A key Republican talking point is that the wealthy are “job creators” and that any tax on these job creators will cause them to fold their cards and go home, hurting the economy in the process. This is clearly ridiculous, and I have challenged before the concept that tax rates diminish incentives to build companies, but here is a great essay from an entrepreneur and investor (a successful one — he is clearly in the 1%) describing how people don’t create jobs, the economy does. And the economy is made up of regular folks — the 99% — who need to buy the products produced by the entrepreneurs. Without a successful consumer class, nobody will be a job creator.
Courtesy NY Times
S&P downgraded US debt from AAA yesterday, knocking Treasuries from their perch as the safest debt on earth. We will see what happens to yields on Monday, but so far it’s not clear that the markets agree with S&P. After all, this is an agency that had AAA ratings on subprime mortgage-backed securities not that long ago.
But in the meantime, the GOP is using the downgrade to attack Obama, saying “look what happened on his watch.” The president doesn’t deserve all the blame, but I understand why the GOP has seized the downgrade as a bludgeon. And in the same way, democratic operatives are putting the blame on the tea party and its refusal to compromise on deficit cutting.
But you know who isn’t saying anything? Democratic leaders. The White House, Harry Reid, Nancy Pelosi — they are all keeping silent on this. They are trying to be the “adults” and not play the blame game. I appreciate that high-mindedness, but here’s the thing: the game is being played, with or without them. If they stay silent then they just let the GOP control the narrative. You know the Sunday talk shows will be full of Boehner and Cantor and Romney and the gang piling on Obama for the downgrade.
The Democrats have to realize that they are in the middle of a street fight and if they don’t fight back they will lose. And they’ll deserve to lose. If you are going to suck ass at politics, then you shouldn’t be a politician. Regular readers know that I mostly support Democratic policies (with some huge exceptions that I ought to detail one of these days), but I sure don’t support Democratic fecklessness. The Democrats got rolled on the debt ceiling negotiation, and now they are getting rolled on the downgrade. It’s pathetic. Or, to quote a senior democratic official: “if this White House showed a gram of leadership on the debt crisis we could have avoided this historic embarrassment.”
Posted in Business, Politics
Tagged barack obama, Business, debt, deficit, democrats, downgrade, economics, Politics, republicans, S&P, taxes, tea party
The Wall Street Journal recently ran an article by Jonah Lehrer asking whether humans might not be as averse to paying taxes as our political discussion currently assumes. He describes a study by scientists at Caltech which showed that people dislike inequality. Study participants were put into scanners, and the pleasure areas of their brains lit up more when money was given to others than when money was given to them. This was especially true of those who had started the study “rich,” which was determined by random assignment. Following this study to its logical conclusion, perhaps people who are well off might not be as unhappy as politicians seem to think about paying higher taxes to help the less fortunate.
However, Lehrer points out that the random assignment of riches skews the study. Other studies have shown that this altruism effect is less powerful when the rich feel that their wealth is earned. When we bring this back to politics and tax rates it opens a whole can of worms. What is “earned” in a society where massive advantages (not just wealth) are passed down through the generations? I won’t open that can of worms here, but point you to this post from last year on some of the challenges of “earning” wealth for the lower classes.
The bipartisan deficit panel has come out with its first set of recommendations, and everyone is hopping mad. Lefties say the cuts in spending are unacceptable, and conservatives are adamant that tax revenues never go up again. Good! I have no opinion about the specific recommendations made by the panel chairmen, but I know that if both sides are pissed off then the panel must be doing something right.
Listen people…this deficit is serious business. It will bite us in the ass if we don’t fix it, and fixing it is going to require some pain on everyone’s part. We’ve been living for too long with this fantasy that government could increase spending while cutting taxes. Now the party is over, and the hung over cleanup has to begin. Headaches? Nausea? Yes, exactly.
So liberals, accept the fact that spending will be cut, and not just military spending. I hate it too, but Social Security has to be on the table. Increasing the retirement age by two years over the next 65 years? That’s really not so bad. Tying other benefits to inflation? Also not unreasonable. We need a safety net, of course, but we need to be smart about it.
And conservatives, you too are in for some pain. Face facts: spending cuts alone won’t balance the budget. We need to increase taxes. You like to claim that any tax increase will kill the economy, but the facts don’t bear that out. This chart shows that in Germany tax revenues are 40% of GDP, far more than America’s 28%. And yet Germany’s economy is doing fine, kicking our ass in exports, despite having to absorb East Germany. This chart shows that marginal tax rates for individuals are lower than ever. In fact, during America’s economic heyday, in the 50s and 60s, top marginal rates were in the 70%-90% range, far higher than today’s 35%, and yet there was still plenty of investment, of people working hard, of entrepreneurs starting businesses. All the arguments the right uses against raising taxes are belied by that glorious period of American business. Speaking of that great Happy Days era, the chart below shows that the share of taxes paid by the wealthiest citizens back then was significantly higher than it is now. Again, showing that higher taxes do not necessarily stifle economic growth.
There will be plenty of unpleasantness to go around; Democrats and Republicans will each get their share. Our legislators need to get off their high horses, stay away from the cameras and microphones and acknowledge that their pet causes are secondary to the national cause. But as either Mark Shields or David Brooks (I still can’t tell their voices apart on radio) said on the PBS NewsHour, our politicians won’t make this happen until the public forces them to. Our culture needs to accept the need for hard choices, and then push our politicians to make them.
Posted in Business, Politics
Tagged bailout, Business, congress, economics, GOP, greed, Politics, republicans, taxes, tea party
Jane Mayer’s article in the New Yorker about David Koch and his brother Charles and their massive funding of right wing political causes is an absolute must read. Regardless of political leaning, I think everyone should be disturbed by the ability of two incredibly wealthy men to so powerfully affect the political discourse in our society, and to do so anonymously.
But the article also made me think about how the Kochs and other businessmen are so determined to lobby government to support “free enterprise,” or at least to quash regulations that might hurt their business. The article discusses how the Kochs are using the same strategy on global warming – fund enough junk science to convince people that there is no scientific consensus – which the tobacco companies used so effectively to stall regulation of nicotine.
The issue I’m contemplating is not one of maximizing profits, but a broader moral issue. What makes a CEO who knows his product is harmful fight so hard against regulation? Does he take his fiduciary duty to maximize shareholder profits that seriously? Is he so focused on his own compensation that he doesn’t care what health problems he causes? The Kochs are nutjob John Birchers, so I expect them to screw over the world, but what about all the other CEOs? What about those who are fighting against environmental regulations even though they know that the global warming science is solid? Or Wall Street CEOs fighting against regulations when they know that their companies caused the financial meltdown? Or coal mining CEOs fighting safety regulation after an explosion in their mine killed 29 workers?
Look, I’m not anti-business. To the contrary, I am solidly pro-business. I’ve worked at companies, I’ve started companies, I consult to companies. My whole life is built on business. I understand the profit motive. What I don’t understand is the willingness to screw over the public in order to make more money. These CEOs would never in a million years think it was OK to stab a man and steal his wallet, but they have no problem poisoning him with industrial waste in order to save money. When do these people have enough? Where is their sense of human decency?
Posted in Business, Environment, Philosophy, Politics
Tagged ayn rand, Business, corruption, david koch, economics, john birch society, koch brothers, lobbyists, Politics, regulation, republicans, taxes, tea party
Despite all the rhetoric out there about free markets and entrepreneurship and meritocracy and winners getting just rewards, results from a new survey (done by a professor at Harvard Business School, the fountainhead of free enterprise) show that Americans actually want a more equal distribution of wealth. Moreover, it turns out that most Americans have no idea how unequally wealth is currently distributed.
I posted recently about Timothy Noah’s long piece on income inequality; now he summarizes the results of the aforementioned survey. The survey shows that Americans generally think that the richest 20% of us own 60% of the wealth. In reality, the richest 20% own 85%. The survey also reveals that when shown graphs illustrating America’s income distribution, Sweden’s income distribution and an equal distribution, most American’s chose the Swedish graph. The equal graph was second, and the actual American graph came last.
Or, look at this graph from the survey (hat tip to Baseline Scenario for pulling the graph from the original pdf):
American's ideal wealth distribution
Americans very clearly want a more equal distribution of wealth than they have now. They aren’t agitating for it because A) they have no idea how unequal things really are; and B) there is an aspirational optimism in Americans whereby they always think that they will end up at the top. But the next time some Tea Partier or Fox pundit starts talking about how Americans love the current system and are totally OK with hedge fund managers making $1 billion per year, remember this graph.
Here are links to two long and thoughtful articles worth reading.
The first is Timothy Noah’s ten-part (yes, 10!) piece in Slate on income inequality in America. He explores all the possible causes, in a non-ideological way, and then discusses why it all matters. Among the factors at play: taxes, overseas manufacturing, lobbyists and Wall Street. Check out this graph below to see how the share of the top 10% has grown over the last 40 years.
The second article is Matt Bai’s piece in the NY Times about Linda McMahon’s campaign for senator of Connecticut. Bai explores how a staid, preppy state like Connecticut could possibly elect a cartoonish figure like McMahon, who based on her public statements seems utterly unqualified to be senator. He discusses the long-term trends, including white flight and the loss of industry, which lead to young adults leaving the state and public sector unions gaining power, which leads to a weakening of the traditional political system, which leads to wrestling impresarios running for senate. It’s a long article, but nuanced and thoughtful and well worth reading.
Yesterday I posted about how Alaska politicians talk a big game about wanting the federal government to leave them alone, but in reality they suck down more federal money than any other state. Having just spent a week in Alaska, I brought some photographic evidence of our biggest state’s big appetite for taxpayer money.
Here is the beginning of a beautifully built and maintained trail at the Mendenhall Glacier outside Juneau. You can see that construction of the trail, which must have employed several people to cut brush and grade the path, was paid for by the federal stimulus package. As for the big Bob Marley joint depicted on the sign….it’s unclear if federal dollars paid for that.
Trail paid for by US taxpayers
In Gustavus, a small town which is the gateway to Glacier Bay, a brand new $20 million dock is being built with federal stimulus dollars. I spoke with the owner of my hotel and with the pilot of my whale watching boat, and both said that the dock was completely unnecessary. But it was employing a whole bunch of skilled laborers, so many that they had to come in from Juneau, since Gustavus didn’t have that many construction workers.
The new dock at Gustavus
Here is a photo of all the pickups and SUVs owned by the people working on the dock. Again, these are local workers being paid with US taxpayer dollars.
Construction worker trucks
I have no problem with stimulus dollars paying people to build paths and docks; that is how a government stimulus package works. The government injects money into the system to boost employment and spending. My problem is with a state that talks about how it doesn’t believe in the stimulus or in federal help at all while it continues to take as much federal money as it can.
Posted in Business, Politics, Uncategorized
Tagged alaska, Business, GOP, Politics, Sarah Palin, stimulus package, taxation, tea party, Ted Stevens
Regular Thoughtbasket readers know how I mock the Laffer Curve, a flawed theory that tax-cutting fiends use in order to claim that reducing marginal tax rates will actually increase government revenue as it unleashes a flood of investment and entrepreneurship. See my mockery here and here, for example.
So of course I was heartened to see Michael Kinsley at The Atlantic take up the cause. Enjoy his mockery here.