American Economic Life

Arab Spring, American Autumn

2011-09-30T19:53:00.001-07:00

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

2011-09-30T19:18:00.000-07:00

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

2011-09-26T22:05:00.000-07:00

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

2011-09-25T21:09:00.000-07:00

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

2011-09-13T19:51:00.000-07:00

Income equals money in circulation

Wealth is money in hiding.

Retired Multimillionaire Pays 90 Percent Income Tax

2011-08-22T21:36:00.000-07:00

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

2011-08-19T05:56:00.001-07:00

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.

Today We Hate Foreign Aid

2011-07-12T20:38:00.000-07:00

For the latest from the right wing reaction machine, look no further than the panicked emails and postings from my neighbor. She’s not really a conservabot in the sense that she seeks out the AM dial for Heritage Foundation propaganda, but that stuff does find its way into her borderline authoritarian mind before it’s rewritten and sent to me and countless others.

Within hours of President Obama holding the first August batch of Social Security hostage in an effort to exploit the Republican’s faulty policy on the debt ceiling, the discussion turned to foreign aid. The resulting communiqué read something like this:

[America] gives more than $58 Billion a year in foreign assistance. According to Forbes: Afghanistan $4 Billion; Pakistan $3.1 Billion, Israel $3 Billion, Egypt $1.5 Billion; requests for Russia $68.7M, China $12.9M, Nigeria $647.7M, Cuba $20M.

Sometimes this is too easy. This is the same neighbor who sent me an email last December outraged over the $87 million we give to the United Nations. When I replied that $87 million amounts to approximately 20 seconds of government spending, she replied with “sorry, I sent it to the wrong Steve in my address book.

For some perspective, let’s examine this $58 billion in the context of the deficit, which leads to the debt, which is the subject embarrassing the right wing over all this. The current annual deficit is about $1.2 trillion (this is because the occupations of Iraq and Afghanistan are now on the budget, something the last president conveniently neglected to do).

We’re talking about just the deficit, one year’s worth of overspending. This isn’t the overall federal budget – although it’s about 35 percent of it. This is not the $15 trillion debt, of which 90 percent belongs to fiscally conservative Republican presidents. No, the $1.2 trillion deficit represents one year’s contribution to the debt, which has only decreased three times in my lifetime – 1969, 1999 and 2000. The last two happened after President Clinton destroyed the U.S. economy in the 1990s by raising marginal tax rates on the wealthiest…er… the “job creators.”

Bill Gates was worth around $58 billion at his peak before he decided to leave Microsoft and give it all away. It’s an astronomical amount. It’s a stack of $100 bills approximately 30 miles high. It’s also the amount the Republican House of Representatives – the people we elected because they’re so damn good with money, so much better than the liberals –this is how much they overspend every 18 days, including holidays and weekends.

The criminal amount we spend in foreign aid is just under 5 percent of the annual deficit. By comparison, military spending is about half of the deficit. Off the table. If loopholes are closed on corporate taxes, if we return to the Clinton-era top marginal tax rates of 39 percent, if we implement a miniscule transaction tax on all Wall Street speculative activity, if we tax corporate jets, and if we modify the inheritance tax, the deficit is estimated to be cut in half. That’s also off the table.

All of this could be done tomorrow and have a noticeable, positive impact by the end of 2011. But it’s off the table.

We could leave Afghanistan and Iraq tomorrow, but winding down an occupation can’t happen overnight. That’s the only thing that seems to be on the table because even Republicans, tone-deaf to almost every other issue, are aware that the country is sick of these “wars.”

So as we spend our Wednesday choking down the talking point that the other countries are sucking away our money, keep in mind that we’re talking about a marginal issue. And if you’re like my neighbor and you’re going to worked up over a 5 percent problem, I’d hate to be living next door to you when you learn about the other 95 percent.

Output and Effort

2011-05-08T19:27:00.000-07:00

The Randies have this Atlas Shrugged inspired fantasy that pay should be based on level of effort. This counters the supposed direction in which Rand claimed we were headed with her anti-collectivist theories that were later adopted by uninformed conservatives. The Randian’s great fear is that our economy would morph toward something that paid individuals based on need as opposed to effort.

Of course neither is true. Furthermore, if either were adopted in full in any economy, it would soon be valueless. But this never stopped corporatists with an agenda of diminishing wages from paying big bucks to permeate a theory.

Let’s take a walk, however, through the mind of a modern libertarian. If earnings are based on effort, then the breakout of effort by occupation would look like this in 2010:

Job	Salary	Level of Effort
Janitor	$20,000	1
Entry Level Marketing Manager	$45,000	2.25
Middle Manager	$90,000	4.5
Junior Investment Banker	$150,000	7.5
Professional Athlete	$2,000,000	100
Hedge Fund Manager	$1,000,000,000	50000

So if being a janitor requires a single level of effort, then a professional athlete works 100 times harder than a janitor. Certainly nobody will argue that a billion dollar hedge fund manager works 50,000 times harder than a janitor; however, if taken logically the theory would project that.

This is true because “hard work” is a relative term. There is no way to quantify how hard somebody works; cost per hour is an indicator of how much the economy is willing to spend for a given skill, but you can’t work more than 24 hours in a day. Someone who makes $250 per hour will always out-earn a $10 per hour worker.

It’s also interesting to note that if you’re working hard, you’re probably in the wrong career. Those who enjoy their work, who have meaningful careers, choose professions that come easily to them. (Sometimes, the profession chooses us.) Think about it. If you’re a left-brained practical person and someone hires you into a creative job, you have to work much harder to deliver that for which you’re being paid than someone who is an extreme right-brain. Chances are good you will struggle.

There is a confusing message in our lexicon asserting that those who are successful have worked harder than those who eek out a meager existence. It is rare, almost statistically impossible, to start and/or run an extremely successful company. Those who do are individuals who found work that connected to their personality, and they were motivated. Whether it was for vengeance, attention, or circumstance, people who catch a wave and ride it into successful career are heralded as successful. And deservedly so. (They are typically in the rare 5 percent of any population who require a strong balance between left and right brain – creativity and business sense.)

But we often simplify this phenomenon when we acknowledge these people as hard workers. Serial entrepreneurs describe their work as a labor of love. No doubt the overwhelming majority worked hard. But did they work any harder than the Vietnamese immigrant who bought a 7-11 franchise and put in dozens of (often risky) hours managing the store? Or the father who earned below the national median income as a teacher during the day and in a hardware store at night for a decade so his wife could only work part-time while raising two children?

Any reasonable person would agree that the entrepreneur, the franchisee and the moonlighting teacher, on average, sleep approximately the same number hours each year. All are more or less always working. And although it’s the entrepreneur who risks both capital and his reputation, his payday is the biggest. It has to be, otherwise he ceases being an entrepreneur. Arguably, the franchiser risks safety while managing the store during the overnight shift and the teacher has sacrificed time with his children in exchange for a stable home with their mother.

All of these are valid. Neither is more noble or deserving than the other.

While the risk/reward equation is ubiquitous, especially in free market capitalist economies, other factors are significant in determining someone’s pay. For the record, in America in the 21^st Century, there is no central authority determining who gets paid how much. Although, the government has significant influence over which industries get preferential treatment in the free marketplace and tax policy most definitely determines the haves and the have nots. This is indisputable.

The market, however rigged by a permanent ruling class, determines wages. Some factors include scarcity of a skill. This was clear in the mid 1990s when Internet technology was emerging and there seemed to be fewer than 100 engineers who knew how to program a router. These geeks had a license to print money. Then, hundreds of thousands worked their way into the field, knowledge became more widespread, and wages fell to a reasonable level.

Although the Ayn Rand crowd fears a world in which people are paid by “need,” which is practically and systematically impossible, there is one factor of which utopians dream and freepers fret: the value to society. The collectivist majority, in all human cultures, understands that most of our income is not a function of the amount of joy and we disperse into the air we all breathe. If it were, then hedge fund managers provide a service that is 50,000 times more valuable than janitors. They give us 50,000 times more happiness than the office bathroom that is cleaned twice a day.

In any market, labor works under the simple rules of supply and demand. It works toward an equilibrium that balances both, unless distorted by an outside force. Government interference in the market notwithstanding, supply of labor depends on individuals with skill sets. Low-skill workers will always make less, and skill is not always a function of education, but the two are closely associated.

A social need very much determines demand for a skill. In the router engineer example above, businesses were very desperate to connect to the Internet in the mid 1990s for many reasons. Visionary market makers saw it as an opportunity to offshore white collar jobs to India. Others saw it as a way to sell goods worldwide without the geographical limitations of a rented store. These needs drove a labor market in the same way so many had emerged before. Scarcity, the fundamental principle of economics, created a wild ride until stability ensued.

Taxes are Temporary; Death is Permanent

2010-11-10T22:02:00.000-08:00

(Thanks to Michael Sweeney at The Stonecipher Report for hosting me this afternoon.)

The one lame-duck agenda item will most likely be the extension of the horrific tax policies enacted by the last administration in 2001 and 2003. Within days of winning his first election ever, appointed Colorado Senator Thurston Bennet III (credit to David Sirota for glossing that one perfectly) confirmed what he said in a debate last month – he would support a one-year extension of the tax cuts. (Bennet would also like to remind you that he’s not Ken Buck.)

We need to stop calling them “tax cuts” after they’ve been in place for nearly a decade. These are the current tax rates and are set to increase, marginally, in January. They will return to the pre-Bush II rates, the same rates we had for the economic boom during the 1990s. The tax cuts were so effective that President Bush could admit in a September 20, 2007 presser that he got a B in economics but an A in keeping taxes low. Thanks for that reminder, asshole.

While the conservative movement has gotten a million miles out of the two-syllable phrase “tax cuts” the logic, shockingly, doesn’t add up. First the rhetorical question: if tax cuts and low taxes are good for the economy, why not just spare us the drama and cut them all to zero today?

Then there’s the more realistic and empirical phenomenon that tax cuts have indeed preceded economic growth. They can argue that President Reagan cut taxes in the early 80s and the economy recovered nicely (the S&L crisis and that little October 1987 stock market “blip” notwithstanding). They can also argue that the 2001 and 2003 tax cuts led to growth. While it’s true the economy didn’t shrink, growth in the first decade of the 21^st Century has been sluggish at best.

At best, we can argue that tax cuts must have some effect on the overall economy, but in reality their impact is negligible. For the theory to hold, a tax increase would lead to negative economic growth. So when President Clinton held his first news conference from the Oval Office to announce he’d be raising taxes, we should have predicted the economy would crumble in the ensuing years. Remember the great 1993 – 1999 recession? Note there is no hyperlink there because there was no recession.

Clinton raised the top marginal tax rate from 32 percent to 39 percent. If the current rates sunset in January, that increase would be from 35 percent to 39 percent. We’re talking fractions here.

It is safe to conclude that changes in the tax code, any change, would spark economic activity. In addition to the income tax rates changing next year, so would the capital gains tax rates. This means smart investors are likely to ignite a sell-off in the next six weeks.

This means smart investors are likely to ignite a sell-off in the next six weeks.

But with that sell-off, brokers make commissions. That’s economic activity, which is generally considered a good thing.

Economies are systems that naturally seek an equilibrium. All agents in the economy – businesses, individuals, institutions – will seek whatever is in their own best interests. When a tax policy sits for a few years, all adjustments have occurred. If the goal is to spur economic activity, then change the tax code every five years just for the sake of changing it. But nobody can make a reasonable argument that tax cuts are good, tax increases are bad, or that the current tax code is effective.

One Term of Crow

2010-11-07T06:42:00.000-08:00

The crow-eating didn’t last long. Republicans won the House thanks to a group of astroturfed activists who in their hearts believe they are a grassroots movement. Most of them don’t know they are tools of an enormous public relations initiative hell bent on putting business “friendly” Republicans in power. The movement is the antithesis of that, however. It’s about having no power. At least that’s what most of them say.

Movement politics in America in 2010 is anti-bailout, anti-regulation, and anti-tax. This is what the PR machine fed to the lemmings in correctly strategizing that by removing the incumbent party, the friendlies would run the show. But all the things the movement is against are very much counter to the things all Americans, including the mis-informed, want to be: anti-unemployed, anti-unsafe, and anti-bankrupt.

Double-negatives notwithstanding, the new Congress has an enormous dilemma on its hands. If power is all it wants, then it must know that unless the deficit for fiscal year 2013 equals $0.00, there will be another bloodletting in 2012. Those of us who have actually done the math know that if we abolish all the agencies the activists suggest should go and if we cut every earmark, we save ourselves at best 2 months of deficit spending annually. All our “wasteful Washington spending” adds up to about 1/6^th of just the money we already overspend.

Boehner and company now have two years to solve this:

Increase employment
Cut taxes
Eliminate deficits

In other words, Americans who voted in the mid-terms want a viable economy. If the Republicans know how to do this they’ve been doing a damn good job of keeping it to themselves. Yet, within the political reality which is a horrifying nightmare for anyone in power today, lies potential for a stunning silver lining.

If Americans do indeed want full employment, lower taxes and no deficits, then the American people (who are the government as defined that Constitution thing) are at odds with the corporations who paid for this election and every other one in modern history.

First, to increase employment America must quickly enact a rational trade policy that sharply cuts imported manufactured goods. Without a manufacturing base, the American economy is doomed. (I’ve written extensively about the fatality of outsourced labor.) Even if we did it industry by industry, there would be a huge impact. Bottom line: NAFTA and all the other trade deals we’ve cut in modern times serve the large multinational monopolies due to pulling the bottom out of the wage floor.

Secondly, cutting taxes and eliminating deficits are contradictory, unless you’re Arthur Laffer who theorized lower taxes would increase economic activity. Although Laffer’s theory – or at least the margins at which he modeled – has been proven wrong, the Taxed Enough Already (TEA) brigade must understand that most Americans have an effective tax rate of about 13 percent. Wealthier Americans are taxed at lower rates than working class Americans. Still, if 13 percent of our income goes toward government spending, and the government spends about 20 percent of GDP (this has been true since the invention of the political economy which was before Jesus), then there’s going to be a deficit.

We can’t have both tax cuts and no deficits without a significant decrease in spending. As I’ve written before, there is no way to significantly decrease spending without going through the Department of Defense. Furthermore, most of the activist community is not aware that the United States spends more on military each year than the next ten nations combined.

And the deficits have been so high in the past two years in part because President Obama has been putting those two wars over there on the books, something his predecessor did not do. Additionally, it’s possible to be responsible about national security without having to disproportionately increase military spending with each budget, yet that’s what we’ve been doing for decades.

There is no option to cut taxes. They are already historically low. And the argument that business taxes are too high is flat out BS. Effective business tax rates are about 6 percent and most companies don't pay them at all.

We can't have both tax cuts and war, and really it looks like we can afford neither at this point.

If indeed we’re looking a Republican House because Americans want jobs and responsible spending, the new Speaker must play ball and promote what are truly progressive causes: strong labor and peace. Bring manufacturing back and end the wars (via defunding) and he can be Speaker for Life.

Then, and only then, the liberal can work toward turning everyone into solar-powered promiscuous, vegan atheists.

If You Want It, War Is Over

2010-11-03T06:40:00.000-07:00

Amidst the precursor recession of 1991, I was working in the music industry, which, like much of the economy, was experiencing a slowdown. A colleague said that if the industry didn’t need it so badly, he’d be rooting for the upcoming Guns ‘n Roses release, Use Your Illusions I & II, to be a commercial bomb.

A week after the GNR albums were released, a little-known band from Seattle released its major label debut, ironically on the same label as Guns ‘n Roses. Without much doubt, Nirvana has had a significantly greater impact on the music industry and popular culture than Guns ‘n Roses ever did despite being a band that ended abruptly when its lead singer tragically committed suicide just a few years later.

If the country didn’t need to keep Republicans out of control in 2011, many progressives have been secretly rooting for a defeat of the Conservadems, also known as the Blue Dog Democrats. With the exception of a few races specifically targeted at key progressives (Feingold and Grayson in particular), most of the congressional seats that changed hands in the 2010 midterms were held by conservative Democrats.

In that regard the Republican takeover of the House should come as no surprise. However, in the campaign and in the victory speeches we heard a lot of talk about cutting spending and eliminating deficits. The bitter reality will come when the campaign rhetoric hits the House and Senate floors and they learn the following: With no changes to the tax code, cutting all earmarks, dismantling the Dept. of Education and the EPA (and any other agency) will have no impact on the deficit or the budget.

The only reason the deficit topped a trillion dollars in 2009 (which was Bush’s budget, BTW) and again in 2010 was because President Obama put the Iraq and Afghanistan occupations on the books. Prior to that, both wars were off-budget. So if congressional Republicans are indeed committed to doing the will of the American people, this is a perfect opportunity to end these wildly unpopular occupations, which have cost a trillion dollars and bleed us of hundreds of billions every year.

Congress has the power to defund wars. That’s how Vietnam ended and that’s the only way these immoral invasions will end. If the new Congress can do this, then more power to them. Perhaps this is the unknown gem that Nirvana was back in 1991.

T.E.A. - Tax the Elite, Already!

2010-09-23T05:35:00.001-07:00

Editors Note: This has been sitting in draft state since last fall (2010). I don't need to add too much to it, but this is basically what's going on today with the phone debt ceiling crisis negotiations.

If you ask defenders of the current tax code why it's so important to have low marginal tax rates on the rich, why capital gains should only be taxed at 15 percent, or why they shouldn't pay any FICA tax after they've already earned $107,000, you will get one of two responses - the trickle down argument or the spending argument.

If we "overburden" the wealthy with too many taxes, they won't invest in things that "create jobs." It's the attitude that supply creates economic activity.

The spending argument is far less complicated, but leads to a moral discussion. The defenders will say that if we raise tax revenues, the money will only go to pay for inefficient social programs that provide incentives for lazy individuals to remain lazy on the government's dime.

Panic

2010-06-22T15:57:00.000-07:00

A guy I used to work with includes me on all his teabagger, neo-Libertarian emails. Just now he sent out some alarmist scam about the "evil" cap and trade bill forcing homeowners to upgrade all their appliances when selling their homes. He cited me in his introduction, and the email was sent to about 50 people, so I was compelled to respond.

------begin response-----

Since I was cited I’ll reply all. Feel free to delete me.

It looks like an alarmist thing most likely from the pro-business think tanks that are attacking cap and trade at every level, including through email meme spam. Even if true it’s a bit of a non-issue. Every home sale is subject to inspection anyway; over time all systems would be replaced. If there’s a problem it’s in the efficiency standards of the replacement parts.

If there’s a proper role in this for a governing body it would be to ensure standards for transforming from a carbon based energy policy to a renewable energy policy. (The world will be out of oil in the next 100 years, BTW.) But it won’t happen on either side because the next election is always financed by the oil industry and the investment banks.

Don’t think Rand Paul could fix this either. He’s not the free market advocate many believe; he’s a shill for industries that want to privatize their profits while socializing their risks therefore buying off everyone in Congress. That’s the only leftwing talking point I’ll throw out there.

Thanks

Why Democrat?

2010-04-09T22:20:00.000-07:00

There are not two major political parties in America, there’s one – the Corporate Party. Its two finance committees, the Republicans and the Democrats, raise money from diverse demographics. The Republican finance committee solicits contributions from individuals who think small government is a good idea (except for enabling the military industrial complex) and others who believe Jesus Christ was a white Anglo-Saxon Protestant.

The Democratic finance committee appeals to those who prefer a more egalitarian approach. For example, individuals who believe industries should provide safe workplaces, that both water and air should be clean, and who profess Jesus lived at the Vatican.

But these two committees are fringe elements to the real contributors. The corporations, through their lobbyists and political action committees, own 90 percent of the political process. Thus both sides of the aisle, the Executive branch and a growing majority in the Judicial branch work for the businesses of the world. It’s not limited to American corporations any more.

Of course this is no real secret. Everyone knows this.

Once we accept that most of our elected officials are essentially sponsored by the behemoths of big business, there remains a compelling reason to support Democratic candidates over Republicans. It’s the fringe.

In general, Democratic lawmakers have much more interesting pet causes. Republicans, although they proclaim to be the party of autonomous free thinkers, are the most monolithic group since the Masons. Ask any Republican to solve anything and the answer is “cut taxes, less regulation.”

But when odd circumstances arise, Democrats are more likely to have knowledge in things like environmental policy, reproductive rights, food safety, and even economics. The fringe Republicans believe the earth is 6,000 years old, the Dept. of Education should be eliminated as a cost-cutting measure, or that climate change is a hoax.

Two Related Things

2010-02-24T08:46:00.000-08:00

First I wanted to post this picture just to archive it:

Reagaonomics: "We told them weatlh would trickle down"

Then I found this article today, which doesn't surprise me given the graphic above.

Wealth Disparities in U.S. Approaching 1920s Levels

Populist Rule

2010-02-21T20:52:00.001-08:00

I don’t know the rules of the Senate, and it appears nobody else does either. But we do know that it is divided into two caucuses: the majority and the minority. The majority caucus is currently 57 Democrats and two independents. The minority is 41 Republicans.

There are dozens of other caucuses in both houses, such as the Congressional Black Caucus. These are groups of representatives who gather around a cause. So I wonder if a certain caucus were to number into a majority if it could seize control of the House or Senate. In other words, why is the leadership chosen by political party?

Parties have become irrelevant, especially considering that the real split in either house should be between Corporatists and Poplulists. Imagine for a moment if the Corporatists decided to get together and form a caucus. Assuming they’d have the balls to be so blatantly honest, they would also have an instant majority.
Their cause would be to represent the interests of big business. The only legislation that would have a hearing would be bills that grant or extend monopoly power to the most powerful of businesses. As resources grow more scarce, this congress would ensure that water, the element of life, would be privatized and highly profitable, not unlike oil today.

This congress would allow war profiteering, and even approve wars for which there is a huge private sector gain – such as Iraqi oil fields. This congress would craft bills that mandate all Americans to buy private sector health insurance while not providing a publicly available option. It would privatize the money supply.
That’s what a Corporatist controlled congress would do. But imagine if 51 senators, regardless of party affiliation, decided they work for the people – poplulists. If they got together and seized control of the Senate based on majority rule, what could happen? What would stop them?

The Upside to Upside Down

2010-02-17T18:55:00.001-08:00

“I’ve joined the my wife’s having an affair club.” That’s what the text message read from one of my oldest friends a few weeks ago. After talking him off the ledge, I convinced him to liquidate their assets, split the proceeds down the middle and start again. Save for the emotional harm, this is the most rational route.

After a week of couples counseling, he realized there was no hope, so he looked at their finances. They owe about $250,000 on a house that’s worth $225,000. She ran up $50,000 in credit card debt. He was convinced he was screwed.

As the primary earner in the house, he could easily take over the mortgage payments. When I convinced him to dissolve the business known as his marriage, he was happy to send her off to go live with the new boyfriend.

If they had any equity in the house, by most state’s law he’d be obligated to buy her out for half the equity. At this moment, the end of the marriage, the venture is $75,000 in the red.

His answer is simple. Take the house, split the $50,000 of debt with her (or even negotiate a settlement based on the negative home equity) and call it a day.

This is in contrast to another couple I knew who recently split. They had six figures in equity, she didn’t work, and he had to buy her out.

Happy Meals

2010-02-17T05:57:00.001-08:00

Last night I attended a debate between two Senate candidates locked in a primary battle. After 45 minutes of railing on the sorry fate of the American economy and the role its government played in its downfall, both were asked a simple question: What sacrifices would you ask the American people to make to fix the economy?

Both dodged the question.

Neither was willing to touch the political third rail of suggesting we simply look at military spending, which consumes 18 percent of federal spending. However, there is one more innocuous sacrifice we could make that could go a long way in solving the crisis. We could forego the toys in our children’s Happy Meals.

Every plastic throwaway item is made in China with cheap, unregulated labor and lax environmental laws. We enjoy them because they’re cheap, and they’re cheap due to the wholesale exporting of our manufacturing base. And with only 10 percent of the economy making things anymore, the economy is in turmoil.

The answer is simple. To bring manufacturing back to the United States, the toys in our Happy Meals may become too expensive for McDonald’s to provide; however, even if there is a rise in wholesale prices, there will be more Americans working to pay the difference.

Basically this is an argument for protectionism – a bad word among the corporatists who own the media and the political process. But we’ve seen what happens when we give them the keys to the factory – they send it overseas, ruin our labor force and devalue our currency. Aside from that, their way works fine.

I'll Take Wall Street Plus the 3.5 Points

2010-02-07T10:26:00.000-08:00

In 2008 the tsunami of economic disaster approached catching the American government with its pants down. While elected and appointed to manage the country’s money supply, these people were still blindsided due to their decades-long love affair with Milton Friedman’s economic theories, which gave enormous power to the capitalist class while privatizing public services and outsourcing labor to oppressed countries.

Faced with a monstrous dilemma, Congress and the president had two choices: spend $200 billion to stabilize crumbling mortgages or give $700 billion to Wall Street to do whatever it is they do with it. Since the $200 billion would only help at-risk households who can contribute a maximum of $4,800 to federal campaigns, guess which plan won?

It’s no surprise that the political establishment would follow its money supply. But it was also a sign of the special treatment we as a society have given to trickle-down economics. We were essentially saying that giving $3.50 to capitalists is more valuable than giving $1.00 to consumers. At times throughout our history, this might have been a reasonable bet, especially when capitalists were making things – back in a time when America actually had a manufacturing base.

But the Wall Street bailout money placed more bets on more derivatives, created no wealth and expanded the bubble. The estimated $200 million would have been used to cover the upside down part of the upside down mortgages, which would have led to some consumer stability and gone a long way in right-sizing U.S. currency.

We would have been out of the woods by now, instead we are going through another round of extreme piss-offery at Wall Street bonuses and corporate whore senators.

Why We Won’t Go Renewable

2010-02-06T09:53:00.000-08:00

There is enough wind in the Dakotas to power the world. There is enough sun in Colorado to power most of North America. If we invested $700 billion in building out this infrastructure instead of bailing out the banks, without question the U.S. economy would have been recovered by now. And the banks would have been just fine as well.

This is such a blatant observation; the head-scratching question remains “why not?” There are two reasons, and they are far less obvious. First, the American dollar has been dependent on the world value of oil for nearly 40 years due to the concept of petrodollars. Secondly, and more covertly, there’s a geopolitical value to having scarce resources in the ground.

The world has been consuming oil for about 150 years and even the most forgiving forecasts assert that we’ve got at most 250 years left of oil in the ground. Basically we are at peak oil. And despite the calls to “drill, baby, drill” off the American shores, it makes more sense to simply let it be.

Globalization has never been about the world being flat, and it’s not a new phenomenon. It’s entirely about the accumulation of wealth. The Open Veins of Latin America describes how Spain and Portugal invaded and exploited Central and South America in the 16^th Century for their own accumulation of precious metals. And the story reads similar to the most critical ones we read of North American imperialism.

But as the majority of the world’s gold and silver was harvested, as that market reached its own “peak metal” oil became the next gold. In addition to being the dominant form of energy, oil is used for plastics – another new phenomenon in the modern arsenal of products.

An oil investment is far more profitable than a gold investment because oil is literally an exhaustible resource. Its value is derived from its ultimate use of burning up, being turned into both energy and a carbon emission. With every barrel of oil pulled out of the ground, its value increases. It’s a diminishing resource. Gold and other precious metals served no other purpose than to sit in stockpiles backing up currency.

As an aside, jewelry is to metals what plastics are to petroleum.

But America’s love affair with oil is a scorched earth policy. At some point, it’s simply not going to be there any more.

But this all leads to one huge profiteering machine – the military. Modern warfare is a means of protecting America’s oil interest. And while it’s always framed as a way of protecting democracy and freeing oppressed people, we fight for two reasons: to secure oil fields in Iraq for private oil companies, and to keep the American military machine active.

If we were to invest half the American military budget over the next decade, approximately $1.8 trillion, in building out a renewable energy infrastructure, we would produce enough energy to power the world. There is no shortage of silicon for photovoltaic cells, nor is there a shortage of steel for wind turbines. As a top exporter of energy, the dollar’s value would remain stable on world markets.

But the real reasons we don’t do this are 1.) because it involves cutting the military budget in half and 2.) there would be no more oil fields to secure. Once again, the Pentagon wins.

The Last To Go

2010-02-02T21:30:00.000-08:00

I’ve made my living for the past decade, since getting out of economics school, on the technical side of the business world. My selling point is a rare ability to communicate between the business and software development types. However, that ability is becoming more and more common as the geeks have learned business, the business types have learned geek, and the production line has been exported to India.

So I struggle with changing the catch phrase on my résumé to “rare ability to communicate between India and the business.” Furthermore my ideological distaste for globalization leads to a struggle to hate myself for having exported white collar jobs to India. Unfortunately, however, it’s the way I’ve stayed alive in recent years - being on the project team that automates bits and bytes in such a way that uneducated 20-somethings can support multimillion dollar, enterprise-critical systems for dimes on the dollar.

My type will be the last to go. We were once rare, high paid geniuses who could translate business talk into Boolean logic. But now that we’ve done such a good job at automating the enterprise, every project seems to be taking what we’ve simplified and off-shoring it. The same subject matter experts with whom we shared lunch a year ago, picking their brains – and in the process learning about their kids and struggles – are rapidly being replaced by hourly labor in call centers staffed by slumdogs.

We will be the last to go because when we’re gone, there will be nobody left. The information economy, made possible by the corporate media’s love affair with “The Flat Earth” has led to a distinct class system of owners, paupers, and those with the “rare ability to communicate between India and the business.” Once we’re gone, it will be the slums for most of us.

Capitalist Labor Day 2009

2009-09-07T09:40:00.000-07:00

Although I vow to stop doing this, I can’t help but tune in to the train wreck known as cable news. The nasty part of it is the split screen with one guy representing the left and another guy representing the right. The anchors don’t even try hiding it.

While it’s relatively new in the news business, the rift between left and right is still the same tiresome argument between the working class and the capitalist class. And just by mentioning that I accept that the freepers will label me a Marxist – have it it boys. Because labor significantly outnumbers the capitalists, the message from the right is increasingly convoluted. It has to be simply because they can’t blatantly come out and promote policies for lower wages, more tax shelters and more government protection of monopolies and oligopolies.

Let’s be clear: most people in elected office represent the monopolies. They don’t represent people. Ultimately, Democrats and Republicans alike, if they are in office, are defending the capitalist class. Let’s be equally clear that defending the capitalist class is not the same as defending capitalism. The latter is a system that requires an ownership class and a worker class. Our system today tilts the playing field toward one class.

This is how we’ve been raised for a generation – if we take care of the almighty corporation (which exists to give profits to capitalists) all will be fine. What’s good for Wall Street is good for Main Street. Right?

That’s why we’ve been so diligent in exporting our manufacturing base to third world countries. That’s why we’ve allowed the bottom to fall out of the wage market. And it’s been so successful that today we are approaching double-digit unemployment.

This Labor Day brings with it some slightly encouraging news. After decades of dismantling the country’s manufacturing base and thus its labor force, there are some signs of improvement. Wages appear to be up and the earnings gap for women and minorities is shrinking.

The CEO-to-worker earnings ratio is down from its record high ratio of 525:1 in 2000 to 317:1 in 2008. Translated: for every dollar a worker earns, a CEO earns $317.

With that ratio on the decline and other gaps narrowing, it appears the economy may be headed toward stability. More importantly, domestic manufacturing increased in the second quarter this year.

Great news. Not so fast.

While GDP growth is actually negative for this year (-6.4 percent in Q1 and -1 percent in Q2), productivity is rising at a 6.6 percent annual rate. Productivity is the value of output (market sales) per cost of input (wages and equipment). It is a leading indicator of income to the capitalist class.

So as our GDP shrinks and our wages are rising at a more modest rate, how are we going to buy all the goods that were produced so efficiently in the second quarter?

Donkey Fluff

2009-09-04T13:13:00.000-07:00

Politics is big money. It's all about presevering the protectionist state of the corporations. There is no competition. There are oligopolies. It's pay to play and the price of admission is a contribution to a campaign.

Most of them on both sides of the ailse are corporate whores. If I have any respect for the Republicans it's because they don't pretend to be anything else. Yeah we suck the cocks of the corporations, what you gonna do about it? The Dems play the same game while pretending to care about working families. This health care debate is exposing this fact. When it comes to whoring themselves to the corporations, Republicans are flat out porn stars while Democrats are merely fluffers.

I’m So Glad The Revolution Is Here

2009-03-05T15:16:00.000-08:00

Writing a book about American economic life during the most tumultuous financial time in nearly a century has been like digging a hole in a lake. We’ve been trying to stave off the inevitable for a generation, but it has become clear that the world economic system is about to collapse.

The new breed of gazillionaires will be born out of the ashes of today’s disaster.

Every day there is new news that would have seemed unfathomable even as recently as the summer of 2008. This makes it impossible to pick an end point. This system is in constant flux, spiraling downward. But how we got here is the story of our economic life.

We are here not because of tax rates or earmarked pork barrel spending. We are here because of long-term trends that have spanned generations. Years in the making, we have reached a boiling point.

This is the result of the following trends:
• Globalization leading to lower wages
• Disaster capitalism
• Petrodollars, the basis of a severely mismanaged money supply

The Economy’s Dirty Needles

2009-02-08T13:34:00.001-08:00

The debate over the stimulus packages has ignited a storm of coverage of Keynesian theory, that a substantial government investment in the economy can pull a country out of recession. The proposed $700 billion plus offers that are on the table may have a short-term benefit, but ultimately it’s a sugar high.

The overarching mentality is the belief that more money in the system will grease the skids for spending and investment. This may be true in its limited scope, but there are multiple “skids,” per se. Perhaps thousands. And some skids are more effective than others when greased.

The great hope is that an abundance of money will begin to exhaust all the pent up demand in the system. This onslaught of demand will lead to job creation, because somebody needs to design, build, ship and sell all the things so many of us want but are reluctant to buy.

It makes sense that this increase in demand would require increased investment, even if investment always precedes manufacturing.

However, even if there is an aggregate increase in manufacturing, we forget that our manufacturing base has been exported, resulting in a significant drop in wages. The increase in productivity, brought on by the whirlwind support for cheap manufacturing labor in slave states around the world, has not been matched by a similar increase in wages. Wages equal purchasing power.

With diminished purchasing power in America, there is only one way to fulfill the demand – subsidies. And That’s what the stimulus package is.

But it doesn’t subsidize the masses. Rather, it subsidizes the capitalists whose productivity, meaning profits, have risen at a rate greater than wages. This system is all about perpetuating a ruling class.

When you give money to the working poor and tell them to go spend, you’re essentially giving clean syringes to the junkie. True you minimize the damage, but you don’t fix the underlying issue.

More than a trillion dollars have been committed since the fall of 2008 to remedy the nation’s economic troubles. This is quite possibly a part of the price tag of neoconservative economics. Just tack it on to the $12 trillion we’re already in debt and then we will know the value of Milton Friedman’s legacy.

This is primarily a monetary crisis, but it’s the result of awful fiscal policy. Too often we have been willing to allow our manufacturing base to slip away. Politically we’ve been too afraid to stop investing in things that do nothing except destroy.

There’s a bitter pill to swallow in a crisis like this one. The proven answer is perceived as being so politically unpopular, nearly all who have any authority in the matter would balk because they believe they’d be cannibalizing their own careers. But it’s a twofold solution that is the mirror opposite of a stimulus package.

It requires decreased government spending and moving the manufacturing base back home. By rightsizing our federal budget, we can begin to set a more realistic value on our currency. Furthermore, by going protectionist with our labor market, we can begin to ensure there will be purchasing power for all the goods and services produced within our borders.

Often we fail to acknowledge that economies are closed, self-correcting systems. Granted there will always be outside influences, and there will always be a necessary amount of importing and exporting. But like any system, economies correct themselves much easier when there are fewer external factors.

So with possibly thousands of factors at play, the stimulus swindle of 2009 must grease the proper skids if it will be effective. Specifically it must address wages and earning power in the long run.

An Alternative Theory Behind Falling Fuel Prices

2008-12-01T07:40:00.000-08:00

America's manufacturing base is now a wholly owned subsidiary of China, Malaysia, Bangladesh, and (insert Asian country here).

While it may be cheap to manufacture overseas, getting the goods here depends on transportation. Transportation is a function of oil. As it got more expensive to move the cheaply manufactured goods to their American markets, there became pressure to decrease the cost of fuel.

The goal here is to keep American wages low.

Opportunities of Collapse

2008-11-21T06:03:00.000-08:00

Ultimately we find ourselves in a place where the system is resetting itself. There is the argument that if you redistributed all the wealth equally today, within 20 years today's wealthy would be that way again. Likewise today's poor would be poor again.

With the reshuffling of the cards, the overall pie getting smaller, we may be ready to test that theory, along with other ones.

This is not a political treatise, but we have been living in a worldwide neoconservative economy since the 1960s. The wealth has been distributed upward, the military-industrial complexes have enjoyed riches and protection, and the power of the global corporation has only increased.

Likewise, manufacturing in developed countries is down. There has been a merger between the middle classes and the working classes. We now call them the working poor.

Trickle down theory, that if we concentrate the wealth upward great wealth would result for all, has been proven wrong here in then United States.

Point of Sale

2008-11-12T17:05:00.000-08:00

In 1983, my first job was at the A&P in Danbury, Connecticut. Nearly all of us started as cashiers. We didn't have barcode scanners back then. Every item had a price tag, and most price tags had categories to represent where the accountants should file the income. Produce, Grocery, Health & Beauty, Deli, Dairy.

It was tedious. Key in the amount, with the decimal, and hope to god you'd press the correct category button. If you messed up, the mean lady from the service desk would have to walk to your register, break out the keys and override your mistake. You'd feel much shame.

Most food wasn't taxed. There were taxable-foodstampable items, like dinners prepared in the deli. There were also non-taxable, non-foodstampable items, but I can't recall any.

But I got good at it. Years of piano playing gave me the dexterity to hit all the right keys.

It was cash, check or food stamps. The foodstamp cases were sad. After all, this was Connecticut where all the rich people lived, right?

Only once a guy tried to pay with a credit card. Imagine that. Buying groceries with an American Express card. We didn't operate like that. No supermarket did. I had to total up his basket of groceries and leave the receipt with the mean lady at the service desk while he ventured out in search of some cash.

A short while later he returned to pay.

Today, it's all about the card. And it gets worse. There are super-supermarkets that sell everything including groceries. You could literally go into one of these box stores for a 12-pack of Pepsi, a pair of jeans and a television. And, you could buy it all at the Express, 12 items or less, checkout.

Maybe it's every dozen customers or it could be whenever an order tops $100, but the cashier is prompted to offer a credit card to the customer. "Save 10 percent today if you apply for a Big Box Store credit card?"

This even happens in the Express line. This defeats the purpose of 12 items or less. The next item they upsell, another line of credit, is not exactly a scannable, barcoded commodity. Or is it?

I observed one of these once in, yes, the Express line. They give the guy a form, ask for his ZIP Code, scan his driver's license and off comes the 10 percent. Seriously. Poor guy. More like dumb guy. He just had another ding on his credit report due to applying for another credit card. At least he got 10 percent off his television. Dumber people will do it for a free t-shirt.

One big box store recently changed its point of sale system, that is the collection of devices that scan items, weigh produce, collect payments, print receipts and secure the money. The process for using a debit card has always been different from the one for using a credit card. As a cash-only kind of guy, I am only familiar with the debit card process.

It used to go something like this.
1. Insert card
2. Enter personal identification number
3. Do you want any cash back (Y/N)?
4. Approve total

Then they added something new. Something really scary. There's now a prompt asking if you want to charge the entire order on this card. Having only one debit card to use, my obvious answer is yes.

There must be enough people who want to split their grocery bill over multiple cards to allow for this ridiculous change. Not only are we paying for things with money we don't possess, we have different values of money based on the terms of our credit cards.

I'd imagine the thought process would go something like this: "The TV costs $500 and the groceries were $26.73, so I'll put $500 on my airline card (because I'm only about a thousand points from a free ticket) and the balance on my CapitalOne card.

Work, Worry, Consume, Die

2008-11-11T21:40:00.000-08:00

It’s a beautiful life. That comes from a Zippy comic circa 1990, and has stuck with me ever since. It could be a dark, satirical, even macabre look at our lives as Americans, especially since generations have come and gone obsessed with worry and consumption.

Everyone will tell you that they were never about keeping up with the Joneses, but we all were. We continue to be, sometimes it’s more obvious, but it’s part of who we are. It’s our story as Americans.

As far back as the Greeks we’ve been analyzing the role of economics in our lives. Perhaps even figuring out the role of our lives in economics. But there are two main schools of thought.

One argues that the good of the society comes first. Growth and prosperity are the top indicators of a society’s wellbeing. The other, counter argument is that the individual happiness of individuals is most important. Neither is conservative nor liberal, rather the argument revolves around whether prosperity is a bottom up or a top down function.

The top-down approach is authoritarian; the bottom-up approach is utilitarian.

In our lifetimes, we have experienced both of these. For some the pendulum has swung back and forth three times.

Arguably, after World War II, when happy days were here again, we embarked on perhaps the world’s most successful experiment in utilitarian economics. A working class evolved into a large, abundant middle class bolstered by a strong manufacturing base, sustainable earnings, and the emergence of safe, affordable suburban living.

This was by no means the glory days in American history. By the mid 1960s, a war on poverty was necessary to combat the dire conditions for those left behind either by a century of institutional racism or a manufacturing economy that thrived without rural output.

Furthermore, we have seen how war denigrates the countries that invoke them. Both Korea and Vietnam drained our treasury of funds that could have been used to better combat poverty and enhance education.

However, the American life saw a tremendous increase in its standard of living as the masses earned well, worked hard, made things, and contributed to the society, the economy and the culture.

Yet, as oil shocks and stagflation hit in the 1970s, Americans were ready for a new approach, which came in the form of supply side economics with the conservative revolution of the 1980s.

Suddenly we were about growth and prosperity. What’s good for Wall Street is good for Main Street. Moreover, we became willing to trade stability for riches. Volatility was the price of admission into the high-stakes game of the motherlode. Many Americans accepted this.

Economists developed theories around it called Mobility Theory, which argued that the more we assumed we could be king of the hill, if even for a day, we cared less and less about fairness. Throughout the 80s, the United States became the “greed is good” society. And while much has been written about fiscal and monetary policy that led to dangerous speculative bubbles, most were able to write off the October 1987 crash that could have sent us back into a second Great Depression.

Instead we hailed the safeguards that shut the system down before it could crash outright. The underlying attitude was confirmed – we were willing to trade volatility for prosperity. If we could get a day atop the hill, it would be worth the years we spent in the barrel.

Even through the 90s and into the millennium, we myopically embraced our economy as a living and breathing entity that needed to grow, even if only on a diet of carbs and sugar and fat. We accepted the bubbles as mere bulimic releases of an overheating economy. We called the “corrections.”

But if monetary and fiscal policies were the carbs and fat of our economy’s diet, noticeably absent were the vegetables and proteins necessary for healthy growth or sustained health. This is the economist talking now.

Initially this analysis was supposed to cover post World War II America until the dawn of the new millennium. But when the world financial markets melted down in the fall of 2008, it became necessary to extend it to Election Day.

Markets hate uncertainty because humans hate uncertainty. Election Day 2008, if anything, demonstrated certainty. It the first national election since 1996 to be solved before we all went to bed. Regardless of how it fell, the clear election of a president and a congress was precisely what the uncertain times needed.

It also signaled a sea change, which may have been known to president-elect Obama, but he kept it to himself as he assumed office. With overwhelming clarity, the next American generation rejected the notion that volatility is an acceptable tradeoff under any circumstances.

In a speech given in the spring of 2008, I declared that the United States was in a monetary crisis, but we would most likely not hear about it until after the elections. To their credit, they staved off catastrophe as long as they could. But by September, it couldn’t be stopped. The floodgates opened and worldwide economic crisis broke out.

Consciously for some, subconsciously for others, but collectively nonetheless, we connected the dots between our hedge-fund mentality toward the economy and the grave risk it posed to all of us. None of this was an issue until 50-somethings saw their retirement nest eggs dwindle to squat.

In a sobering realization, the country’s damaged psyche became willing to reconsider its means and ends. The difference is one of economic growth for the good of society versus the pursuit of individual happiness in the form of love, security and peace. With the former, money is the end game. With the latter, it’s a means.

This is the story of life in America and how the generations approach it. We all agree there’s a generational gap. But we all want the same things – a home, a career, to make a difference, and some want to raise a family. These decisions have been the same for our parents, ourselves, and will most likely be the same for our children.

The difference lies in the factors. Nobody denies “things” are more complicated now than they were in 1960. These things are all factors that weigh exponentially on our key life decisions. And as social sciences have shown, the more options we have, the more confused we become.

Faced with a virtually infinite number of conditions for simple life decisions, even something as simple as taking a job with Company A or Company B, we’ve all become speculators. Some more than others, but it’s unavoidable. Yet, today as the world financial markets are resetting themselves and we’re amidst a sea change of socioeconomic thinking, the more speculative among us may not be any better off than the person who has been with the same company, doing the same job for 20 years. This guy is extremely rare any more.

We also know that people, regardless of culture or nation, seek to decrease the amount of uncertainty in their lives. The number of uncertainties today is astronomically higher when compared to 1960.

In defining our parameters, we become more balanced and stable. We can begin to move toward happier lives.

Increased Wealth Gap

2008-09-26T09:10:00.000-07:00

In the past eight years, the 400 wealthiest Americans have seen their net wealth increase by $670 billion. Coincidence?

Cutting Pork would Finance the Deficit for Several Days a Year

2008-09-14T06:43:00.000-07:00

McCain's plan to rescue the economy depends on cutting "wasteful government spending." This amounts to approximately $20 billion per year. Good chunk of change for most of us, but not for an entity that plans to spend over $3 trillion this year. That's 2/3 of 1 percent of the federal budget (0.67%).

Put another way, our national deficit is about $400 billion in 2008 (link to xls file from http://www.gpoaccess.gov/eop/tables08.html). This means we overspend by about a billion dollars a day. McCain's plan would finance our debt for about 18 days.

Debt is all that remains

2008-08-07T10:17:00.000-07:00

When productivity grows faster than wages, the only way to make up for it is through debt. When productivity rises and wages fall, we have stagflation.

Credit crunch not just for the poor any more

2008-07-28T17:45:00.000-07:00

Even the affluent are beginning to have trouble paying their bills. This is because most of us have been living on the anticipated income for at least a generation

The Wise Use of Credit

2008-07-12T13:15:00.000-07:00

An educational video from 1960 explaining credit to young people. It was repeatedly cited in the documentary Maxed Out.