The Soap Blog

The World Economy is Out of Balance

2011-12-20T19:33:00.001-08:00

Over the last several decades the rewards of productivity have gone to owners of capital, not labor. Automation has reduced the need for labor in manufacturing industries, driving down wages. Producers have moved production offshore to reduce labor costs even further. At the same time, the financial sector share of GDP has tripled. This has happened not only in the US, but in other developed countries as well.

What has been forgotten is what Henry Ford knew at the beginning of the twentieth century, namely that a thriving middle class is the source of most of the demand in consuming countries. When wages stagnate as they have in the last several decades, middle class buying power is destroyed. This may be in the producers interest if they can find buyers in other markets. But, when it happens all over the world in developed countries that supply 70% of world demand, it results in a sustained decline in the world economy.

No amount of money sloshing around in the pockets of a few wealthy people looking for a place to invest it will solve the problem. The only solution is to rebalance world wealth and incomes to put more money in the hands of people who will spend it, not people who save to invest. Until producers realize that that they need the spending power of wage earners to create demand, they are planting the seeds of their own failure. It’s time to start paying workers that spend their income a decent wage to rebalance the need of demand with the need for capital. If producers won’t do it, governments need step in and increase taxes of capital and reduce taxes on labor.

The Underlying Cause of Depressions

2011-12-19T18:03:00.001-08:00

There has been a lot of study of the cause of the Great Depression and now of the current Great Recession. But, answers are clouded by studying primarily what happens after banks get into trouble. This overlooks underlying causes which may be more important. Nobel economist Joseph Stiglitz and Bruce Greenwald of Columbia University have been studying the underlying causes. Stiglitz has presented the results in a recent article in Vanity Fair. It’s a good read.

The scenario goes something like this. Technology improvements take place which increase productivity. This, in turn results in less labor being needed to produce the commodity. Too much labor leads to low wages, lost jobs, and reduced demand. The rewards of increased productivity go increasingly to the providers of capital. As capital accumulates, the return on capital is reduced, so capitalists look for ways to increase it. This usually results in buying up assets that can produce a revenue stream. Asset prices escalate and seeing this, investors buy up more assets to take advantage of increasing asset prices. This is the beginning of a bubble in asset prices.

Seeing a chance to make easy money, more people start investing in the asset bubble. Financial institutions are making money hand or fist from the new lending and capital is freely available from increased productivity and asset investments. The opportunity seems a sure thing so leverage is increased to increase profits dramatically. These profits must be invested to earn income, so banks seek to place new debt with less credit worthy debtors, and so are willing to take higher risks, which they offset by buying credit default swaps, a form of unregulated insurance not fully backed by the assets. Eventually the bubble bursts when these risky investments start to fail and the whole economic system is put in jeopardy by the threat of bank failures.

Only now does the analysis of what happened start. The first place analysts look is why excessive risk was taken on and why not enough liquidity is available to prevent a collapse of the economy. Governments are looked to for bailouts of failing banks. And we know the story from that point on. It’s a battle between people who think government spending is needed to sustain the economy and people who think it all happened because people and governments were irresponsible and what is needed is austerity measures to teach the irresponsible a lesson. The underlying problem has been long forgotten in the process.

The Underlying Problem in the Great Depression

Prior to the banking problems in the great depression, the economy was largely based on agriculture. As technology advanced, farmers were able to produce more food with less labor and the same size farm, so farm commodity prices fell and fewer farmers were needed. But switching from farming to an industrial job was not easy. Most farmers had only an elementary school education, so they continued to do what they knew how to do, farm. With less income per acre, they needed more acreage and loans to buy the acreage. But, this just compounded the problem. More production meant even lower prices and now they had bigger loans to pay off. And a drought in many parts of the country made things even worse. So many of these farmers ended up losing their farms and ended up unemployed. The unemployment among farmers, a large segment of the economy at the time, meant reduced demand for products and service produced elsewhere in the economy, resulting in unemployment there. Banks foreclosed on the farms, but with more production than was needed, banks took losses on the loans. And, the excess of labor and lack of new projects to employ them meant a drop in demand for all goods and services, driving the economy into depression.

The Underlying Problem in the Great Recession

In our current recession the underlying problem was increased productivity in manufacturing, hence less required labor, and moving much of the manufacturing sector overseas where labor costs were much lower. Again the rewards of productivity increases went to capital and wage income stagnated. Capitalists, flushed with newfound wealth looked for places to invest. And consumers, whose wages had stagnated looked for other ways to make ends meet. Investment in land and construction soon supplied the answer. Average homeowners soon saw the opportunity to increase their income by taking loans on the increasing equity in their homes, and banks, flushed with cash saw another opportunity to make a killing leveraging up on riskier and riskier loans and unregulated insurance. The rest is history, and we know who governments bailed and who is picking up the tab.

So, What is the Solution?

Stiglitz seems to think the solution is to put people to work by embarking on new projects to employ them and education to equip them for new jobs. Just as the war economy pulled us out of the Great Depression by creating new jobs for the unemployed, we can create new jobs for the current unemployed by investing in infrastructure which has deteriorated for lack of maintenance and in research on promising new transportation, communication, and energy technology. But, just as the war required massive government spending and increased government debt, we need to accept greater debt now to ensure a healthy future economy that can pay off the debt. And, just as the economy after the war required higher taxes on those who could afford to pay them, the same will be required now from people who have profited handsomely from years of productivity rewards, the bubble and the ensuing bailout.

The Herman Cain Phenomena

2011-10-26T15:24:00.001-07:00

People are wondering how a candidate with no previous political experience, no organization to speak of, and a series of conflicting messages can be leading in the polls. I think it’s perfectly understandable. People are sick and tired of professional candidates who adjust their message or say different things to different groups simply to get elected. They also are wary of the slicksters with a pocket full of money whose main aim is fame and fortune, but who can turn a phrase without ever making a mistake. Cain says it like he sees it, even if it doesn’t make much sense. And, he doesn’t attack people or get nasty. He comes across as a sincere, nice guy. That can be very attractive in a campaign where’s he competing with a bunch of old polls who play politics with everything that comes out of their mouths and have flip-flopped on many issues.

Democrats wonder how Republicans can be so interested in a guy whose policies seem so outrageous to them. Well, they don’t seem so outrageous to many Republicans, who vote their feelings on religion and other social wedge issues, not analytical or scientific constructs about the economy or the environment. Their judgment of the person’s character and his similarity to their way of thinking trumps a lot of policy issues.

Democrats should look at why candidates like Dennis Kucinich and Ralph Nader have gotten nowhere in their party. I would conclude it’s because they aren’t afraid to say it like they see it. They aren’t polished enough, or acceptable enough to the in crowd. Their pronouncements seem too far from the status quo promoted in the press. For this, they are marginalized.

If we still had a Republican president at this time, I think we would be seeing similar behavior from the Democratic Party that we are now seeing from the Republican Party. We are in a major economic and political crisis, and people are looking outside the box for new and more extreme measures to correct the problems. If it were the Democrats with a large field of candidates running against an incumbent Republican president, I think we would be seeing candidates like Kucinich and Nader leading in some polls against more establishment oriented candidates. And, the Republicans would be wondering how the Democrats could be so interested in them.

Occupy Wall Street to the Rescue

2011-10-11T17:56:00.001-07:00

In the last post I was urging Bernie Sanders to run against Obama to force him to identify what he would do in a second term. Well, there is no longer a need for an opponent to do this. Occupy Wall Street has spread around the country is a good indication that many are disappointed with a system that defers to wealth and corporations while exploiting middle class workers. Mr. Obama will be as much a target of this movement as anyone else if he continues to try to finesse his way back in the White House by being the great compromiser. If there is one thing OWS doesn’t want it is compromise with those seeking to maintain the status quo.

If winter comes and the cold weather results in a retreat of the protesters to warmer quarters, Obama may think he doesn’t need to think big. But, he will be mistaken. The country is ready for deep reforms and any half measures will result in low turnout for progressives and a win for Republicans. On the other hand, if he embraces the discontent demonstrated by protesters and the many who share their discontent, and lays out a program of real reform, he could be on his way to another term. So far, he has been a disappointment as a leader and a man of vision. But, fortunately, none of his likely opponents seem well equipped with those qualities either. Obama has begun to talk the talk, but is it all election hype or the real deal? The OWS crowd and their supporters can help smoke him out and make him take a stand.

Run, Bernie, Run!

2011-08-14T21:57:00.001-07:00

I’m speaking of Bernie Sanders, the Senator from Vermont, of course. He can’t run in the Democratic primary because he’s an independent, not a Democrat. But, he probably won’t run in the general election either, because he caucuses with the Democrats and probably doesn’t want to become a political pariah like Ralph Nader. But, he should run. And, here’s why.

I predict the Republicans will pick Governor Rick Perry of Texas to be their candidate. He’s the perfect candidate for the Republican Party. He’s religious, a southerner, has better looks and more charisma than the last Republican president, and can speak in complete sentences that his constituency understands. He's also very acceptable to the sane wing of the party, unlike most of the other contenders. And, he's not the recent Mormon governor of a blue state. What more could the Republicans ask of a candidate? If he is the candidate, his party will be energized and, unlike the Democrats and a lot of progressive independents, many of whom can't stand Obama and will sit out the election, will turn out for him in big numbers at the polls. In that situation, Obama, the Republican lite, will be toast.

Even if Obama were to win, do the Democrats really want four more years of Obama continuing to cave to the Tea Party agenda of austerity and no new taxes? Or would they be more successful as an energized opposition party? Look how successful the Republicans have been as the opposition party. With the distinct likelihood of another meltdown due to the austerity measures being pushed by both parties now, won’t the Democrats be better off laying it off on a one term Republican president as the Republicans are now doing with Obama?

If progressive Democrats had a good spokesperson stumping for their progressive agenda including reducing wealth and income disparities, a single payer health insurance program, investments in education and infrastructure, etc. they would be on a good path to being a successful opposition party and have better prospects for winning in 2016. An energized progressive electorate would also get people to the polls to elect more of their constituency to the Congress.

Bernie Sanders is such a spokesperson. If you haven’t heard him, take a listen to him on the Senate floor here. There is no Democrat that comes close to him in stumping for the progressive agenda.

Why the Government has to Spend when the Private Sector decides to Save

2011-08-08T10:47:00.001-07:00

What is necessary for a healthy, stable economy is a balance between savings to provide capital for new productive activity, and spending to sustain demand for goods and services. When these forces get out of balance instability happens.

If everyone decides to save more all at the same time, spending is reduced and economy goes into recession. If everyone decides save less at the same time, spending increases demand and prices go up. If the new spending is to buy assets rather than consumables, asset bubbles develop.

If the balance shifts to to0 much saving of capital, there is more capital chasing a limited number of investment opportunities, rates of return on capital drop, and owners of capital seek ways to stimulate demand for credit, or turn to leverage and speculation to increase returns. This is what happened prior to the current recession. Owners of capital turned to derivatives and leverage to increase returns. When that wasn’t enough, they turned to liar loans in the housing industry to stimulate demand for credit. As the housing bubble built, housing investors got the idea that the housing market could only continue to go up, and started using their home equity as a piggy bank for spending, driving themselves ever deeper in debt. This is what caused the housing bubble. When the loans could no longer be serviced as variable rates went up the bubble burst.

When the bubble burst, the piggy bank closed, the markets dropped, and the rush was on to deleverage and pay down debt. This required spending less and saving more by nearly everyone around the world. So we return to first scenario where there is too much saving and too little spending, and into recession we go.

The difference between this and milder recessions is that this time it happened to nearly everyone, even around the world, because of the strong linkage between financial institutions worldwide, due to the mitigation of risk through investment insurance like credit default swaps on collateralized debt sold as stock. Credit rating agencies were paid by the banks issuing the collateralized debt to give it a high rating so it could be easily sold around the world. All this was done to increase returns on capital because there was way too much capital for the investment opportunities that existed.

Instead of restructuring the banks that had issued the junk debt, allowing the owners and stock holders to take the hit, the government bailed out the banks and allowed them to keep the junk loans, now deeply devalued, on their books at face value rather than market value. So instead of destroying the junk debt, they put repayment in full on the backs of taxpayers. Now everyone is panicked, no one wants to spend, lend, or investment. This is what’s called a liquidity crisis.

Returning to the theme presented at the outset, when everyone in the private sector decides to save at the same time, the government is the only source of spending available to maintain the balance between spending and saving that is required to stabilize the economy. Instead, we now have a bunch of politicians who think they’re at a Tea Party and the government is just another private budget manager that needs to save like the rest of us. They don’t understand the basic need to balance spending and saving overall to stabilize the system. To make things even worse, they think that the wealthy capitalists who created the problem should be exempt from participating in the solution. In fact they think their taxes should be reduced even further. Until taxpayers and politicians understand the basics of how an economy functions, we will continue to be mired in the quagmire and things will only get worse.

Some Long Range Consequences of the World Economic Crisis

2011-08-06T10:11:00.001-07:00

It’s a sad day when a single company can cause world economic turmoil by downgrading the credit worthiness of the world’s only superpower. Standard & Poor’s, the same company that gave junk collateralized debt obligation a AAA rating to cause the current crisis, has downgraded the USA rating to a AA+, and the world goes along with it. This raises the question of whether or not the world has gone seriously off the rails.

How did we come to this point? How did the developed nations of the world become deeply indebted to an oligarchy of private financiers? How did the leading developed democratic nation in the world, the USA, become indebted to a developing authoritarian nation, China to the tune of several trillion dollars? The answer lies in letting wealth become concentrated in the hands of a few wealthy individuals and institutions and allowing a colluding central bank to create credit by simply making entries in its accounting journals.

The creation of credit and the abundant supply of cheap energy are the main ingredients that have lead to the rapid development of the developed nations in the last several centuries. This has allowed the standard of living in these countries to advance way beyond that of undeveloped and developing countries. Accompanying this phenomena has been the emigration of labor from undeveloped to developing countries where this is possible.

But, advances in transportation and communication, and trade agreements in the last several decades, have allowed the free flow of goods and capital across international borders. This has directed the flow of private capital to countries with low production costs and away from developed countries. Businesses have become multinational, reducing the loyalty of their home countries and accelerating relocation to developing countries.

If international agreements were in place, this could have led to increasing the standard of living in developing countries to to the level of developed countries without reducing the standard of living in developed countries. But, instead, the way this has happened has been left mainly to private interests, resulting a decline of labor rates and employment, and increased debt, in developed countries while developing countries like China have become creditors. Instead of allowing the standard of living of Chinese workers to rise to the level of developed countries, the Chinese government has accumulated the wealth from its development and used it to fund debt in the countries buying its products.

What remains to be seen is how this will all work out. In ancient times, wealth became concentrated in the hands of kings and their aristocratic cohort and debt in those outside the ruling circles. Periodically, there were Debt Jubilees, where debts would be forgiven and a new cycle of wealth and debt accumulation started. Since, in the modern world, wealth accumulates in private hands, and narrow private interests control government through contributions to politicians, there is no possibility of debt forgiveness.

All signs point to protecting wealthy private interests at the expense of working people. Eventually, debt service eats up all the resources that are needed to sustain productive enterprise and the system collapses. The question people should be asking is whether humans are smart enough to make corrections before the system collapses? The second ingredient of development, energy, may make the decision for us sooner rather than later. As fossil fuel resources decline and debt grows we face a double threat to the world economy and the standard of living of its citizens.

Obama, a Disaster for Progressives

2011-08-01T16:07:00.001-07:00

Obama’s appointments and actions during his presidency have shown him to be a moderate Republican. His substituting of mediation with Republicans for leadership in fighting for progressive policy ceded the high ground to Republicans and caused the catastrophe that was the 2010 election. Since then he has ceded even more ground to Republican policy, including the disaster of cutting federal spending in the middle of a deep recession.

He has actually adopted Republican talking points in many of his speeches about the economy, buying into the false comparison between what voters should do in a recession, and what the federal government should do. As Obama has moved to the right in his policy decisions, the Republicans have moved even further to the right, until now Republican policy is essentially wacko Tea Party policy.

It is hard to see what he will do differently in a second term. It is not that he’s fought the good fight for progressive policy and been blocked by Republicans. He has actually agreed more with Republicans than with his progressive constituency. And, it is even harder to see how he will motivate progressive voters, which he needs to win, to the polls in 2012.

On the Republican side, if they win the presidency and both houses in 2012 will they continue their radical Tea Party policies when the results will be laid wholly to their doorstep? Not likely. Having a weak Democratic president that can be easily pushed around, and with their stated paramount objective being to make Obama a one term president, the Republican party has become radicalized. If they should win it all with a candidate like Romney, who is not a Tea Party wacko, they would likely return to a more responsible way of governing, especially if Democrats in Congress kept their feet to the fire and used the filibuster in the Senate the way Republicans have used it.

The time when a president can ignore his own constituency and get reelected has passed. Unless the Democrats field a viable candidate to oppose Obama in the primary, the energy on the Democratic side of the election will be so low it’s hard to see how voters will turn out in the large numbers needed to win. All the excitement will be on the Republican side of the election. If Obama were to win a challenging primary, that made him spell out how he is going to govern, it would give his constituency renewed energy to elect him. If not, it might result in a better candidate, or at least increase the turnout in the general election, which is necessary to maintain control of the Senate as a minimum.

Natural Recovery Mechanisms

2011-06-05T11:06:00.001-07:00

Since political gridlock in the country has precluded much government intervention to facilitate recovery from the financial crisis, we will have to rely on natural mechanisms to recover over an extended period, just as the Japanese have been trying to do for the last couple decades.

So what caused the crisis and what are these natural mechanisms that will allow recovery? For the economy to be healthy, there has to be a balance between saving and spending. Capital and labor are the ingredients for growth. The relatively few, more wealthy, people do most of the saving and middle class labor provides most of the spending. As I have previously discussed here, over the last several decades more of the rewards of productivity have been going to the savers. As the spenders are squeezed, demand wanes and there are fewer opportunities for investment, so the return on investment falls. This results in a search for ways to stimulate demand and increase returns, like easy credit, leverage, and creating derivative instruments that hide risk.

Eventually these mechanisms lead to bubbles of ever increasing asset prices and create a euphoria that perpetuates the growth of the bubble until it bursts, resulting in a financial crisis. First we had the saving and loan crisis, then the dot com bubble and now the housing bubble, which nearly brought the country to ruin. This has resulted in high unemployment, fear of further crises, and stagnated demand because the problem is really that the debt left over from the bubble never has never been addressed. Banks and their investors, being the primary holders of the debt, have refused to take losses on their bad debts, and the government has stepped in to bail them out, increasing the public debt.

The solution lies in first reducing the debt overhang in the private sector because the private sector is the primary source of demand. Demand must be increased first because the revenue from increased growth is needed to address the public debt. Political gridlock will not allow the government intervention necessary to make this happen. So other mechanisms must be relied upon to correct the problem, stretching out the recovery over the decades ahead.

The primary means for addressing normal recessions is monetary policy, that is, lowering interest rates by increasing the money supply. Lower interest rates means less income is going to savers, and the spendable income to spenders increases because their debt service is reduced. Neither of these these things happen automatically. So it has fallen to the Federal Reserve to insure that low interest rates are maintained. This has not been an altruistic move on their part. Their main interest is in keeping the banks afloat by easing credit and pumping up asset markets, since the government has been reluctant to restructure them. But, a byproduct of the policy has been to ease the burden of homeowners and other private debtors. But, as interest rates approach zero, this mechanism is no longer effective.

The first natural mechanism the comes into play is private loan default. As homeowners and other private borrowers default on their loans, the lenders and their investors are forced to absorb the losses. Those that don’t default are forced to continue paying off debt rather than spending their income, which reduces the demand necessary for recovery. This prolongs the recovery period. So, defaulting on private debt becomes a mechanism for reducing the recovery time. To the extent that artificial means and deception were used to induce borrowers to borrow, this is a just action and should be encouraged, rather than disparaged.

The second natural mechanism for reducing debt is inflation. As inflation occurs, debts can be paid off in cheaper dollars, erasing debt faster, and promoting a quicker recovery. Controlling inflation falls to the Fed in implementing monetary policy. To reduce the recovery time the Fed needs to allow more inflation in times of crisis, and usually does. The Fed has recently raised inflation targets for this purpose.

The final natural mechanism occurs when flight to safety and political pressure drives funding from institutional investors into public debt at low interest rates. This allows governments to reduce their debt service and spend to increase demand and reduce the burdens of unemployment. These latter two mechanisms are referred to as “financial repression” by savers organizations like the Pete Peterson foundation, who have the most to lose by it. It was practiced extensively after the second world war when large debts had to be liquidated in a timely manner.

It’s unfortunate that these natural mechanisms must be relied upon to get us out of the economic doldrums. They extend the length of the recovery process, when a positive restructuring of debt by government would have shortened it. But, money is power and it talks in many ways, so we must suffer longer to appease those who refuse to take the hit on their bad investments.

Historical Limits to Progress

2011-05-26T20:04:00.001-07:00

A classic example of history limiting progress is exemplified by the mobile carrier industry. These old telcos have no incentive to innovate because they own the lines and charge by the minute. They all spend millions of dollars every day advertising in media all over the country, when there’s not a dime’s worth of difference between the services they provide. How is it that you can make unlimited free VoIP calls over the internet at speeds much faster than the cell phone networks which charge an average of $50 a month for the same service?

If it weren’t for the extreme hostility between government and industry due to free market ideology we could have had fiber and hot spots along ever interstate highway in the country now and data and VoIP calling services everywhere for little or nothing. Countries like Korea and Japan, where government and industry cooperate, are decades ahead of us.

If you compare progress in bandwidth and technology on the internet to cell phone transmission technology the gap is obvious. Now the telcos want to buy off the government to latch onto the new spectrum freed up by HDTV technology to waste it on their outdated network and retro development practices.

There are some signs that Microsoft, Google, and Apple aren’t going to put up with this much longer. They are getting interested in bidding on spectrum and have developed voice network technology. Google has Google Voice and Microsoft has recently purchased Skype at a very high price. Already, much of the traffic that would normally be on the cell network has moved to WiFi when phone users are near a hot spot or have a home network. You don’t even need a phone. I make free nationwide calls on my iPod Touch at any hot spot using Google Voice.

I’m not holding my breath for things to change because the cable companies and telcos own the Congress, but sooner or later we are going to seen broadband internet carrying the bulk of voice calls, as they are video calls now.

The Roots of American Decline

2011-05-11T12:33:00.001-07:00

The decline of the US economy has its roots in the deregulation of business and finance and automation of complex manufacturing processes. The decline is aggravated when wealth becomes concentrated in the hands of a few who use it to capture control of the government. As control of government by capital interests increases, regulation further decreases.

A good measure of the how far the loss of democratic control of government has progressed is the income and wealth disparity between the owners of capital and the working classes. The more control wealthy elites have over the government, the greater will be the concentration of wealth and income in the their hands.

As democratic control of government is lost to the owners of capital, the rewards of productivity increases through automation go increasingly toward the owners of capital and away from labor. Only if countries retain democratic control of their government can equity be maintained.

Domestic jobs are lost through automation and the opening of financial flows across borders, which allows factories to be moved offshore. Allowing foreign labor into the country through lax immigration and border control policies and the liberal use of visas to educated foreign workers further exacerbates the problem. As the labor supply increases relative to the demand for labor, wages are driven down, allowing a further increase in wealth to the owners of capital and a degradation of the living standards of the working class.

As the standard of living of labor falls, the need for income security, health care, and retirement increases, necessitating greater government involvement, setting up a growing battle between labor and capital for control of the government.

The recent collapse of the economy has demonstrated that the financial industry does not police itself and will go to extreme lengths for its own short term interest at the expense of the national interest.

To sustain domestic demand when working and spending class incomes are decreasing, requires spending from borrowing. This was enabled by the creation of a housing bubble, allowing workers to spend from the ever increasing equity in their homes. The financial sector drove the bubble higher and higher with leverage, derivatives, and liar loans, reaping short term riches at the expense of long term calamity.

When the bubble burst, homeowners and savers lost trillions, causing a severe drop in demand as they turned to saving instead of spending. With millions of bad mortgages on their balance sheets, banks stopped lending. Heavily leveraged, many found themselves bankrupt if loans were marked to market.

In steps the government, itself now starved for tax revenue, but the only entity large enough to rescue the economy. Instead of restructuring many banks that could be restructured, and making those who made bad investments take some of the losses, they allowed the banks to keep the loans on their books at face value and bailed out all but one bank, Lehman Brothers, some at 100 cents on the dollar. This put the government in deficit and further in debt, while working people faced heavy unemployment and depletion of their savings, and while banks were still heavily in debt with bad loans on their books.

Now we face losing the working class safety net and sustained unemployment, while the government provides banks with nearly free money to work off their bad debts buying treasuries and speculating in foreign currencies.

With diminished domestic demand and tax revenue from the working class it is doubtful whether government deficits can ever be eliminated through taxation of this sector, particularly if their safety net is destroyed. The only source of revenue that can be tapped to do this is the income from investors and corporations who are prospering with their factories in developing nations. That’s where the growth will be. But, these are the very people that have control of the government and refuse to impose such taxes.

You may ask, how can this be, when capitalist elites are only a minority of the populace? The answer is propaganda. By keeping enough working people hood-winked regarding where their real interests lie, and by keeping the press in the their elite circle this is easily accomplished.

The politics of special interests and values is a convenient tool to do this. By keeping the electorate distracted with wedge issues like religion, ethic and sexual preference, and demonizing people on welfare, the elites can convince enough people that these are the real problems, while they pay the bills of politicians to get them elected and do their bidding.

By allowing a professional working class, and their retirees, to have sufficiently high incomes to be comfortable, they can keep them in a state of concern for only their personal affairs and a lack of concern for what is happening politically and economically in the country. By promoting the identification of this group with the controlling elites, rather than with the struggling masses they can keep them voting for the candidates they put up.

Businesses organizations like the National Chamber of Commerce and private business owners like the Koch brothers contribute heavily to conservative think tanks to generate such propaganda based on ideology rather than practical considerations. Such propaganda over the last several decades has brought the country back to where it was prior to the Great Depression and there is no sign that things will change until more and more people are pushed into poverty, to the point where the hurt causes them to wake up and vote their real interests. Only when most people identify with the plight of their fellow citizens, rather than aspiring to join the elite oligarchy, will things change.

Between a Rock and a Hard Place

2011-04-27T16:56:00.001-07:00

I can’t see any way we can avoid another crisis that is even bigger than the one we are in. Basically, what we have is a lot of money sitting on the sidelines waiting for things to get better, and they’re not going to get better. The government and the Fed know this and they don’t have a lot of choices what to do about it.

The basic problem is still the banking crisis. If things get worse the banking system is subject to collapse. So what is happening is the Fed is printing money to buy treasuries. This money ends up in banks, who use it to buy treasuries instead of investing it, because businesses are not expanding domestically so have no need for investment. There is some business expansion but it is overseas. So banks are getting money without interest and investing it treasuries where they earn interest on these reserves. That’s a good deal for banks. It keeps them afloat and provides an income stream to deleverage their bad debts and pay the big bonuses.

The bad part is that the government is running up debt like crazy with no prospect of a revenue stream big enough to pay it back. Its normal obligations are huge and growing. We’re still fighting two wars and assisting in a third while the baby boomers are beginning to retire, increasing the Social Security and Medicare outlays. To compound the problem, we are on the downslope of the peak oil curve where demand from developing countries is still growing and supply has peaked. Since our economy runs on oil for almost everything, this alone spells crisis in the current decade or the next.

I don’t see a way out, and neither does the government or the Fed, although they don’t say much about it because it would just add panic to an already bad situation. Ultimately what will happen is we will be forced into another crisis due to increased cost of commodities like gasoline and food, the production of which is heavily dependent on oil.

There is no way to reduce the federal deficit substantially from the current or future revenue streams. Projections showing this is possible project revenues that can’t be achieved with the problems outlined above. We are in for really bad times this decade and the next. Current legislation puts a large part of the burden on those already overburdened. We don’t let people starve or deprive them of needed shelter and medical care so eventually wealth will be redistributed in one way or another and the overall standard of living will decrease. Meanwhile, we’re fiddling while Rome is burning, not unlike the legendary frog in the pot of soon to be boiling water.

Absorbed in the Present, Ignoring the Future

2011-04-19T20:01:00.001-07:00

When was the last time you heard the word “sustainability” uttered? The general concern, the world over these days, is debt and growth. It’s as if the only thing important to the first world in the current crisis is getting back on the conspicuous consumption curve. Meanwhile, the big threat, the one that will require a major adjustment in the way we live, is creeping up on us: PEAK OIL.

Many pundits have pointed out how a 50% increase in the price of oil has affected commodity prices and aggravated the current financial crisis. This is nothing compared to what we will face when oil doubles or triples, and it will. It’s just a matter of time.

Instead of going into even greater debt to sustain an unsustainable lifestyle, why aren’t we considering what’s really necessary to be to be happy with less and planning for the time when this change will be forced upon us. Over-consuming isn’t necessary to live a worthwhile, rewarding life. And, it’s downright unhealthy. Two recent movies have brought this message home in a major way: King Corn and Blind Spot. Watch these two and decide whether you still want to stay on treadmill we’ve been on for a couple hundred years. What has it really gotten us? And, in any event, it’s coming to an end over this century, so why not use the current crisis to change our ways and plan for our grandchildren’s future?

Simplifiying Economic Priniciples

2011-03-29T11:02:00.001-07:00

There is a current debate going on between Paul Krugman, Nobel Laureate of Princeton and the New York Times and Paulina Tcherneva, an economist at New Economic Perspectives (NEP). NEP is run by people from the University of Missouri, Kansas City, and its contributors include people like Bill Black, who put a lot of shysters in jail after the Savings and Loan crisis; Michael Hudson, an economist who has been helping many foreign countries facing austerity crises; and many other from UMKC that are listed at the blog.

Both parties agree that creating money to stimulate the economy can lead to a devaluation of the currency. But, they disagree on whether or not this can lead to a government default and what the the money should be spent on. To date, essentially all the money has been spent on buying junk bonds from banks to increase their reserves so they can ride out the storm, while taxpayers pick up the tab in the form of higher taxes and reduced services later. Little or nothing has been spent on employing idle labor and other productive resources. Both parties have favored stimulus, but Krugman seems more accepting of what has been done than Tcherneva. She believes the money should have been spent on putting people back to work with government programs. Tcherneva contends that the government will always be able to pay all its bills, including Social Security benefits, because it can print money. It’s just a question of what that money will be worth in purchasing real goods at a later time.

So, the bottom line is, what is the right course in the long run. If we continue to just bail out the banks we’ll have to continue buying consumer products from overseas. To do so we’ll have to exchange those inflated dollars for the yen or yuan, so they won’t buy as much. But, if we invest now in putting the unemployed to work restoring our domestic infrastructure and production capacity, later we can produce those goods ourselves and don’t need to take the hit on the currency exchange to buy them from foreign countries. Tcherneva makes the point in a quite wonkish way, but I think she wins the argument.

The Distorted Picture of Tax Equity

2011-03-18T11:11:00.001-07:00

I would like to see a tax analysis organization initiate a project to present a true picture of tax equity which I have been unable to find anywhere.

There is a lot of misunderstanding and controversy over tax policy in this country because people don't have a clear picture of who is paying the taxes and whether or not it comports with their share of income. Most of the interest centers on the income tax, whereas payroll, sales, and property taxes have an equally important role in fairness. If people knew that taxes were being levied fairly and used properly they would more easily see and understand the need for taxes.

What organizations that analyze taxes need to do is present a complete picture of the total taxes people pay vs. their income. Current presentations of this picture use only the income tax and broad categories, the smallest being the top one percentile. Other taxes need to be included and the picture at very high incomes to 0.1 to 0.01 percentile brackets need to be shown.

Consideration also needs to be given to the disparity between taxes on earned income and capital gains. If capital is in short supply capital gains taxes should be lower. If consumer demand is low taxes on earned income need to be lower. In the present situation we have glut of capital and a shortage of demand, yet capital gains taxes have remained much lower than taxes on earned income.

Tax analysts need to do a better job of presenting a true picture of tax equity if we expect to minimize tax avoidance and prevent tax revolts.

As an example compare the two tables below. The top one is from the Tax Foundation. Looking at the shares of income and taxes you would think people in high tax brackets are overpaying their taxes. But, if you assume that taxes should be paid on net income rather than gross income the picture looks much fairer as shown in the bottom table. In this case it is assumed that it is necessary for a taxpayer to be making at least $33,000, the income of the median return, to hold a job, provide a home, transportation, and other expenses necessary to stay employed. Since other taxes are less progressive than income taxes the picture will appear even less fair if these taxes are included. We need fresh thinking on tax policy.

You may argue about what income it takes stay healthy and hold a job, so $33,000 may not be the right number. But, it’s certainly closer to the truth than the exemptions and deductions we now allow for low income people, while corporations get to deduct their martini lunches and other expenses that could hardly be considered necessary in the normal course of business. If everyone below the median tax return were taken off the tax rolls and all the deductions and exemptions were removed think of the money that could be saved on wheel spinning to avoid taxes. This together with higher taxes on the highest 0.1 percent of earners would go a long way to making up the taxes lost by taking everyone below the median return off the tax rolls.

Is a Depression Inevitable?

2010-10-03T11:06:00.001-07:00

We find ourselves in a situation where capitalists and the financial industry run our country and many other countries in the world. Over the last several decades the industry has deregulated itself and reduced its tax rates to allow it too concentrate the wealth of the country in its hands. At the same time it has allowed, through globalization, labor rewards to seek a level set by the lowest wage worldwide. In the process, it has destroyed the buying power of the great masses of the world population. To compensate, it has stimulated the demand for debt and hidden risk through the use of collaterization and derivative insurance products. This was a prescription for asset and debt bubbles and ultimate failure of the financial system, which has been prevented from collapsing totally only by the offloading of the debt onto governments.

Keynesians have viewed the rescue of the financial system, through large government expenditures, as paramount, but is it just delaying the inevitable? As long as we have the financial system running governments are we ever going to correct the problem of financial system running governments and bailing themselves out on the backs of the masses? This appears to be a question that answers itself in the negative. Keynesianism, the philosophy of the government stepping in to prop up demand as private sector demand wanes may work for normal business cycles, but does it really work to correct structural problems caused by lack of government control by the people?

A couple recent articles have shown that the incentives are all in the wrong direction, and that concentrated wealth in the hands of a few leads to control of all physical resources and inflation of commodity prices. In a recent article by Henry Blodgett in the Wall Street Journal, he demonstrates how the incentives perpetuate the problem. A recent post to The Economic Collapse blog show how commodity prices are skyrocketing. And, lately there have been reports of the buying up of agricultural land in Africa to take advantage of the rising cost of agricultural products. Where will it all end. Are the masses of the world’s population doomed to be serfs to a small percentage of wealthy capitalists? Or, is another depression necessary to wrest control of governments back from the financial industry? Pick your poison.

The Solution to the Housing Problem

2010-09-19T22:15:00.001-07:00

“Henry George (September 2, 1839 – October 29, 1897) was an American writer, politician and political economist, who was the most influential proponent of the land value tax, also known as the "single tax" on land. He inspired the philosophy and economic ideology known as Georgism, which is that everyone owns what he or she creates, but that everything found in nature, most importantly land, belongs equally to all humanity. His most famous work is Progress and Poverty written during 1879; it is a treatise on inequality, the cyclic nature of industrial economies and possible remedies.” (Ref: Wikipedia)

This was a good idea that could never be implemented because all the property was in private hands.

Instead of pouring taxpayer money into banks to keep them from imploding from the devalued loans on their books, why not use the money to buy the land under their homes from the property owners. The homeowner could then use the money to buy down the value of their mortgage to the value of the structure, giving them a monthly payment they could afford, thus enabling them to keep their home. The bank balance sheet problems would be relieved by these buyouts. When the economy recovers and home owners are able to afford a higher monthly payment, the government could then start charging them for the lease of the land. In this way, government revenue will increase to pay off the debts incurred to make the purchase of the land.

If this practice is continued, eventually the government will own enough revenue producing land to pay off the government debt and begin to reduce other taxes. In this way, the Henry George land based economy could be implemented over time.

The program would have a side benefit in that it would allow government to prevent or offset future recessions by reducing rents instead of increasing spending, when private spending wanes in a recession. In boom times, rents could be increased to take some steam out of asset bubbles that were developing.

The program would also limit speculation in land by banks, hedge funds, and other investors, thus slowing the development of asset bubbles and the attendant crises when they burst.

The housing and real estate markets would be stimulated because the cost of a home would only be the cost of the structure, requiring less funding on credit.

The main entities that would suffer would be banks and speculators. Now isn’t that a shame!

The Henry George economy is discussed fully in the link cited above.

The Oil Boom in North Dakota

2010-09-10T18:48:00.001-07:00

North Dakota family and friends know all this, but it might be of interest to others. As most of you know, North Dakota is the state that has been least affected by the financial crisis, and it is in no small part due to the oil boom going on there. And, the area where I grew up is right in the center of it. The first well drilled in North Dakota by Murex Corporation, a company started by two North Dakota residents who became petroleum engineers at North Dakota State University, was drilled right on the farm where I grew up. It was one of the first horizontal wells drilled in the Bakken formation, one of two major new formations being tapped by new oil drilling technology. The Tioga Tribune, the newspaper of the small town where I went to high school has published a pamphlet called, "The Oil Can Extra" that documents the history of Murex and presents other information on oil development in the area. There is a picture of the first Murex well in the document. The Fargo Forum, the newspaper of the largest city in North Dakota, has done a wider ranging project on the state oil industry called, “Running with Oil”.

If you have further interest, click on the links in the text.

What is driving the stock market these days?

2010-09-09T17:23:00.001-07:00

I’ve noticed a strong correlation between the daily changes in the Dow Jones Industrial Average (DJIA) and and the changes (against the dollar) in high yielding currencies used in the carry trade. (The carry trade is the practice of borrowing money in a low yielding currency like the US dollar or Japanese yen and investing it in a high yielding currency.)

The correlation is not true for low yielding currencies like the Japanese yen. To see the correlations visit the following links.

Australian Dollar

New Zealand Dollar

Japanese Yen

The first two are often used on the high side of the carry trade. When these currencies follow the market up it means the dollar is depreciating against these currencies, countering a portion of the dollar gains on the stocks.

The reason this is at all of interest to investors is that, if the correlation is strong, it suggests that the market is being driven largely by very large investors like big banks, hedge funds, institutions, etc, because the great mass of small investors seldom use the carry trade. It raises a further question regarding whether the coordination of these large investors is a form of market manipulation. It would be possible for large investors with real time trading and front running tools and acting a coordinated way to move the stock market and currency market up and down to continuously skim profits from investors not so equipped. A low correlation between the carry trade currency changes and the DJIA would suggest that this is not happening.

Eliminating Welfare and Developing a Mixed Economy

2010-09-05T11:53:00.001-07:00

It’s been fairly well proven that both totally state controlled or totally free market economies don’t work. Why don’t we just admit it and define what roles government and free enterprise should play in the economy?

People have lost track of what the depression era programs really were. I won’t go through all the details here because they are spelled out in the government document, Job Creation Programs of the Great Depression. But, they were carefully thought out programs that were designed not to compete with private enterprise and had control over worker behavior far beyond just the work environment. At the beginning of the depression there was no safety net to speak of so the CCC, WPA, and PWA became the safety net. When workers can’t get work in the private sector, they are willing to settle for less freedom in their lives and lower wages to make a basic living. Conversely, if private sector jobs are available that pay higher wages and give them more freedom they will gravitate toward them. This insures that the private sector will always have a pool of available workers.

What I am proposing is that welfare and unemployment compensation be replaced with permanent versions of the depression era workfare programs and others like them. These programs would be limited to paying the minimum wage and would include government supplied health care similar to Medicare and pensions for retirees similar to Social Security. They would involve closer control over people’s lives, as was the case in the depression era workfare programs. With such a safety net, regulations on business could be relaxed, and businesses that are too big to fail now because they would jeopardize the welfare of the citizenry, could be allowed to fail. The incentive to return to the private sector would always be there due to the higher wages and greater freedom.

In prior posts here I have shown how periodic failures of our economic system, manifested by recessions, depressions, and asset and debt bubbles which collapse, are due to the imbalance of wealth and income between investors and wage earners. The broad middle class creates the demand for products and services which is needed for business to create jobs. Since business and capital sit atop the economic pyramid and decide how the fruits of productivity are allocated they periodically succeed in diverting more and more of the fruits of productivity to investors and managers and less to wage earners. This happened in the late nineteenth century, again in the first half of the twentieth century, and has now happened again in the first part of the twentyfirst century. This happens because the wealth accumulation results in a takeover of government by a wealthy oligarchy. Unless wage earners rebel, there is not much they can do about it.

If a safety net of the type I propose is put in place, any attempt to short change workers, as wealth is transferred to investors and managers, will result in more people ending up on the workfare programs and higher taxes for business and people in the private sector. The workfare workers will still be earning an income to sustain demand, but the private sector will soon see a shortage of workers. They will realize that they will need to pay their workers more to get them off the workfare rolls and reduce their taxes. This will cause wages to rise again in the private sector allowing taxes to be cut, and rebalancing the income and wealth that is necessary for a healthy economy that is less subject to cyclical crises.

If you have further question about the workfare programs or the interaction of inequality and economic instability read the government document cited above and my prior posts on the subject.

Underlying Problems of the World Economy

2010-07-06T11:09:00.001-07:00

We are in a catch 22. Economies of the world need to grow themselves out of the looming deflation that is on the horizon. But, private spending is collapsing, so public spending has to take its place until the economy is turned around. But, public spending is reaching its limits, because private sources of financing are losing confidence in governments ability to meet its obligations. Normally, what would happen under such circumstances, if the problem existing in only one country, is that the country would be forced into austerity measures, all the while being propped up by loans from outside sources such as the IMF, and by devaluation of their currency to stimulate exports, thereby improving their economic outlook. But, this a worldwide crisis. All countries can’t devalue their currencies simultaneously, and where will the money come from to prop them up while they recover?

The underlying problem is that our productive resources, labor and capital are being employed unproductively in wars and economic endeavors that do not increase our standard of living. In the US we have shifted from an industrial economy that makes useful products to one that imports everything and all we do is sell things to one another. To add to this dilemma, our capital resources are being concentrated in the hands of fewer and fewer people, who hoard them rather than employ them productively. The broad middle class earning and spending power has stagnated as a result.

The solution will ultimately be forced upon us as the middle class is driven into poverty. We will either become more like Mexico or we’ll change our ways by reducing our expenditures for foreign wars and products that are of marginal utility and get back to basics. We will have to rebuild our industrial base and contract our financial base to balance capital with the need for capital and to employ our population productively. This will require a more progressive tax structure like we had in the fifties, enabling workers to share in the prosperity of the country. We can either plan for this, or go the way of Mexico, where the wealth is concentrated in the hands of a few and the population flees to other countries to make ends meet.

Leisure World

2010-06-29T19:57:00.001-07:00

Sometimes it helps to understand a concept by considering what would happen in the extreme. Suppose, for example, what would happen if technology allowed us to do all normal work without human interaction. The first objection to such an assumption would be that this is impossible. Some human interaction would be needed to monitor the automated system. But, let’s take that up later.

In a society, there are people that are employed or whose time must be devoted to work, and those who live off investments. Of course, those who live off investments must monitor their investments just as there must be people to monitor a fully automated system. But, again lets take that up later.

For the moment, the question is, who should reap the rewards of a fully automated system? Should all share equally in them, or do some deserve more than others. Should those with greater needs, such as people with larger medical expenses be allotted more than people without such needs? Should people who are talented and admired by people for their personal traits be allotted more? Should people who are already wealthy get less than people who are not? These are questions that must be answered when faced with the prospect of a fully automated system.

We can now draw parallels with what is happening in the society now, that is only partially automated. As robots have taken over many of the functions that people used to perform in the automotive industry, what has happened to the people that have been displaced? And, where have the rewards of greater automation gone. Have investors received most of the rewards, or have prices of the cars gone down so consumers can participate in the rewards. Judging by the rising inequality in the last several decades, the sustained or increased prices of automobiles, and the reduced incomes of displaced workers forced to migrate to other work, it appear investors and management have gotten the best of the deal.

Going back to our idealized automated society, obviously the people necessary to monitor the automated system must be compensated. And, investors must be compensated for the time they spend monitoring their investments. But, we have not answered any of the questions raised regarding how the rewards of automation should be shared. This is the dilemma was face in our current society and that we are not addressing. We seem content to just let the money flow to the people that are closest to the source and who control the process, namely investors and managers. Is it any wonder that wages have stagnated, capital has accumulated beyond the need for it, assets are bid up to artificially high levels, and average people are forced into debt to survive. The resulting assets and debt bubbles have burst and we are facing a collapse of whole system.

Isn’t it time to reconsider tax policy to balance the accumulation of capital with the need for it, and to address the need for a redistribution of income resulting from the rewards of automation? As we have seen, in the limit of full automation, we should all be better off, not just a few people who happen to control the process in getting to a more automated society.

A Project for the UN and WTO

2010-05-18T16:58:00.001-07:00

The Kyoto environmental accords failed and little progress has been made on world poverty. The US administration is pushing cap and trade as an alternative to Kyoto and has no defined program to reduce world poverty.

Cap and trade is a corporate program, subject to market manipulation that we’ve seen in other commodity markets, and that is pushing marginal farmers into survival mode in Brazil as corporations buy up large tracts of land for it’s carbon trade potential.

Maria Cantwell has a better idea: Cap and Dividend. It would add a carbon fee on all hydrocarbon products and rebate the collected funds to individuals to compensate them for the increased prices of petroleum products. The only problem is, it’s only a national program. American consumers would continue to buy the products at the same rate if they are compensated for the increase in price.

A better answer is an international program, where rebates would go to many people living on a dollar a day and not using any petroleum products. Such a program would fight carbon buildup while at the same time fighting poverty, a win-win for the world.

Instead of beating their heads against the wall trying to sell climate change to people who won’t get interested until it affects them, environmentalists should be working in a world forum like the UN and the WTO to sell the benefits of carbon reduction in, not only improving the environment, but reducing world poverty.

Petroleum products have a world market. Petroleum producers are multinational corporations. The world is suffering wars in the name of petroleum resources and third world countries are benefiting little from them. It’s time for an international efforts to combat climate change and world poverty in a unified program.

The Tea Party Doublethinkers

2010-05-18T09:39:00.001-07:00

Doublethink is the ability to hold two contradictory thoughts simultaneously. The credo of the Tea Party is lower taxes and smaller government. By shrinking the structure that was designed to protect them they are committing economic suicide. The business community has been successful in duping quite a large number of people into thinking that government is the problem, but it certainly hasn’t been a problem for business. They have been successful in turning the people against the government, while at the same time lobbying to capture the government for themselves.

Business promotes expenditures and taxation for the military industrial complex and for bailing out banks while condemning them for any purpose benefitting people. It has successfully perpetuated an inefficient private health care system that rations health care by ability to pay rather than by need for care. And, it is trying hard to destroy Social Security and Medicare. Yet, it has been able to convince the Tea Party that the solution is to further reduce taxes and limit the government’s power to protect the people.

What is needed is to bring government back to its original mission of promoting the general welfare, and not that of business and banking. There is a reason that taxes on the highest incomes were high and regulations were strong during the most prosperous period in the country’s history. Over the last several decades regulations have been decimated and taxes on high incomes and capital have been reduced dramatically, to the point where we are again experiencing an age of robber barons while aggregate demand atrophies and wages stagnate. Unless the people in organizations like the Tea Party realize they are working against their own interests, there is little hope of correcting the problem.

An Alternative to Unemployment Payments

2010-05-07T19:29:00.001-07:00

Fundamentally, economies thrive when everyone is engaged in productive work in the most efficient way. As disturbing forces arise to create unemployment, the most prevalent solution has been to pay unemployment benefits to workers until they can find employment. There has been no other course, since there has been no facility to employ them beyond the private sector. This is where it might pay to make a fundamental change in national policy.

The government is always engaged in funding projects to improve national infrastructure and defenses. These projects could be structured so that the pace of activities can be adjusted relatively quickly to accommodate the increase or decrease in employment needs. If a segment of the private sector is temporarily slumping, public projects could be accelerated to employ people facing layoffs in the slumping sector. Obviously, there will be mismatches in qualifications and mobility problems, but keeping people productively employed may be better than paying them to do nothing and then having to encourage them to seek other employment or forcing them off the unemployment rolls when they’ve been out of work for some time and their skills have deteriorated.

The Basic Conflict Between Balanced Budgets vs Incurring National Debt or Printing Money

2010-05-07T19:15:00.001-07:00

Putting an economy largely in the hands of a central government or unregulated private enterprise have been shown to have different, but comparably troublesome, problems. Central government control destroys initiative and retards the accumulation of private capital that is necessary for growth. Unregulated private enterprise concentrates wealth in the hands of a few and destroys opportunity for the broad mass of citizens. Both government and private enterprise are authoritarian in nature and take measures to advantage themselves, if checks and balances or regulations are not in place to control them.

Historically, management of economies has become complicated, particularly by the introduction of fiat currencies, making national economies issuing fiat currencies very different from local and personal economies which don’t have that power. The latter must operate under budgets which balance incomes with expenditures, while the former can simply borrow or print money with only devaluation of its currency as the controlling factor. Unless this difference is recognized, there is always a battle between forces that want to treat national economics like local or personal economics and the forces that want to use the national power to borrow or print money to counter instability. Over the years, the forces that want to balance income and expenditures have prevailed except in times of great crisis.

This is the crux of the problem we face. We have two choices, either demand austerity measures or tax increases in times of recession, in a attempt to rebalance budgets, or use the federal government’s power to borrow or print money to prop up the slumping economy. The first hurdle we must get over is that these are real alternatives. One or the other is not the only course. And, depending on the circumstances, one or the other may be the more advantageous. We must not let preconceptions or past policies prejudice one alternative or the other.

If it can be shown that national budgets have become wasteful or bloated, programs have become obsolete, or lobbying pressures have caused expenditures to become excessive, austerity programs can be very useful. If taxes have become excessive or unbalanced among different segments of society, changes may be required. But if the country faces a crisis of instability due to natural sources or accumulated risks, austerity measures or tax policy changes may not be the best answer. When faced with reduced demand, government stimulation of demand to replace lost private demand may be a better alternative.

If the national government borrows to increase demand as a result of a reduction in private demand, it is subject to its ability to borrow and at what rate. If rates become sufficiently high it may become advantageous to simply print money and pay the price in a devalued currency. These are real alternatives that must be weighed. If a country is disadvantaged in its trade relations with the rest of the world because of the value of its currency it may be more advantageous to print money. If the rest of the world is awash with capital and borrowing can be done at a low rate it may be advantageous to borrow.

Until we can agree as a nation that we have these alternatives we will be unable to reach the best solution when confronted with recession or other forms of instability.

CompuVision is the Future

2010-04-30T19:36:00.001-07:00

The migration of television channels like MSNBC to the internet illustrates why television will ultimately give way to CompuVision, the fusion of television and the internet. If you compare the interactive format from MSNBC on the internet above to the the linear television format, the latter pales by comparison. In the internet format you pick the shows you want see, then pick the segments that interest you, and finally click an icon to watch the segment in full screen format. You are interrupted by a commercial only when you are switching to another segment and to display ads only when you are selecting shows and segments, not when you're engrossed in watching the segment. It makes so much more sense than watching a whole show, or multiple shows, only a small portion of which you have an interest.

There will come a time when the display market will stand alone and the CompuVision unit you buy will be a combination of the current set top box/DVR and a full blown computer with a wireless keyboard, mouse, and a remote control that will look more like an iPod with touch screen input. This unit will interface with the appropriate modem/router on the input side and the large screen display unit on the output side. Peripherals such as scanners and printers will be wireless and communicate with the CompuVision unit through the router. If sufficiently fast wireless communication can be developed, the display unit could also have built-in wireless. This would completely eliminate cables. Media like DVDs could be eliminated completely with all media being streamed or downloaded over the internet. I hope I'm still around when this happens.

How to see a stock market bubble

2010-04-12T10:28:00.001-07:00

This chart will tell you how to detect a bubble in the stock market. It's available at: http://www.bullandbearwise.com/SPEarningsChart.asp
As you see, the real S & P P/E went sky high during the housing bubble. Now it's down to where it was on September 30, 2007. It's still not down to historic norms, so the current bubble is still not completely deflated. If it starts going up again, it's time to get out of the market.
This chart is not be be confused with the annualized P/E chart for the S & P. That one uses old data over the previous year to come up with the P/E so it is late on predicting both the start and end of a bubble.

Time for a transaction tax on derivative trades

2010-03-16T08:56:00.001-07:00

A one percent transaction tax on derivatives trade would pay for the entire US budget. If congress wasn't being paid off by these same big banks there would be no federal budget deficit.

JPMorgan, Bank of America Corp., Goldman Sachs, Morgan Stanley and Citigroup Inc. executed 96 percent of the $293 trillion in over-the-counter derivatives trades made by the top 25 U.S. bank-holding companies and their customers as of Sept. 30, according to the Office of the Comptroller of the Currency.

A Note About Leverage and Credit Default Swaps

2010-03-13T09:33:00.001-08:00

Leverage is only possible if there are funds available at low interest rates, compared to what money managers think they can get somewhere else, usually involving some high risk speculation scheme. This is so only because there is too much capital available compared to the need for capital. If there were productive uses for the funds at reasonable rates why would holders of the funds being willing to lend them out at low rates to money managers who want to lever up some speculative scheme?

Our financial problems today are largely a result of money managers using leverage to increase yield at great risk, and then buying phony insurance in the form of credit default swaps (CDS) to guarantee their risky investments. Unlike real insurance, CDS don't require any reserves to pay off if the investments go bad. Also, they don't require that the purchaser own the asset being insured. So an outfit like Goldman Sachs can buy a CDS on some collateralized asset they don't own, and then proceed to drive the price of that asset down so that they can collect on the CDS.

Talk about Ponzi schemes, this one doesn't even require convincing investors to give you their money.

How Wealth and Income Inequality Causes Unstable Credit and Asset Price Bubbles

2010-02-23T19:06:00.001-08:00

Income and wealth inequality is the root cause of financial instability. Capital, and the need for capital must be balanced for an economy to function stably.

If the accumulation of capital exceeds the need for capital to fund growth, the taxes on wealth and capital gains must be increased, and that on consumption and consumer income decreased .

If consumer demand, and the attendant capital needs, outpace capital accumulation, the reverse is required. Taxes then should be shifted from capital gains to consumption and consumer income.

Over the past several decades capital accumulation has outpaced the demand for capital, largely due to reductions in top bracket tax rates and stagnation of middle class incomes. The discussion that follows shows what happens when this occurs.

Enterprises need capital to expand and take advantage of new opportunities. This allows economies to grow to accommodate increases in population and the attendant need for new jobs.

If too little capital is accumulated, growth will be curtailed. If the effect is severe enough, sufficient growth will not be achieved to accommodate population increases and the need for additional jobs, and the standard of living will fall.

If too much capital is accumulated, rates of return on capital drop. As rates of return drop, capitalists seek ways to improve them through the use of leverage or through the use of techniques to increase the demand for credit.

If leverage is used , risk increases, necessitating even larger rates of return. This leads to a potentially unstable situation. So there is a limit to the amount of leverage that can be used.

As the limits of leverage are reached, investment banks and hedge funds will look for ways to stimulate demand for credit. This can be done by relaxing the standards for issuing credit, and compensating by using techniques to hide risk.

By collateralizing debt and issuing insurance on debt capitalists can be made to feel more comfortable with less secure investments. Debt issued with relaxed credit standards can be mixed with more secure debt making it harder for rating agencies to correctly assess risks. If regulation does not keep up with these measures, or decreases, the value of the collateralized assets and insurance instruments will be jeopardized.

Excess capital can also result in additional risky speculation. When returns on productive investments are low and approaching inflation levels, capitalists will be willing to take larger risks in short term speculation on valuable assets and commodities, caused prices to rise. In turn, the rise in prices creates an upward momentum in asset prices that attracts even more speculation. Such price bubbles tend to be self sustaining as more and more capitalists are willing to take advantage of the upward momentum in prices, until eventually that trend cannot be sustained and the bubbles burst.

All of these measures are driven by the need to increase returns on capital, when there is just too much capital for the real investment needs of the country. This is the situation that has developed over the last few decades largely because returns have been going more and more to capitalists while workers wages have stagnated. With stagnating wages, the demand for goods and services has not kept up with the accumulation of capital.

The stagnation of wages has been caused largely by shrinkage in the manufacturing sector, causing consumers to seek returns in the financial sector and to tap available credit to sustain consumption. This is evidenced by the excessive growth of the financial sector. At the same time, high income and capital gains tax rates have been reduced, accelerating the income and wealth gap between capitalists and middle class consumers.

Unless taxes are shifted to wealth and capital gains from consumption and consumer incomes, this increasing spread in income and wealth will continue to cause instability and the kind of financial crises we are now experiencing.

The Free Market Myth

2010-02-18T08:44:00.001-08:00

You hear a lot of noise from conservatives about how the free market is the be all and end all of all things good. This is far from the case when government is in bed with private industry. Here are a few cases where the free market isn't free.

1) Cell Phone Service
Every day in almost every newspaper in the country there are full page ads from cell phone companies offering essentially the same type of service with the exception that the instrument that you can use is in the exclusive domain of one company. Cell phone users are paying for all this advertising and hardware exclusivity. The price of cell phone service is outrageous compared to internet phone service. Had the government invested in the infrastructure for high speed internet service in cities and along interstate highways, mobile telephone service would have been nearly free everywhere, as it is on the internet now.

2) Cable TV
Here again we have multiple companies charging high prices for nearly identical services, where you have little choice in what is available for purchase. Services are bundled for the convenience of the supplier and investor, instead of the consumer. If you're interested in only HBO you can't get it without subscribing to a whole raft of channels you don't want. HBO now has HBO Go which allows streaming of content on the internet, but it's not available unless you pay around $100 a month for HBO and a bunch of junk you don't need from a cable company.

3) Commercial Television
We are still locked into an outdated system where programming is interrupted by commercials. Now commercial channels don't even allow you to watch the program without pasting animated advertising at the bottom of the screen during the program. If you prefer to watch the same program uninterrupted and are willing to pay for it, it's not available.

Where is the free market that is supposed to be the best way to satisfy consumer needs? It's a myth. What is sold is determined by what is best for the companies selling it. This happens because politicians are owned by corporations. Ala carte cable TV services aren't available because cable companies write the laws that control cable TV. And, cell phone companies write the laws that control mobile phone service. And, commercial TV companies write the laws for commercial TV.

Recently there have been articles in the news about building high speed internet infrastructure. Cities are looking at 100 Mbps, Google at 1000 Mbps. This is ten to one hundred times the fastest service available now. It will enable phone, data, and TV in HD over the internet. It is the future, but will it come to pass. It is unlikely, because it would deny commercial TV, cable TV and cell phone companies the profits they now make due to laws written for them.

What we have now is not capitalism. It's state capitalism. They used to call it fascism. And, people seem to be the proverbial frog in the heating water, accepting more and more intrusion into the decisions they should be making as consumers.

Signs of a Declining Empire

2009-12-02T09:49:00.001-08:00

Sometimes it appears that the country is stuck in a quagmire from which it cannot remove itself. We are a divided country along partisan lines. The Republican Party is controlled by the right wing, moderates having almost completely disappeared. The Democratic Party is controlled by the coalition developed during the Clinton administration which is in bed with commercial and banking interests, not unlike the GOP of old. Neither party can muster a controlling majority and candidates who would bring about real change cannot get elected. Obama is the classic example of a candidate that can get elected. He is charismatic, a good orator, and continuously triangulates in an attempt to please everyone. Unfortunately, that means perpetuating the stasis with which we are confronted. This stasis has led to several disheartening consequences.

1) We have become a nation of consumers, not producers, dependent on foreign countries for most of our consumer goods. Trade decisions are heavily influenced by international corporations that profit from favorable trade agreements. The economy is heavily influenced by a Federal Reserve Bank that does the bidding of Wall Street at the expense of average people. Trickle down is the modus operandi, and promoting the general welfare is on the back burner. Laws to limit speculation and prevent excesses are undone. Speculative bubbles are left to burst with catastrophic consequences.

2) We no longer can pass any real reform legislation, due to our inability to overturn the filibuster rule in the Senate. With the country nearly equally divided, with few prospects of sixty percent majority, legislation is watered down to where it is just nibbling at the margins of real reform. Major decisions boil down to catering to a few Senators from small states who are riding the political fence.

3) There is no will in either party to confront the dangers of the military industrial complex. The Republican Party never met a war it didn’t like and the Democrats are scared to death of being labeled weak on defense. We have supported a client state, Israel, in the Middle East that has resulted in our not being able to be an unbiased arbiter of thorny issues there.

4) We have left the prosecuting of military adventures around the world to a small group of volunteer service people, largely from the poorer segment of society, while the children of the rich and powerful are safe at home to pursue their personal ambitions. This has led to a lack of appreciation of the horrors of war and the terrible after effects on the participants in combat.

5) Foreign policy, heavily affected by multiple foreign wars and threats of war, has been been delegated to the military command structure to a large extent. What the generals want they get, so as not to anger the Republican right wing and make the Democrats appear weak. The money for war and the number and length of wars is increasing dramatically. Congress seems incapable of limiting war spending of any kind, while scrutinizing every penny spent to promote the general welfare.

Unfortunately, there are few signs that anything will change for the better in the future. We seem resigned to letting the system drift downward, like lemmings going over a cliff. There is no great outrage toward the intractability of our problems. The old don’t seem to be concerned about the state of affairs they are leaving their children and grandchildren. And, the young seem content to wile away their time in the fantasy of video games and reality television, rather than in preparing themselves to tackle the problems ahead of them. It’s all very disheartening.

Our UnRepresentive Democracy

2009-06-21T15:54:00.000-07:00

Some aspects of our constitution have constricted us in adapting to changing circumstances over time. Other western countries with parliamentary systems have been able to adopt programs such as universal health care, while we have been unable to do so because our system allows a minority to block major legislation. This is primarily due to how our Senate operates.

Consider the chart below which shows how many people are represented by each senator from the several states. The average number of constituents represented by a senator, that is, the total population less Washington DC, divided by 100, is about 3 million people. In contrast, Wyoming senators each represent only 266,334 people while California senators represent 18,378,333 people each.

To compound the problem people in overrepresented states are more Republican. From the House representation which is nearly one person, one vote, there are 59.1% Democrats and 40.9% Republicans in the country. The overrepresented small states have 46% Republican senators vs. 54% Democrats, while the underrepresented large states have only 35.3% Republicans and 64.7% Democrats.

To compound the problem even further it only requires 40 senators to stop key legislation due to the filibuster rule. This enables lobbyists to concentrate their time and money on 40 people to block any legislation. And, if a Republican president is in office there is no hope of overriding a veto. This phenomena enabled Bush to get almost anything he wanted while the Republicans had a slim majority in congress, whereas the Democratic legislation can be easily blocked even with Democratic majorities in both houses. Since small conservative states are overrepresented in the Senate, it is nearly impossible to get a majority necessary to prevent legislation from being blocked.

A recent poll showed that the country supports the Obama health care program by a sizeable majority.

From Reuters:

“A Times/CBS poll found 85 percent of respondents wanted major healthcare reforms and most would be willing to pay higher taxes to ensure everyone had health insurance. An estimated 46 million Americans currently have no coverage. Seventy-two percent of those questioned said they backed a government-administered insurance plan similar to Medicare for those under 65 that would compete for customers with the private sector. Twenty percent said they were opposed.”

Yet the latter program has been taken off the table by a small state senator from Montana, Max Baucus because he said it’s a non-starter in the Senate.

A similar situation exists in the effort to reregulate banks. The powerful banking lobby can easily round up 40 senators to block the effort, in spite of the fact that the majority of Americans want it done.

A few words in support of our government

2009-03-10T19:28:00.000-07:00

Our government has made the decision that there will be no more Lehman's. That's probably a decision forced upon them by the specter of a complete collapse of the financial system if a big bank like Citi were to go under. Furthermore, our government has concluded that it can't convince Congress to provide the funds to bail out the banks without some help from private sources. But, private funds sit on the sidelines, too afraid to invest in the toxic waste.

The government has given the banks bailouts at little or no interest to beef up their balance sheets. And, since the government has driven down interest rates to near zero, the banks are also getting deposits from private sources at near zero rates. The government has noticed noticed that the banks have developed a strong revenue stream from these sources of funds, due to the huge spreads between the cost of funds and the rates they can charge on new, healthy loans. Both Warren Buffet and John Hempton have provided evidence for this.

These revenue streams will enable the banks to write down their toxic loans against income, if they withhold dividends. The government can apply pressure to ensure this gets done. As the loans are written down they can be sold off to private buyers, who, in turn, can renegotiate the terms with the distressed borrowers and make a reasonable profit on the deal.

But private buyers are wary that the downside risk is too great to be buying up the toxic loans, even at a discount. To reduce the downside risk and bring buyers into the market, the government is willing put a floor under the losses on prospective buyers of problem loans and are willing to make low interest loans to the buyers to leverage the investment and increase their return. This all is part of the Geithner plan.

So the question arises, why should the government do this? The government is essentially using taxpayer resources to bail out the system? True, but if the system will collapse if it's not done, what is the alternative?

There are a couple remaining question to be answered. First, where is all this bailout money coming from. And, second, can the taxpayers be made whole, or at least partially compensated. To answer the first question, we must ask what private investors are doing with their money if they are not spending it to stimulate the economy or investing in, or lending to, businesses, including banks. Mostly, they are buying treasuries at little or no interest. So, if the investors won't spend or invest, and are giving the money to the government, all the government has to do is spend and invest it for them, which is what they are doing by bailing the banks and funding the stimulus. What better use could the government put this money toward than saving the country from the calamity that could arise if the system crashed?

Now, is there a way to make the taxpayers whole, or at least partially compensate them? If the government really wants to compensate the taxpayers who did not contribute to the problem they first have to identify who these taxpayers are, as opposed to the ones that contributed to the problem. This shouldn't be that hard. If we look at who profited from the bubbles, it was clearly the investor class, particularly high income investors and speculators, and the financial and insurance sectors that were so busy profiting that they overlooked the fact that what they were doing was putting the whole country in jeopardy. Some investors have already suffered from losses on their investments, but others have still prospered more than they suffered.

Obama has already taken steps to try to correct the problem. He has proposed raises taxes on the high income investor class, and taxing profits from investments at higher rates than currently are in effect. This is not soaking the rich. It's just taxing them to pay for the trouble they've caused with their hedge funds and derivative investments that have nearly driven the country into a second depression. This is one way of partially compensating low income people who have not profited from the bubbles over the last couple decades, who have seen their paychecks stagnate, and now are losing their jobs. They have suffered enough. And, their children and grandchildren don't need to be saddled with debt that more properly belongs to those who have profited from the growth in the financial sector over the last several decades.

Further measures may need to be taken. A financial transactions tax may need to be implemented after the crisis to make taxpayers whole. The whole financial and insurance industry may need to be restructured to prevent the development of businesses that are to big to fail. Laws to reign in greed and irrational exuberance seem not to have worked, so it may be time for the government to take a more active role in the financial and insurance industries which have caused this crisis. When finance grows from 19% of GDP to 30% in a couple decades it saps the talent from other industries that actually produce goods and services that are necessary to the economy. It's time to reign in these industries to a more reasonable size relative to the rest of the economy.

How the government is bailing out banks at your expense

2009-02-26T16:44:00.000-08:00

Banks have made bad loans and are leveraged to the hilt so investors will no longer lend them money or invest in them. The fair thing to do when banks are in this condition would be to take them over and reorganize them to put the losses they have accrued in the hands of the shareholders and creditors where they belong. But, the banks have tied themselves in a Gordian knot by insuring loans with phony insurance called credit default swaps. So the government is afraid that reoganizing them could result in a cascade of bank failures that could jeopardize the whole financial system. So, instead, it has chosen to flood the financial system with free money from taxpayers by lowering interest rates to near zero and lending money to every bank that has a problem.

With rates low, banks can get nearly free money from depositors and they can borrow from the government without limit, as long as the congress is willing to appropriate the funds. These funds are used to make new loans at very attractive spreads. These interest earnings have gone way up over the last several months. The government looks at this and says, Hey! These banks are really making money. All that's needed is for us to keep pouring money into the system and keep interest rates low until they get well. As the income flows in, banks can improve their balance sheets and gradually write off their bad debts instead of paying dividends. What the government doesn't seem to care about is that banks are able to do this because the government has driven deposit rates down to near zero and is running up debt at the expense of taxpayers. In this way the same people who caused the problem are benefiting from the government solution.

Since the government probably can't supply enough money for the whole bailout, because taxpayers won't allow congress to appropriate the necessary funds, the government has devised a clever way to get private investors to participate in the bailout. As banks write down their bad loans, they can sell them off to private investors, who in turn can buy them at a price which allows them to renegotiate the loans and make a nice profit. Some private hedge funds are already doing this. But most are still sitting on the sidelines, spooked by the possibility that they will get burned by the bad loans. To sweeten the deal enough to get private investors cash into the game, government has decided to lend these private investors money to leverage the deal, thus increasing their returns. And, on top of that, it will guarantee the loans from downside risk, another gift from the taxpayers to the capitalists.

An interesting point illustrated here is that it's not necessary to be a recipient of bailout funds to profit from bailout deluge. If banks don't have too many bad investments they can use the windfall profits afforded them by the government dictated low deposit rates to get well and claim they did it without a government bailout. But, this is hardly the case, and I'm sure they're not going to volunteer to help pay off the national debt the government has run up to afford them the windfall profits.

It's all one big oligarchy. Once the taxpayers have paid a big price to buy time for the banks to work off their bad investments, the people at the Fed and Treasury can go back to the banks where they used to work and get fat salaries and bonuses for saving the banks with taxpayer money. And, we and our descendants will be left to pay off the federal debt they have run up.

What will the stimulus bill accomplish?

2009-02-14T14:35:00.000-08:00

The financial crisis does not yield easily to stimulus because it's primary cause is an overhang of debt built up over several decades. How this occurred is explained in a previous post on this blog, My Short Explanation of the Financial Crisis. Consumers are no longer spending on discretionary purchases and businesses are not investing because demand is declining. As the government pumps money into the system to replace that previously supplied by consumers and businesses, only that which is given to consumers that are just getting by will be spent to sustain demand. Consumers that are meeting their basic needs will use the money to pay off debt or save it. Businesses that are burdened with debt will use it to pay off debt, which may be due to bad investing or a result of the crisis. Those that are not will pay it out in dividends or bonuses, since opportunities for expansion are limited due to reduced demand for their products. The primary useful effect of the stimulus will be to keep workers in productive jobs rather than just pay them to be unproductive. In this sense it is not really a stimulus program, but a program to reduce the severity of the consequences of the crisis and shorten the recovery time, as the debt overhang is worked off. To not have any government spending could worsen the consequences and possibly lead to a deflationary spiral that could lead to a depression.

The key to how the stimulus should be used relates to who should be helped and who should not. Banks and investors that invested unwisely should suffer the losses. Right now this segment is sitting on the sidelines with their money in treasuries making little or nothing. They are not investing, because demand is dying and investing would be unproductive. But, they have reaped large rewards over the last several decades through leveraging, which caused the crisis, and should now be willing to now take their losses. Reducing capital gains and dividend taxes, especially retroactively, would just be a windfall for banks and other large investors that have reaped the gains, but now want to socialize the losses. Income tax rebates for wealthy investors will not stimulate the economy. They will be used to pay down debt from leveraging bad investments. Consumers are already paying the consequences for their spending euphoria over the last several decades. They are not being bailed out. And they will continue to suffer the consequences, for as long as the recovery takes.

So, is the stimulus package configured right? To the extent that tax cuts are going to investors who made bad decisions, it's not. To the extent that the cuts are going to people just getting by, it is stimulative. There appears to be an argument over specific spending projects in the package and how quickly the money is spent. Since the primary effect of the program will not be to stimulate the economy, but to reduce the severity of the consequences while debt is being worked off, any programs that keep people employed productively are worthwhile. If the money is spent so quickly that it becomes inefficient and wasteful, it will be counterproductive. If is spent so slowly that people are not employed productively, it will be inefficient, cause more pain, and lengthen the recovery period. Since it will take considerable time to work off the debt, the most important consideration is to keep the spending at a pace that keeps people employed productively without waste or undue hardship.

My Short Explanation of the Financial Crisis

2008-11-24T12:02:00.000-08:00

Over the last several decades the finance industry has grown to be the largest contributor to GDP. Yet it's difficult to discern what they have been producing, other than bubbles and crises. In the process they have internationalized capitalism. During the same time corporations and the people who own and run them have prospered handsomely while the average workers situation has deteriorated.

This has resulted in huge capital accumulation around the world, way more that can be productively put to use funding real opportunities. With the help of the Fed and the government, providing easy money and reduced regulation, asset values continued to rise, seemingly in perpetuity. This was an opportune situation for the application of leverage to magnify profits. Profits were rolling in at unforeseen rates. With too much capital, and to few places to apply it, banks found it necessary to fund poorer and poorer investments, lest their huge profits be truncated. But, poorer investments necessarily implied higher risk so a method had to be found to hide risk. Into the breach jumped the investment banks, rating agencies, and insurance companies. Securitizing debt obligations was the answer. Pool the risky assets, slice and dice them into tranches of various levels of risk and sell them to all those investors looking for a place to put their unused capital. But, how to rate such assets, no one knew. Rating companies, also wallowing in huge profits and fearing loss of them, threw up their hands. They had no models to do it. So what to do? Rate them highly and continue to make huge profits or rate them realistically and let their competitors reap the huge profits. The decision was easy.

But, buyers of the new assets were asking questions. How risky were they, really. They found it hard to believe that slicing and dicing bad assets could end up with a highly rated asset. Into the breach jumped the wiz kids at the investment banks and insurance companies once again. Guarantee them! Write some insurance guaranteeing the asset. Viola! Credit default swaps. Not only were these magic instruments not covered by insurance regulations, but they could be traded on their own, opening up more opportunities for profit. The investors bought the swaps to guarantee the overrated assets and the profit bonanza continued on.

With all these new assets and guarantees all that was needed was more risky assets to finance. Ah, alas the government had sanctioned expanding home ownership, the new ownership society. Just get rid of all the rules for qualifying home buyers, the problem would be solved and the profits would continue to roll in. No one dared question the infinite wisdom of the finance industry. After all, the industry had soaked up most of the talent from Ivy League schools in the last several decades. And the real estate and construction industries were more than willing to accommodate the new bonanza.

But, ooops! The payments came due, the ARMs (Adjustable rate mortgages) were no longer hugging home buyers, they were strangling them. And securitizing debt had been expanded to auto loans, credit card debt and almost any other kind of debt. The jig was up. Time to pay the piper. The asset value climb was over. Time to get real. The banks found themselves having to come up with additional reserves to cover the falling value of the assets on their books. And they had to pay off the leverage loans. And their investments in swaps were tanking. The couldn't refinance their commercial paper. What would they do? Other banks wouldn't lend to them. After all, they were having their own problems.

Time to play the trump card. Who's running Treasury, one of our own, Henry Paulson, he'll save us. Sure enough, he seems to be doing just that, using the well worn Bush technique of scaring the hell out of Congress to get them to write a blank check, as was done in the Iraq war. Alas, they fell for it again, and here we are, once again, kneeling at the feet of the money changers that couldn't find anywhere to invest their heaps of cash skimmed off the top of every transaction that makes up that holy of holies, the GDP.

The Underlying Problems of the Financial Crisis

2008-10-15T11:43:00.000-07:00

This financial crisis is not caused by a shortage of capital. The world is awash in capital. Why else would capitalists be making bad investments? When all the good investments are funded the only ones left are the bad ones, or using the money to speculate in financial markets. Now these banks and hedge funds with all the money are pulling their capital out of productive uses and putting it in government securities at little or no interest because they are afraid they will lose it. In short, they are hoarding, instead of investing. The government giving these same banks more money will not fix the problem. Why wouldn't the banks just take the cash and pay it out in dividends and executive bonuses, buy more government bonds, or use it to de-leverage bad investments? The most direct way for the government to solve the crisis would be to take the money they're getting and invest it in productive companies that need the cash to operate or expand, or divert it to infrastructure projects and research that employ people who will spend the money they earn, thus creating demand. To give the money to people who have demonstrated that they won't invest it in productive enterprises is rewarding them for bad behavior. When the private financial system fails, it's an opportunity to show that the federal system works, not a time to be weak kneed and just throw good money after bad and send the bill to the taxpayers of the future.

The genesis of this whole problem is the world wide financial pyramid that allows corporations to divert most of their profits to executives and stockholders, while squeezing labor costs to the bone. They spend huge sums lobbying for special treatment and tax loopholes. This is the whole reason that corporations exist. Over the last several decades wages have stagnated while capital has been accumulating. People have even been encouraged to borrow against what few assets they have to spend more on products and services, allowing corporations to divert even more to executives and stockholders. Why should they do otherwise? Only the government has the power to balance the creation of capital against the welfare of the general public, through regulation and taxes. Call it class warfare, or whatever you want. That's what happening. There is no need for government to pay people to do nothing. Our infrastructure is falling apart, research on new technolgies is suffering, and demand is falling because consumers have exhausted their credit, prices for goods and services continue to rise, while paychecks stagnate. The government needs to play a positive role in countering the excess accumulation of capital at the expense of the standard of living of average citizens.

International trade has exacerbated the problem. Having goods made offshore, where labor is cheaper makes for higher profits and greater opportunity for diverting more to capital, less to labor. Profits of offshore enterprises mount and what do they do with these profits? They invest them in US government securities, fund US consumer debt, or bid up the price of assets around the world, creating the bubbles we've seen. Petroleum exporting countries pile up huge cash reserves looking for a place to make more money. The answer is to put this excess capital in the hands of consumers that will spend it instead of hoard it. This can only be done through progressive taxation, direct government investment in enterprises that produce useful goods, or government funding of infrastructure or long term projects for which there are long gains. Corporations will only invest for the short term. Their stock is valued on current or short term profits, not long term success. That's why they show little interest in future technologies and keep building gas guzzlers until oil prices skyrocket. The conservative distrust of government has been a primary reason why we are in this fix, since government is the only solution to correcting it. If this financial crisis doesn't demonstrate this, I don't know what will.

Capitalists vs. Businessmen

2008-10-04T18:40:00.000-07:00

I think it's time to clarify the distinction between capitalists and businessmen. We sometimes consider them one and the same. Capital is life blood of business. If businesses want to innovate or expand, capital is almost always needed beyond that which the people running the business can provide. So they turn to capitalists to provide it.

Capital is accumulated when individuals or businesses earn more than they need for day to day operations or consumption. So, they look for a place to put it where they can access it later, or where they can earn a return on it by lending it to someone else. Banks used to be businesses that fulfilled this role. They take deposits from people or businesses, pay them a return for the use of their money, and lend it out to others who can use it to innovate, expand or acquire infrastructure like homes, land, buildings, transportation, machinery, etc. Such assets have value to those who acquire them and value to the society in improving our standard of living.

So what is a capitalist? Anyone who accumulates wealth beyond their needs and lends it to others. This can take the form of bank deposits, stock or bond purchases, or personal loans. In this sense, a capitalist can be an individual, a small business, or a mega-conglomerate.

So what is businessman? Anyone who starts or acquires an enterprise which provides goods or services to others for a profit.

So what is the distinction? If a capitalist operates a bank, brokerage, or other business strictly as a service to others for a profit, they are a businessman. But, if what the capitalist is doing no longer becomes a service to others but an impediment to needs of others to innovate, expand, or acquire infrastructure to facilitate their operations, they are no longer a businessman, but only a pure capitalist.

The distinction is easily seen by considering what is happening in our financial markets now. Our financial system, when run efficiently, provides the necessary capital to allow the smooth functioning and funding of our productive enterprises. The stock market and banks provide the capital for companies like GE and Home Depot to innovate or expand their operations, and to provide the necessary cash flow for day to day operations. This is often called liquidity. To maintain liquidity, banks have to provide reserves to allow withdrawals by depositors, and they must take care to assess risk properly and limit leverage so they don't get caught in a bind if asset values start to fluctuate wildly. They must take care not to get trapped in viscous cycles by assuming conditions will continue to progress as they have in the past. In short, they must be always vigilant that they are there to provide a valued service and not to take advantage of their position to enrich themselves at the expense of the economy they are serving.

Deviating from these principles is what caused the current economic crisis. Businessmen in the finance industry abandoned their role as businessmen and became pure capitalists. Seeing their competition use leverage and derivatives to increase profits at the expense of risk, they had a choice to make, continue being conservative and providing a business service for a reasonable profit, or jump on the band wagon and do what their competitors were doing to make better returns. This happened at all levels of the economy. Even though the average Joe or Jane didn't come up with any fancy derivatives to increase their return, they were more than willing to use leverage and credit, engage in speculative transactions like flipping assets for a profit, and invest in stocks for no other reason than that they were going up, with little consideration of the value of the underlying investment. They added to their stock of credit cards and borrowed on their homes to increase consumption, paying little attention to what would happen when they had to pay off these debts. Banks stopped being businessman and reverted to pure capitalism, sending out credit cards to people without due consideration of their ability to pay. Instead they just assumed a percentage were going to go bad. As is now apparent, this kind of behavior is what has led to the many bubbles that have formed, and that have now caused our credit markets to freeze up.

So what are bubbles? A bubble forms when asset prices are bid up due to the expectation that a current trend will continue, ignoring the underlying asset value. It's essentially a switch from fundamental investing to speculation. Individuals can get by with a whole lot of speculation for a while, then go broke and start over. But, when the whole financial industry engages in the process we get what we have now, a credit crises, where everyone loses confidence in the people and businesses they do business with in a normally functioning market environment.

What has happened over several decades is the finance industry has syphoned off a sizeable portion of the GDP to enrich those in the industry at the expense of productive businesses who need their capital and services to grow and innovate. We are at a point now where capitalists would rather put their money in treasuries at near zero rates of return, than invest in businesses which need the capital to function and grow. During the housing bubble buildup capitalists, large and small, made abnormal profits by encouraging people to buy houses with little or nothing down, low or zero interest rates initially, and other incentives to unsophisted buyers. The real estate industry and the housing industry went along because it was very profitable. But, anyone could have seen that at some point homes would become too expensive to sustain the rate of sales and the bubble would deflate, which it did. That in itself wouldn't have caused the crisis we are now in, if large financial institutions had not shifted from being businesmen to pure capitalists, chasing profits without regard to risk.

Now we find ourselves in a situation where the capitalists money is sitting on the sidelines in treasury instruments earning little or no return, while businesses and individuals are starved for the lifeblood they need to function efficiently. We should realize that every dollar that goes into a fat salary of an executive is a dollar that could be used by some innovator or businessman to improve the standard of living for all. Every dollar that is tied up in a bank not being used, or is being paid to a congressman to write a loophole for a capitalist is not being used to improve our standard of living. Every dollar that goes to buying the sixth or seventh home, the yacht or private jet for someone who successfully gamed the financial system is not going to improve the standard of living for all in our society. The redistribution that is taking place is not from the rich to the poor, it's from all of us to people in the finance sytem who are gaming the system by being pure opportunistic capitalists instead of business people who provide capital to our productive businesses for innovation and growth.

So how does the government fit into all this? First, is important to recognize, as we have seen historically, that the business environment is not stable without some form of regulation. This can take many forms. Non-government agencies like the Fed are charged with containing inflation and maintaining stable employment and growth by adjusting the money supply and providing credit as needed. But, they are not charged with containing speculation or regulating the business environment, particularly preventing bubbles from developing. They don't have the tools. And government oversight is hindered by the campaign financing and lobbying activity that influences government officials. The revolving door of individuals moving from industry to goverment and back also contributes to a lack of objectivity in regulating business. This must change if we are to secure anything resembling long term stability and an efficient system.

When we have a crisis like the one we have now where the government is receiving funds from capitalists for essentially safe keeping at little or no interest, they must use this money to provide relief to the people and businesses that would normally be receiving it to innovate or expand their businesses or to individuals that can use it to get out of a bind and continue productive employment and purchasing. Instead, they are using it to relieve the pressure on a non-productive finance industry that was instrumental in causing the problem in the first place. This money should go to directly to aid the people and businesses that are productive, to improve infrastructure, and to increase demand for useful goods and services in a declining economy.

The bottom line is that we must come up with incentives for people, businesses and government to keep its eye on how money passing through the economy is being used. Where it is not being put to productive use, government regulations and tax policy should be adjusted to see that it is. The government is charged with promoting the general welfare and this a fundamental role of government.

Progressive Taxation and the Myth of Redistribution

2008-09-09T17:04:00.000-07:00

The problem with conservatives using of the cliche' "redistribution" in response to any question on progressive taxation, is that it assumes that the income going to corporations and wealthy people is earned in the first place. Corporations are chartered by the government and given special consideration, avoiding some forms of liability, to accumulate capital for investment. Corporate charters do not address any aspect of fairness in determining how corporate income will be distributed. Corporations sole reason for existence is to maximize return to shareholders and minimize the cost of the factors of production, including labor, whereas the Constitution charges government with promoting the general welfare. So there is a conflict in the goals of these two institutions. Wealthy people and corporate executives are much more dependent on income from capital than from wages. So benefits accruing to corporations also tend to accrue more to the wealthy than to average wage earners.

In assessing what income is actually earned, all factors must be considered, not just who receives income under current law. Clearly corporations and their largely wealthy benefactors would not prosper to the extent they do if they didn't operate in a country with an established system of laws and infrastructure bequeathed to them by past generations. So it is not clear that just because someone earns an income that it should be attributed only to their own efforts. Some credit must be given to the system they operate under and the contributions of others in generating their income. This is particularly true of corporate income, where executives get to decide where the income goes, without much interference from outside sources. Under conditions of labor surplus this results in most of the income being diverted to owners of capital. Under labor shortages, more would be claimed by labor. But, under our current system, where illegal immigration and outsourcing operates largely unfettered, labor is at a major disadvantage in maintaining it's interest without government assistance.

Aggravating this conflict of interest is the fact that wealthy people and corporations have more influence on government through lobbying and campaign financing, whereas average wage earners have a much reduced voice in how laws are made. This allows the wealthy to create tax loopholes which favor their interests at the expense of the average wage earner.

The solution to this conflict could come from two different directions. First, corporate law could be changed to charge corporations with some measure of promoting the welfare of their workers, not only the welfare of their shareholders and executives. The other way, which is currently used, is progressive taxation. It will be difficult to make major changes in this arrangement, so, at least for now, we must be content with using progressive taxation to promote the general welfare. So the next time you hear a conservative claim income redistribution in response to a question of on progressive taxation, point out to them that it is only a means to compensate for the unfair claims on income, due to the advantages given to corporations and the wealthy by our corporate charters and lobbying laws.

Advice to My Grandchildren

2008-09-07T01:17:00.000-07:00

After living in Sun City Summerlin, Nevada and witnessing world events over the past decade, and the long campaigns over the last year, I've come to the conclusion that the best advice I can give to my grandchildren is to settle in an area with as much diversity as possible. That includes diversity in race, culture, education, lifestyle, income, wealth, and environment.

It seems to me that most problems are created when a majority of people share the same outlook. They come to believe that because they are in the majority their way of thinking and doing things must be the right way, and that people who don't fit the mold must be wrong headed or inferior in some way.

This seems to be true whether it's a country, a small town, a university, a corporation, a club, a religion, or any other organization where like minded people come together. Only if no group predominates do people actually come to think for themselves rather than follow convention to avoid being ostracized, or get in a rut simply because it's the course of least resistance.

I think I first came to realize this by living in a community where people come from all parts of the country. But, even here the people share a common characteristic, age, which seems to be a basis for many of their thoughts and actions. This is mitigated by having close association with family of widely varying age. Living in a city which is a broad mix of people of different backgrounds and wealth was another broadening experience. And, probably, living alone has been an influence on my thinking, not having someone who shares most of my values to reinforce the rightness of my thinking. All of these things have given me a much more open attitude towards life and people.

Seeing how a government controlled by one political party operated was another eye opener. Witnessing how countries dominated by one religion operated was another factor. Observing how the West, the dominant countries of the world over the last century, faced the challenge of new world powers like China, India and Russia was another factor.

And, finally, seeing how the country became polarized to the point of ignoring reality and important issues, to seek belonging to political tribes bound mainly by like identity, was the final factor in my coming to this conclusion. The extreme reactions to a candidate of black/white heritage and to two different women making their first foray into national politics illustrated the point.

It is my hope, that as time moves on, we will come to realize that the right way of thinking and doing things can only be discovered by taking into account the wide variety of ways people live their lives across the world. Only then, can we draw conclusions about the best way to live our lives.

The Reality and Consequences of Asymmetric Warfare

2006-10-28T12:06:00.000-07:00

Much has been written about the metaphor and the reality of “The War on Terror”. Unfortunately, not many lessons have been learned.

The usual short definition of terror is the intentional killing of innocents. It is quite clear that when someone blows themselves up in a disco and takes innocents with them, an act of terror has be committed. It is less clear when innocents are killed in what is usually called an act of war. The occupation of a country usually results in some form of insurgency if the citizens of that country think an injustice has been done. The acts of the insurgents usually take the form of clandestine attacks from cover or suicide bombings of various forms. Such acts of insurgency are usually countered by a violent response from the occupying force, which almost always has modern weapons at its disposal. Since it is difficult to find insurgents because they attack and then hide, usually among the civilian population, the counterattack usually involves the bombing or destruction of a suspected hideout or other location where the suspects are thought to be. This minimizes the exposure of the occupying force to counterattack. In the process, innocents can and usually are killed or injured. This form of attack by the occupying force is usually justified on the basis of combating the initial attack by the insurgents and the innocent life lost is called “collateral damage”.

The consequences of such actions and reactions are not often perceived in their totality. The occupying force considers justice to be done, in an eye for an eye form of revenge. But, the insurgents view it as a further injustice, in the cause they are fighting in the first instance, the occupation. And the innocent victims view it as a fresh injustice, since they had harmed no one up to that point, and it is usually not their decision where insurgents decide to hide. Such a reaction often moves the innocents and their sympathizers into the camp of the insurgents. In this sense, the effects of the attack and counterattack are counter productive to both parties. The occupying force clamps down harden on the insurgents and the insurgents are motivated to strike out once again. The result is an escalation of violence.

One aspect of such encounters that is not often perceived is that to the insurgents the counterattack is just as much an act of terror and the original incident. It kills innocents when it could have been avoided, except for the revenge sought by the occupying force. So the metaphor, “war on terror” becomes the mantra of both parties, solving nothing. Nothing has been done to examine the grievances of the two parties and seek a solution to the injustices. It becomes simple a matter of who can persist the longest, and in some cases it has been decades.

This is not war in the conventional sense where well equipped enemies battle for territory. It is more akin to crime, like the clan battles of the Hatfields and McCoys, with the exception that one side holds most of the cards, so the other side has to move to less and less conventional methods, which usually results in an escalation of brutality. Add to this, religion or ethnic differences and you have what usually amounts to an insoluble problem.

The effects of such conflicts are different for the occupying, well equipped force and the inadequately equipped insurgency. Simple means of war such as rifles, grenade launchers, and explosives are relatively cheap and available. Modern means such as helicopters, cruise missiles, drones, and the electronics to operate them is very expensive. Add to this the difference in the value placed on individual lives by the warring parties and there is no obvious winner. The modern force spends itself into bankruptcy or destroys the will of the affluent society backing them up while the insurgency, having little to live for anyway (occupation saps the will to succeed) and a nearly endless supply of expendable lives can fight on for decades.

At some point, someone should begin to realize that there are better things to do in life and decide that talking, trading, and backing off is a better alternative. What stands in the way is usually religious zeal to prove that your way is the right way and the other guy is either evil or deranged.

Confusionocracy

2006-10-03T17:01:00.000-07:00

There is much confusion these days about democracy, theocracy, philosophy, ideology, politics, and basic human rights. Our current administration has the noble goal of spreading democracy around the world, but considering the state of the world today, what could result is just as likely to be an authoritarian theocracy as a liberal pluralistic democracy like ours, that respects human rights. Given a choice, a deeply religious majority is more likely to vote for a government based on the tenets of their religion than one where interest groups vie for control and share power in a questionably stable way.

Our country was settled by people fleeing countries with a state religion, and persecuting those of other religions. At the time, almost all people were religious, having no scientific basis for explaining naturally occurring phenomena other than religion. Hence, it’s no surprise that this country was founded by people who had at least a rudimentary belief in a higher power that might be controlling things. But, it wasn’t long before people of the same religion were in control of the town meeting hall in Salem and burning witches, illustrating that once a single religion predominates over others, and controls the government, irrational behavior is likely to follow. If that example isn’t convincing enough, we only have to look to the Taliban in Afghanistan and the threat we are facing from extremists of the Islamic faith around the world.

Fortunately, when our country was founded, there were a few cooler heads that prevailed in spite of their religious inclinations. In secret, they came up with a constitution that called for freedom of religion, but restricted government interference in religion, a pretty wise decision by a bunch of not so old aristocratic, land owning white men. They enshrined these famous words in a declaration of independence, “that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, and that among these are Life Liberty, and the Pursuit of Happiness.” It makes no difference who the Creator was, most of us would all agree that, as individuals, we are entitled to certain inalienable rights which should not be infringed by government or any other voice of the majority. Today we call these human rights, and have enshrined them in our bill of rights and enumerated them in documents agreed to by almost all members of the United Nations.

We are now faced with a resurgence of deeply dedicated religious people. We call them fundamentalists because they believe and adhere to the fundamental teachings of their religion, as given in ancient texts which they consider infallible. These people value their religious beliefs higher than their own lives. When this condition exists, rational behavior based on evidence cannot be expected. There is no a priori respect for inalienable human rights as enshrined in our founding documents.

So we have some decisions to take regarding how we conduct our own affairs, and how we confront others who may threaten our way of life. We cannot confuse religiosity with ideology or political persuasion. We cannot confuse “democracy”, rule by the majority, with a government limited in its powers to curtail human rights. Can we rely on polyarchy, the rule by competing interest groups, to preserve human rights and prevent domination by religious majorities? I’m not very confident we can.

In the end, we may have to accept some measure of authoritarianism to protect human rights from infringement by religious majorities, as is now current policy in Turkey. After centuries of rule by caliphates and sultanates Mustafa Kemal Atatürk enshrined a Security Council of the military to ensure that a secular regime would always be in control, in spite of the fact that Turkey is overwhelming an Islamic country, and once was the seat of power of the Islamic Sultans. This structure is being challenged today by Islamic fundamentalists.

As a goal for our country, aren’t we better off championing human rights and structures to secure them, over democracy. It is impossible to be secure if the ruling authority is guided by irrational precepts of age old dogma, rather than a well founded faith in the goodness of human nature and the inalienable rights of individuals, which has served us well for over 200 years. To this end, we must not only be conscious of how other countries are ruled, but we must take great care to ensure that our own government doesn’t come under similar pressures to what Turkey now faces.

Capitalism vs. Capitalism

2006-10-03T11:59:00.002-07:00

We are seeing today a conflict between modern unfettered capitalism and the polite capitalism of the bazaar that developed in the high middle ages and continued into twentieth century America.

In ancient times the only real capitalism is what we call here polite capitalism, typified by bazaars and open markets where farmers and craftsmen traded the products of their labor with others who specialized in different activities. Although the bargaining was as hard as any time in history, this form of capitalism was considered a respectable way of increasing the welfare of all, and underhanded dealings, trickery, and speculation were viewed as undermining the process.

Capitalism changed in the last couple centuries when markets expanded from the direct exchange of goods and services in bazaars, to unfettered modern capitalism, with the introduction of central banking, corporations, trusts, holding companies, stock markets, and speculation. The scale of projects during the industrial revolution and subsequent development of assembly line manufacturing and railroads necessitated such changes to a great extent. But, along with such concentrated control of capital came practices which were inconsistent with the polite capitalism conducted by individuals in earlier times. A class of workers devoted to the mechanics of financial transactions, removed from the real reasons for investing developed. They soon learned that more profit was to be made from churning assets, developing sophisticated derivatives to mitigate risk, and increasing the volume of financial exchanges, than could be made from providing investment capital to industrialists and entrepaneurs. In this environment, speculation rose to equal importance to investing, and clever use of deceptive techniques to make money from handling money became respectable.

But, polite capitalism never really disappeared. Even in advanced western countries, polite capitalism still exists, although it is facing a great challenge. Drive through any small town in America and you will notice that the gasoline prices are nearly the same everywhere. You might call it collusion, but it’s really not. It is more a respect for neighbors that know each other well, and all of which must make a living in trying times. They would rather compete on providing the best service, rather than strictly on the price of the commodities they sell.

So along comes Wal-Mart, imported consumer goods, cheap foreign labor, outsourcing, cutthroat competition and all the other products of unfettered capitalism. The prices of goods and services drop, but home grown businesses soon are forced to close and polite capitalism begins to disappear. It’s neighbor against neighbor, chasing the lowest price, since the wages drop even quicker than the price of goods and services and small town America is on hard times.

The result of the transition from polite capitalism to unfettered capitalism is often a loss of ethical business practices and a shift to impersonal economic interactions, along with a transfer of wealth to those most skilled in financial matters rather than in providing exceptional craftsmanship. The mass produced products tend to be more standardized, but variety and quality is more erratic. Handcrafted products become prohibitively expensive for the average consumer.

We may want to consider whether we are losing or winning in transition from polite capitalism to unfettered capitalism.

National Newspaper Week

2006-10-01T17:39:00.000-07:00

Please, members of the press, help us open a discussion of our fragmenting moral framework

This week is National Newspaper Week. The public depends on newspapers and other media to keep informed of events and assess their consequences. This not only requires an accurate record of events but also the background surrounding the events and a moral and ethical framework through which the events are viewed.

In recent year the national framework of conventional wisdom, assumptions and taboos has deviated considerably from the framework used by the rest of the world. I ask the press to take the opportunity of National Newspaper Week to examine why this has occurred, and open a discussion of why our world view is diverging from the rest of the world, whether we are on the right track or the wrong one, and how the differing views can be reconciled. To illustrate how things are changing I offer a couple examples.

Religious influence on government

USA Today reports that the Congress, at President Bush’s urging, has just passed legislation that would bar detainees from challenging their detention in courts, a change that goes against a couple hundred years of American history. This has been discussed in the press from most angles, legal, ethical and moral. The one angle not discussed has been religious influence on such decisions. Why the change now? Is it related to the ethnic and religious background of the detainees? Have we divided the world into people that are evil and those that are good? If so, is this because of our religious beliefs? This is not a subject that should be taboo and above discussion if it is changing long standing principles that have served us well.

The morality of warfare

There was a time when emperors and kings lead their troops into battle. There was a time when stealth and surprise attacks were dishonorable. Obviously we’ve come a long way from those times. But even recent world wars were fought with a near parity of forces, comparably equipped, at least at the start. There was some honor in such wars, even though circumstances deteriorated and masses of civilians became targets, ostensibly to avoid even larger casualties, or justified on the basis of the support of the general population for the acts of the military.

This is not the situation we face today. We have countries equipped with sophisticated weapons of massive destructive power and extreme accuracy battling resistance movements not tied to any government and without any modern weapons other than rifles and grenade launchers. This is the epitome of asymmetric warfare. When an aggrieved group of people finds they have no means to challenge their occupation or displacement by an enemy with a modern army and the support of superpowers what are they to do but surrender or use unconventional methods like terror to achieve what they view as justice? In our frame of reference, we have defined such terror as despicable and the worst form of brutality, even though those engaging in it may consider it so important that they are willing to give up their life in the cause, and even though respected countries have used it to win independence.

On the other hand, we sanction the use of smart bombs of deadly accuracy and devastating explosive power operated from safe quarters miles away to attack domestic facilities that may contain many civilians, to assassinate a single cruel dictator with which we have a conflict. This is the way we went after Saddam at the start of the Iraq war and killed innocent civilians in a restaurant in Iraq. We don’t call this terror. We call this collateral damage. It cannot be taboo to challenge this form of warfare. Is this form of warfare honorable, or have we completely dismissed the concept of honorable warfare?

The weakening of rules against torture is another way we have voluntary relinquished the high ground in our claim to be honorable and humane people. Why are we doing this? There may be unique circumstances that occur once or twice in a lifetime that require breaking the rules to prevent massive loss of innocent life. But, why is this something that we want to write into law? Is this rational? Or are we driven by emotions or religious zeal to repeat the brutalities of the past that we have tried for centuries to rise above?

Please, members of the press, help us open this discussion

The examples I have given here a just a couple ways we seem to have been regressing as a society into the brutal ways of the past. The rest of the civilized world is not with us on this. They have a different frame of reference. Are we to follow the ways of those we consider evil, or are we to lead by maintaining our honor and humanity. The press can help us here by breaking old taboos against the discussion of religion and in challenging a frame of reference which is no longer in concert with world opinion. We should have learned by now that the enemy that currently threatens us is operating out of deep religious conviction and zeal, and as a result is behaving irrationally. Do we want to join them in their irrational ways or do we want to examine our own premises and challenge our changing worldview of what is honorable and moral?

The American Plutocracy

2006-08-18T16:40:00.001-07:00

The United States is now divided roughly at the median income. Those above it consider themselves “winners”. Their income comes from their job(s), their 401k and other investment portfolios, and the increasing value of their home equity. They are from good families that value education and have connections to the best schools and job sources. Most of them don’t give a hoot about the lower half of the income spectrum whom they consider “losers”, a bunch of uneducated ne’r-do-wells who will not succeed under any circumstances, so government welfare for them is a waste of economic resources. They allow the political donor class to call the shots in government and believe that what is good for corporations and the political donor class is good for the country. They hope to become part of that class at some point in the future.

“Free trade” allows corporations to prosper, and as long as the “winners” can hire competent management of their portfolios and keep trading up in their homes their success will follow that of the corporations and the political donor class. Allowing unlimited immigration and unlimited outsourcing will eventually drive the wages of the “losers” to subsistence levels, allowing more of the wealth of the nation to go to the “winners”.

The US is a plutocracy where the corporations run the nation, supported by a slim majority of the population who profit from the status quo, think they do, or aspire to at some point in the future. As long as these “winners” constitute a majority of people who vote, nothing will be done to change the status quo. Only if the “losers” either achieve a majority and start voting, or come close to revolution, will the situation change.

Promoting religion and religious values in politics is a way of keeping some of the “loser” class voting for the values of the “winner” class. If they consider the “winners” better people with “good religious values” and the “losers” people of low values and parasitic qualities they will continue to vote the “winners” interests even though they may constitute part of the “loser” class economically.

Bush’s proposed legislation and campaign tactics demonstrate his dedication to this philosophy. His foreign policy and global trade policy indicate that he would like to see it spread around the world.

The Futility of Modern Warfare

2006-07-06T13:37:00.000-07:00

The Israeli-Palestinian conflict and the Iraq war have raised questions about the efficacy of using conventional methods of warfare to occupy territory and counter insurgencies. Dedicated enemies that are willing to die for a cause apparently don’t fear shock and awe as much as the deliverers envision. And, the cost of conventional wars is becoming astronomical. It seems possible that a dedicated group, using stealth and the cover of local populations can bleed the resources of major powers using conventional forces until they either are seriously impacted by the disparity in economics of the two types of warfare, or their will to continue is defeated.

In Iraq, we have fielded a half million troops over a period of four year to sustain a force of 120,000, spent a half trillion dollars, lost 2,500 lives, 15,000 injured, 8,000 seriously and 20,000 suffering from post traumatic stress disorder. And with the help of over 200,000 Iraq troops we have not been able to achieve a decisive victory over a few thousand insurgents. I think we have demonstrated that force alone will not achieve our ends.

In Israel, a country we have subsidizing to the tune of two to four billion dollars a year for several decades, and which has devoted a large portion of its resources to defense, has not been able to control an insurgency of ill equipped, impoverished Palestinians with no end in sight. If there is a cause which is supported by donors from without, it is quite clear that an insurgency can be sustained perpetually.

Modern western nations have attempted to stigmatize the means used by insurgents to wage insurgencies by giving them the label, terror, because the blood and gore is visibly apparent, and civilians are casualties. Modern warfare has become more like a video arcade game, where missiles are fired from aircraft or bunkers far away to completely destroy targets or people with no evidence of the blood and gore attendant to it, and where the loss of civilian life is sanitized by calling it collateral damage. Such propaganda has been somewhat successful in convincing the populations of modern countries that their actions are just, while those of the insurgents are not. But, it has not been successful in convincing the insurgents and their sympathizers of this. In reality, war is war, the violent and cruel destruction of human and material resources as a substitute for communication and common understanding that should be limited to the defense of homelands from dictators with diabolical intentions and megalomaniac visions. Its use as a tool to spread democracy or to successfully occupy territory over a long period appears to be counterproductive and a net drain on the resources of those who employ it.

The conclusion to be reached is that the tools of war and the reasons to go to war need to be reevaluated to suit our times. Strong countries can be more successful in defending what they have developed by assisting weak countries in their development. Rogue nations are more likely to decay and fail when left alone to fend for themselves, rather than when they are threatened, blockaded or sanctioned. Any external threat tends to bring a nation together to defend its sovereignty. When left alone to decay, an insurrection of a disaffected population is more likely, and as we have illustrated here military might is only a temporary solution to controlling a population that becomes more and more dedicated to a cause it perceives as just.

The Politics of Fear

2006-07-06T12:40:00.000-07:00

After decades of ignoring terrorist acts against our foreign installations and ignoring border and internal security we are attacked by Islamists using our own planes. What does this tell us? Does it say we have been caught with our pants down and need to pay attention to our internal and external security, or does it tell us we are faced with a formidable new enemy that is going develop sophisticated weapons, invade our country, and subjugate our people? Do we beef up our intelligence services, improve our cooperation with foreign allies, and rationally consider what caused the act and how to fight this new enemy, or do we embark on a quasi-religious campaign to demonize countries we think irresponsible and mount a conventional war of gigantic proportions to demonstrate our strength and ability to inflict massive damage on our enemies?

Unfortunately, in both cases, we did the latter, defining an axis of evil in Iraq, Iran, and North Korea, mounting a shock and awe campaign of standoff warfare and then invading the first country in the axis of evil, Iraq. What signal does this send to the other two countries? Are they more likely to think we are just settling old scores with an old enemy or is this the first in a series of invasions of the three countries in the axis of evil? It would seem a rational response of the other two countries would be to fear an invasion by the world’s greatest superpower, particularly if the superpower continues to avoid direct diplomacy where real attitudes can be discerned, and continues to make threats of dire consequences if their instructions are not followed to the letter.

How can these countries keep from feeling boxed in and threatened if the world’s greatest superpower goes around the world rounding up support for sanctions or other aggressive actions against them? Are they most likely to give up their sovereignty and submit, or are they more likely to want to develop a nuclear retaliatory capacity to defend themselves, when they see that other nuclear armed countries are not as threatened by nuclear armed superpowers?

We continue on the path of force and fear, squeezing and squeezing the cornered rats, because we can, because we want to show them who is boss, and more realistically because of our own paranoid fear that they are a dire threat to us. Isn’t this a time to step back and ask ourselves what the real threats are? Certainly they have more to fear from us than we have to fear from them. Wouldn’t some serious diplomacy, one on one, go a long way toward diffusing the situation? Are we so prideful that we can’t explain to them the axis of evil thing was a mistake and that we are really not interested in invading them? Or is this just the politics of fear used by this administration to rally the Rambos to the polls in the next election?

The Phony War

2006-07-01T12:13:00.001-07:00

The so-called War on Terror is a phony war. Are we to believe that we are threatened by a disorganized band of disaffected radicals led by an exiled Arab hiding out in the hinterlands of Afghanistan or Pakistan?

After decades of ignoring border security and the status of foreigners entering the country legally but overstaying their visas, and meddling in the affairs of Islamic countries around the world, we are surprised that we are attacked using our own aircraft as weapons? Correcting this lapse of security is obviously is not a job for highly trained pilots, cruise missiles, tanks and a marine landing. It’s a job for the intelligence services, law enforcement, and maybe a few Special Forces, along with cooperation with other nations in confronting the threat. It’s also a signal to get off our duff and do something about border and internal security. We have our own domestic wackos, what’s a few more? We live in a dangerous world and we need to be vigilant.

But, the administration needed a war to accomplish its real goals, the plans for which were already on the drawing board. Old scores with Saddam Hussein must be settled, a beachhead in the Middle East must be established, and the waning powers of the executive branch must be shored up. There is nothing like a war to put the fear of God into the populace, legitimize the expansion of executive powers, and expose the weakness and sheep-like tendencies of Congress, who worry more about the next election than the welfare of the country.

We need look no further than Washington DC to find the axis of evil. The combo of chicken hawk neocons and frustrated cold warriors eager to kick ass and take names to control the world is all that is needed. These plotters claimed for themselves the sole authority to define what is good and what is evil, what tools of war are legitimate, what aggressive actions need to be taken preemptively, without threat to the country, and the means to carry them out. They abandoned the principles of humanity the country has held for generations by eschewing limitations on torture, using renditions and secret hideouts for interrogation, and sidestepping international conventions and cautions to accomplish their goals.

What do weak countries and their people do when confronted with the threats and actions of a superpower that controls a major portion of the worlds economic infrastructure and has the military might to crush any confrontation on the field of battle? How do people without sophisticated weapons confront a superpower or a country like Israel that is backed up by a superpower? Do they meet them on the field of battle with their rocks and rifles to be crushed by exploding missiles fired from planes or bunkers miles away? What recourse do they have besides secret forms of insurgency like sniping, exploding devices, or kidnapping? When these are the only weapons available and are effective why are they considered illegitimate?

In such conflicts between the weak and the strong, the strong not only exercise military superiority. They demand to right to define the terms and language of engagement. The tactics used by the opposition are stigmatized as terror, while the destruction of civilians along with military targets by antiseptic standoff warfare is deemed collateral damage. The use of disproportionate force is justified as the right of self defense.

History has shown that the only defense against incursions into weak countries by strong military powers is insurgency. Just as the colonialists were denounced by the British for using guerilla tactics instead of meeting in ranks on the field of battle in the Revolutionary War the insurgents of today are condemned for using guerilla tactics to defend their territory. If weak powers are to preserve their way of life against the demands and incursions of strong military powers they must use all effective means at their disposal to defend themselves. Striking at the homeland of strong military powers is a legitimate means of defense. Particularly, in the case of democratic countries, where the civilian population must sanction the actions of their government, attacks against the civilian population have a measure of legitimacy.

We must come to realize that most of our problems with Islamic groups stem from two sources: the dangers of religion in creating extremist tendencies in downtrodden people who see no hope in the future, and our meddling in their affairs and supporting other countries that do. They have a right to decide how they want to be governed. And they must have the courage to overthrow dictators in the same way they are willing to repel an occupying power. We must restrict our actions to defense of our own country from external and internal threats, and diplomatic initiatives to influence the affairs of other countries, unless more drastic action is sanctioned by a legitimate majority of the world’s nations. We must uphold the values that made our country great and that are embodied in the declaration of independence and the constitution. We must maintain our system of checks and balances. We must keep our press free of governmental pressure. We must provide for the least among us who can’t provide for themselves. We must sustain a strong and vibrant middle class. We must treat people humanely and compassionately. We must lead be example, not by force. If we do otherwise we are on the road to the trash heap of history.

Globalism

2006-06-15T01:40:00.000-07:00

The theory behind Globalism is that more goods and services can be produced if their production occurs where there is a competitive advantage, resulting in greater wealth than would otherwise occur without it. This conclusion involves two fallacies. One is that greater wealth may not be the best yardstick of success. The other is that there is no global government to regulate Globalism. The latter makes it more of a contest of survival of the fittest, than a road to prosperity for all.

I probably won’t live to find out, but it will be interesting to see if it results in a reasonable standard of living for all people, or an opportunity for a smaller and smaller number of people to corner the market on more and more of the worlds resources while more and more people work for survival wages. It is not in the interest of whoever controls the dice to let people starve because they are not productive in that state, so it is likely that most of the world’s population will at least have a subsistence living and some measure of security. That’s not too bad considering how most of the world lives right now. And it may be all that’s needed to be happy.

What’s Happening to Our Democracy?

2006-06-14T16:57:00.001-07:00

Our two party system seems now to be wholly owned by the corporations and the political donor class. Unfortunately, the movers and shakers in the media are also members of this upper crust, and seem to be taking their cues more from the politicians than from the people. It’s amazing to see legislation that gets passed in direct opposition to the will of the majority of the people, as indicated by the polls.

We have lost the integrity of our own borders, not due to bad laws, but due to lack of enforcement of the laws, since both parties seem to favor flooding the country with immigrants. And we seem to be more concerned about what is happening in other countries than what is happening in our own. If we don’t like what’s happening, we just roll out our military might and throw our weight around a little to get them to come around.

The Republicans have always been largely a party of business and the wealthy, allowing a little trickle down to pacify the peons. Their ideal seems to outsourcing labor, and importing cheap goods. For those jobs that can’t be outsourced, they rely on immigrant labor to drive down wages. They’ve now added the religious to their fold by electing born again Christians to solidify their hold on political power, although they, themselves, seem to worship at the church of GDP and totally free markets. They seem to have never met a victim of circumstances, or at least acknowledged them.

The Democrats, on the other hand, never met a victim they didn’t love. They used to be the party of American middle and lower classes. Unions also used to represent these people. But, now the Democrats and the Unions seem to have turned their attention to international victims, almost exclusively, leaving the American middle and lower classes to fend for themselves without a party to call their own. After all, with no border control and both parties ignoring immigration law, the demographics are rapidly shifting to unskilled, uneducated foreign immigrants, the better to inflate their voter rolls and union coffers.

The ruling class seems more interested in making money by churning money in the financial markets than actually making things and getting them to consumers. Why make things when you can get them cheaper from sweat shops in foreign countries? As long as the stock market is booming all is well for this group. Why should they be concerned when it’s not their jobs that are disappearing? If you control the boardrooms of corporate America you can always see to it that the profits go for big executive salaries and bonuses. With the principal stockholders being pension and insurance fund managers you don’t have to be worried about anyone raising a stink when you hire each others executives to sit on your corporate board. All the ruling class has to do is insure that it, and its cadre of hangers on and wannabees, is at least fifty percent of the electorate. Then it will be possible to drive down the wages of the lower half to subsistence levels, and feather their own nest. By using social issues like religion, human rights, and environmentalism and perceived foreign threats, it’s pretty easy to hoodwink the electorate for an extended period of time, particularly if they’re dominated by uneducated foreign immigrants.

Let’s face it, the system is broken and not about to change anytime soon. The ruling class has it figured out to their benefit, so why make waves. The same thing has been going on in Latin America for decades. In some countries there it’s become so bad that populist socialists have become all the rage once again. Is that what it will take to wake up America? Are we a country of all the people, or not?

Nuclear Waste Disposal

2006-03-18T16:09:00.000-08:00

Billions of dollars have been spent on preparing Yucca Mountain in Nevada for disposal of nuclear waste. Billions more will be spent on making it safe for storage because it’s a mountain and it’s above the water table. Mountains are formed by seismic upheavals and future seismic activity could cause degradation which could imperil the underlying water table over the thousands of years required for the radioactive material to decay.

It seems rather obvious that that there could be safer solutions to this problem. We currently pump billions of barrels of oil out of the ground to supply our energy needs. Nuclear power will be needed in ever greater quantities as the supply of oil is reduced. What replaces the oil that we pump from thousands of feet below the earth’s surface; usually water, or as is being researched now in North Dakota and Canada, carbon dioxide. These are pumped into the oil fields at their edges to displace the oil, increasing the field’s total yield. Once the field is pumped out these filler materials remain forever, thousands of feet below ground, never to bother anyone or anything again.

This raises the question of whether or not it would be feasible to use evacuated oil reservoirs to safely store nuclear wastes. There oil fields a couple miles underground in seismically inactivate areas of the Great Plains in western North Dakota and eastern Montana and Wyoming in a region called the Williston Basin. This also happens to be an area which is losing population as farms become larger, and which, because of its remoteness and inclement weather, is not very suitable for the development of other industries. Once these fields become depleted, economic conditions is this area will become even more dire.

If methods can be developed to grind nuclear waste into a fine particulate it could be mixed and heavily diluted with water pumped from the depleted fields and reinserted into them, using the existing water insertion points on the edge of the field and existing wells in the center as the water source. Because of the depth of the storage area and low seismic activity in the region, there should much less concern for safety, compared to the currently proposed Yucca Mountain site. There is a certain irony in using a site that was a previous energy source as a solution to waste problems associated with a new energy source. It’s sort of a two for one benefit that seems like a natural solution.

American Stasis

2006-02-25T12:24:00.001-08:00

We have reached the point in the United States where institutions and government apparatus are frozen from making any major changes which would correct the many problems facing us. The two-party system has put the power in the hands of wealthy benefactors who finance the campaigns of politicians, allowing them to become wealthy in office, and providing them with high paying jobs as lobbyists once they retire from office. Lawmakers seek office not to do the people’s business but to advance their own interests at the expense of the people by gerrymandering districts and writing laws that sustain the current system of patronage.

The result of this stasis is the increasing control of the country by international corporations and an investor class who see the opportunity to solidify their control of the population and world commerce through the financing of government. Borders become less secure, both for investment and the transit of labor and goods across them. The obsession with growth, laissez faire markets and consumption to increase wealth overwhelms the constitutional goals of promoting the general welfare and providing a level playing field for citizens to prosper. The growth, in turn, promotes investment from abroad and borrowing at home which puts the country ever deeper into debt to foreign countries. The urge to consume drives an ever increasing dependence on low cost foreign products and energy sources, financed by loans from the same foreign countries reaping the profits from the sale of their products. As the cycle deepens wealth is concentrated more and more in the hands of a few who have the advantage of being born into wealth or comfortable circumstances that facilitate their prosperity or rise to it.

The stasis arises primarily from the necessity to satisfy existing corporate and group interests at the expense of the general interest. Any proposals for significant change are met with an onslaught of lobbying from all the existing interests that are affected. Whether it is health care reform, pension reform, tax reform, or reform to update the provisions of our two hundred year old constitution that doesn’t address many modern day problems, the result is the same. Only small incremental changes are possible and are usually followed by more small incremental changes in the opposite direction to redress lost advantages of interest groups.

Where will it all lead? Chances are that sooner or later, the chickens will come home to roost. The inability to address problems and the ever increasing debt will inevitably lead to worse conditions for the average American and a loss of their buying power. As American buying power diminishes and foreign buying power increases international corporations will no longer see a need to be headquartered in the United States or produce here. At that point we will become just another previously prosperous country among many.

How can we avoid this fate? The only hope seems to be a change in values from valuing growth and consumption to valuing national unity and a concern for our fellow Americans. This will necessarily mean a lower standard of living for the wealthy, a higher standard of living for the middle and lower classes, and probably a somewhat lower standard of living over all. But, it will make for less anxiety about our future and that of our children and grandchildren and an increase in general satisfaction and happiness at the expense of fewer material goods.

A Kinder, Gentler Nation

2006-02-03T19:18:00.000-08:00

Over the past couple hundred years our nation has become a divided, complicated place to live. The hodge-podge of tax laws, government subsidies, citizens jockeying for advantage, lobbyists buying influence, and congress critters feathering their nest and solidifying their power gives one that hopeless feeling that the country is on the decline and we no longer are in charge of our own destiny. It’s time to simplify the mess, at least to some degree. I offer here just a few suggestions that, if adopted together would make our lives a little easier, although they don’t come close to solving all our problems, national and international. They mainly address our economic morass, where we see the middle class disappearing as some us prosper and others sink deeper into despair and consternation over how we’re going to make ends meet and leave our offspring a better world. So I give you a few steps we can take to simplify and reduce the size of government and allow all citizens more participation in our prosperity.

1) Replace the minimum wage with a living wage. (Don’t stop reading now. You’ll see how this works later.)

2) Eliminate all tax deductions, exemptions, and credits and adopt a uniform progressive set of personal income tax rates on all forms of income above the living wage. Combine all current taxes on income (e. g. income, Social Security, Medicare, and disability taxes) into this one single tax. (A one page tax return for only those making more than the living wage.)

3) Eliminate the corporate income tax, corporate sponsored healthcare, and corporate retirement plans. (See my proposal for health care below.) This will make corporations more competitive both at home and abroad. Corporations don’t pay any net taxes. They just pass them on in the cost of their products. Corporate taxation is one of the main reasons corporate lobbying exists, to create a favorable tax and regulatory environment.

4) Pay retirees and the disabled a living wage consistent with their circumstances. Since many retirees own their own homes and have reduced transportation, education, and childcare needs their living wage will be lower than for working people.

5) Handle unemployment by making the able-bodied unemployed available to work on existing time-insensitive infrastructure and research projects at the living wage. As unemployment waxes and wanes, adjust completion dates of these projects to accommodate the available unemployed workforce. Since these jobs will always be limited to the living wage, they will represent a ready supply of labor available for private enterprise as long as they can pay them the living wage or more.

These proposals, if implemented together, will essentially eliminate all current forms of government welfare and reduce the size of the tax collection bureaucracy dramatically. Government activities will be limited to administering the program, regulatory functions, national defense, and financing major infrastructure and research projects. The increased cost of labor to corporations will be offset by the elimination of corporate taxes, pensions, and healthcare.

We are paying for all these things now in a way that encourages lobbying, cheating, favoritism, and political infighting. Our corporations are saddled with social responsibilities that increase the price of their products and keep them from making decisions on the basis of good business practice. Why not have a system that encourages work, makes workers feel secure that their basic needs are met, and which frees business to increase output and productivity?

A reasonable way to handle healthcare.

Implement at national health insurance system that is basically Medicare with health savings accounts. Health savings accounts are a good idea because they put the buying power for primary care in the hands of health care users, encouraging them to make wise medical decisions, and they make insurance affordable because it is used only to cover catastrophic care. The only problem with the existing proposals is funding the HSAs for lower income people.

There would be no increase in federal bureaucracy for such a program because the Medicare system is already in place. With everyone having the same coverage it would be easier to structure the program to live within available revenue and eliminate waste for heroic care, without political infighting from competing interests. Special risks could be put out to bid with private insurance companies.

Purchasing power is thus divided between a single payer for the catastrophic insurance portion, and users, for the primary care portion. This gives real leverage in reducing health care costs. If people are allowed to keep the unused portion of their HSAs for their retirement, they will be induced to keep their primary care costs down by not running to the doctor every time they get a runny nose.

Such a program necessarily involves redistribution of costs to higher income and healthier people. The nature of all insurance programs is the redistribution of costs from those who suffer losses to those who don’t.

Greed is a Horse Waiting to be Harnessed

2006-01-24T10:10:00.000-08:00

Gordon Gekko in Wall Street was right. Greed is good, but only if put to work for the benefit of all. Being one of the deadly sins, we all are infected with it so some degree. It’s that desire to acquire more and more, even after we have enough. It’s what drives the free market, the desire to get an edge and beat the competition. It is what generates wealth and improves our standard of living, or at least that of some of us. But, should the goal of a strong society be just to produce more and more?

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.” So says the declaration of independence.

“We the People of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.” So says the preamble to the constitution.

I don’t find any instructions to maximize the GDP or promote the welfare of the most well endowed. Insuring the domestic tranquility seems to imply making everyone satisfied with their situation relative to others. Since we all aspire to better our lot, it is natural that we will admire those who have achieved more over those who haven’t. Hence we look approvingly at those above us on the economic ladder while looking down on those below us, or not noticing them.

I would argue that we will all be better off if we recognize the compromise between the greed in our nature which spurs our productivity and the better angels of our nature which want our fellow man, particularly the less well endowed to share in the prosperity of our country. To this end, the least we can do is remove the burdens placed on those who find it hard to sustain a life in which they can be most productive. Instead of setting our safety net at the level of poverty, where people are disillusioned and using all their faculties just to survive, why not demand that our government remove the burden of taxation on those with no net income after insuring their health, providing food and shelter and the other requirements to hold a job. In other words, a living wage instead of a poverty wage, before the tax burden bites them.

It is patently obvious to any objective observer that our government is financed and driven by money. Those with money acquire power and those with power enrich themselves. It’s a phenomena that feeds on itself. People holding the levers of government power set themselves up with pensions and opportunities for when the leave government. Those with money hire lobbyists to gain direct access to decision makers while those without money write letters which are answered by auto responders or aides with no authority. Two major political parties control the financial resources and pre-select candidates, usually on the basis of loyalty to the party and prior political experience. This is hardly the democracy we were promised in the founding documents.

It’s time to recognize that the primary purpose of government is to serve all the people and that only government can do this. It is time to harness the horse of greed instead of letting the horse of greed harness us and keep us in subservient obedience for the benefit of a few. It is time to throw out of power those who think government is the problem and those who think government should control our every action, and put the harness on the horse of greed by progressively taxing only those with a net income over a living wage, and recognize that only a government responsive to all the people can lift the burden from the less well endowed, insure the domestic tranquility, and secure the blessings of liberty for ourselves and our prosperity.

The Futility of Military Wars on Terrorism

2005-12-18T10:45:00.001-08:00

It would seem that winning a war against terrorists, particularly the suicide variety, by military means, is futile. Winning would constitute killing them all, or somehow convincing them to stop committing terrorist acts. The former seems impractical without great loss of life on both sides and the latter seems a task more suited to diplomacy.

Usually in such wars the terrorist side has little to lose and the terrorized side has much to lose. Fighting military battles with sophisticated equipment is expensive whereas committing terrorist acts is relatively inexpensive, so depletion of resources favors the terrorist side.

Recruiting for the war also seems to favor the terrorist side. The terrorized side usually has more to live for so they are more reluctant to join or continue the fight. The terrorist side seems to have little or nothing to live for, otherwise why would they be willing to commit suicide? As the war drags the terrorized are more likely to look for other solutions, like building walls or other means of isolating themselves from the terrorists.

Another way of stopping the terrorism is to make it difficult or prohibitively expensive for the terrorists to obtain the materials necessary to continue the terrorism. But, this is not a task for the military. It’s an investigative task for organizations more like the police or the FBI, The same is true for seeking out the locations of the terrorists.

The bottom line seems to be that war is not the answer. Armies are more suited to fighting countries, not individuals and small groups. The job seems to be more one of security and intelligence. In this respect the war on terrorism seems to be more like the war on drugs than the great wars of the twentieth century.

Reconciling Growth and the Income Gap

2005-11-21T16:38:00.001-08:00

Free marketers like to think that maximizing growth is the tide that lifts all boats, but history has proven otherwise. Over the last several decades as growth has expanded rapidly the gap between rich and poor has widened. Not only has the gap widened, but the boats in the lower waters have not been lifted. Wages at the low end have stagnated in real terms, fringe benefits have disappeared or been reduced, more people are working part time, and most families require two or more breadwinners to make ends meet. If the goals of a society are to ensure that everyone benefits from growth, not just the top half of the income spectrum, some changes must be made in our economic structure.

The first obvious change would be to eliminate taxation on that portion of a family’s income that is required to sustain life and enable work without making choices between such necessities as health care, food, shelter and transportation, that is, a living wage income. The tax reform commission has recommended doing this with a system of tax credits. This would put individuals on an equal footing with businesses which are taxed on their profits, not their revenues.

Eliminating tax inequities alone will probably not be enough to bridge the gap, due to the international drive toward globalization, to reduce labor costs and improve the standard of living of people in undeveloped or developing countries. Globalization to achieve some measure of world wide equity in living standards is a noble goal. But, progress in this direction must not come at the expense of turning all countries into enclaves of peons working for starvation wages with an overclass of professionals, entrepaneurs and managers calling the shots and living in luxury.

The classical struggle between the left and right is between work and welfare. The left sometimes seems to ignore the power of markets to generate the growth that is required to sustain meaningful work and a safety net for the needy. Having a large percentage of the population unemployed and on welfare is not a prescription for long term prosperity. The right, on the hand, seems to subscribe to the theory that as long as government welfare is minimized and growth is sustained everything will come out smelling like a rose. Neither is correct. Both have to learn to compromise and find the best mix of growth incentives and reasonable wages to sustain long term prosperity and a healthy middle class.

One attempt to put a floor under the conditions for work has been the minimum wage. The right has succeeded in keeping the minimum wage lower than a living wage, that is a wage which will pay for all expenses necessary to stay healthy and hold a job, as discussed above as a floor for income taxation. They have done this by making the claim that increasing the minimum wage puts people out of work and on to welfare. But this ignores the fact that people working for less than a living wage have to be subsidized by government welfare in other ways, for example, by earned income credits, food stamps, housing subsidies, Medicaid, etc. Raising the minimum wage to a living wage would eliminate these latter subsidies, while possibly increasing the number of people that become unemployed and enter the full welfare rolls. As far as I have been able to determine, no studies have been done to adequately explain how this tradeoff plays out. There is some wage at which the total cost of both types of welfare is minimized. This needs to be investigated to set the minimum wage where it is most advantageous.

Another approach to keep people off welfare would be to set the minimum wage at the living wage and employ all people displaced from the private labor market, but able to work, in meaningful jobs to maintain national infrastructure. By keeping the labor rate for these infrastructure jobs at the living wage, and not allowing it to increase, any demands for labor in the private sector which could pay a higher wage would be met by shifts from this pool of infrastructure labor. This would eliminate the frustration and worry of being unemployed and unproductive, yet provide opportunity for workers to move into better paying jobs as the demand for labor increased. This movement would be augmented by training and experience acquired in the infrastructure jobs. Anyone not willing to enter the infrastructure job network would be on their own unless they can show they are disabled or otherwise unable to work.

The infrastructure job network would be funded out of progressive taxes on corporations and those making more than the living wage and implemented by private contracts from agencies like the Corp of Engineers or other federal, state or local agencies engaged in maintaining infrastructure.

The Roots of Rebellion

2005-11-12T20:14:00.000-08:00

Rebellion has many faces. All stem from some form of oppression which is only overcome by action. This action usually takes to form of embracing the stereotype impressed on the rebelling party by the controlling entity, and doing precisely what the controlling party fears most, without concern for the consequences.

Probably the most well known form of rebellion is that of the youth approaching adulthood. The youth cannot continue their development toward adulthood by continuing to follow the dictates of the parent. They must start to make their own decisions and learn by their mistakes. If even the smallest deviations from the prescribed behavior are met with stern reprimand, resentment builds and inevitably is followed by more drastic rebellious acts. If what the parent fears most is the use of drugs and promiscuous sexual behavior it is likely that some form of this behavior will ultimately result to demonstrate independence if lesser forms of independent behavior are repressed. The form of independent expression is usually dictated by the accepted norms of the group to which the oppressed individual belongs, which are, in turn, usually dictated by the more daring and bold leadership of the group.

A second example is that of oppressed minority cultures. David Brooks of the New York Times has recently commented on the common use of “gangsta rap” customs in both the American youth culture and the participants in the recent uprisings in French minority ghettos:

“The images, modes and attitudes of hip-hop and gangsta rap are so powerful they are having a hegemonic effect across the globe.

American ghetto life, at least as portrayed in rap videos, now defines for the young, poor and disaffected what it means to be oppressed. Gangsta resistance is the most compelling model for how to rebel against that oppression. If you want to stand up and fight The Man, the Notorious BIG shows the way.

When rap first came to France, American rappers dominated the scene, but now the suburban immigrant neighborhoods have produced their own stars in their own language. French rap lyrics today are like the American gangsta lyrics of about five or 10 years ago, when it was more common to fantasize about cop killings and gang rape.

The French gangsta pose is familiar. It is built around the image of the strong, violent hypermacho male, who loudly asserts his dominance and demands respect. The gangsta is a brave, countercultural criminal. He has nothing but rage for the institutions of society: the state and the schools. He shows his own cruel strength by dominating women. It is perhaps no accident that until the riots, the biggest story coming out of these neighborhoods was the rise of astonishing and horrific gang rapes.

In other words, what we are seeing in France will be familiar to anyone who watched gangsta culture rise in this country. You take a population of young men who are oppressed by racism and who face limited opportunities, and you present them with a culture that encourages them to become exactly the sort of people the bigots think they are — and you call this proud self-assertion and empowerment.

You take men who are already suspected by the police because of their color, and you romanticize and encourage criminality so they will be really despised and mistreated. You tell them to defy oppression by embracing self-destruction.

In America, at least, gangsta rap is sort of a game. The gangsta fan ends up in college or law school. But in France, the barriers to ascent are higher. The prejudice is more impermeable, and the labor markets are more rigid. There really is no escape.”

It’s not such a leap to extend this sort of behavior to dead-end Muslims in ghettos throughout the Islamic world. Along comes an Osama bin Laden or an al-Zarkawi with utopian reasons to commit to a world uprising against The Man, particularly when The Man is doing very well and infusing his cultural norms into a culture dominated by a stifling religion. And what results is Islamic extremism, just another form of rebellion from an oppressed culture with no hope of controlling their own destiny.

But, in all these cases, is the rebellion really a threat to organized society if the causes are reduced or eliminated? Can the struggling adolescent, the gansta rapper, or the Islamic extremist take over and control a society by force? Do they really want to? Or are they just looking for some reason to believe they can control their own destiny?

Obviously there’s a difference in these three forms of rebellion, and that Islamic extremists are a greater danger than adolescent teens. But, should our approach be to declare war or to protect against such behavior while at the same time trying to correct the situation giving rise to the behavior? The decision is up to us.

Advice to the Tax Reform Commission

2005-10-30T18:31:00.000-08:00

There are two actions that would reduce the cost of tax preparation and auditing and make the personal income tax more equitable while changing the code very little. This is not to say that other changes are not desirable, but these changes can be made easily without upsetting almost anyone, and therefore are a good place to start.

The table below compiled from IRS data shows that 53 million taxpayers with incomes less that $22,000 could be removed from the tax rolls, reducing tax revenue by only $13 billion out $748 billion. Seven billion of this loss could be recouped by closing the loopholes that people making over ten million a year use to lower their tax rate four points below that of people making half a million. The savings in preparation and auditing costs could easily make up the rest.

Anyone making $22000 or less can hardly meet their everyday expense to hold a job and pay for health care. They shouldn’t have to pay income taxes if they don’t have any income after expenses, when corporations pay taxes only on their net income.

The first thing the commission and the Congress should do is take anyone who is making less than $22,000 a year off the tax rolls and close the loopholes for the multimillionaires so their rates are in line with others making less.

A Religious Outlook I Respect

2005-10-18T11:55:00.000-07:00

Although I’ve been pretty hard on religion when it inserts itself into government and policy making, there are some religious leaders I respect, even though I think they are lost in fantasyland. Dr. Richard Land is one of them. He is one of the few evangelicals who have spoken out against Bush’s touting of her religion as one of the reasons for picking Harriet Miers as his Supreme Court nominee. Land is a true believer not only in Christianity but in the philosophy that judges and justices should set aside their personal beliefs and decide cases on the basis of existing law. This is what some conservatives believe, but not all, by any stretch. There are many who view getting a Christian on the court as a way to get Christianity back in government, i. e. prayer in schools, creationism in the classroom, gays on the sidelines, stem cells, abortion and contraceptives out of medicine, etc. Land is not one of them.

Another attitude I can respect is what Land sees as one of the virtues on Christianity. He believes that if Christianity were accepted by all, we would have a much more ordered society with fewer births out of wedlock, less crime, more attention to the plight of the less endowed, etc. And, he may be right for some segment of society, but not for all. This belief assumes that all people need religion to live productive, law abiding, moral lives. This I cannot accept because it has been proven wrong over and over again. There are many people with no religious belief that live such lives. Religion limits the freedom and liberty of such people. And anchoring a society on rules and principles devised thousands of years ago limits its adaptation to changing conditions and acquisition of new knowledge.

An appropriate compromise would be to take advantage of religion by allowing those who can profit from it to profess it freely, but also allow those who don’t to go their own way without discrimination or any requirement to participate in religious activity. In any case it should be a personal choice, not something that should be implemented in law or universally applied.

Elitism, Enlightenment, Tradition and Our Future

2005-10-17T18:30:00.000-07:00

Michael Barone of U. S. News and World Report has written an article, Spurning America, which I hope will be the opening salvo of a discussion of an important issue in American politics, namely, the role of tradition and religion verses adaptation in a modern society. The following is my response.

In the article, he chastises the liberal elites for a world of sins, the usual saw in attacking the left. So let’s first clarify what it means to be “elite”.

Elitism

Elitism involves setting oneself apart and above the rest of society on the basis of what may be just a perceived superiority in the eye of the exhibitor of this behavior. Elitism is to be distinguished from enlightenment which is the true attainment of a state of knowledge that others might not have acquired in a particular field or discipline.

There are elitists of all political stripes, although liberals are most often accused of elitism, possibly because they reside in urban trend setting communities like the Northeast or West Coast cities, or because they have advanced degrees and prominent positions in academia. But, there is also a business elite of CEOs, investment bankers, and free marketers who conceive of themselves holding a unique knowledge of how economic systems work and how to scratch their way to the top of the economic pyramid without being too concerned about what happens to those who don’t achieve their prominence, or who think there is more to the health of a country than just economics. And then there are the literary and cultural elite who reside in the press or political think tanks pontificating on whatever they are paid to pontificate on. And finally, there are the political elites who have achieved high positions in government, possibly only through clever association with the aforementioned elites who provide the necessary campaign funds or writing and promotional skills to get them elected.

Enlightenment

What may appear to some as elitism, may actually be enlightenment, if the individual exhibiting it has achieved a state of knowledge through study, experience, or travel that gives them a better perspective to judge the value of a theory, plan, or action. Someone may appear as an internationalist elitist if he cites examples from foreign sources attained through study or travel that the observer has not attained through comparable experience.

Someone unfamiliar with governance or economics may rely more on the personality of someone, which mirrors his own, rather than the documented history of a person’s actions if he is not informed of them, or if he does not understand how the experience relates to the requirements of his position.

Someone without a scientific background may equate the scientific method with any other theory or myth regarding an observed behavior or phenomena.

Someone growing up in a rural environment may have an extensive knowledge of the land, conservation and natural phenomena that someone raised or living in an urban environment has not acquired. Whereas, someone in an urban environment may have experienced a wide range of social behavior from a wide range of different cultures and ethnicities, while the rural resident may have experienced a relatively monolithic culture.

These differences in learning or experience, when viewed from the opposite viewpoint may appear as elitism when they are actually attributable to enlightenment through wider experience or study.

Tradition and Religion

Now let’s examine the makeup of those who most value tradition and religion as opposed to those who may be accused of taking an internationalist, and possibly more secular political stance. Here we might look at why some people prefer “my country right or wrong”, support their leaders, fly the flag, put patriotic stickers on their automobiles, etc. whereas others seem to protest against their government’s actions and cite examples from abroad rather than taking the former approach.

History is littered with empires that faded because they clung to what worked in the past instead of adapting to the present and future, taking account of the rapid growth of knowledge acquired over the years.

It used to be tradition in this country to enslave people because it seemed to work economically, and there was an “elite” attitude that these people were better off enslaved because of their lacking an ability to make their way on their own. Fortunately, we finally got rid of that tradition after discovering these people actually weren’t much different from their enslavers and could function pretty well on their own.

At one time we considered women lacking the necessary skills, or possibly due to their domestic responsibilities, the time and ability to participate in the electoral process or hold some jobs that required the “manly” skills. We have subsequently found through experience and learning that women do indeed have the skills and mental capacity to do almost all things previously done only by men, and fortunately have abandoned that tradition as well.

Now it has been a couple thousand years since our religions sprung to life at a time when there was essentially no science and where religion provided essentially all the answers to the unanswerable questions of the time. And, answers to many questions are required for an ordered society and for peace of mind for the individual, to give people a sense of purpose and comfort in times of stress or despondency.

Since then, we have passed these traditions on to our descendents, from an early age, as principles which have served us well and which they should adopt to get along in the world. But, we have also learned much since then about how the world works and what is required for an ordered society. We have discovered individual liberty, human rights, democracy, political institutions, etc. and we now we rely much less on the oracles or the priesthood to give us guidance on the right way to live.

At some point we may want to ask ourselves how much we want to rely on the knowledge we have acquired over these many centuries and how much we want to rely on the ancient religious faiths we have adopted. We still may enjoy our religious community, the comfort we feel from our religion in time of conflict or loss, and ceremonial aspects of celebrating religious holidays, etc. But, we should consider the degree to which we want our religious faith to dictate our everyday decisions in raising our children, pursuing our careers, and governing our society.

The Future

Our success as a country in the future will depend on our further enlightenment and recognizing that we can’t run in place, resting on our past success and traditions to see us through a rapidly changing future. It will require the less informed to become more informed. It will require that we not rely on our tradition of American exceptionalism, but recognize the other countries and civilizations may have discovered ways of prospering and getting along that we have been too isolated to appreciate fully. It will mean cooperation, not just nationwide but worldwide. We can continue to do battle over preserving our traditions, or put them in perspective with the requirement to continue expanding our knowledge, to sustain our past success and prominence as a leader of the world.

The Constitution and Representative Government

2005-10-13T12:57:00.000-07:00

At the time the constitution was written there was no theory of evolution, no quantum theory, no molecular theory, no theory of relativity, no cosmological theory, no electronic theory. The only light was from the sun or fire. There was nothing that could be called scientific medicine. Only cut and try methods of treating symptoms, like blood letting or distillates from roots and herbs were available.

Antoine Lavoisier first defined a chemical element and drew up a table of 33 of them for his book 'Traité Elémentaire de Chimie' (Treatise on the Chemical Elements) published in 1789, the year the Constitution was written.

There were about 4 million people in the country and only 13 states. Most were farmers, shopkeepers or tradesmen. There were no corporations. People held slaves. Women couldn’t vote. These were all traditions of the times, many of which we have since discarded based on more recent knowledge and development.

Under the circumstances, the founding fathers did a magnificent job of constructing a governing document for the time and as a guide to future needs. But, can anyone really say that we should be bound by the original intent of the constitution, let alone only the original words of the constitution with all the water that has gone under the bridge since then? Certainly the safeguards enumerated in the Bill of Rights remain viable. But the commerce clause, privacy considerations, and the basic rules adopted for representative government could use a little updating and further definition.

One of the major problems encountered in governing is the remoteness of the people from those who represent them, primarily due to the overwhelming growth of our population and the dominance of political parties, which were never given a charter in the constitution. The gap has been filled by special interest groups who usurp the role of voters through the finance of political campaigns and mass media advertising in return for legislation to accommodate their special needs. There seems to now be a need to bring politicians closer to the voters they represent.

Having one representative for every 600,000 people hardly seems adequate. When was the last time you talked to one of your national representatives? Even the mail you send them is answered by auto responders, or if you’re lucky, a low level staffer. They are so well insulated from the average voter that only polls give them a sense of what voters want, and they are easily ignored without consequences.

It may be time for some form of tiered representation where the lowest unit of representation is small enough to where everyone can personally know the person they vote for, like on a precinct level. The representatives at any level would be elected by the representatives at the next lower level, who also know them personally, etc. This system would only have 3 or 4 levels of representation to cover the entire population. A prime minister would be picked at the top level to lead the making and enforcing of laws.

In addition to the formal government elected in this way, a ceremonial head of government would be elected by all the voters at large. His duties would be to meet with kings and other ceremonial heads of government around the world, go to scenes of catastrophe and sympathize with victims, go to holiday events and make rah-rah speeches, present awards to military heroes, citizens of the year and other personalities of achievement, go to press events and rally the country around causes, and generally do all the backslapping chores required by a population that worships celebrity.

This electoral system would be safeguarded by a recall process, where a representative at any level could be petitioned and recalled by a vote of all the people they represent. If they were recalled all the representatives who voted for them would also be recalled, all the way down the line. In this way, representatives would have a stake in picking the best people and would know the people they pick personally. A similar referendum process would allow petitioning and reversal of any piece of legislation by a vote of the people. If a piece of legislation was overturned by referendum, all those representatives voting for it would be automatically recalled, as well as all the people who voted for them, all the way down the line. This would ensure that only laws that the people supported would be implemented.

A similar initiative process would be available to petition and pass laws by a vote of the people. If a law was passed by initiative, all representatives would be recalled and new elections at every level held. This would ensure that representatives would pass and enforce laws that had the support of the people. A classic example needing this kind of attention today is the illegal immigration situation, where politicians refuse to deal with the problem because the money getting them elected and reelected is coming from people who don’t want the problem addresses while the majority considers it one of the most important problems that needs addressing.

It could be expected that these initiative and referendum processes would be seldom used because the system itself would be more responsive to voter sentiment.

People could still join interest groups or even political parties, but these groups would have no role in electoral process like they do now, where the two major parties are able to essentially exclude candidates that don’t belong to one of them by controlling participation in debates and press opportunities.

This is only one of many ways our constitution could be improved by taking advantage of what we have learned over the past 200 years. There is always fear of throwing the baby out with the bathwater in any attempt to modify a document that has served us fairly well for a long time. But, there comes a time when even valuable, almost sacred documents become out of date for the times.

Curves along the Economic Road

2005-10-08T14:02:00.000-07:00

When supply side economics became the vogue in the eighties, Arthur Laffer came up with the Laffer Curve to show that there was an overall tax rate which maximized tax revenue. There would be no tax collected if the rate was zero and if the rate was 100% no one would be interested in working so the revenue collected would again be zero. Somewhere in between a rate would exist which would result in the maximum tax revenue.

An analysis of government intervention in the free market would yield a similar curve, which we will call the Laugher Curve, since we would all be laughing instead of fighting if we could find the optimum point. Growth is increased by some government regulation of markets because it makes the markets more stable and prevents monopolies from developing. Some government regulation also promotes growth when it helps workers by promoting safe working conditions and stable employment. So growth increases as the degree of government intervention increases, up to a point, beyond which growth drops when the tax burden necessary to improve the lot of workers and regulate competition swamps its beneficial effects.

These trends are indicated in the following graphs, which are not meant to represent the actual data, because we don’t know at what percentage the peaks in the curves occur.

Supply siders always seem to assume that any tax rate cut is a good tax cut because it stimulates growth. But, this is only true if the current rate is beyond the peak of the Laffer Curve. Similarly, conservatives always seem to assume that any government intervention in the free market is too much, and liberals appear to assume the opposite, when in fact there is some degree of intervention that produces the maximum growth rate.

To further complicate the issue, even if we could determine the optimum percentage in each case we still might not have the best overall situation for the good of the country. Growth due to increases in productivity usually increases our overall standard of living, but not necessarily the standard of living of everyone. It is possible to have an increasing standard of living for a few people, while the majority tread water or backslide. To ensure an increasing standard of living for everyone, further government intervention is usually necessary to level the playing field by transferring benefits to those lower on the economic scale. This may result in lowering overall economic growth, while at the same time enhancing overall well being. A measure of this effect might be represented by the median per capita domestic product (MPCDP), rather than the gross domestic product (GDP). Comparing the solid and dashed Laugher Curves shows the trends. The peak of the MPCDP curve occurs at a higher rate of government intervention.

Unemployment can be addressed in a similar fashion. Low wages and no government assistance may result in the least unemployment and greatest GDP, but it won’t result in the greatest MPCDP, or overall well being of the population.

We need to get away from addressing prosperity only in terms of maximum GDP growth and lowest tax rates and try to determine what these curves actually look like if we want to minimize class warfare and promote the well being of the whole country.

The Palestinian-Israeli Conflict and Worldwide Terrorism

2005-09-15T11:10:00.000-07:00

The Palestinian-Israeli conflict is a microcosm of the larger war on terror. After over half a century of fighting terrorism with a few billion a year and the moral support of the largest superpower in the world, the Israelis are no closer to peace, or to killing all the terrorists. Now they have embarked on walls and partition as a better way of addressing the problem.

The withdrawal from Gaza and a few settlements in the West Bank is looked upon by the West as progress in the conflict, and a move closer to the roadmap prescribed by the US. This is an illusion.

In a recent Newsweek interview Sharon was asked the following question and gave the following answer.

“WEYMOUTH: Why did you decide that disengagement is the right thing to do?
SHARON: I never thought there would be any possibility that a small Jewish minority in Gaza—seven or eight thousand Israelis, [living] among 1.2 million Palestinians, whose number doubles every generation—might become a majority or [establish] a place that could be an integral part of the state of Israel.”

In other words, there was no illusion that this was motivated by any desire to see a Palestinian state alongside Israel. It was simply to partition off a section of Israel that would clearly always be dominated by Palestinians. The Israelis don’t envision a state. They intend to control access to Gaza. The Palestinians in Gaza are precluded from having an airport or a seaport to engage in free commerce with the outside world. They insist the border with Egypt be controlled by the Egyptians to their liking. They insist that the Palestinian authority eliminate Hamas and Islamic Jihad. This is impossible, since these organizations comprise nearly half the Palestinians in Gaza, meaning any attempt to eliminate them will mean civil war. They have also indicated continuation of any terrorist activity will mean a severe military response, in other words they will fight terrorism in the same way as they have always contended with it, by at least an equal destruction of lives and property. But, now this destruction will not be occurring in Israel, but in Gaza, essentially a prison camp for Palestinians.

Will partitions and walls eventually end the conflict? It may afford somewhat better protection for Israelis but the conflict is unlikely to end for the same reason the war on terrorism is unlikely to end through the way it is now being prosecuted. First, the lot of the Palestinians, contained in Gaza and the West Bank without commerce with the outside world will not improve. It will probably get more hopeless than it already is. Having nothing to lose and valuing their religion more than their lives they will continue to fight the endless battle of overcoming Israeli dominance with terrorism, the only weapon available to them. And the battle will continue as a war of attrition. Since the Palestinians have a birth rate higher than that of Israel, the end is not in site. Eventually, only the diehard fundamentalists in Israel will be left to fight the battle alone. The Jewish progressives will realize that they will not want to burden future generations with the fate of constant terror and marginal progress and join the Diaspora in countries where they are accepted and can prosper.

Unlike the Palestinian-Israeli conflict, the US, perceiving itself a victim of a similar terror has more options. Isolated by two oceans it only has to worry about terrorists in its midst. If the will is found to protect its land borders and identify its citizens, as Israel does, it can be secure from all but the most rare of terror attacks. But, the international problem of terrorism will continue as long as there are extremists that value their religion more than life, and the tactics used to combat terrorism generate more terrorists or more sympathy for terrorism than they eliminate. I think we have shown that cooperation among countries in tracking down terrorist leaders and destroying infrastructure and communication necessary to their activities reduces terrorism, but that military action can have a positive or negative effect, depending on what specific military action is taken.

The long term solution to terrorism is likely to come when Islamic countries follow the example of Qatar, converting their monarchies to democracies more like the UK, and when Western countries realize that they have a role in encouraging this transformation, but that they must respect the sovereignty of other countries and treat them as equals, rather than attempting to control or use them to their own advantage.

Religion and Civilization

2005-09-10T17:01:00.000-07:00

This discussion is not about the validity of religion, but about the consequences of religion. If you want to understand the futility of arguing the validity of religion a good place to start is the PBS series, The Question of God. Or on the subject of religious wars throughout history, the Penn State site on Holy Wars and the Western Cultural Tradition.

A New Modern Era

It is somewhat uncanny that the first George W. Bush presidency intersected with the events of 9/11/2001. For the previous several decades religion in America was ever present but relatively uncontroversial and threats from external religious sources were not taken with any degree of seriousness, although many incidents should have awakened the American public and its government.

Essentially all American presidents have claimed some form of religion, it being a necessity to become an American president. But, George W. Bush was unique in his claim of being born again in the Christian faith and not only embracing it, but promoting it as a star in his resume for the position he sought. Indeed, in a presidential town meeting he cited Jesus Christ as the philosopher who most influenced his life. To the religious in America this must have seemed like a gift from God, finally having a candidate to support that identified with their deep seated religious beliefs.

His performance in office showed that he was no pretender to religion. His championing of social issues based in religion, his black and white identification of good and evil, his support of faith based government initiatives, and his strong identification of religion with patriotism and American exceptionalism proved he was the genuine article.

So along comes 9/11, an attack on primarily Christian America from Islamic extremists, justifying their actions on the basis of the Quran, and the interference of the West in their practice of Islam.

And the rest is history.

The War on Terror

The administration was quick to assure Americans that the subsequent wars were not wars on Islam but a war on terror, since the West is a civilization of countries made up of many religions, whereas Islam likes to think of itself as the true world religion existing in many countries.

But we are not fighting terrorists from the IRA, the white supremacist movement, communist guerilla groups, or an other form of terrorism than that perpetrated by Islamic extremists. So it is really a war on Islamic extremism.

Religious Extremism and Changes in American Attitudes

Religious extremism comes in many stripes. We have our own home grown religious extremists like Pat Robertson, accepted as a legitimate candidate for president, indeed winning the Iowa caucuses in a recent primary election, and now advocating the assassination of a Latin American president and praying for the death of Supreme Court justices so they can be replaced with people more to his liking.

And of course we have al Qaeda, with megalomaniacal leadership primarily based in politics rather than religion, but supported by a wide swath of religious sympathizers to their cause in the Islamic street.

In both these cases we have people whose beliefs dominate their actions. The people they approve to lead are not selected for their secular qualities but for their positions on upholding religious beliefs on a myriad of social issues.

There is no doubt that America has rich religious traditions, and that over the years the country may have strayed from them since we approved the constitution. But, we also had a tradition of slavery, of women being subservient to men, of championing the rights of those immigrating from abroad over those who originated here, etc. In all of these cases we have put these traditions behind us in favor of what seemed a better path for a nation whose advance in knowledge and understanding had changed our perspective. Indeed, our countries of origin abroad have moved in the same direction, some much further than our own.

Since the start of the Bush administration and the events of 9/11 we seem to have moved back in the direction of greater religious involvement and outspokeness, even to the extent of integrating religion more in the public arena, education, and government. The theory of evolution is now being put on a par with faith based “intelligent design” concepts. Re-restricting abortions, increasing animosity toward unusual sexual orientation, introducing prayer back into the classroom, and increasing the presence of religious symbols in the public square all seen be in the ascendant. This has caused a backlash among the secular community where they may soon become less tolerant of the privileges offered religious practice in the form of tax breaks on religious property and deductions for religious contributions. Since the majority of Americans have some form of religious affiliation or personal dedication, secular people fear a tyranny of the majority could develop.

Meanwhile, our new pride in American exceptionalism and patriotism, now extended to preemptive military actions, has caused concern among our long standing allies and a changed view of Americans around the world. It is difficult to identify the degree to which these changes are due to our change in diplomacy or to renewed pride in religion, American exceptionalism or patriotism, but the reelection of George W. Bush seems to indicate to those abroad that the American people and not just the administration support the changes. This has compounded our conflict with the views of other nations.

Religious Belief and Freedom of Action

When people base their decisions on religious tradition, or in the extreme, on the dictates of the literal interpretation of ancient writings, they have less freedom of action in adapting to changes in population, culture, and scientific and intellectual advancement. This is apparent from examination of the degree and rapidity of change in rural and urban environments. Where people experience less change, less contact with others of different cultures and attitudes, and less opportunity for learning or advancement, cultural traditions seem to be sustained over a longer period. Urban areas tend to be concentrated on the coasts or at the intersection of natural terrain where traffic is greatest. What we are now calling red and blue states are really red and blue areas, urban areas being more blue and rural areas being more red. Rural areas remain more steeped in religious tradition and urban areas more secular, although many traditions and habits are sustained for multiple generations in the migration to urban areas.

Urban areas are growing, while rural areas are shrinking. But new exurban areas are now developing where primarily successful urban people are migrating to previously rural areas and carrying the urban attitudes along with them. The question that arises is whether religious traditions can be sustained over generations, and this depends on the degree to which religion is a learned behavior or whether it is something inherent in the human psyche. The experience in other, older countries seems to indicate that less developed countries are more religious and vice versa.

If we retreat to earlier and more fundamental religious traditions we will have less freedom to adapt to changing circumstances, since we will be guided in our actions by the restrictions and limitations of our religion. It appears clear that the western enlightenment was a major factor in our advancement at a more rapid rate than Islamic countries that once dominated the world. Is religious extremism likely to become more virulent in our society as it has become in Islamic society? Are we more likely to succeed in our struggle against Islamic extremism by becoming more religious in our own society? These are questions that will determine our future as a country.

The Clash of Theism and Human Rights

2005-09-04T14:44:00.000-07:00

The human rights tradition sprung from the enlightenment, was solidified during the French Revolution in the publishing of the Declaration of the Rights of Man and Citizen, and is documented in its modern context in the Universal Declaration of Human Rights passed by the United Nations after World War II, on 10 December 1948. (http://chnm.gmu.edu/revolution/chap3a.html) It embodies concepts which are at odds with the Bible and the Quran, the primary sources of religious doctrine of the three most prominent modern theistic religions. These governing religious documents tolerate, and sometimes even prescribe inequalities that are not tolerated in the human rights documents.

There is a fundamental difference in the documents underlying religion and those underlying human rights. The former are immutable, the latter subject to change as circumstances change. Civilization has changed dramatically since the Bible and the Quran were written. Is it to be bound to principles and laws that are a product of a time when knowledge and understanding of human and natural phenomena were primitive? Or are we to benefits from generations of study and enlightenment?

Until recently, modern religious practice has mitigated these conflicts by accepting some of the tenets of human rights. Countries have precluded conflict by prescribing separation of religion and state, while others have a state religion, but nevertheless accept human rights principles, while still others incorporate religious law into their governing law.

The continued coexistence of religion and human rights depends on either a compromise of religious principles or human rights principles, in some cases. In the past decade we have seen a rise in religious fundamentalism which shows less tolerance for human rights and a greater demand for obedience to religious principles enumerated in the Bible and the Quran. In the case of Islam, this has resulted in Islamic extremism which condones terrorism to achieve its ends. In the case of Christianity it has resulted in the election of a born-again Christian president, and increased demands from the Christian community to accept a greater degree of Christian influence in government and a renewal of tensions between the human rights and religious communities. Many of the conflicting issues now before the American people have religious roots, including abortion, stem cell research, attitudes toward and rights of homosexuals, toleration of religious symbols in public places, and use of religious organizations as instruments of government activity. If the trend continues we can expect to see protests against tax exemptions for religious institutions, and income tax deductions for individual giving to religious institutions.

We live in a very pluralistic world of many cultures and religions. Our foreign policy is dependent on an understanding and appreciation of other cultures. If our country becomes bound by religious traditions and customs even more than it is now it will complicate our role as a citizen of the world or isolate us from countries that don’t accept our religious principles. We must deal with countries that have even more deeply held religious beliefs and where religion governs the society. Will we be better able to change or accommodate these countries if we are bound by an equally restrictive set of beliefs. Or will we be better equipped to handle foreign diplomacy by keeping religion a private matter and out of the arena of government?

Discussion of religion and its consequences has been somewhat taboo in American society because a large majority of Americans have some religious affiliation or sentiment. Most religious people turn away from any discussion of their beliefs, considering it a private matter and out of bounds to anyone else. But, it is becoming less of a private matter and more of a public matter when religious people demand more than their right to practice their religion and defend it. When religious dogma begins to infringe on human rights and affect other people it is an open subject for discussion and legislation. It’s time for a frank discussion of religion, particularly in the context of its conflict with human rights.

The Nature of Current and Future Conflicts

2005-09-03T16:41:00.000-07:00

The Lessons of the 9/11 Attacks

On September 11, 2001 the country was traumatizing by an attack by Islamic extremists, after many years of not taking the threat seriously. It was natural for us to strike back at such enemies immediately and take all measures necessary to prevent future attacks. But doesn’t there come a time when we must examine the nature of the conflict we are in, the reasons for the occurrence of such events as 9/11 and the best way to protect ourselves and achieve our long term goals for a peaceful and prosperous world?

Since the attack was by air, our first impulse was to keep such an attack from being repeated by securing aircraft and preventing hijackers from getting on planes. In this endeavor we went overboard, to the extent of scrutinizing babies and old ladies and inconveniencing air travelers in a major way while the remainder of our infrastructure remained largely unprotected and our borders as leaky as ever.

But, the event has heightened our awareness and we are getting our house in order, slowly but surely. We are finally taking border security and identification of our citizens seriously and making a major effort to secure our homeland. Four year without another attack has proved that we are no longer an easy target of opportunity.

Now we have adopted a military posture towards terrorism, even taking nearly unilateral actions in the face of world criticism, to protect ourselves. But, are these actions in our best interest or is it now time to examine other ways that might achieve our goals at less cost of human life, treasure, and reputation?

The War on Terror

Terror is many things. Tim McVey was a terrorist. The Weather Underground were terrorists. The IRA engaged in terrorism. Palestinians engage in terrorism. Israelis engaged in terrorism to establish the state of Israel. Then there are eco-terrorists that put steel shards in trees to injure loggers. And finally there are Islamist terrorists. All attack civilian targets in their attempt at revenge or to further a cause.

We call everything a war in modern times; the war on poverty, the war on drugs, and now the war on terror. In the former there were no military operations, in the latter there are. When is a war not a war requiring military operations, or requiring more than military operations? If the enemy has a well defined force and command structure and fights back militarily it may be a war. If the is no military response from the enemy, only stealth attacks from unknown sources, possibly widely dispersed or spontaneous, is it really a war that can be won by military operations?

If we are going to call the current threat a war then it is more a war on Islamic extremism than a war on terror. Just as there has been no winner in the Palestinian-Israeli “war” there is not likely to be a winner in the “war” on Islamic extremism. This conflict, like the Palestinian-Israeli conflict, will likely require a political solution. Calling it a war will only cloud the search for a real solution.

The Nature of Islam

The Islamic religion is different from other religions in that it prescribes how Muslims should live their lives and govern themselves according to what is called Sharia. This is fundamentally different from other religions and from western constitutional democracy, where constitutions and the legal framework are decided by the majority of the people and leaders are democratically elected. Necessarily, societies governed by Islamic Sharia are democratic only to the extent that a majority decides to adopt Sharia as law. In this case western concepts like human rights are precluded to some extent. Women, are by definition, treated unequally and non-Muslims are viewed as inferiors.

Imposed on the concept of Islamic Sharia is the view by Islamic extremists that any measures to achieve it are legitimate, including terror. If local dictators or western societies somehow interfere with achieving the goal of Sharia they become targets of terror and any other measures necessary to achieve it.

So there are really two questions to be answered. Can western cultures coexist with Islamic societies electing to adopt Sharia as their governing law? Or, is only the use of terrorism to achieve it to be contested?

Modern warfare

Can modern warfare methods defeat terrorism? Or are only political solutions possible?

In the 18^th century armies lined up in rows of bright colored uniforms and fired volleys at one another. Then someone discovered that it was more effective to not wear a uniform and fire from behind a tree or hill. The regular armies cried fowl and dismissed the new tactics as unprincipled and inhuman, but to what end. It was only their opinion. The other side saw it as the only way to achieve success. Now we have a similar change in modern warfare. We send in the people in uniforms with jets and tanks and cruise missiles. Sure we can break things and kill people, but to what end. The enemy uses what ever tactics are necessary to achieve the result they want, irrespective of our opinion about their tactics.

The use of high tech weapons and fully equipped troops at great distances from the homeland is very expensive, while the use of large numbers of basically equipped local guerillas is not. The proliferation of small lethal weapons in the hands of large numbers of people can result in losing all the battles but winning the war if they can persevere while the superpower wearies of the expense and duration of a protracted conflict.

A New Assessment

At some point modern western societies must ask, is it worth it, or is there another way. This is the conclusion that Israel and the US have come to in the Palestinian-Israeli conflict. It’s the conclusion we came to in the Vietnam. We could claim victory in skirmishes in El Salvador, Haiti, Guatemala, Grenada and Panama with military power. But these were small and in our back yard. But we went home from Lebanon and Somalia, when confronting actions there, probably because to result didn’t justify the cost.

Now we have to ask ourselves again, does the result justify the cost in the confronting Islamic extremism primarily with military power? Is there another way than military power that will achieve a better result? We have to step back even further and ask ourselves what our long term political goals are. Do we want to continue being the lone international superpower at all costs, even if we have to go it alone? Do we have the capacity to do this in the face of growing economic power in China, India, Russia, Europe and other Asian countries? Or are we better off being one of the key members of the world community and addressing conflicts only as a member of a world wide alliance?

Other western countries share our dilemma of deciding whether a potent and aggressive Islam can coexist with western democracies, and under what circumstances. Will moderate Muslims join the West in confronting Islamic extremism, or do they secretly favor societies governed by Sharia and sympathize with the goals of the extremists?

Are we better off with less democracy, royal families and even dictators in Islamic countries as long as they don’t abuse the populace and are willing to advance the rights of women and minorities? Or should we step back and allow Muslims to live under Sharia, possibly even helping them to achieve it? What course will advance our interests the most? What will best ensure the safety of world commerce, prevent the outbreak of nuclear catastrophes, and minimize terrorism against peaceful neighbors? These are the questions that must be answered by future government leaders. We hope they are up to the task.

“Fend for Yourself and Don’t Look Down”

2005-09-03T15:44:00.000-07:00

Judging by the results, our motto “In God We Trust” isn’t serving us very well. Approximately half or working America is doing quite well, with comfortable salaries and fair prospects for improving their lot. The other half has stalled for the last several decades with few prospects for improving their lot. While the cost of living has increased wages have barely budged, while many jobs no longer include good fringe benefits or full time employment. More and more households are kept afloat by having two or more occupants employed.

A metaphor for the situation might be depicted as a giant ocean with many boats afloat, many planes overhead, and many people straining to remain afloat or submerged beneath the waves. Those in the small boats are envying those with the big boats and those with the big boats are envying the jet setters flying overhead, all envisioning someday achieving their status. No one above water seems concerned about those sinking fast into the surf or submerged in the deep.

Meanwhile, government actions are more and more decided by those willing to sponsor representatives. Districts are gerrymandered to ensure one or the other major party stays solidly in power while economic performance is judged on aggregate measures so as not to disclose who is succeeding and who is failing.

All in all it appears a better motto would be “Fend for Yourself and Don’t Look Down”.

Dissecting the Media

2005-06-16T16:26:00.000-07:00

Media means different things to different people, maybe even to the media themselves. Of late, some distinctions have become clouded. Strictly entertainment fare is pretty easily recognizable. But when it comes to political news it’s sometimes hard distinguish between real news, as in reporting, verses propaganda or paid commercials for this cause or that

Newspapers at least separate opinion pages from reporting, or at least the purport to do so. But a lot of it in both sections comes from AP, Reuters, or syndicated columnists. Sometimes I long for another division, something like “This News is Really New” or “This is a New Idea” vs. “Rehashes Still in the Current News Cycle”. In the syndication department it would be nice to see a division between “This Guy has done Some Research and has a New Twist on this Idea” vs. “This Guy works for a Think Tank so you know His Take Already” or “This Guy Needs to Publish Something Every Week to get paid”.

To qualify as newsworthy or opinion worthy, it seems it is no longer required that a piece contribute to the dialog on a subject. It can have one of two purposes and still qualify. It can provide information or a proposal which contributes to arriving at a solution to a problem, or it can simply help to reinforce the readers already held opinion on the subject. As the society becomes more polarized, one side is perfectly happy to pay for a piece that reinforces their existing opinion, and doesn’t want to even see anything with which they might disagree. Think tanks make a lot of money just promoting one side of an issue. But, should the media join them in this endeavor, or should the media, the so-called fourth estate, try to present both side of the argument. And, should they try to find a source that is willing to actually present both sides of an argument? Should their responsibility to inform the public just be the presentation of two exaggerating blowhards, one from either side, or should it entail some attempt at a dispassionate analysis of both sides of an issue?

A final consideration is whether the media has a responsibility to highlight issues which do not appear to have a champion. We all know that special interest groups are good at getting free press whenever they can to promote their particular interest. But, what about issues where there is no financial incentive to champion them, such as almost all reform issues. Classic examples are tax reform, immigration reform, and class issues. Although the public support for an issue may be apparent from polls, if politicians or movers and shakers are not anxious to address it, it seems very unlikely that the press will take it on. This seems an abdication of their responsibility to inform the public.

I must give credit to a few major news organizations for now and then taking the initiative, usually after background noise becomes deafening, to investigate issues which have little importance to politicians because there is nothing in it for them in terms of campaign contributions. Good examples of this are the recent articles by the New York Times, the Los Angeles Times, the Wall Street Journal and others on the growing income and wealth gap. It seems all it takes is for one major media outlet to decide to come out with something and within days the rest of the herd is there repeating the same thing over and over. But, it should be pointed out that this income gap has been growing for the last thirty years. If this is how long it takes for the media to get motivated, it may be too late for some issues. When will we see a major push in the media on tax reform, pension reform, and health care reform? Thirty years from now? It may be too late.

Social Security personal accounts that might fly

2005-05-02T11:52:00.000-07:00

President Bush’s proposal to means test SS COLA’s has sweetened his SS proposal to moderates. One more step might put it over the top. And that is to put an income cap on the personal accounts equal to the mean personal income (about $35000). Contributions on income above this cap up to the SS cap (about $90,000) would go into the SS trust fund as before, reducing the borrowing necessary to make the transition. And make the personal accounts mandatory, with government bonds as an option. One problem the program will encounter if it is voluntary is that high income people will join and low income people will not, defeating the purpose of the program.

President Bush says he wants low income people to become part of the ownership society. Since they don’t make enough money to save in IRA’s or other instruments, and SS is a mandatory tax, this is a way for them to save and become part of the ownership society. Having a personal investment cap means that there is no disparity between high and low incomes as to how much of SS they can privatize, and will force people to save at least a portion of their income.

Another tweak that would get more people behind personal accounts would be to allow the investment to be in an owner occupied home. Allowing SS contributors to acquire and pay off their residence would reduce the need for retirement income. There are already laws that allow this investment to follow the owner to other homes if a move is necessary. Rent is a major portion of retiree’s expenses if they don’t own a home that is free and clear. The tax free accumulation of such gains in the value of a home, together with the deductibility of mortgage interest make home ownership one of the best investments a person can make.

The Differences in American and European Values

2005-04-21T12:06:00.000-07:00

Once in a while you run across a paper that gives a complete picture of a topic that impresses. This is one such paper from the Elcano Royal Institute.

http://www.realinstitutoelcano.org/documentos/183/ELE183.pdf

Conclusions

The idea that a new cultural divide is emerging across the Atlantic is a gross misrepresentation of reality. The US and Europe share major values on democracy, human rights, the rule of law, market economy, family, abortion and homosexuality, even if lately Europe is moving faster along a liberal trend and the US much more slowly. The great difference on these and other important value issues (consider the role of women) is between rich and poor countries, not between Europe and the US.

Indeed, one could also argue that Europe is also moving in a more conservative direction. On questions such as immigration and xenophobia, national identities and multiculturalism, it is Europe that is lagging behind. And the emergence of powerful extreme-right parties in Europe is seldom considered but is a major fact that explains many events (for example, the Presidency of Jacques Chirac).

Moreover, there are many Americas and many Europes, and indeed many Americans are ahead of the Europeans and many Europeans are behind the Americans. There is a European America as well as an American Europe. Unfortunately we cannot compare data from the 50 American states with the 25 European nations but it is reasonable to suspect that the result would be a blending together of the two sets of data into a single continuum.

This similarity is evident in issues such as the perception of threats, mutual views and views of the world, and even on when and how to use force.

However, the greatest differences arise when one has to decide about the use of force. Here we have a difference that indeed makes a difference: Europeans are always much more reluctant than Americans to use military force under any circumstances. There are more doves and fewer hawks in Europe than in America, even recognising that many Americans share European views and vice versa. We can argue that Europeans are more reluctant to use force simply because they have very little of it, but this explanation confuses cause and effect. It has been a tough and long learning process for the Europeans to see war and terrorism in a wider context and establish measures and instruments that can be used as an alternative to force. It is our attitudes, a result of our respective experiences, that account for our military power, not the other way round.

And one final comment: isn’t this reasonable? After all, war is always a last resort and must be used with great caution. Hence, a debate on its limits and conditions should be welcomed in democratic societies. Next time let’s hope it is not polarised on either side of the Atlantic. We already have what could be considered a pacifist America [34], so what we probably need are European neo-cons willing to discard the free-rider culture inherited from the Cold War.

Greed: One of the Seven Deadly Sins

2005-03-05T15:35:00.000-08:00

The basis for a rebirth of the Democratic Party should be to establish a solid moral position that the electorate can get behind rather than chasing just enough votes to squeak ahead of the Republicans with a program very close to theirs. There is a paper at the link below that the DNC should all read that would go a long way toward this goal.

Greed: One of the seven deadly sins.

Here are a few excerpts:

An essay concerning the origins, nature, extent and morality of this destructive force in free market economies.

America is once again a nation of extremes. There is indeed a problem, and it has a history.
Historians Will and Ariel Durant (19) estimated in their survey that the gap between the wealthiest and the poorest in America has become greater than at anytime since Imperial plutocratic Rome. The Durants show a cycle repeating through history. Great social inequality creates an unstable equilibrium. The swelling numbers of the poor and resentful come to rival the power of the rich. As grievances and restlessness grow, government worsens, becoming tyrannical. Eventually a critical point arrives. Wealth will be redistributed, either by politics, or by revolution.

Greed is not a rational force. Not all wealth is created by greed, and not all inequalities are caused by greed, but if you could start with a society of complete equals, unrestrained greed will be sufficient to quickly render that society unequal. Present inequality is vast enough, the chances for the poor to work to close up the gap are long gone. Inequalities of this magnitude tend to become hereditary, and by and large, the descendants of the American poor will be poor.

In a free society, some people's greed inevitably means deprivation for others. This does not require environmental limits, it only requires persistent and competitive self-promotion, and in a vast nation whose economy is two hundred years devoted to these principles, we now inhabit a society with a small fraction of astronomically wealthy individuals towering over a growing mass in poverty.
America is arguably now more unequal than any of the original European cultures,yet we cling to and proselytize a horribly outdated economic theory which implies equality but actually delivers more inequality. Greed is the outstanding wrong because it reverses the utilitarian ethic. It produces the greatest good for the smallest number. Democracy's founding virtues are freedom and equality, so greed without restraint, producing great inequalities, becomes an undemocratic force.

What about the churches? Their purpose for existence includes helping the weak. If each church took in 6 homeless, there would be no more homelessness.

First, this society should decide how low any member can go. That establishes minimum rights. It requires we identify the least-advantaged person in society, and draw focus to him. Next, the very top and the very bottom of society should be (and all intermediate levels should be) connected, as if by a loose linked chain. Then if the top rises, it pulls the bottom up with it. If the bottom moves up, that closes the gap toward equality. This arrangement does not prevent any upward rise; but it establishes consequences on movements at the top.

Greed has to be reinstalled as a moral wrong, and in religious circles, as a sin.
We want our morality back!

Ideology and Ideologues

2004-12-06T18:22:00.000-08:00

The most prominent forms of ideology in America today are what we refer to as conservatism and liberalism. The current meaning of these terms is somewhat removed from their original meanings. Liberalism used to mean a belief in liberty, freedom and self reliance to do one’s own thing and achieve what one could with the resources at hand while allowing others to do the same, without coercion. This implied a level of resourcefulness and responsibility for ones actions and a tolerance of others choices to pursue their own ends as they saw fit. Conservatism meant a respect for what had come before and served people well, and a reluctance to chuck the old for the new without due consideration of what might be lost as well as what could be gained with the new approach.

Today liberalism is identified with the Democrat Party and conservatism with the Republican Party. So liberalism has come to mean a belief in government as a way of solving problems, in addition to the usual private way. Conservatism still has an element of hanging on to the past and what it has delivered, but now has an element of old liberalism is mixed with it, the belief in free markets and individual responsibility. This new version of conservatism may arise from the mixture of old style conservatives and libertarians in the current Republican Party.

But, what are the salient features of these ideologies? In general, people we call liberals now tend to have egalitarian and altruistic motives. They see the differences in endowments of people, either due to heredity or culture, as something visited upon them, and either giving them an advantage or disadvantage as the case may be. They believe that one role of government, under its responsibility to promote the general welfare, is to equalize these differences so everyone can partake of the prosperity of the society. Present day conservatives, on the other hand tend to think that people should be rewarded based on their ability and capacity to contribute to the society. And the conservative ideologues believe that free markets are the principle mechanism for allocating the rewards. The reality is that the society will probably prosper best with a mix of the two.

Analysts vs. Ideologues

The analyst realizes that people generally behave both altruistically and selfishly. They are more altruistic in their dealing with family, clan, or friends and more selfish with respect to people outside these groups. Altruism leads to cooperation which can achieve a great deal in a society. Selfishness is great motivator. If we think we can reap the rewards of our efforts we will work harder and longer. Both of these personal attributes must be harnessed to achieve a smoothly running society.

Analysts generally view things as a tradeoff. They like to find the best mix of competing options to deliver the best result. Ideologues tend to view such behavior as not standing for anything. They like to have a set of rules or guidelines to tell them which path to go down, which option to select. Having to evaluate all the options and weigh one against the other can be real work, particularly if you do not have the aptitude for it. Analysts have the aptitude, but sometimes it can get them into trouble. They try to digest all sides of an issue objectively but get to the point where they suffer from analysis paralysis, and never get to a decision. Ideologues rarely have this problem. Over time they build a filter of rules and guidelines of what is acceptable and what is not. Rather than seeking out information on all the options ideologues tend to seek sources that reinforce the filter that they have developed. In some cases, this filter can change over time if the ideologue is not too extreme. In other cases, particularly if a belief system is involved such as occurs in devoutly religious people, the filter can be nearly immutable.

To some extent everyone is an analyst and everyone is an ideolog. It’s just a matter of degree.

Liberal Ideologue Examples

So what sort of filter does a liberal ideologue have? Being more altruistic and egalitarian liberals tend to be more sensitive to when people are in jeopardy or hurting in some way. As the saying goes, “they feel your pain” and they want to help. If the victim is in need of something, they want to find it for them to relieve their suffering. And where can one find it? Well, where someone else has an over abundance of it. And how do you get it? Well, buy it, beg for it, or take it in a legal way, which generally means with the government’s help and approval. What’s going on in this scenario is that not much attention is being paid to the consequences of what solving this problem in this way is having on the system. If too much is redistributed in this way it may cause a lack of incentive to produce what is being redistributed. But, if we have a liberal filter that says, if it helps someone it’s right and just, we are home free.

Another premise in the liberal’s filter seems to be that the earth was perfect before man got here. So anything that can bring it back to that state must be good, and anything that man has done to it must be bad. Hence, environmental extremism develops. Get rid of all the dams, protect all the snail darters and get people out of the wilderness. Again, if one accepts the basic premise, they look no further. When, in actuality there are tradeoffs to be made to arrive at a compromise solution.

Conservative Ideologue Examples

So what kind of filter does a conservative ideologue have? Being more attuned to individual effort and self reliance the conservative ideologue is likely to think more along the lines of, “What I produce is mine and what you produce is yours.” I might want to exchange some of mine for some of yours in a mutual bargain, but there will be no taking of anything of mine or anything of yours. So what is being overlooked in this scenario? Well, do we really produce anything on our own? Or is there a storehouse of resources generated in the past and passed on to us that we draw on to produce something in the here and now? Who owns this storehouse of past resources? More likely it is owned in common than individually, if it happens to be the road we drove to work on, the school we attended, the library we visited, the modern technology we used, etc. So how much of our produce are we entitled to and who gets to decide? Generally the people in charge do. This may be to boss, the company, the government. Or it may have nothing to do with the cost of what we produce, but how scarce our particular contribution is. It’s all very complicated, and probably no one has the right answer, but if we have a filter that says, “If we were paid a certain amount for our contribution it must be right and just,” we are home free.

Another premise in the conservative filter the free market and small government, which go together, since regulation requires government and markets can’t be completely free if they are regulated. So if any proposition impinges on markets it does not pass the filter. If it reduces the size of government or eliminates regulations it’s considered good, so again you’re home free in any argument about the subject.

The Analyst Example

Without any filters to justify our case, we would conclude that there must be an incentive to produce, if we are to have anything to reduce someone’s suffering. If we take too much from very able producers they will stop producing. We would also realize that what we are paid for what we produce is not necessarily what is right and just, that it may be somewhat arbitrary or transitory, for being in the right place and the right time where we could take advantage of a shortage, or we may be involved in a monopoly enterprise. Or our employer may have paid a politician to cut him a better tax deal or a sole source contract to enable him to pay us more. We would recognize that part of the value of what we produce is based on resources contributed by people in the past, which is held in common. We would realize that if a market is completely free it might lead to more wealth ending up in the hands of a few who have gamed the system through monopoly, paid favors, kickbacks, or simply due to the market structure itself. There is nothing in market theory that says that all will be provided for at least to the extent necessary to survive. We come to realize that some government regulation is necessary to make the system work efficiently, but too much regulation might reduce the productivity of the system. We would look for the tradeoffs in all these relationships, so that everyone has an opportunity to be productive, healthy, and relatively satisfied with their role in the system. We would realize that people are more productive when they feel that things are getting better, not worse, that they don’t have to worry about where their next meal is coming from or where they’re going to sleep tonight. We would realize that a system where everyone has a role and some measure of control is better than a system where a few people are in control and the rest feel powerless and dissatisfied.

So what are these ideological filters actually doing? Aren’t they giving us a false sense of reality? It may be confusing to have to analyze every situation in depth, but we at least should realize the whatever filters we use or shortcuts we take to draw conclusions may not be valid and are subject to change based on new information. So we are better off seeking out contrary evidence, rather than evidence which reinforces a filter which may be invalid.

Detecting and Confronting Ideological Arguments

In general, ideologues don’t seek compromise and aren’t bothered by lack of analysis or evidence. They are content to refute an argument against an extreme right wing proposition with an example of an extreme left wing proposition that is equally awful, or vice versa. They rarely argue from their own knowledge, but quote from others arguments. You will rarely see a long argument by an ideolog. They deal in clichés, trigger words, and concepts which their own kind will recognize as valid. If this doesn’t work they will resort to smearing the messenger or the source of the proposition. Ad hominem attacks are frequent. Appeals to authority and testimonials from prominent sources are common. In general, they use all types of logical fallacies in lieu of deductive argument or evidence. If all else fails they will accuse an analyst of having too much time on his hands, being arrogant, having an over inflated ego, and as a last resort that he may be happier in France or some other foreign country.

The only argument that can be used to confront ideologues is to point out the logical fallacies they are using. Even this won’t change their mind about anything. Ideologues don’t change their minds, even over long periods of time when circumstances have changed dramatically. But, they will simply go away and argue with another analyst or ideologue of the opposite stripe. If an ideologue is a close friend or family member, these bonds may allow for some progress in helping them overcome the malady over an extended discussion period. Otherwise it’s best to avoid them and spend your time discussing and learning from other analysts.

Suggestion for the Bush Tax Reform Plan

2004-11-18T18:27:00.000-08:00

President Bush has indicated that he wants to simplify the tax code and create an ownership society. I share both aspirations, and offer this suggestion to correct an unfairness that has existed for a long time and allow people who don’t have much to invest, because of high taxes, a chance to participate in the ownership society.

Individuals pay more taxes than corporations with the same net income because corporation are able to deduct all expenses necessary to making a profit, while the limited exemptions and deductions afforded individuals don’t even cover their health insurance and state taxes, let alone basic living and transportation expenses. Data from a recent study by the Economic Policy Institute as computed from existing federal data for all states and metropolitan areas, show the realistic basic expenses of various households and the taxes they pay vs. what corporations pay. (See graph below) Because these costs have been tabulated carefully for many different family compositions and are region specific, such an exemption will be every bit as fair as the current complicated scheme of exemptions, deductions and credits. Families that earn just enough to cover essential expenses, that is, that have no net income over expenses, pay $800 to $1500 in federal income taxes.

We could simplify the tax code by giving individuals a realistic exemption for the basic income necessary to maintain their household, while retaining the option to itemize deductions if unusual expenses exceed this threshold. This would eliminate many households from the tax rolls, permit many others from having to itemize deductions, and allow all individual taxpayers to invest the savings in the ownership society. Once they are part of the ownership society, with low taxes on investment income, they will be less dependent on government handouts and not as dependent on their wages which are not keeping up increases in the GDP.

This change could be revenue neutral if the wide array of deductible expenses and tax loopholes were eliminated along with the increase in the exemption.

Advice to Democrats after the 2004 Election

2004-11-08T18:20:00.000-08:00

As usual, a lot of Democrats are acting as if the world is coming to end because they lost the electoral college by less than 100,000 votes in Ohio. The protesters are back organizing to cut and run before we know if Iraq can be stabilized. The “back to Bubba” crowd is longing for another Clinton or Carter to get some of those religious votes that we all know belong lock, stock and barrel to the Republicans. They remember the intelligent, articulate, charismatic Clinton and forget the sleezeball, bible thumping Bubba that couldn’t keep his pants up and brought us NAFTA and amnesty for illegal aliens. They remember the Carter who promised us hope but delivered malaise. And they’re now using all the Republican weasel words like faith, values, and morals to become more acceptable, forgetting that they are the ones holding the moral high ground defending the poor, the middle class, and persecuted minorities. Here’s my advice if you want to win the next round.

Look at yourselves and decide who you are, and not just what you want to win. Speak clearly and concisely about what you represent and do not try to be on every side of every issue. Make a distinction between religion and morality. You can be moral without being religious, and you are. You can tolerate and accept personal religious belief and expression without tolerating religious extremism, superstition, and destruction of the wall between church and state. We all have values. My portfolio has value. I value my privacy, my liberty, my friendships, my community, my country and my way of life. Your values are just as worthy as anyone else’s values and you should define them and speak up for them.

In the realm of politics, be who you are and spend your time cultivating the cultures where you can be successful. Forget the Bible Belt and Mormonland (Idaho, Utah, etc). You will never succeed in these places where religious literalists dominate. Keep an eye on Florida where more and more people from the east and Midwest retire and where the culture becomes more urban year by year. Watch states like ND whose congressional delegations are all Democrats but will vote for a born-again bubba over a northeastern liberal. But concentrate on the interior margins of the blue states where races were close – Nevada, New Mexico, and particularly the Midwest where the only other state you needed to win was Ohio. If given a reasonable choice they’ll usually vote their pocketbook.

Don’t pick Bubba candidates thinking you can win back the Bible Belt. Don’t pick candidates from the Northeast or California, including Hillary with all her baggage. Not that there aren’t good candidates there, but it’s liberalland and Hollywoodland and it scares the daylights out of some voters that you could otherwise bring into your camp, and you have those areas in hand. Your best bet for next time would be a ticket like Evan Bayh/Barach Obama. The Midwest is where you can make inroads. Midwesterners are largely political moderates. They are quite practical people who are concerned about their economic welfare at times like these.

Keep your extreme liberal wing in check. It can bring you nothing but losses. People are interested in preserving the environment, but they’re not interested in blowing up all the dams during our energy shortage to save some snail darter or make it easier for white water rafters. Promote a gradual process of energy diversification. This is not going to change overnight. Compromise on wilderness areas vs. logging and recreation interests. We need to preserve wilderness, restore polluted areas, preserve clean air and water, but not at the exclusion of maintaining a stable economy and allowing people to experience nature. Participate in the Kyoto process for global hydrocarbon reduction, but drive a hard bargain to make the process compatible with preserving our way of life. Pick your time and place for protests. Too many of them water down the effect and may antagonize more people than they persuade.

Socialism and communism are dead. You are still being characterized by Republicans as socialists, backers of big government programs, and big spenders. You are no longer the big spenders. The Republicans are. I don’t think you advocate the ownership of industry by the government or believe that America is the antithesis of everything good, so don’t hang on every word of old die-hard socialists like Noam Chomsky. There are certain things that government can do better than private industry, like seeing that everyone is treated fairly, has equal opportunity to prosper, a decent education, and adequate food, shelter, and health insurance. This can be a cooperative public and private effort. But, don’t kill the goose that lays the golden eggs by strangling business and innovators with unnecessary and cumbersome regulations. Campaign against corporate welfare and abuse as strenuously as your campaign for equal opportunity. Get on board to simplify the tax code in a way that is equitable for everyone but will prevent the drain of billions for compliance. And, finally get straight on upholding the laws. It’s not acceptable to break the law to get votes or avoid the wrath of your favorite constituencies. Get on board to uphold the laws against illegal immigration, and curb the abuse of the legal system with reasonable tort reform.

My Experience in the Red and Blue Cultures

2004-11-08T18:18:00.000-08:00

As some of you know I was raised on a farm in a now red state, ND. The nearest town where I went to school was about 300 people until I was about twelve years old. At the time, ND was neither Republican nor Democrat. It was NPL, the Non-Partisan League, which a majority of residents belonged to. So my parents voted for the NPL guy. At the time mothers were essentially apolitical, having too many kids to attend to, too many clothes to wash, canning to do, cows to milk, etc. and they hadn’t had the vote for too many years at that time. The little town of Tioga had two Lutheran Churches and a Catholic Church. No synagogues or mosques. There was some minor feuding among the Lutherans over which had the right version of the faith, but nothing that would disturb the tranquility of the little village and the surrounding farm community. My father was the treasurer of one of the Lutheran churches for many years. He wasn’t that religious that I could tell, because before he got the job I recall us going to church about twice a year, on Easter and Christmas. But he was a dutiful servant, dressing up in his Sunday best to count the collections every Sunday once he got the job.

Of course, we kids were required to go to Sunday school, get confirmed (catechism), and go to the baccalaureate (religious) ceremony upon graduation. Since everyone else did, and particularly the girls we were interested in, we went to bible camp a time or two and belonged to the Luther League youth organization. All the wives belonged to the Ladies Aid which put on the pot luck dinners after all the weddings and funerals.

My first adverse reaction to the religious “treatment” came at one of the bible camps. Long daily sessions at the disposal of strict clergy had me convinced after a couple weeks that either I was going the hell or I better start believing in Christianity. Fortunately, I had a lot of friends, most who didn’t attend, who starting ribbing me about my transformation, and after a few more weeks I was back to being a normal kid.

Up until my sixth grade, there was nothing about this rural experience that interfered with my conforming to societal norms. Everyone from the farm community thought essentially alike, and not just in Tioga, but in all the other little villages as far as one could travel in those days. Everyone was from similar European backgrounds, settled the area together, and carried on the same religious and cultural traditions of the old country. But in the summer between my fifth and six grade, my first cultural change occurred. An oil company prospecting in the area struck oil on a farm a few miles south of Tioga. By fall the town had close to doubled in population, and we were sitting two to a desk in my sixth grade class. Most of these new kids were different! They spoke funny, liked some foods we had never heard of (okra, black eyed peas, grits, collard greens, etc.), had a different attitude towards blacks, (We didn’t call them that at the time. There was another word that was popular then.) and God forbid, they were building a Baptist church right in the middle of town! Other than that, they were pretty much like us, from rural places with similar values and we started to get along just fine. I recall we discussed race relations quite a bit, and had completely different perspectives on the subject. I had only met one black person up to that time. His name was Joe Bond, and he worked the harvest circuit from Texas to ND every fall, and my father owned a threshing rig so we got to meet all the “strangers”. Joe was a real oddity to us. And I remember the time we had a hearty laugh when my father was paying off the crew and he asked a guy for his name and he said “Stubblefield”! Having met only a few people whose names didn’t end in “son” at the time, this struck us as pretty hilarious. This guy certainly was in the right occupation, spending most of his time in stubble fields loading shocked wheat bundles into his wagon and hauling them off to the threshing machine.

As time passed, the NPL was absorbed into the Democratic party, causing some more independent souls to join the Republican party. As I recall, my father, who had voted for Henry Wallace in 1948, became a Republican until the late fifties, when he switched to the Democrats. It all depended on who was supporting the small farmer the best. At the time most people voted their economics, not their religion.

Then I moved to the big city. What a shock! Never having been very far away from Tioga, I headed out to CA with a buddy of mine in my new 1957 VW bug loaded to the gills with practically everything we owned, and we set up shop in Inglewood, CA which at the time was the most white town in SoCal. Boy, did I meet a lot of “different” people. But I relished it, not realizing that some of these different people were thinking, who is this hick from the sticks with this sing-songy accent. I didn’t know anything about other cultures or what they valued or accepted. It wasn’t until I was up at Berkeley finishing my education where I came to the shocking realization that a girl I was dating, who liked me quite a lot, and we always had a good time every time we went out, informed me that we couldn’t let the relationship go any further because she was Jewish and it was not accepted at the time for her to stray to far from her heritage. This was a real eye opener for this green as grass farm boy from ND. Up until that time I really hadn’t realized the substantial impact culture and heritage could have on people.

After 45 more years of water under the bridge I think I have become pretty wise to the ways of the world and understand the difference between people who have had a wide range of cultural experiences and those who have remained in their original culture most of their life. It think it accounts for quite a few of the differences in the red and blue cultures. I should point out that there are really no true red or blue states, or even red or blue counties. I think it’s primarily red rural areas and blue urban areas. There are still very red areas in CA, like the San Joaquin and Imperial Valleys, while the urban areas are very blue. Even in Nevada, Clark County (Las Vegas metro) is blue and everywhere else is mostly read.

I think this can be explained by the people born in cities or moving to cities eventually encountering a wide variety of races, religions, cultures and values. You come to realize that the values you were raised with might not be the only values that are meritorious, and that you may hold prejudices against strange people, values, and behavior. Your devotion to a religion you may have grown up with is challenged when you see that people having a different religion or no religion at all are equally good people and treat you as humanely, friendly, and respectful as those of your own stock. It’s like the old adage that people who don’t have mountains, make mountain out of molehills. Even if they are essentially alike they find small difference to separate them from others. Whereas experiencing great diversity tends to wash out small differences and make only substantial difference important.

Some people, more than others, long for simplicity and eschew complexity. They long for the time when things didn’t change as quickly or as much. Or they long to get back to simpler times and recapture simpler values. They seek simpler answers and a more specific plan for how to cope. But, the past is past and the future is more complex. We know more about the world, more about people, more about how things work, and what’s real and what’s myth. In my opinion it is time to cast off our longing for the past and our fear of the future and look to make changes within ourselves to adapt a world that is changing ever more rapidly.

Words we once considered offensive are no longer considered offensive to some but more offensive to others. Behaviors that once were unacceptable become more acceptable to a larger number of people. We should closely examine whether we are resisting these changes because they are remnants of a past tradition that no longer serves us as well, or because they are genuinely destructive to our future. What is often referred as elitism among urban people by those with a narrower cultural experience is probably no more than a recognition that change is less threatening to them, and they can’t understand why people who haven’t had their experiences are so resistant to change and so protective of values and traditions, which they see as having outlived their usefulness. To bridge the gap between the red and blue cultures will require greater understanding of one by the other and less resistance to changes which are almost sure to be upon us sooner or later and which may actually enhance our life experience.

Does Big Business Promote Big Government?

2004-08-07T18:12:00.000-07:00

In the world of Adam Smith, specialization of labor and free exchange of goods and services lead to lower prices and a higher standard of living for all. In modern democracies like the United States business is dominated by corporations and improvements in communication and transportation have extended markets worldwide. Is the world of Adam Smith really comparable to modern society?

The goal of corporations is to provide goods and services at the lowest possible cost to compete in the free market, while maximizing profits to their shareholders. Large corporations like Wal-Mart have done this very successfully and their growth has been phenomenal.
In small town America, residents get the advantage of low prices, and at least comparable wages and benefits so this seems a good proposition for shrinking small towns. In larger cities, residents making even higher wages in other jobs reap the benefits of the low Wal-mart prices, so it’s even a better win-win situation. Or is it?

There are still benefits from the economies of scale and the free exchange of goods and services. And, the laws of supply and demand haven’t been repealed. But in modern society, no one is allowed to starve or die from lack of shelter or medical services. If wages are low and benefits like health care are eliminated many in the work force cannot afford to pay for the services they need, and the burden falls on government to make up the difference. So in effect, large businesses who offer only low-paying jobs which do not support their employees are increasing the size of government to make up the difference.

Yet, supporters of free markets and big business place the blame for the growth of government on “tax and spend” “socialists”. If we truly want to limit the growth of government it appears the only way to reconcile this dilemma is to let people in these low-paying jobs go without health care or adequate food and shelter, or increase their wages to the level required to pay for their needs. It would seem the latter alternative is better than the former.

In California, there is now a movement to prevent Wal-Mart from moving into neighborhoods. This may be short sighted. It seems a better solution would be to take advantage of the economies of scale that Wal-mart offers and simplify increase the minimum wage to a reasonable level. This would be accompanied by howls from the usual suspects about throwing people out of work. But, this is just another red herring offered by the same people who blame big government on tax and spend liberals. People have to live and there is a cost to that. You can pay them a living wage or you can subsidize their pay with government services. It is likely that everyone will be happier and more productive if they have a job that pays their way.

Political Luddites

2004-04-21T18:08:00.000-07:00

Luddites were the workmen, named after Ned Lud, who in the 1800’s, tried to prevent the use of labor saving devices by smashing them. That is, they didn’t try to understand the real role of labor saving devices in the long run. They were content to attack the problem in a short sighted way that fit their existing narrow and outdated view of the world.

Political luddites have a firm, fixed view of how things are, or previously were. They are not open-minded to how things have changed, may be changing, or will change in the future. They seek sources of information to reinforce their already held beliefs and avoid sources that may challenge their beliefs.

They deal in hackneyed clichés rather than discussing specifics in their own words. They first look at the source of the information, and if it is not from a source they know to be sympathetic to their views they reject it. They deal in personalities. There are personalities they can identify as being sympathetic to their views. Any others are immediately considered untruthful, untrustworthy, or have a hidden agenda. They are quick to hitch their chariot to the former, and are brutally loyal from that point on.

To allow you to spot these political luddites by the clichés they use, here are some of the most popular ones and a description of what they mean when they use them.
Liberal – Anyone promoting the general welfare, advocating for the average citizen at the expense of the political donor class, or advocating redistribution, class warfare, fair markets, or regulation as defined below. Often used interchangeably with libertine or big spender, and prefaced by the adjective, bleeding heart. Not to be confused with the more conventional definition of an open minded, tolerant individual of free birth and noble ideals.

Socialist - Anyone who may have discovered that the preamble to the Constitution includes the charge that government is to establish justice and promote the general welfare, in addition to providing for domestic tranquility and the common defense. A person who believes that taxation is not a form of theft, and believes that taxes can be used for things other than national defense and policing. Anyone who supports government involvement in programs that could be handled in the private sector. This definition is not to be confused with the more conventional definition of a socialist as someone advocating government ownership of the means of production.

Redistribution - The spending of tax money to abet one class of people over another, even if this expenditure is to correct injustices or inequities in the system, or ensure survival of individual citizens who are threatened with economic disaster. Any money used to promote the general welfare, as opposed to spending for national defense and policing. Implicit in this definition is that all salaries, wages, profits, and other income are accounted for and taxed fairly. There is no recognition of any class of people including the political donor class. All laws are assumed to be legitimately made, and the influence of political contributions is assumed not to have any effect on how tax laws and exemptions are made. No account is taken that corporations pay taxes on net income and individuals do not.

Class warfare - This is said to occur when citizens discover and complain about a political donor class funding politicians to obtain access and pressing for laws that advantage them. Used to fight any form of progressive taxation or discourage any recognition of an increasing income gap between the political donor class and the rest of the citizenry.

Free market - The holy grail of luddites economics. An unregulated interchange of goods and services without government involvement. Generally means that any form of regulation disrupts markets and prevents them from operating efficiently. Implicitly fair. No distinction between free markets and fair markets.

Deregulation - Getting the government out of market regulation. Allowing unimpeded consolidation. Sometimes implies advantaging business over consumers. Not necessarily full deregulation. As in the energy market in California, deregulating wholesale prices, while keeping retail prices regulated to advantage producers over consumers. Allowing decisions to be made by suppliers rather than consumers, as in the cable TV industry.

GDP – Gross Domestic Product. Another holy grail of luddites economics. An aggregate measure of the goods and services produced in the country. Used as a measure of the health of the country, as opposed to using employment, job satisfaction, health or other citizen related indicators. Implicitly ignores variations between different segments of society and between the donor class and others, but still considered all important to luddites.

Homeland Security

2004-04-03T18:10:00.000-08:00

Are we ever going to be secure with thousands of unidentifiable people in our midst? Can we check every bag, secure every aircraft, every train, every building, every gathering place, every power plant, every dock, every vehicle against satchel bombs of one kind or another? Can we protect our air, water, and food from lethal contaminants everywhere? In a few words, aren’t we going about this in the wrong way?

Wouldn’t it make more sense to approach homeland security like we approach motor vehicles and handguns? Every car is inspected and registered in a database by make, model, and description, or it can be impounded so it can’t be driven. Yet people can enter the country illegally at most places along our border or obtain a drivers license with a fake piece of paper without even as much as a picture on it. Are we stuck in such a time warp that we can’t have a positive, verifiable personal registration system because we think the government is someday going to gather us all up and put us in jail if we are registered in some database. On the contrary, we should have a system where the government can gather up those who aren’t registered in a database and deport them or otherwise determine why they are here illegally. Only then will we have any hope of being secure in our person and property.

Such a registration system could be very simple, consisting of simply a number and a picture in most cases. When you are involved in legal infraction, go to board a plane, or interview for a job you produce the picture and the number and the airline or employer looks up the number in a database. If the picture stored there doesn’t match the picture you furnished, or doesn’t obviously look like you, further investigation is required. In cases where people have criminal records or other past history of illegal behavior, a fingerprint or a DNA sample may be required. For citizens to be registered in the database would require proof of domestic birth or naturalization.

For people requesting entry to the country, a much more complete registration would be required. For limited term visitors, a visa with pictures and fingerprints, together with purpose of entry, country of origin, planned itinerary, length of stay, and most importantly, a responsible party in the country whose responsibility it would be to keep track of the whereabouts of the visitor, and notify authorities if such whereabouts were ever in doubt. This party could be a tour company, employer, school, a relative or friend being visited, or a series of hotel registration and departure notifications. The database computer would automatically kick out the names of those who have overstayed their visa or whose whereabouts have been determined to be uncertain.

I suspect the reason we don’t already have such a system has more to do with special interests and politicians desire to utilize undocumented labor, expand tuition receipts, or pad voter rolls. And the price is our homeland security.

Worker Capitalism

2004-04-02T18:00:00.000-08:00

Recently, maybe forever, corporate titans have been giving themselves big raises and bonuses by being on each others boards, buying tax code favors from politicians, and letting trickle down take care of anyone that doesn’t have any influence over who gets what in the corporate world. Lately, some have even gone so far as to adopt corrupt practices to make sure their bottom line titillates Wall Street, to ensure that their stock options reap big rewards. So what about the old maxim that the primary responsibility of a corporation is to its stockholders? Some capitalists seem to be taking issue with this tenet of corporate practice if the stockholders happen to be owners of large pension funds who exercise their voting power to curb the excesses of corporate managers.

Jay Hancock of the The Baltimore Sun has recently reported that as early as 2001 U. S. pension funds owned 26% of corporate America, while mutual funds controlled only 19%. The only difference is, pension fund managers seem to take their fiduciary responsibility more seriously than mutual fund managers. Pension fund managers are starting to press corporate managers to pay more attention to owners and less attention to feathering their own nest, while mutual fund managers seem to count on their “investors” automatic approval of management decisions, as long as the bottom line is competitive.

Since corporate titans own politicians, for the most part, particularly those in the Republican party, not much is ever going to get done in closing tax loopholes bought and paid for by their benefactors. So, if the widening gap between rich and poor is ever going to narrow, it calls for even more worker capitalism. If more workers can be encouraged to invest in funds which exercise their power for the benefit of workers without killing the goose that lays the golden egg, the situation for those in the bottom 99% of the economic ladder might actually improve. If there is pressure from worker owned funds to reduce executive compensation in all industries and pass it down to those without corporate decision making power, maybe the welfare of workers, whose economic progress has stagnated for the last thirty years will actually improve. After all, are these executives going to quit if they make ten million a year instead of a hundred million? I doubt it. Ditto for overpaid athletes and celebrities. They all work for one corporation or another that could be owned significantly by funds owned by workers.

Maybe if workers actually saw the fruits of ownership they would come to appreciate more and more the benefits of the invisible hand, honest dealing, competitive pressures, and realistic regulation of business, without just demanding a greater share of the take. Maybe they would accept reductions in corporate taxes, reduced corporate paid benefits, and accept more responsibility for their own welfare if the result was a more competitive company and more income tricking down beyond the command level.

Of course this would be labeled the new socialism by those in high places who would no longer have the run of company to divert profits to their own pocketbooks. But, really, it’s just capitalism at its best.

Dr. Greenspan, turn off the bubble machine!

2004-03-26T18:14:00.000-08:00

The Federal Reserve Governors are said to have a primary responsibility for preventing inflation or deflation in the economy and maintaining a stable economic environment free of recessions and bubbles, through the use of monetary tools like regulating interbank interest rates and controlling the money supply. Their activities are closely linked with the Treasury Department, whose Secretary meets with the Fed Chairman, Alan Greenspan on a regular basis. Since the Fed is a quasi-independent organization linked to the Federal Reserve banking system it tends to look out for banking and securities interests, and government interests, while trying at the same time trying to make responsible decisions protecting the economy at large. This can be a daunting task so criticism of its actions should never be levied without caution and qualification.

In recent years, the threat of inflation has been minimal, while the economy has been sluggish, so the Fed has dropped interbank interest rates to very low levels. In turn, bank prime rates, mortgage rates, and consumer credit rates have dropped accordingly. This results in temporary dislocations, which later result in more long term effects. For example, when mortgage rates drop, existing homeowners refinance, dropping their monthly mortgage payments so they have more to spend on consumer goods. Consumers run up their credit buying balances since interest payments are lower. This stimulates a sluggish economy. Senior citizens and others whose income derives substantially from investments tend to shift their investments out of interest bearing instruments and into equities or real estate where returns may be higher, at least temporarily. As this process progresses, home buyers also make adjustments. Since their payments are less, they can afford to pay more for the real estate they buy. This drives up real estate prices, offsetting to some extent the effects of low interest rates. Eventually, bubbles start to develop. The real estate market starts to inflate, creating a real estate bubble, and the demand for equities in the stock markets begins to outstrip earnings, creating a stock market bubble.

Meanwhile the sluggish economy is causing a reduction in tax revenues, and federal and state deficits start to develop, the effects of which are often discounted because interest rates are low. But, eventually, either the economy picks up and inflation rears its ugly head and interest rates are increased to meet it, or as in the current environment, the economy contines to be sluggish, employment refuses to pick up, and the bubbles get larger and larger and eventually burst.

If the Fed continues to view only aggregate inflation rates to trigger interest rate increases, the bubbles (inflation in real estate and equity prices) continue to grow. The government will continue to run deficits which will threaten federal retirement programs like social security and medicare, and the seniors, who rely on these programs and regular investment income will be put in jeopardy. Dr. Greenspan has recently called for reductions in these retirement benefits at the same time as his low interest rates are driving seniors away from stable long term interest based investments into speculative equity investments.

It is my contention that interest rates should start to be increased now. Although aggregate inflation rates are still low, real estate and equity price inflation rates are high. The real estate market is already overheating in growth areas, and the P/E ratios of stocks are at historically high levels. The markets have recognized this so the stock market volatility has increased markedly with fits and starts on every news story hitting the press. These low interest rates, and the stock and real estate market bubbles that develop from them, discourage long term investment and encourage speculation, and puts those dependent on investment income in jeopardy.

Dr. Greenspan, it’s time to turn off the bubble machine!

Discourse

2004-03-06T17:57:00.000-08:00

This is a discussion of the methods and purposes of discourse. People engage in discourse for many reasons. It can be for fun, to strengthen ones resolve on currently held positions, or to get at more fundamental truths about the way things are.

Engaging in discourse for fun usually involves humor and put-downs (zingers) to make a winning point at the adversary’s expense. There is no claim to logic.

Discourse to strengthen one’s resolve on currently held positions also does not rely on logic as much as selecting information which supports one’s position, while suppressing or ignoring information which conflicts with it.

To get at more fundamental truths requires close attention to avoiding logical fallacies, and close examination of the underlying assumptions that are basic to a firmly held position.

If two or more people are engaging in a discourse, but there is not agreement on what the purpose of the discourse is, it can become very frustrating. If one person is trying to make serious points to get at more fundamental truths and another is engaging in the discourse for fun or to strengthen a currently held position there is a basic disconnect which can lead to frustration or anger.

What follows applies mainly to what must be avoided if the purpose of the discussion is to get at more fundamental truths.

Logical Fallacies

Logic involves deducing conclusions from accepted assumptions through a series of steps where each step can be deduced from the prior step, leading to valid conclusions. Appeals to authority, ad hominem attacks, testimonials, inflammatory rhetoric, etc. are considered logical fallacies which cannot be used to support or validate a position. Logic fallacies are welcome in discourse for fun, but generally are not valid in strengthening a currently held position, unless the position is held on primarily emotional grounds. Discussions based on faith require no logical foundation, and logical fallacies are often used in such discussions. Logical fallacies are enumerated at several places on the internet. Here are a couple:

http://www.datanation.com/fallacies/
http://www.fallacyfiles.org/

Assumptions

Engaging in discourse to get at truth involves first examining assumptions that each party brings to the table. For example, if one party hold that free markets always bring about the best economic results and the other party does not accept this assumption, there is no need to discourse further. At that point, an examination of the assumption should proceed and arguments should be made for or against the assumption are in order. Or qualifications should be placed on the assumption that both can agree on.

Clichés

Clichés are frequently used catch phrases that can mean different things to different people. For example, “liberal” can mean as the dictionary says, 1. Befitting a man of free birth, 2. Bestowing in a large and noble way; generous; bountiful; openhanded, 3. Bestowed in a large way; abundant; bountiful; ample, or 4. Archaic Free from restraint; unchecked; licentious. A so-called liberal person using the term might interpret it in the first or second way, while a so-called conservative person using it might mean it in the fourth way. Likewise, the term “conservative“ might be used by a so-called liberal person to impugn the motives of a so-called conservative person implying stinginess or fixed attitudes, whereas the so-called conservative might view it as conserving worthwhile values. Other clichés often used without definition to put down groups, rather than attribute meaning include “socialist” and “fascist”. The use of clichés in discourse is just another logical fallacy if a common meaning is not clear to both parties, and is usually met by returning “zingers” which put down the cliché user. This only leads to anger and frustration.

Emotional Arguments

Emotional arguments do not submit to logical scrutiny. Any attempt to argue logically against a position that arises from emotions is futile. Therefore, in any discourse aimed at finding truth, if one feels emotion creeping into the argument, it’s time to sit back and relax and examine why the emotion is entering the argument. Are critical underlying assumptions being challenged indirectly? What are they? Are they valid? How you been offended by a zinger? Are you frustrated by flying clichés? Are you responding to an illogical personal attack, etc? Find the cause before proceeding.

Selective Argument

It is human nature to gravitate towards literature or pundits that reinforce one’s closely held positions. In the process, it’s easy to overlook logical fallacies used by authors or pundits expounding one’s own position, while recognizing those being used by someone promoting an adversarial position. For this reason, it’s wise to avoid authors and pundits of all stripes, who use emotional and one sided arguments to support their positions. You can usually detect these people by their predictability. The same applies to think tanks. They are usually sponsored by people or organizations that want to promote a specific viewpoint. Therefore, if you know the viewpoint they are promoting you can predict what their position will be.

In making arguments which aim at truth, it’s usually better to make your own logical arguments. If that’s not possible, present only the arguments of others which do not appeal to logical fallacies or which attempt to present both sides of the story. It’s usually not hard to tell if someone is trying to be fair-minded on an issue.

The Fog and Snow Index

People who make long-winded, round-about arguments in an emotional way usually don’t clearly understand what they are talking about or are intentionally trying to make up for lack of truth with verbosity. If one clearly understands a point, arguments can usually be made in a concise and clear way.

Pundits usually have to provide some opinion on a regular basis whether they really have anything profound to contribute, or not. This usually leads to weak, long-winded arguments about minor or perfunctory matters that are best left to undiscriminating readers.

The same applies to some book authors. They publish all their recent columns in a book to make some more money. Or they have to publish a book every couple years to make a living. Or they have a TV or radio show and see a book every couple years as a way to make some extra money from the same audience they have cultivated on their show. They take advantage of the second purpose of discourse, the reinforcement of currently held positions, without regard to the logical validity of the arguments.

Are the positions you hold in your overall best interests?

The positions one holds may not arise from logic at all. We adopt positions because our parents held them, because they accord with our religious convictions, because our circle of friends holds them, because we like an advocate of a particular position, because we haven’t really thought about them, because they applied in a previous time but may no longer be in our interests, and many other reasons. Times and attitudes change. It’s worthwhile to take the time to reevaluate our positions and our basic assumptions from time to time to make sure what we are advocating is really in our own interests. I believe there are many people today who hold positions which may have been valid in the past, but which no longer are in their own interests. There are also people who hold positions that they think will be of advantage to them in the future, when they have moved to a higher station, but the higher station is an illusion which never comes. And, people tend to identify with power and celebrity vicariously, and therefore overlook advantages which accrue to power and celebrity but will never accrue to themselves. In a few words, promote and vote your self interest. The democratic system depends on it.

Pushing on a Rope

2004-02-25T18:05:00.000-08:00

Some readers have raised questions about the relationship between my Modest Proposal and the current recession and the benefits to business as well as labor. I hope this answers some of your questions.

A short discussion of the short term situation.

Why are we in a recession? Because businesses aren’t selling enough products, so their inventories grow, they cut production, and eventually lay off workers, or reduce labor costs by shipping jobs overseas. They have excess capacity, and don’t see anywhere to invest that makes sense, since demand has diminished.

Why aren’t they selling enough products? Because people, domestically or worldwide are not spending as much, or because they are not competitive in overseas markets. People have reduced their spending for a number of reasons. They are overextended on their debt, or lost equity when the market bubble burst, which paid for some of their previous purchases. They have lost confidence that their job is secure, or their incomes will no longer meet expenses, due to uncertainties in the economy or deteriorating worldwide conditions, and or other reasons.

So what should be done to get out of the recession? Where will tax cuts for business and investers go? One place is in the bank or in the market where it won’t create any demand. Will modernizing business or innovating create more demand? Maybe, if costs can be reduced so products can become more competitive in overseas markets. But, what if overseas markets are also depressed? Putting money in the hands of business and investors will be like pushing on a rope. It will only create demand if modernizing will improve competitiveness and demand is already there. Demand pull is needed either domestically or from abroad to stimulate business. Only after overcapacity is worked off will investment and hiring be needed. GNP increases, without corresponding hiring suggests that overcapacity is not yet worked off, or that hiring is coming mainly from offshore. What is needed in the short term is to put money in the hands of people who will spend it, i. e. tax cuts for spenders, not business or investors.

What is required in the long term?

About the only thing that will help the long term situation, with the disparity in labor rates here and abroad, is for companies to improve their competitiveness in offshore markets in other ways. The domestic market in the US is a small percentage of the world market, and it’s not growing as rapidly. If we are to remain an affluent society, we must prosper in international markets, and the profits from those sales must be spread over the great mass of people in the country to sustain domestic demand and to maintain a high average standard of living.

What my proposed program does.

First, on the business side, it reduces or eliminates administration, labor, health care and pension costs from the price of the products sold, making them much more competitive in both domestic and foreign markets. It recaptures some of these costs through taxes on the increased profits which will accrue to businesses and distributes them across all economic levels in the stipend and healthcare and education benefits. The important distinction is that these costs are not including in the price of products which makes the products much cheaper both domestically and overseas.

On the people side, it reduces the cost of domestic labor to business, making domestic labor more competitive relative to foreign labor. One reason we are not as competitive as we could be on world markets is because other countries are doing precisely this already. They ship products offshore at production costs, which don’t include the costs imposed by company sponsored health care, pensions, and high administrative costs.

Even if the current complex tax system were kept, and just the earned income credit adjusted in leiu of the stipend, it would accomplish some of the benefits to business and labor addressed here. This may be more easily implemented, but there is major savings to be reaped from eliminating the whole administrative tax code mess as I have proposed.

A Not so Modest Proposal

2004-02-20T18:16:00.000-08:00

After watching the Frontline program, “Tax Me If You Can” and reading the book, “Perfectly Legal” I am convinced that half the corporations and the people who run them are eating everyone else’s lunch through deceptive, or even illegal, practices. Their access to, and power over, government through campaign contributions, is made possible through complex tax and regulation laws that neither congress nor the administrators fully comprehend. Corporations, including major accounting, legal, and financial firms have the resources to keep one step ahead of the politicians and administrators in devising schemes to avoid paying their taxes and to keep labor costs at a subsistence level.

There are several related issues which the country supports but which politicians will not support because it will limit their access to contributions and their ability to manipulate the various sectors of society to get elected and reelected. Among them are tax code simplification, illegal immigration control, health care cost containment, and limitations on the export of jobs. This lack of support for programs the country favors is not only undemocratic, it borders on fraud when laws get enacted that allow corporate cheating.

The press is complicit in sustaining this situation. Driven by the bottom line, the press concentrates on the sensational, the sexy, and the salacious while the real problems are addressed only by a few outlets, not dependent on commercial success, like C-SPAN and PBS. Until the press sees fit to inform the public about what is going on, voters will continue to vote for candidates on the basis of their religiosity, their company or union’s recommendation, their standing in the polls, or their spin on the stump. Therefore it is imperative that grass roots pressure be applied on the press to inform the American people about the problems, and on the politicians to start acting ethically and enact programs the people support.

There is immense wealth in this country, but it’s in the hands of a few. It may be time to give every person a stipend of about $1000 a month, with cost of living adjustments. Then tax people at graduated rates on incomes above the stipend. This would take some people, who want to do their own thing on a shoestring, out of the job market and raise wages for those who stayed in. And companies would only have to pay wages above the stipend. So some people would be willing to work for little or nothing above the stipend, and fewer jobs would move offshore, since the stipend is not being paid to offshore workers.

Social security, along with the payroll deduction for it could be phased out over time when existing contributions by workers are paid out.

The tax bureaucracy could be eliminated almost entirely. No tax return would need to be submitted. Every employee could be taxed at their average rate for the previous year and employers and institutions could deduct the tax and submit it to the Treasury. Any reconciliation could be factored into the next year’s withholding. All deductions, exemptions, and tax credits would be eliminated. Instead of corporations maintaining two sets of books as they do now, one for the IRS and one for shareholders, businesses would be taxed on the net earnings in their quarterly and annual reports, eliminating the need for any tax return. All businesses would be required to publish these reports and be subject to ongoing audits by the appropriate agencies.

Government regulation of business could actually be reduced and limited to protection of the environment, worker safety, and accurate reporting . The only thing left for the politicians to manipulate the electorate would be the progressivity in tax rates. That would insure that the cliché, “class warfare” would not disappear from the lexicon.

Together with this tax program, the government should negotiate and pay for health insurance contracts with insurance companies for everyone in the country on competitive bids – no cherry picking of healthy people, no special programs for government employees, everyone in one gigantic group. Medicare and medicaid could be phased out, along with their payroll deductions. The health care system would still remain private as it is now. Pressure for cost containment would come from the bidding process and copays. Business will no longer be the custodians of health care and retirement plans.

Government should also work towards fully funding education at government controlled institutions, through the college level, as was done in the 1950’s. Outside of health insurance, education is the single largest cost to families with childen.

Believe it or not, this should not represent a big dislocation in the economy, since everyone now employed or on unemployment is making at least the stipend. Education and health care costs are being paid right now. And, gigantic savings would accrue from the elimination of all the paperwork associated with the programs that would be terminated. The only significant change would be that the tax burden would be shifted from struggling people on the bottom rungs of the ladder to corporations and the people who run them who have been robbing the rest of us for a long time.

There is one caveat. You would have to show proof of citizenship and reside in the US in good standing to receive the stipend. If you’re incarcerated, owe taxes, have outstanding warrants or unpaid infractions, the stipend would stop until arrangements are made to get back in good standing.

A Transaction Tax

1999-12-22T17:42:00.000-08:00

Op-Ed piece written in 1997, in my libertarian phase

"Better taxation" sounds like an oxymoron. But, without some way to generate revenue we could not secure the freedoms we enjoy. The best alternative would be voluntary contributions, which would involve no coercion. But, this would hardly be fair, since there would always be those who would enjoy the fruits of other's contributions without contributing themselves. So the best we can do, as several thousand years of history have shown, is to refine the tax system to be as fair and equitable as possible and to keep it from becoming too intrusive. We must also find mechanisms to keep taxation from becoming excessive, which could lead to avoidance, evasion, and further intrusion to collect them. To keep tax collection efficient, taxes must be simple and direct. Armies of accountants, lawyers, and tax collectors only drain revenue from the tax stream, resulting in the necessity to raise taxes even higher. With these factors in mind let us consider how the present tax system could be modified to accomplish these goals.

The constitution places few constraints on the tax system, other than providing for taxation and requiring that taxes be uniform among the states. The sixteenth amendment, enacted in 1909 gave the Congress the power to levy income taxes. Since then we have seen this behemoth grow to where the average person requires expert help to compute their taxes, and where a significant portion of the nations resources are required to interpret tax law and adjudicate tax cases. We have an internal revenue service which has powers of seizure which appear to be in conflict with the privacy provisions of the fourth amendment. And we have provisions in the tax law which cause individuals and businesses to adjust their investment and work decisions to avoid excessive taxation. In short, we have gone too far astray of the qualities of a good tax. In the words of Adam Smith a tax was bad that "required a large bureaucracy to administer, encouraged evasion, and that put people through odious examinations by tax gatherers". The income tax as we presently know it does all of these things.

In looking for ways to eliminate the evils of the income tax, especially if you take the libertarian view that taxation is legalized theft, we can take a clue from the notorious bank robber, Willie Sutton. When he was asked why he robbed banks he said, "Because that's where the money is!". Another clue reveals itself if we look to how the income tax was enacted. It could only have been enacted if rates were low, which indeed they were initially. Citizens will pay a small premium to ensure their freedoms any day. It's only when it becomes large that the problems set in. The third clue is found in the burgeoning growth of consumer credit cards. I would venture to say that a large number of consumers don't know that every time they use a credit card the merchant who takes it pays 2 to 5 percent of the purchase to the bank issuing the card and the card clearing services who process the transaction. This, of course, is factored into the price of the purchase, and for all practical purposes is ignored by the buyer.

Well, where is all this leading? Apparently, what we need is a very large number to take a very small percentage of, such that taxpayers will not be led to avoid taxes because they are a large percentage of their income. Using the Willie Sutton and credit card clues and the Statistical Abstract of the United States, Table 822, we soon find that about the largest number in that fat book is one giving the debits (charges) to all the bank demand deposit accounts in the United States. The number is now approaching 300 trillion dollars! The total expenditures of governments at all levels; federal, state and local, is about 3 trillion. So for a 1% charge on all the checks written and cash disbursed, less than half of the minimum charged by credit card companies, would allow us to get rid of all other forms of taxation. Amazing, huh?

Now what about collection? Easy. The banks collect it and send it right to the treasury. With their monster computers this would be less work than the reporting they do now for interest income. No income tax forms, no sales tax to compute, no heavy duty tax lawyers and accountants.

But is it fair. How could it be less fair than what it is replacing, and at 1% who is going to feel they are being abused?

You might wonder, how can such a large amount of money can be generated by such a small tax rate, that is, how can the bank debit number be so large? To get a clue, examine the deposit turnover ratio of bank debits to assets. The average is 818. To get a better picture of what's happening, consider your own situation. Suppose you deposit $50,000 a year in your bank account, and your average balance is only $100. Then the turnover ratio is would be 500. For the average to be 818 means that there is a lot of money going in and out with relatively small balances on account. This ratio has increased from 203 in 1980 to 818 in 1991. There must be a lot more money churning now than then. To see where this might be coming from we look at the ratio for major New York City banks. It's a whopping 4375. Why so much higher than the average? Well, that's where all the financial markets are. All the money going in and out every day on Wall Street maybe? On the surface it appears that this tax would hit individuals, particularly individuals living from paycheck to paycheck, very lightly. For example, on your $50,000 a year deposited and spent, you would pay only $500, much less than what you are paying now in income tax. Even considering that the company paying your paychecks in paying another $500, the total is still much less than you pay now. So the rest of the bucks must be coming from those people and businesses who are churning money in investment accounts, that is, taking advantage of opportunities above and beyond those used by the average wage earner. In this way taxes would be assessed more heavily on those manipulating the most money. Is this fair? Maybe so, maybe not, but at 1% it's about the same as the brokers fee to execute a trade. Big deal!

Obviously, more massaging of the numbers needs to be done to see if this is a viable way of removing some of the burdens of the present tax system. But, it should give the accountants and economists something to do besides figuring our income taxes and the performance of the economy. Anyway, it appears worth a look by the experts.