Arab Spring, American Autumn

Just a quick observation or two.

I hope the nonviolent results of the Arab Spring are similarly achieved in the American Autumn. I don't care whether we overthrow the government unless, of course you see the government as I do - they are not we the people, the congress, the president, the courts or the thousands of legislative bodies. They are Goldman Sachs, Citigroup, and the like.

After 15 Saudi Arabian nationals hijacked planes and attacked America, the American conservatives blamed it on and subsequently invaded and occupied Iraq. For the record, Iraq is a Persian nation, not Arab. Not long afterward, when the monied elite hijacked the economy and hoarded a sixth of it, the American conservatives blamed it on the working poor, the unions and public employees. They're not bad people, they just have bad aim.

Occupied Wall Street

Warning: This post contains the F word, which does not appear in many economics texts but it does appear in a Mudhoney song that defines our current economic times.

It’s late September 2011 and every day in lower Manhattan upwards of 2000 people are gathering. They are not there to commemorate the tenth anniversary of the contemptible hijackings and subsequent attacks on New York’s financial district, which is indeed the lifeblood of the world economy.

Many of them are not sure why they are there. They just felt a calling. They know something is wrong and they’ve targeted Wall Street.

Multiplatinum, Grammy-nominated band Radiohead gave a free performance at the demonstration during the demonstration’s second Friday. And there was no press coverage.

The evolution was so slow. It took a generation. It was 30 years since the Reagan administration stormed into the White House after a panicked electorate swallowed the exaggeration that the economy of the late 1970s was destined for ruin. The conservatives took over Washington and the message. By 2011, the majority of Americans had only ever heard a message that if we give the money to the wealthy, they will know what to do with it. They will create the jobs we need for survival.

A generation of Americans was told that the only way to grow the economy was through a noxious cocktail of tax cuts and no regulation.

The stock markets have typically had dismal Octobers. The 1929 crash happened in October, as did the 1987 “glitch.” In October 2008, it all fell to pieces. After years of being barraged with the teachers unions, the public employees and the lifelong losers who mortgaged houses with no intention of ever paying them off, the American people collectively reached the conclusion as October 2011 rolled in that Wall Street was the problem.

We reached this deductively. By 2011, unemployment was chronic, the wealth gap was obvious to anyone with a pulse, and the middle class ceased operations as a going cause. In short, the American way of life, fueled by a fluid economy for decades, was flat out fucked.

As the Mudhoney song “Flat Out Fucked” says:

So mixed up
No room to move
I ain’t got nothing
Got nothing to lose

Reaganomics reached its logical conclusion of the rich getting richer and the poor getting poorer in the fall of 2011. We could have argued that at any point in the prior 20 years, but by now, Americans had no more money, no more hopes and nothing better to do. So they assembled on Wall Street.

And the media didn’t cover it. Probably because the few remaining media companies had themselves becn absorbed by even fewer conglomerates whose stocks were traded on the floors of Wall Street. As were their sponsors. You didn’t see Fred’s Hardware Store advertising on the Time-Warner owned CNN, did you?

Coincidentally, the death of Reaganomics happened at a time when effective tax rates on all Americans and corporations, the tenets of neo-conservative economics, were at an all-time low. Again, taxes are low and there’s virtually no regulation - and the economy is flat-lined.

“Free Trade,” a focus-group term meaning children and slaves manufacturing cheap goods for which you still pay full price while the elite investor class pockets the difference, was supposed to save the economy. It was supposed to open American manufacturing to other markets, however the theory breaks down when you realize 1.) the domestic manufacturing base is gone, and 2.) more than half the world lives on less than a dollar a day. How are they going to afford our stuff?

But free trade is another tenet of this ideology, and while it’s at an all-time high, the American economy is tanked.

In short if we changed the soiled sheets of the neo-conservative wet dream, we find that everything getting these people off has a long-term, negative effect for the overwhelming majority of people in the society. And by “overwhelming” I mean roughly 98 percent.

Examining this from another angle, we conclude that if the problem is Wall Street, then:

• The problem is not taxes.
• The problem is not the debt.
• The problem is not too much regulation.
• The problem is not unions.
• The problem is not secularism.
• And in addition to the propaganda bomb whose radiation has violated us for decades, we should also add that war is not good for the economy.

The problem is Wall Street, and the thousands who gathered in lower Manhattan to send a message to the political class were there because they finally understand the consequence of our blind history. If the system allows money to flow to people who don't need it, they will hoard it. If the system allows money to flow to people who need it, they will put it in circulation. Either way, the system picks winners and losers.

Cash Flow In The Two Americas

Any economic system requires cash flow. Whether it's capitalism or socialism, the system comes to a halt if there is no money flowing through it. We know that Corporate America is sitting on approximately $2 trillion in cash and that amount is at a 50-year high. If that money were to be pumped into the economy, it would create 40 million jobs. (That's based on the average salary of $50,000 divided into into $2 trillion 40 million times.)

That's two jobs for every unemployed or underemployed American for one year. It's staggering, and someone please check my math. But Corporate America refuses to put that money into circulation. While we've been led to believe that tax cuts are THE incentive to invigorate the economy, nothing will do as much good as opening the flood gates and setting free this motherlode of cash.

So if tax cuts aren't working as an incentive, why isn't anyone proposing tax increases as a disincentive? Really if our congress wanted to get people back to work, they could simply levy a tax on the $2 trillion starting January 1. If it's not put into circulation toward employing Americans, it gets taxed at 75 percent. No write-offs, no exceptions.

But there is one place where money is flowing. It's the closed economy of Wall Street and their hedge fund geniuses. Of course, to be considered brilliant in this world, all you need to do is have access to the system and repeat the mantra "what we do here on Wall Street is way too complicated; you couldn't possibly understand."

Here's how it works. These investment banks are hired by the wealthy to manage their wealth and keep them all in charge. The banksters have access to all the trading systems and they've got billions of dollars to trade. So they buy a million dollars worth of Apple stock and when it rises an eighth of a percent, they sell it. They've made $1250 in a matter of a few seconds. Of course with a billion dollars on the table, they can have a thousand million dollar plays going at any one time. If they make $1250 on each million dollar bet, they can make $1.25 million with the house money they've been given. And this can happen hundreds of times an hour.

Even if this only happens once a day, a good trust fund manager is turning his client's billion dollars into $1,001,250,000 at the end of the day. He takes a $100,000 commission for the day's work and the next day he has $1,001,150,000 to bring to the table.

When you hear them talk about "derivatives" here's how that works. For every investment you can also buy an insurance policy against it. Every insurance investment is a bet, and when you buy a derivative you're betting an investment will fall in value. And when we talk about placing bets on bets, and bets on bets on bets, then we're talking about derivatives. It's Calculus 101.

The initial bet that a stock will fall will look like this:

y= -x^3

Its derivative (the bet on the bet) looks like this:

y= -3x^2

and its integral (the bet on the bet on the bet) looks like this:

y= -6x

Every one of these insurance policies is a tradable commodity, and the most recent global estimate of this market is beyond comprehension - $1.5 quadrillion. We get all bent when we hear the word "trillion," this is 1,500 trillion.

Of course, this is easy money, but only if you're on the inside. You're making $500,000 a week as a broker for gaming a system you freakin' own. And all this money stays there. It never makes its way to the people who work for the companies whose stocks are being traded, and more importantly, the customers who could be buying their products.

But it doesn't matter because the institutional investors run the market. Stock prices are no longer a function of a company's profitability or even its cash flow. They are a function of the market that the banksters control.

And here's a picture of a cop holding a handcuffed woman who was on Wall Street this week protesting what I just described.

The Extent of the Education Crisis

Friday’s non-political roundtable (i.e., dinner with friends) led to someone asking me what I thought of the documentary Waiting for Superman. My takeaway from it is that it’s an obvious hit piece on the teachers’ unions, mostly because the people who’ve seen it always talk about the tenure issue and how the unions are ruining public education.

He then asked me if I thought there was an education crisis in America, and with great pause I replied, “not really.” The fact is that in general our leaders don’t value education anywhere near as much as their constituents do. Most people tend to agree that we don’t spend enough on the system without really knowing the intricacies of it. Most don’t realize that our property taxes are negligible and that we’d never notice an increase of 10 or even 100 points in our mil levies.

If there is an education crisis in America, it’s twofold. We don’t pay enough into the system, and poorer communities get the worst part of the deal. But the public education system itself is not a failure because it’s succeeding in exactly what it’s set up to do.

My kids are learning the same curriculum that was presented to me 30 years ago. And while it may be easy for me to make this argument because both mine are honor society types in public schools, I can assert that teacher pay and school funding in general have very little impact on a child’s performance. Like their parents, kids have so many factors at play in their lives, a great teacher is not going to make or break any of them. Either they have it or they don’t.

Kids who want to succeed will develop good study habits, or the kids who stumble upon good study habits will succeed. There’s no magic formula, no amount of funding, no standardized program that will change this. It’s the way’s it’s always been and how it always will be. The overall performance of all these kids over time is a normal distribution. However, if we ever have enlightenment in this area it will be the kids themselves who realize on their own what George Carlin once said.

The “real owners” of this country “don’t want a population of people capable of critical thinking,” they want us just smart enough to do the work and just dumb enough to not ask any questions.

And that’s what the schools are cranking out.

I'd like to see what it would look like if we invested half as much in education as we do in war. I'd like to see more equal funding for inner city schools and if that would yield better results in turning minorities into uptight white people. But until then, there are other crises to address.

Income vs. Wealth

Income equals money in circulation

Wealth is money in hiding.

Retired Multimillionaire Pays 90 Percent Income Tax

This guy needs to hire a good tax attorney. Even Jackson-Hewitt could help this guy. How did he ever get to be chairman of American Express?

In a Wall Street Journal op-ed, Harvey Golub cries "Of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes." This as a rebuttal to Warren Buffet's declaration that the wealthy should pay more in taxes.

It's not the first time we've heard this meme. Regrettably, while trying to avoid the Hannity show one night at the gym last year, I looked up from the elliptical to see the closed-captioning say something about Americans being "taxed at 50 to 60 percent." The highest tax rate in America is the top marginal tax rate on income. It's now at 32 percent. There is no possible scenario in which anyone would pay 50 percent of their income in taxes.

I'm suspecting this is their math.

Top Marginal Tax Rate - 32 percent

Social Security - 13 percent

Medicare Tax Rate - 6 percent

Capital Gains Tax Rate - 15 percent

Average State Income Tax Rate - 10 percent

Average Local Sales Tax - 7 percent

32 + 13 + 6 + 15 + 10 + 7 = 83

I'll be dammed - he's right.

Not really. We know that income tax rates are marginal. If we're lucky we pay 32 percent on every dollar over $250,000. Every dollar earned beneath that is taxed at a lower rate. Immediately the math is wrong. There's no way you would ever pay 32 percent on all your income.

The 13 percent figure for Social Security comes from the fact that employers match their employees dollar for dollar. Each pays 6.2 percent. Since Mr. Golub is a "job creator" we have to assume he pays both the employer and employee portions of the Social Security tax.

Not so fast. Social Security tax is capped at $106,000. If you make more than that, your tax rate is actually lower. Example: you made $212,000. Although you and your employer paid 12.4 percent on the first $106,000 and 0 percent on the second $106,000, your combined Social Security tax rate was 6.2 percent.

Again, math is wrong. And this guy ran a financial services company.

The same $106,000 cap is applied to the Medicare tax. So, effectively, poor people pay more of their income for Social Security and Medicare than the rich.

Thanks to a progressive tax structure and a system that allows us to write off expenses and charitable donations, the effective rate for the nation's wealthiest was about 17 percent. That is, if you made a million dollars, your tax bill was about $170,000. You still walk away with $830,000. Not bad for a year's work.

But most of the top 1 percent make their money from investments. These are not taxed as income, these are taxed as capital gains at a rate of 15 percent. And this is a big chunk of where the math breaks down. It's not like you're taxed 32 percent plus 15 percent on everything. Income and capital gains are mutually exclusive. Your money either comes from labor or it comes from investments. There is no double taxation.

We can only conclude that Mr. Golub is either an idiot or a tool. Given his focus-grouped, right-wing rehash of conservative talking points, he's a tool of the ruling class that refuses to pay its fair share.

But I continue to worry about the low-information voter who thinks Fox is news because it looks "newsy" who sees the scroll saying "Obama wants to tax 90 percent of your income." Thanks for the deception.

Greasing the Skids for a Double Dip

Found myself last night watching the local news. They devoted almost a complete segment to the economy after yesterday's horrific stock market performance. One piece interviewed Denver Post columnist Al Lewis, whose bitterly written biweekly business column has entertained me for years.

Lewis, not to be confused with the exponentially more optimistic actor who played Grandpa on The Munsters, was his typical curmudgeon self declaring that the United States has another decade of recession ahead. God forbid if he's right because that would put my 30s into my 50s, what would be the most productive years in anyone's life, in the country's worst economy ever.

The local news anchor closed Lewis's piece by saying the economy is not expected to turn around before 2020 because, "that's when the next generation of will enter the workforce and will bail out the economy much the same way baby boomers did in the 1970s."

What?

The media is grasping at straws at this point because a.) they don't know what's wrong with the economy or b.) they know how to fix it and are afraid to tell us. I vote for Option B, and if they told us they'd piss off their corporate masters.

There's a demand problem in the economy. People demand things but don't have the money to pay for them. This is because the wage floor has fallen out due to the three-decade attack on labor and the exporting of our manufacturing base.

Corporate America, which also owns most media, benefits tremendously from cheap labor and cheap goods. However, most Americans are pinched now because their money supply is dwindling. Wages have not increased as much as productivity. This is great for company owners (i.e., capitalists, the elite, the "job creators") but horrible for the working class. In fact, it's dismal.

There are two very sensible fixes to the economy that Congress could do tomorrow. First, reinstate high tariffs on imported goods to level the playing field between domestic and foreign manufacturers. Secondly, it that doesn't work, tax the bejeesus out of corporate holdings. Corporate America is sitting on an estimated $2 Trillion in cash and it won't do anything with it unless there's penalty for not spending it. Any economic system, not just capitalism, requires that money move through it.

But you're not going to hear this from the likes of the pundits who draw their paychecks from the corporations who caused this disaster.