. If the government squanders money, then that’s a problem.

So why not just raise taxes and use tax revenue to pay for everything instead? That’s the other side of the same coin. If the money that the government doesn’t collect in taxes because it borrowed instead is reasonably well invested by the private sector and grows the economy, then everybody’s better off and the debt can be easily repaid or managed.

So why not finance the entire government using debt only (no taxes)? The main reason is that the economy can only effectively deploy so much investment in any one year.

Financing 10% to 20% of government spending (which is 2% - 4% of GDP) with debt seems to work reasonably well. We’re certainly into new territory at 40%, but as long as that drops some over the next few years, I don’t think that will be a problem either (though I’m a little worried).

Bret Wednesday, 05 January 2011 at 22:00

Harry Eagar wrote: “…government, where I have a vote; or the market, where I haven’t…

Each dollar is essentially a vote in the market and every one of those votes count and you therefore have many tens of thousands of votes each year. With the government, you have a vote, but it doesn’t really count because an upper bound for you affecting the outcome of an election by voting is 2^n / ((n + 1)!) which is essentially zero for any election where more than about 50 people vote. Basically, the majority get to extract rents from the minority no matter how passionately the minority vote.

Bret Wednesday, 05 January 2011 at 22:04

Harry Eagar wrote: “It is strange that it is not OK for labor to bargain for wages…

I have no problem with the labor bargaining for wages, as long as neither side gets favoritism from the government.

On the other hand, how is that capital imposes conditions?

AVeryRoughRoadAhead Thursday, 06 January 2011 at 03:08

Only if we vote for that. Otherwise it won’t be one of Higher Taxes.

Keep the faith, Brother.

How about massive cuts in entitlements and services?

Oh, we’ll have those too, in spades. But along with higher taxes.

It appears that either you’ve never bothered to look at what’s been promised to Boomer retirees, and what the price tag is for such, or you believe that as a group, the Boomers will fall on their swords to save their children and grandkids. I harbor no such delusions.

Now, if you could present some reasonable scenario in which you outline how we get a majority of Americans to vote to END their own benefits, without first trying to tax somebody else to allow their goodies to continue, then I’m all ears.

Here are some items of info that are directly and negatively related to any concept that Americans will willingly vote for massive cuts in entitlements and service, in order to avoid paying higher taxes:

  • Federal deficit spending for calendar year 2008: $1.5T; for 2009: $1.6T; for 2010: $1.7T… See any pattern emerging?
  • Budget Cuts Are Scaled Back As GOP Takes Over the House: “Republicans scaled back plans for deep cuts in U.S. government spending as they took power in the House of Representatives on Wednesday…”

The president’s deficit commission: No cigar - Some useful ideas, but a worrying absence of political will

Dec 9th 2010 | WASHINGTON, DC | from PRINT EDITION

[All emph. add.] WHEN Barack Obama created his deficit commission one of its members, Kent Conrad, a Democratic senator, confided to his staff that he thought it had no better than a 10% chance of success. His prediction proved accurate. On December 3rd just 11 of its 18 members voted for the chairmen’s aggressive deficit-reduction proposal, well short of the 14 needed to take it forward to Congress for a vote. […]

Of the 11 yes votes, five came from appointees who do not hold elected office and two more from legislators who are about to retire at the end of the current session of Congress. Members who will actually have to face the electorate voted six-to-four against the proposal, and that included the two most powerful members, the chairmen of the Senate and House tax-writing committees, a Democrat and a Republican respectively. This does not bode well for the fate of any set of budget proposals based on the commission’s work that may eventually land on the floor of the House or the Senate.

The draconian cutting that couldn’t be passed?:

In their report Alan Simpson and Erskine Bowles, the two chairmen, proposed to cut $3.9 trillion from the next ten years’ worth of deficits…

In other words, A MERE 25% - 40% of projected deficit spending; Americans don’t yet have the sand to attempt even “going broke more slowly”.

Here’s a pie chart of Federal spending; now all you have to do, in order to avoid higher taxation, is to cut spending by 33% in a way that a majority of Americans will support…

If you can’t do that, then thoughts of a low-tax future are just pipe-dreams and hand-waving.

Bret Thursday, 06 January 2011 at 10:31

Rough wrote: “…what’s been promised to Boomer retirees…

Promises are made to be broken. Especially in politics. What the good government giveth, the good government will taketh away (or something like that).

Rough wrote: “…Boomers will fall on their swords…

Of course not. But since the boomers will be far richer than everyone else, they won’t vote to raise taxes either. In case you haven’t noticed, even the Dems are sorta supporting extending the Bush Tax cuts.

Harry Eagar Thursday, 06 January 2011 at 12:23

A capital levy returning the top 1% to where they were, proportionately, in ‘80, would take care of most of the current debt. Then we could start again with a clean slate.

Not likely? Well, no. But neither was any honesty about deficits from the Reaganauts in ‘80. The Wall St. Journal, of all publications, pointed out that since Reagan wanted military spending to go up, balancing the budget would have required eliminating MORE THAN 100% of all other discretionary spending.

I’m sure you heard Newt Gingrich say that to the voters many times. No? Well, maybe honesty isn’t the best policy in politics.

Bret Thursday, 06 January 2011 at 18:02

Harry Eagar wrote: “Well, maybe honesty isn’t the best policy in politics.

No kidding. That’s why I want to minimize government - because it’s inherently corrupt.

AVeryRoughRoadAhead Thursday, 06 January 2011 at 18:14
Rough wrote: “…what’s been promised to Boomer retirees…”
Promises are made to be broken. Especially in politics.

Well, sure. And those promises WILL be broken. But the Boomers aren’t just going to let their expected pensions and healthcare benefits be X-ed out. What can’t be paid for will be replaced with something that could almost be afforded.

As long as we live in a democracy, the Boomers will have a powerful voice. They currently compose 25% of the population, and between 40% - 60% of voters. (The former in 2008, the latter in 2010.) There’s no way to disenfranchise them without moving to a totalitarian system, and regardless of political affiliation, they’re going to fight tooth-and-nail, shoulder to shoulder in solidarity, to retain as much of what they think is due them as is mathematically possible - plus ten percent.

Rough wrote: “…Boomers will fall on their swords…”
Of course not. But since the boomers will be far richer than everyone else, they won’t vote to raise taxes either.

Ah, now we have to distinguish between wealth, and income.

Yes, the Boomers will be disproportionately rich in assets, but as they retire their incomes are likely to fall below the national median. Therefore they’ll be able to support higher income taxes while being pretty confident that they won’t be directly shooting themselves in the foot, (although of course the secondary and tertiary effects could be things like reducing the value of Boomers’ home equity, as younger earners can’t afford expensive housing on their after-tax pittance).

In addition, while as a group the Boomers will be the most affluent Americans, those riches are very likely to be just as concentrated and inequitably distributed within that generation as they are in the population at large. Let us suppose that fully a quarter of Boomers fall into the top ten percent of wealthiest Americans.

That still leaves 60MM Boomers, roughly 40% of voters, who are wholly or partially dependent on SS and Medicare. You think that those less-successful Boomers are going to hesitate before sticking it to their more-successful brethren?

Further, suppose that majickally the Boomer retirement issue solves itself, or goes away. That still leaves the problem of the projected $10 - $15 trillion cumulative Federal deficit over the next ten years, assuming of course that such was even financeable. To avoid the higher taxes necessary to pay for servicing that debt, or to directly pay for the spending rather than borrowing the dough, one would have to cut Federal spending by say, 20%.

Where in the above pie chart can we find such savings, in a manner which would be acceptable to the electorate?!

For instance, the State of Illinois has been brought to the ragged edge of insolvency, (and beyond, to be frank), rather than face up to their long-obvious fiscal problems. I believe that the national electorate is no more mature than are Illinois voters. But here’s an upcoming test: The State of Texas is committed to overcoming their monstrous budget deficit WITHOUT raising taxes; that will mean cuts of at least ten percent, and possibly up to 25%:

That’s enormous. And there’s not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn’t do the trick.

Read more.

A capital levy returning the top 1% to where they were, proportionately, in ‘80, would take care of most of the current debt.

Harry Eagar Thursday, 06 January 2011 at 22:03

I don’t know that government is inherently dishonest. since people can create polities as they like them.

Business, so I have heard, though, is inherently dishonest, since the idea is to beat the other guy, any way you can.

Bret Thursday, 06 January 2011 at 23:56

Harry Eagar wrote: “…the idea is to beat the other guy, any way you can.

No. The idea is to make money.

AVeryRoughRoadAhead Friday, 07 January 2011 at 00:14
Rough wrote: “…what’s been promised to Boomer retirees…”
Promises are made to be broken. Especially in politics.

Well, sure. And those promises WILL be broken. But the Boomers aren’t just going to let their expected pensions and healthcare benefits be X-ed out. What can’t be paid for will be replaced with something that could almost be afforded.

As long as we live in a democracy, the Boomers will have a powerful voice. They currently compose 25% of the population, and between 40% - 60% of voters. (The former in 2008, the latter in 2010.) There’s no way to disenfranchise them without moving to a totalitarian system, and regardless of political affiliation, they’re going to fight tooth-and-nail, shoulder to shoulder in solidarity, to retain as much of what they think is due them as is mathematically possible - plus ten percent.

Rough wrote: “…Boomers will fall on their swords…”
Of course not. But since the boomers will be far richer than everyone else, they won’t vote to raise taxes either.

Ah, now we have to distinguish between wealth, and income.

Yes, the Boomers will be disproportionately rich in assets, but as they retire their incomes are likely to fall below the national median. Therefore they’ll be able to support higher income taxes while being pretty confident that they won’t be directly shooting themselves in the foot, (although of course the secondary and tertiary effects could be things like reducing the value of Boomers’ home equity, as younger earners can’t afford expensive housing on their after-tax pittance).

In addition, while as a group the Boomers will be the most affluent Americans, those riches are very likely to be just as concentrated and inequitably distributed within that generation as they are in the population at large. Let us suppose that fully a quarter of Boomers fall into the top ten percent of wealthiest Americans.

That still leaves 60MM Boomers, roughly 40% of voters, who are wholly or partially dependent on SS and Medicare. You think that those less-successful Boomers are going to hesitate before sticking it to their more-successful brethren?

Further, suppose that majickally the Boomer retirement issue solves itself, or goes away. That still leaves the problem of the projected $10 - $15 trillion cumulative Federal deficit over the next ten years, assuming of course that such was even financeable. To avoid the higher taxes necessary to pay for servicing that debt, or to directly pay for the spending rather than borrowing the dough, one would have to cut Federal spending by say, 20%.

Where in the above pie chart can we find such savings, in a manner which would be acceptable to the electorate?!

For instance, the State of Illinois has been brought to the ragged edge of insolvency, (and beyond, to be frank), rather than face up to their long-obvious fiscal problems. I believe that the national electorate is no more mature than are Illinois voters. But here’s an upcoming test: The State of Texas is committed to overcoming their monstrous budget deficit WITHOUT raising taxes; that will mean cuts of at least ten percent, and possibly up to 25%:

That’s enormous. And there’s not much fat to cut. The whole budget is basically education and healthcare spending. Cutting everything else wouldn’t do the trick. - There’s One Huge State Budget Crisis That Everyone Is Refusing To Talk About

If Texans will actually cut tens of billions of education and healthcare spending, then maybe, just maybe, the entire nation can be lead in that direction. But if the Texas Legislature pulls a California and cuts a few billion in spending and then borrows the rest, then IMO they’re not much better than the Illinoisans or Californians, just not yet as far down that road.

A capital levy returning the top 1% to where they were, proportionately, in ‘80, would take care of most of the current debt.

According to the Federal Reserve, at the end of Sep. ‘10, household net worth was right around $55T.

According to the triennial Survey of Consumer Finances, sponsored by the U.S. Federal Reserve Board in cooperation with the U.S. Department of the Treasury, the top one percent richest Americans own 34% of all household wealth, excluding the individuals listed by Forbes magazine as being among the wealthiest 400 people in the United States. According to Forbes, the 400 were collectively worth $1.4T in 2010.

Therefore, the top 1% richest Americans own about $19T in net assets. Total Federal gov’t debt is currently $14T. So if did levy the top 1% to pay off the debt, it would still leave them immensely wealthy.

Of course, conducting such a levy would also TOTALLY DESTROY American society.

AVeryRoughRoadAhead Friday, 07 January 2011 at 00:18

Sorry, fat-fingered the 18:14, 06 January 2011 post.

Harry Eagar Friday, 07 January 2011 at 12:07

Really, totally destroy? My family had ALL its property expropriated, but we were not TOTALLY destroyed.

erp Friday, 07 January 2011 at 13:06

Expropriated? By Republican capitalists, Vulcan overlords, 16th century slavers, the KKK … this one ought to be good.

AVeryRoughRoadAhead Friday, 07 January 2011 at 14:28

Really, totally destroy?

It would cause immediate capital flight, reducing the amount of money available for domestic investment. It would also potentially cause the U.S. Treasury to have to pay higher rates to borrow, since as of May ‘10 Americans hold 50% of outstanding Treasuries - while institutions would continue to buy, individuals would likely boycott future Treasury issues, reducing demand.

It would dramatically lower the tax base for Federal income taxes. The top one percent of income recipients in the U.S. currently pay about 40% of all Federal personal income taxes, and those folks would either go on strike or hide their income tout de suite. One way that immediately occurs is to get paid $x00,000 in taxable U.S. income, and to also receive the balance of one’s income in something other than U.S. dollars, paid into an off-shore trust or corporation. That organization is merely a cut-out, and the money is then transferred to another trust or corporation in a third country. Then one borrows money from the last organization.

That scheme is not legal, but it is very difficult and expensive to prove & prosecute. (If the beneficiary takes care to follow an appropriate protocol, which frankly would probably be a minority - tax evaders also seem to be lazy, as shown by the UBS tax evaders and U.S. Virgin Island tax evaders. But is Congress going to allow the IRS to spend a hundred grand on every high-income audit?)

It would also remove any incentive to change our collectively profligate ways. In fact, Congress would be likely to go on a borrowing binge, and we’d be back at a nat’l debt equal to 100% of GNP within a decade.

It’d be like paying an addict’s overdue rent and outstanding credit card balances - it doesn’t end well.

Bret Friday, 07 January 2011 at 17:28

I’d claim it’s the other way around. The US would have to be pretty much totally destroyed BEFORE the “levy” could be paid.

First, wouldn’t it require a constitutional amendment? All other federal taxes on persons are related to transfers of assets (income, capital gains, gift, inheritance, etc.) and those required a constitutional amendment. I don’t think that direct taxation/confiscation of assets can be legislated.

Second, during what would likely be the lengthy process of somehow making the confiscation (“levy”) happen, the wealthy and their assets would disappear. Poof! Ne’er to be seen again. That human and capital flight would bring the stock, currency, and bond markets to their knees (or worse) while precious mineral prices would advance to the heavens as the wealthy transferred their assets out of productive assets into transportable/storable assets such as gold and diamonds.

Third, even if the above didn’t happen, when the IRS came calling for the assets, the wealthy would still have to sell their stocks, bonds, etc., because last I looked, the IRS requires checks or money-orders, not stock certificates. That would still kill all of the markets. And, that $55T that we all own would suddenly be a lot less than the $14T federal debt. So the government would now owe far more than the total worth of the country.

So the country would be destroyed before the assets were successfully collected.

Harry Eagar Friday, 07 January 2011 at 18:15

It was Republican capitalists, erp. My great grandmother starved to death as a result.

erp Friday, 07 January 2011 at 20:29

Of course.

AVeryRoughRoadAhead Friday, 07 January 2011 at 22:25

Bret:

Regarding the third point, the title to the assets could simply be transferred, with special bonds being sold secured by specific assets. No asset sales required.

Bret Saturday, 08 January 2011 at 00:05

That either slightly delays the problem or creates a monstrous different one. Either the government sells the security because it doesn’t pay for stuff like entitlements with securities either (which still will destroy security markets), or the government suddenly owns an awful lot of the means of production. In other words, we’d be at least partly communist basically overnight. I’m sure Harry would like that option.

Bret Saturday, 08 January 2011 at 09:11

Harry Eagar wrote: “It was Republican capitalists…

How were they able to expropriate all of your family’s property?

Harry Eagar Saturday, 08 January 2011 at 12:25

Land taxes payable in cash during a period of no cash.

My great grandfather liquidated everything but still couldn’t save the land. He ended up without land or movables.

To get a little bit away from the personal, there’s an excellent memoir — it made the bestseller list — called ‘Little Heathens’ by Miriam Kalish which describes how it worked more recently. Her family managed, with difficulty, to hang on to its land, but many didn’t.

Bret Saturday, 08 January 2011 at 12:32

Harry Eagar wrote: “Land taxes…

Aren’t taxes more of a government thing than a capitalist thing? So I can believe the “Republican” part. It’s the “capitalist” part I’m not getting. Or did you mean rent rather than taxes?

BTW. What happened to churches and other charities that often try to step in feed the starving? Were they also taxed (or rent paymented) out of existence?

I’m sorry to hear that you great grandmother starved. That’s very sad.

erp Saturday, 08 January 2011 at 15:35

Bret, don’t believe the Republican part either:

It’s a tragedy that anyone on this earth starved to death and even more so those in the U.S., but I’m sick of this revisionist history. There probably weren’t more than a handful of Republicans in Georgia when your grandmother was living I assume c. 1900.

Here’s what a short Google search turned up:

Governors of Georgia: Allen D. Candler 1898–1902 H — Joseph M. Terrell 1902–1907 — S Hoke Smith 1907–1909, 1911 — all Democrats.

From Wikipedia:

Between 1872 and 1890 … the Democrats effectively monopolized state politics.

Even after the Democrats gained power, in the volatile 1880s and 1890s the number of lynchings of blacks grew steadily, reaching its height in 1899, when twenty-seven Georgians were killed by lynch mobs.

Hoke Smith’s tenure as governor was noted for the passage of Jim Crow laws and the 1908 constitutional amendment that required a person to satisfy qualifications for literacy tests and property ownership for voting.

White-dominated state legislatures and the state Democratic parties quickly responded by creating new barriers to expanded franchise, such as white-only primaries.

Lots more of the same and Harry, please don’t repeat the ridiculous allegation that these Democrats were really Republicans.

AVeryRoughRoadAhead Sunday, 09 January 2011 at 01:30

…please don’t repeat the ridiculous allegation that these Democrats were really Republicans.

Depends on what you mean by “Democrats were really Republicans.” The Democrats of the late 19th and early 20th centuries are not the same as today’s Dems, nor are today’s Republicans your great-grandma’s GOP.

But today’s Southern GOP voters are largely the same as turn-of-the-century Democrat voters:

[All emph. add.] In the century after Reconstruction, the white South identified with the Democratic Party. The Democrats’ lock on power was so strong, the region was called the Solid South. … Before 1948, the southern Democrats saw their party as the defender of the southern way of life, which included a respect for states’ rights and an appreciation for traditional southern values. They repeatedly warned against the aggressive designs of Northern liberals…

In 1948, Democrats alienated white Southerners in two ways. The Democratic National Convention adopted a strong civil rights plank, leading to a walkout by Southerners. Two weeks later President Harry Truman signed Executive Order 9981 integrating the armed forces. From 1948 onward, southern whites against integration looked for political accommodation for their views.

By 1964, the Democratic lock on the South was decisively broken. … The immediate cause of the political transition involved civil rights. The civil rights movement caused enormous controversy in the white South with many attacking it as a violation of states’ rights. When segregation was outlawed by court order and by the Civil Rights acts of 1964 and 1965, a die-hard element resisted integration. […]

The South’s transition to a Republican stronghold took decades. First the states started voting Republican in presidential elections. … Then the states began electing Republican senators to fill open seats caused by retirements, and finally governors and state legislatures changed sides. Georgia was the last state to fall, with Sonny Perdue taking the governorship in 2002. […]

In addition to its white middle class base, Republicans attracted strong majorities from the Evangelical Christian vote. … The national Democratic Party’s support for liberal social stances such as abortion drove many former Democrats into a Republican Party that was embracing the conservative views on these issues. … In 1969 in The Emerging Republican Majority, Kevin Phillips argued that support from Southern whites and growth in the Sun Belt, among other factors, was driving an enduring Republican electoral realignment. Today, the South is again solid, but the reliable support is for Republican presidential candidates. Exit polls in 2004 showed that George W. Bush led John Kerry 70 percent to 30 percent among whites, who constituted 71 percent of the Southern voters. … One third of the Southerners said they were white evangelicals; they voted for Bush, 80 percent to 20 percent.

Let’s see… Respect for states’ rights, an appreciation for traditional values, a dislike of liberals, abhorring of multiculturalism, anti-abortion, strongly religious… Would any rational person say that such describes today’s Democrats?

So where’s the “ridiculous allegation”? It’s a plain statement of fact that those ancient Democrats are today’s Republicans.

Harry Eagar Sunday, 09 January 2011 at 11:38

My great grandmother starved to death in 1866. Yes, they were real, honest-to-God Republican capitalists. Often called carpetbaggers.

My family should have had all or most of its land expropriated and distributed to the tillers. A lot of suffering might have been avoided. But that isn’t what happened. It wasn’t the tillers who ended up with the land.

My family’s plantations were the core of what was later famous as Hobcaw Barony, Bernard Baruch’s place, and what we called the Ouldfield house was his shooting lodge during the autumn.

Harry Eagar Sunday, 09 January 2011 at 11:44

I might add, that since my mother was the last child of my grandfather’s second marriage, I wouldn’t have inherited anything even if the land had been retained. I don’t have any financial interest in these old disputes.

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