Category Archives: Politics

On Sacrifice: Eliot Spitzer, Moral Leader?

Posted on June 4, 2010 | Leave a comment

Disgraced New York governor Eliot Spitzer has a great article in Slate about how Americans have lost their commitment to shared sacrifice, referencing Lincoln’s Gettysburg Address and the exhortation to all Americans to work hard so that the soldiers of the Civil War “shall not have died in vain.” I know it’s ironic to be lectured on sacrifice by someone who couldn’t even sacrifice his own orgasm for the good of his family and his state, but he makes some excellent points.

Spitzer talks mostly about taxes and energy, discussing for example how reading the Gettysburg Address makes  investment bankers arguing for millions in additional compensation seem petty. But I would go further than Spitzer; the need for all of us to sacrifice to solve some pretty big problems could be extended from investment bankers to union members. Shared sacrifice should apply to those who sue for millions when they trip in the grocery store, those who are always looking for a government handout, those who hate sharing. During World War II women stopped wearing stockings because the silk was needed for the war effort. My guess is that we all have a metaphoric stocking we can give up for the good of the country.

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GOP vs. Democratic Messaging

Posted on June 4, 2010 | 2 comments

E.J. Dionne recently wrote a piece about the open Supreme Court seat covering some of the same issues of Republican vs. Democratic messaging that I covered here and here. And a few weeks ago he wrote another article even more explicitly criticizing Democrats for continually losing the war of messages. Why are Democrats so terrible at this game? How is it possible for Frank Luntz to single-handedly kick Democratic ass time and again? I’d be willing to bet that the majority of folks at ad agencies are Democrats….so get them on the team.

You might think, and certainly we would all like to think, that policies and results are more important than messaging. Oh, how sweetly naive! If you lose the messaging battle, you never get to implement the policy and see the results. Messaging is how you get the support of the public, and since most people have very little time and/or attention for politics, your message has to be short and sweet.

Since Democrats can’t seem to get it together to develop appropriate messaging, I thought that I would take a crack at some of the key issues of the day. I don’t claim genius for any of these efforts – I’m a blogger, not a fighter – but maybe they will spark a little conversation and get some more talented folks to chip in.

Judges respecting individual rights
GOP

  • Judicial activism
  • Non-elected officials creating laws

Thoughtbasket

  • Understanding the meaning of the Constitution
  • Following in the Founding Fathers’ footsteps
  • Looking at the spirit of the law if the language is unclear

Estate taxes
GOP

  • Death taxes

Thoughtbasket

  • Monarchy prevention policy
  • Asset transfer payment

Regulation
GOP

  • Government control
  • Business killer
  • Job destroyer

Thoughtbasket

  • Public safety measure
  • Children’s health initiative

Aid to Poor
GOP

  • Socialism
  • Promoting dependency

Thoughtbasket

  • Safety net
  • Short-term help for the most vulnerable citizens

Economic Equality
GOP

  • Threat to liberty

Thoughtbasket

  • Promoting American capitalism

Questioning Security Policies
GOP

  • Unpatriotic

Thoughtbasket

  • Keeping America safe
  • Developing the best security system in the world

Healthcare Reform
GOP

  • Government takeover

Thoughtbasket

  • Preventing the deaths of innocent citizens

Finance Reform
GOP

  • Enabling taxpayer bailouts

Thoughtbasket

  • Stopping taxpayer bailouts

Raising Tax Rates
GOP

  • Destroying individual initiative

Thoughtbasket

  • Fiscal responsibility

Reaching Out to Non-allied States
GOP

  • Appeasement

Thoughtbasket

  • Realpolitik

Cap & Trade
GOP

  • Energy tax

Thoughtbasket

  • Grandchild Safety Act

Immigration Reform
GOP

  • Amnesty

Thoughtbasket

  • Continuing the American melting pot tradition

Nuclear Arms Treaties
GOP

  • Weakening America’s defense

Thoughtbasket

  • Making America safer by reducing nuclear proliferation

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Posted in Politics, Trends

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Carried Interest Taxed As Income

Posted on May 19, 2010 | Leave a comment

Regular readers of Thoughtbasket can probably imagine how I feel about private equity guys lobbying to have their carried interest taxed at capital gains rates instead of income rates. I could explain my position, but why bother when Paul Kedrosky has written such a great post here.

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The Myth of the Sophisticated Investor

Posted on May 13, 2010 | Leave a comment

This article in The Big Money discusses how Goldman Sachs’ defense in the Abacus CDO case – that the buyers were sophisticated investors – isn’t entirely accurate, since those sophisticated investors (banks and pension funds) get a significant amount of money from regular folks like you and me. This is true, but it only gets at half the story. In the context of Wall Street, banks and pension funds are not considered the most sophisticated players.

The reality is that Wall Street has a hierarchy, and it’s measured by compensation. Generally speaking, the smartest people go to where they can make the most money. So if you are really sharp, you’re not likely to end up managing a pension fund’s investments and being a civil servant making $200k per year. You might settle for being a bond portfolio manger at a bank, making $500k. But if you are really smart and aggressive – in other words, a sophisticated player – you are going to end up at an investment bank putting together deals that can pay you several million dollars per year.

So Goldman’s “these were big boys” defense has two flaws. One, as The Big Money points out, the big boys got their money from the little guys. But two, the buyers may have been big boys, but the Goldman bankers pushing the CDOs were men. Speaking metaphorically, of course.

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Wall Street Is A Casino

Posted on April 29, 2010 | Leave a comment

Two articles came out in the past week comparing Wall Street to a casino, pointing out that much of the activities of the big investment banks – like the synthetic CDO at the heart of the Goldman fraud case – provide no real value to society and are simply ways to bet on the direction of an event. In this case, the event was housing prices, but the articles ask how that bet is really any different than betting on the outcome of a baseball game or a roulette wheel.

What is particularly interesting is the source of these articles. One was an op-ed in the hyper-conservative Wall Street Journal, co-written by Niall Ferguson, a Harvard professor who is generally quite conservative, and Ted Forstmann, an equally conservative private equity financier. The other article was written by Andrew Ross Sorkin in his NY Times Dealbook. The Times is, of course, quite liberal, but Sorkin makes his living (quite lucrative, according to reports) by having great sources on Wall Street, and generally speaking you don’t keep those sources by insulting them in print.

For conservatives to publish against their leanings, and for ambitious journalists to publish against their career prospects, is a pretty big deal. They must have felt very strongly about the casino aspect of Wall Street to write those articles.

Just in! Here is Eliot Spitzer’s take on Wall Street as casino. You may discount him due to his hooker addiction, but he hits the nail on the head (so to speak) here.

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The Role of the Supreme Court

Posted on April 28, 2010 | Leave a comment

Following up on last week’s post regarding the new opening on the Supreme Court, Dahlia Lithwick at Slate wrote a piece more up to her normal standards, discussing how a court that “shows restraint” essentially just perpetuates the political power dynamic currently in force, enabling tyranny of the majority, which is exactly what the founding fathers wanted the judicial branch to be a bulwark against.

Lithwick’s article draws heavily on this awesome NY Times op-ed by Geoffrey Stone, a law professor at University of Chicago. His money quote is here:

Although the framers thought democracy to be the best system of government, they recognized that it was imperfect. One flaw that troubled them was the risk that prejudice or intolerance on the part of the majority might threaten the liberties of a minority. As James Madison observed, in a democratic society “the real power lies in the majority of the community, and the invasion of private rights is chiefly to be apprehended … from acts in which the government is the mere instrument of the major number of the constituents.” It was therefore essential, Madison concluded, for judges, whose life tenure insulates them from the demands of the majority, to serve as the guardians of our liberties and as “an impenetrable bulwark” against every encroachment upon our most cherished freedoms.

Lithwick also refers to this Huffington Post piece discussing how the Democrats have greatly improved their messaging on this matter, linking economic populism with the role of the Court, as in this quote by Vermont senator and Judiciary Committee chairman Pat Leahy:

“Congress has passed laws to protect Americans in these areas, but in many cases, the Supreme Court has ignored the intent of Congress in passing these measures, oftentimes turning these laws on their heads, and making them protections for big business rather than for ordinary citizens.”

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Economists: Incredibly Stupid for Smart People

Posted on April 27, 2010 | 1 comment

The New Yorker recently (I am perpetually 4-6 weeks behind in my New Yorker, so I consider the March 1 issue to be recent) profiled Paul Krugman, the Nobel Prize winning economist and NY Times columnist. A section of this article made me realize that economists, despite being generally very smart and well-educated, are just incredibly stupid. And I say this as someone who was an econ major in college and very seriously considered going on for a Ph.D.

Krugman was exploring why there were geographic specialties in business: carpets produced in Georgia, cars in Detroit, technology in Silicon Valley, etc. This was an outgrowth of his work on international trade, for which he won the Nobel. He saw that once a company started in a place, an entire ecosystem built up in that place. Trained workers, relevant support businesses (eg. lawyers), and transportation infrastructure – all this tended to create an economy of scale which drew similar businesses to the area.

To this you undoubtedly say, as I did, “duh.” That theory just describes common sense. Which Krugman admits: he explained this idea to a non-economist friend “who replied in some dismay, ‘Isn’t that pretty obvious?’ And of course it is.” But Krugman was the first to mathematically model this common sense phenomenon. Before that, “because it had not been well modeled, the idea had been disregarded by economists.”

So just to be clear: even if a phenomenon is so obvious that my 16-year old nephew could figure it out, mainstream economists, all with Ph.D.s from Ivy League schools, choose to ignore it because a model for it doesn’t exist. No wonder the country just went through a financial crisis. We all knew there was a housing bubble. It was obvious to me and everyone I talked to that Starbucks baristas and migrant farm workers and cocktail waitresses can’t afford $750,000 homes. But the economists at Treasury and the Fed who were supposed to be watching this? Their models didn’t incorporate these sorts of housing hijinks, and so they ignored the gathering storm.

Economists: smart enough to understand Bayesian math, but too stupid to realize that meth heads can’t afford houses.

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Taxes and Small Business

Posted on April 23, 2010 | 1 comment

With tax day taking place last week, I’ve been thinking about the impact of taxes on the economy, and in particular about the conservative talking point that lowering taxes on small businesses will unleash growth and create jobs.

This is related to, but different than, another classic conservative point: that lower income tax rates will create more tax revenue. Regular readers know well my disdain for this theory (the Laffer Curve), which has never been supported by any research. Read my posts here and here to see more of my laughing at Laffer.

In the case of small business taxes, I decided to build a little model and see what impact reduced taxes would have. You can see the results below:

Reduced taxes on small business

In this case, we have the same small business generating $1,000,000 in annual revenues and $250,000 in annual pre-tax income. Right now, at a 40% tax rate, this business delivers $150,000 to its owner. If taxes were cut in half, to 20%, the business owner would make $200,000 instead. Now, our business owner might be forward thinking, looking to invest in his business, and use the extra $50k to hire a new worker. But more likely, he is going to use that extra $50k to put an addition on his house, or buy a new car, or pay his kid’s college tuition. In short, tons of small business owners are not going to use their tax break to hire people and expand, but rather to buy stuff.

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Supreme Court Nominee is Political, not Legal

Posted on April 22, 2010 | Leave a comment

Dahlia Lithwick has an article in Slate lamenting that the icons of liberal constitutional law are not even in the running to replace Justice Stevens, and are invariably depicted as radicals, while the equivalent judges on the right are likely to be nominated as soon as there is another Republican president.

Lithwick seems to think that this disparity is somehow part of the legal community, but in fact it has nothing to do with lawyers or the law. This disparity exists because Republicans are simply better at playing the game than Democrats are. Republicans are cohesive, all staying on message and using the same talking points, while Democrats tend to be all over the map. In addition, Republicans are far more savage, willing use words like “radical” or “threatening” to describe candidates (mild-mannered law professors, for the most part) whereas Democrats are more likely to use words like “gosh, I’m just not sure I agree with that man.”

Lithwick asks “Why should conservative law students be moved and inspired by their legal rock stars while liberals are sent the message that theirs are outrageous?” as if law schools can somehow fix this problem. I hate to criticize Lithwick, since normally her writing is so good that I practically have a crush on her, but in this case she is missing the point. Law schools can’t solve this problem; voters can.

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Great Attack on Tea Party

Posted on April 15, 2010 | Leave a comment

Some dude writing for Salon has a very funny article on why he likes tax day, and it features this outstanding quote:

The Tea Partiers represent the aggrandizement of paranoia, rage and self-pity into a political agenda. It is a “movement,” created by for-profit demagogues whose sole mission is to build audience share at the expense of honest debate about our common crises of state.

I think that pretty much sums up the movement in two sentences. For another great article about Tea Party activists who are taking aid from the federal government even whilst they denounce all government aid, click here.

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