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October 25, 2011 Occupy Wall
Street: I camped out at Zuccotti Park (home of Occupy Wall Street in NYC) this past weekend. I also have been to about a half-dozen general assembly meetings at Occupy Baltimore (OB) over the past three weeks. The following are my first-hand observations, as well as general analysis and commentary on the movement. Bottom line: While most supporters are true capitalists, arguably even more so than the average Fortune 500 CEO who is best described as a crony-capitalist, there is a core of communists at the center of the movement who are trying to veil their true intents. These communists should be overrun by capitalists, real capitalists who reject the crony-capitalism that has infested our system and turned it into a rigged game that favors the few at the expense of everyone else. First, there’s something real and something special about this movement. While holding a sign on Pratt Street that read “Seriously, what would Jesus do?” a random woman handed me a bag of groceries and $30 cash. While asking for directions on how to get to Zuccotti Park, multiple New Yorkers said “thank you” and “God bless.” The Baltimore group has received at last count over $4,000 cash, plus probably a literal ton of food. The New York movement has received over $300,000 cash, plus all kinds of donated stuff. Facebook groups are full of people asking how they can help. My night was made a little more comfortable by the care package that some elementary school kid packed. It was a heavy blanket, socks, gloves, hat, scarf, toiletries and a handmade thank you card. It reminded me of the sort of care packages we used to make for soldiers and the homeless in the Camp Fire group my mom used to run. I never experienced anything remotely close to any of that in all the Tea Party events I’ve been to. I also can’t imagine any Tea Partier camping out indefinitely to prove their point. The Occupy Wall Streeters are a dedicated bunch, but extreme dedication requires extreme beliefs. The political spectrum at OB and OWS runs from full-blown anarchist, to left-leaning libertarian, to the merely wanting to break the collusion between business and government, to a strong dose of socialism, to full blown communism. While the communists are in the minority of even those who are camped out, they appear to be running the show. A core group from Red Emma’s (a communist anarchist bookstore in Mount Vernon) holds the microphone each night and lays down the ground rules. Regardless of the “leaderless movement” spin, they very much are leading it. A couple of Saturdays ago, a communist quit in frustration because his anti-capitalism march was co-opted by a majority that was merely anti-crony-capitalism. National polling shows the movement as a whole enjoys about a 2:1 favorability rating, approximately the inverse of the Tea Party’s current favorability rating. But I suspect OWS’ favorability rating will slip as more people come to learn it for what it is. OWS is making the exact same mistakes that the Tea Party made. Namely, they are taking an opportunity to build broad support behind hot button issues, and becoming the radical left, just as the Tea Party blew the same opportunity and became the radical right. I’ll never forget the first Tea Party protest I went to April of 2009 that was organized by a handful of Loyola students. I went in expecting to hear about bank bailouts and was shocked by people stumping about immigration, abortion, and Obama. OWS has spent time debating how to be more accommodating to different genders and sexual orientations, and has workshops this week on “white privilege” and “male privilege.” What does any of that have to do with the collusion between business and government? I suspect OWS is enjoying popularity that the Tea Party never enjoyed because OWS is trumpeting the heart of Marxism: class conflict, or class analysis. Three years after the bailouts, it is becoming clear that there is a small class of people -- many of whom were bailed out -- who are doing better than ever, and everyone else is doing somewhere between no better and much worse. A recent study showed that not only is unemployment stuck at 9-10%, but that median household income has fallen 10% since Dec. 2007; two-thirds of the income drop has happened since the unemployment rate stabilized, representing that even the employed are earning less. Such an income decline hasn’t happened since the Great Depression. It is unfortunate that Marx owns class analysis, for it opens the door to anyone exploring it to be labeled a Marxist, even when one is only pointing out that the reason for such income inequality is explicitly because free market (not to mention competitive market) principles were abandoned. Be it Washington DC’s highest median household income, New York City’s millionaire and billionaire bankers who profit from the industry with the most government privilege of all, Hollywood’s exotic cars and mansions made possible by the force of government and copyright law, pharmaceutical companies who use the force of government to monopolize public research, pro-athletes and musicians who are aided by the force of government to turn non-scarce goods into scarce goods, or doctors and lawyers who use state-sponsored cartels to limit competition and inflate their wages, there are very few people in America who are “rich” that don’t enjoy some sort of government privilege that falls well outside the laissez-faire economy that Adam Smith envisioned. “The whole of the advantages and disadvantages of the different employments of labour and stock, must, in the same neighbourhood, be either perfectly equal, or continually trending to equality. … This, at least, would be the case in a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper.” -- Famous 18th Century laissez-faire socialist. Extreme income inequality in and of itself is not a problem; it is, however, a sign that there may be a problem. It’s kind of like a check engine light. It is how that income inequality is produced that is the problem, for much of it borders on outright theft. Hopefully even the most ardent free-market Republican would not accept income inequality that was the product of outright theft. There is somehow the perception that those on the top of the American pyramid scheme got there through hard work and building a better mousetrap, but many got there by using government to limit competition, or even more brazenly took it right from the public treasury. Finally, OWS has done the hard work of shining a spotlight at this issue, but the time has come to replace the communists who have spearheaded this movement with more moderate voices who can coalesce around ending crony-capitalism. No bailouts ever; really get money out of politics through meaningful campaign finance reform; end the wars that invite war profiteering, and break the permanent aristocracy through shifting the tax burden upwards to the level it was at for most of the 20th Century when the economy grew faster. -- Also at my Seeking Alpha blog -- October 20, 2011 Herman Cain 9-9-9 plan, 2 extra 9's Herman Cain’s 9-9-9 Plan should really be called the Herman Cain 9-9-9-9-9 Plan. In addition to the 9% personal income tax, 9% corporate tax, and 9% sales tax, there is also a 9% payroll tax and a 9% tariff. I first looked into Cain’s 9-9-9 Plan on September 28th because I didn’t believe it would be revenue natural. I had assumed that the 9% corporate tax was a tax on profits. Sure, I figured that certain loopholes like deductions for corporate jets might be closed, but I was shocked when I found that labor was no longer tax deductible for a business. It’s debatable on what semantics are best to describe this treatment, but the best method would be to describe it as simply a 9% payroll tax, for that’s exactly what it is. I walked through an example of how this would affect a hypothetical 10 person company grossing a million dollars a year with a $500,000 payroll and a 5% profit margin under today’s tax code with a Cain supporter back on the 28th. My analysis showed that the Cain 9-9-9 plan would increase such a business’ total tax bill by a factor of 4-6, specifically from $7,500 or $11,687 depending on S-Corp or C-Corp treatment, to $49,500 under the Cain plan. The detailed walk through: Tax burden as it stands now: 5% of $1M=$50k of net, taxable income taxed at the C corp rate of 15%, that's a tax liability of $7500 taxed at the S corp personal rates, that's a tax liability of $11,687.50 Under the Cain plan: Yes the tax rate falls to 9%, but it is taxing a MUCH BIGGER FIGURE, in this case, $550,000. For a tax liability of $49,500. That's 4.2 to 6.6 times greater than before. It's a very simple concept: exposing way more of a business' revenue to taxes, albeit at a lower percentage rate, to result in a higher tax bill. Rate x amount exposed = liability RxE=L If R gets a little bit smaller, but E gets a WHOLE LOT BIGGER, then L still gets bigger. Response from the Cain supporter I pointed this out to: “You have no idea what you’re talking about.” Peter Schiff reached a similar conclusion yesterday, but missed the last 9 in his analysis. Per Cain’s own website, the 9-9-9 plan would tax businesses on “Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.” ote the “net exports.” Since imports are a negative figure, subtracting that negative figure ADDS TO THE TOTAL TAXABLE INCOME. It functions as a 9% tax on imports, or a tariff. Perhaps Republican primary voters are ignorant enough to buy into the virtue of protectionism, but the fact remains that “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy... What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.”--18th Century laissez faire socialist Finally, the plan is incredibly regressive, and the Tax Policy Center’s analysis concluded it would raise taxes on 84% of U.S. households, hitting incomes under 30k especially hard, while most favoring incomes over 200k. But Republican economics have been about getting the majority to vote against their own self-interest for about the last 30 years, so this shouldn’t surprise anyone. -- Also at my Seeking Alpha blog -- September 26, 2011 Ronald Reagan, Rick Perry: Rick Perry: Educate illegals with public money, no fence. Ronald Reagan: Educate illegals with public money, no fence. Republicans worship selectively at the altar of Ronald Reagan. Almost the exact same position that has sent Rick Perry from the top of the heap to the bottom was held by Reagan and Bush-41 at a time when unemployment was within a point and a half of what it is now. What's below is from a 1980 Republican primary presidential debate between George H. W. Bush and Ronald Reagan. (The two were very much in agreement on this subject.) How 30 years have changed the Republican base into a hateful, jingoistic, xenophobic, protectionist bunch of Know Nothings who cheer state-sponsored killing and who boo servicemen and positions held by Reagan. The Republican Party of today is NOT the Republican Party that I grew up with: CLICK for a Youtube video of the following text. Question: Do you think the children of illegal aliens should be allowed to attend Texas public schools for free, or do you think that their parents should pay for their education? GHW Bush: Look, I’d like to see something done about the illegal alien problem that would be so sensitive and so understanding about labor needs and human needs, that that problem wouldn’t come up. But today, if those people are here, I would reluctantly say that they would get whatever it is that society is giving to their neighbors. But the problem has to be solved. As we have made illegal some kinds of labor that I’d like to see legal, we’re doing two things: We’re creating a whole society of really honorable, decent, family loving people that are in violation of the law. And secondly, we’re exacerbating relations with Mexico. The answer to your question is much more fundamental than whether they attend Houston schools it seems to me. If they’re living here, I don’t want to see a whole gang of six and eight year old kids made, one, totally uneducated, and made to feel that they’re living outside the law. Let’s address the fundamentals. These are good people! Strong people! Part of my family is a Mexican. ***Applause*** Reagan: Can I add to that? I think the time has come that the United States and our neighbors, particularly our neighbor to the south, should have a better understanding and a better relationship than we’ve ever had. And I think that we haven’t been sensitive enough to our size, and our power. They have a problem with 40-50% unemployment. Now, this cannot continue without the possibility arising… of trouble below the border and we could have a very hostile and strange neighbor on our border. Rather than talking about putting up a fence, why don’t we work out some recognition of our mutual problems, make it possible for them to come here legally with a work permit, and then while they’re working and earning here, they pay taxes here. And when they want to go back, they can go back, and cross. And open the border both ways by understanding their problems… Additional Reagan: From a 1984 debate (Youtube video) against Mondale at the 1:20 mark:
-- Also at my Seeking Alpha blog -- September 20, 2011 The classically liberal
argument Since the days of the pharaohs, there has always been a small minority of the population that has functioned as the ruling class and has done exceptionally well for itself. Even as late as 18th century Europe, it was the prevailing view that the wealth of a nation was best measured by how much gold the ruling class had amassed. The Enlightenment rejected most of the underpinnings of the social order, and its culminating intellectual work, The Wealth of Nations, squarely rejected the idea of measuring an economy based on the wealth of a few, and replaced it with measuring it based on the wealth and income of the many. Adam Smith, the father of free market capitalism and great influencer of Thomas Jefferson, did not advocate a free market for either its own sake, or for the sake of the rich getting even richer. He advocated it so that the average working man could better himself while inevitably leading to a relative loss of income and power by the ruling class. Capitalism was only a means to what would be seen today as a very socialist end: increased wealth and income equality. Both Adam Smith and Thomas Jefferson explicitly advocated progressive taxes. I’ve hit on these points before, but they are worthy of repeating. Adam Smith saw the main purpose of government as creating a degree of civil order that enforced and protected natural rights; among those natural rights were life, liberty, and property. Most important to Smith was property:
To this end, Smith saw that those who had the most property to secure were also those who most benefited from the core function of government, and therefore those who had the most property should pay the most to maintain the very order they so much benefited from. Smith also understood that there were basic necessities of life, and that it was wrong to take those necessities in the form of taxation. Smith went into much detail about why luxury items should be taxed, while necessities should never be taxed. Simply put, it is wrong to take food off a man’s table, but it is not wrong to take the 3rd BMW out of his garage, especially if taking the 3rd BMW lightens or eliminates the tax burden on the first man. Smith’s clear support of progressive taxes is best exhibited by these words:
Speaking of natural rights, John Locke explains how taxes may exist at all by the limits he places on natural rights in his Second Treatise on Civil Government. Locke first asserts that man has certain natural rights with:
But Locke also realizes that without certain limits on these rights, one could never levy taxes or throw murderers in prison, so he slips in a public-good disclaimer:
One can also use the public good constraint to argue that public money should never be spent on private consumption, thus unraveling the welfare state, to include Social Security and Medicare as we know it. Thomas Jefferson was also far more anti-aristocracy and pro progressive taxes than any modern Tea Partier would ever let on. While Jefferson shared Smith’s concerns about inequality and fairness, Jefferson’s main reason was to guard against the rise of a permanent ruling class that could challenge or control the government. Smith had a similar concern and explicitly cautioned against electing the Mitt Romneys and Herman Cains of the world. The Founding Fathers understood that liberty could be threatened by three distinct sources:
Preserving liberty requires a nuanced balance of guarding against the ascendancy of any one of the three. Unfortunately, modern pro-liberty types have lost sight of guarding against all but the government component. If it were that simple, eliminating all government would be the path to liberty, but there is not a constant, inverse relationship between the size of government and the amount of individual liberty. Government -- especially limited self-government -- is an artificial construct to guard against anarchy’s trend towards rule by force. Broadly speaking, we likely would be more free if there were less government relative to what we have now, but we also likely would be much less free were we to eliminate it all together. While granting government the power to crush aristocracy may be blasphemy to anti-government types, it should be supported by pro-liberty types who understand all of this. By focusing on only the government component, modern Tea Party types switch from being pro-liberty to being merely anti-government, while simultaneously being pro-aristocracy. Jefferson’s best outtakes on the subject:
Challenge our government...kind of like being able to control the government through bailing out everyone who is too big to fail. Bid defiance to the laws of our country…kind of like certain Fortune 100 companies paying zero corporate income tax on literally hundreds of millions, and sometimes billions of dollars of profit.
There are many more of these nuggets and the full context is available in the Jeffersonian Cyclopedia. Consider a few other big government, pro-liberty conundrums: McDonald v. Chicago. Clearly this is a Supreme Court precedent that strengthens the authority of the federal government, but it also allows the citizens of Chicago the right to defend themselves. The entire Incorporation Doctrine. It clearly strengthens the federal government, but ask the Mormons what they think of it. Abolishing slavery. Which is the more free society? The one with a central government small enough to allow slavery? Or the one with a central government strong enough to stop it? Finally, most who are opposed to the idea of increasing taxes on the rich identify themselves with the small or smaller government side of the political spectrum. I ask what is the core, fundamental force or idea such people are truly advocating. I submit that it is merely an aversion to concentrated, centralized, unbalanced power. Balancing and decentralizing power is the fundamental reason behind the right to keep and bear arms which is also a pro-liberty principle. Does it matter what you label that power, or even by what means that power came to be? Permanent aristocracy is very much a form of concentrated, centralized, unbalanced power, and anyone who is truly pro-liberty should support measures to guard against it. For statistical support, consider the following graph and the data found HERE. The graph shows the share of pre-tax household income held by the top 1%, the top 0.1%, and the top 0.01%, from 1917 to 2005:
Notice the spike on the graph of the top 1%'s share of total national income starting in about 1987. Notice (from data found here) that in 1982 the top rate was lowered from 70% to 50%. Then, in 1986, it was lowered from 50% to 38%. Then, in 1987, it was lowered from 38% to 28%. Also notice the left side of the graph, the long-run decline starting after the top marginal rate was increased to 63%, at approximately the same slope as the recent long-run incline. Anyone who tries to tell you that higher top marginal rates won’t reduce the power that the top 1% exerts over the rest of us is simply shilling for the top 1%. Additionally, there is a slightly positive relationship between the top marginal rate and total economic growth. In other words, the economy as a whole tends to grow slightly faster when the top marginal rates are highest. The long-run differential comparing the 30 years prior to the Reagan tax cuts with the 30 years after the Reagan tax cuts shows the pre-tax-cut years averaged just over 1% faster GDP growth. That compounds to a 35% total differential. In other words, had the US maintained the pre-Reagan long-run growth rate, every household would be 35% wealthier on average. It may at first seem completely counter-intuitive for overall economic growth to be faster with higher top marginal tax rates, but thinking it through beyond the surface shows it makes a lot of sense. First, concentrated wealth causes and correlates with economic or monopoly power. The more concentrated wealth and power there is, the more the economy as a whole drifts away from perfect competition and towards monopolistic competition. Monopolistically competitive markets produce less total wealth than perfectly competitive markets produce, and that wealth is also more concentrated. Second, by the very definition of accounting, personal income is that which was not put to productive use. It represents resources that have been diverted towards conspicuous consumption rather than productive capital investments. If the income were going to hire an additional employee, purchase a new piece of equipment, or invest in more research and development, it wouldn’t be showing up as personal income. NOTE: Here's the "total size of government disclaimer" to this entire piece: Please don’t mistake any of this as an advocacy for more government. On the contrary, our country would be better with less government -- specifically with much less regulation, with drastically reduced military spending, with government contractor and employee compensation brought inline with the private sector, with the end of welfare as we know it, and with the raising of the full eligibility age for Social Security and Medicare to 71 (roughly the age that would match the demographics of the time when Social Security was created). Additionally, empirical evidence shows that the economy grows faster when the government spends less. Harvard’s Robert Barro showed that for every additional dollar the government spent, total economic output was reduced by roughly 30 to 40 cents. However, the total level of government spending and taxation is a completely different issue from the issue of top marginal tax rate. It is completely possible, and highly desirable, to have much lower spending than we now have, a much lower total tax burden as a percentage of GDP than we now have, AND increase the top marginal tax rate. -- Also at my Seeking Alpha blog -- September 9, 2011 Obama jobs plan increases labor
demand, The payroll tax cut is a big step in the right direction, but it falls short in perceived permanency and regulatory relief. Infrastructure for the sake of infrastructure makes sense, but for the sake of spending money as fast as possible asks for waste. It is “paid for” only in the loosest sense of the word, intending to delay the offsets indefinitely. Payroll tax cut: I’ve repeatedly said the payroll tax is the best tax to cut to reduce unemployment. For any business with up to roughly 100 employees depending on average wages, the Obama plan would cut their payroll costs by 3.8%. That’s a big deal that will directly increase the quantity of labor demanded. If labor is 3.8% cheaper, employers will consume more of it, the exact degree of which depends on several variables:
It is on this last point that the perception of permanency is critical. If employers perceive the tax cut as temporary, they are far less likely to make long-term hiring decisions based on the tax cut. The intended change in behavior would be much stronger if this were presented as a permanent shift in the structure of the payroll tax. Additionally, the payroll tax carries a hugely regressive regulatory component to it. I was pushing for a full exemption of the first 100 employees to address this. Conceding budget constraints, rather than the President’s half-off the first $5 million proposal, it would be far better to do a full exemption of the first $2.5 million. As it is now, starting with employee #1, a business must comply with costly regulations associated with the payroll tax that necessitate either spending thousands of dollars on third-party professional services such as payroll companies and accounting, or spending an inordinate amount of managerial time to do it in-house, all while exposing themselves to massive liabilities. A full exemption would greatly increase competition, and competition increases total wealth, as well as more broadly distributes that wealth. Infrastructure money burning a hole in the pocket: When there is a rush to spend money, there is a rush to waste money. The federal government has no business funding the construction of local schools. Cinderblocks and cement don’t teach kids. However, there is a bureaucratic infrastructure already in place to roll this out much faster than the traditional “shovel ready” infrastructure projects which is why it is being pushed. Paid for? Pushing it off on the “Super Committee” is the least of the sleight of hand here. The plan is that the offsetting cuts or tax increases will come in the “out years,” after multiple elections. As far as paying for it now, given that it will add to the deficit now, and given that virtually all deficit spending over 3% of GDP is being printed, this plan itself will be printed. This distorts the real effects to the better for the upper income brackets, and to the worse for the lower income brackets due to the inherent repressiveness of inflation. Far bolder and better would be to pay
for it now by cutting defense spending and bringing
troops home now, raising the eligibility age for Social
Security and Medicare now, cutting federal pay and
benefits now, cutting government contractors’ pay
now, overhauling welfare to assure that while no man is
made to live worse in a civil society than he would live
in a state of nature, no man is made to live better
without working than another lives while working now, and
increasing taxes on those making over $250k/year now.
Failure to address these issues now cuts and runs from
the entire "you can't have both" argument.
Economic policy is about making decisions. Do you spend
money on private consumption (full retirement benefits
starting at age 65 and a welfare state that makes some
better than those who work), or do you spend money on
public capital investment (Hoover Dams and inter-state
highway systems)? Do you spend money on war, or do you
spend money on basic scientific research? Do our young
men carry guns in sovereign lands we have invaded, or do
they build roads at home? Do we give tax cuts that
encourage more personal consumption, concentrated wealth
and power, or do we give tax cuts that encourage business
expansion and new hiring? -- Also at my Seeking Alpha blog -- |
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