Earlier today I watched the Governor of Virginia, Bob McDowell, expound upon the virtues of lowering taxes to stimulate employment growth. He said that every state with a Republican governor had lowered taxes and seriously increased employment.(He neglected to mention New Jersey which cut taxes and had an increase in unemployment) Therefore, the Federal Government should do the same and we'd all be better of. What he neglected to say is that this only works if you have a higher tax state from which to steal jobs. This is how it work: Assume two states with equal, including state taxes, employment costs to employers: State Goniff decides to cut its business taxes in half while state Schlemasel keeps everything the same. A business located in Schlemasel moves to Goniff in order to lower its cost. The unemployment rate in Goniff drops while the rate in Schlemasel increases. For the USA, unemployment remains unchanged. It is a zero sum game with one state winning and another losing.
The only way to make this cost cutting technique work on a national scale would be to eliminate the middle class entirely. This means paying computer programers $5,000 per year,as they do in India, or using sweat shop techniques, as it is reported are used in China. The "New Republicans" appear to be well on the road to this approach. All you need to do is listen to what they say and understand the implications.
Sunday, August 21, 2011
Friday, August 12, 2011
Lets Give Them What They Ask For
Mitt Romney and the U.S. Supreme Court have stated that Corporations are people. If that is so, then we should carry their options to their ultimate conclusions:
1. Corporations should be subject to the all of the rules for personal income taxation.
2. When convicted of a felony, instead of just being subject to a fine, the company should be put into a receivership, for the term of the normal prison sentence for the crime. The receiver would allow only those actions which would allow the company to continue to live and disallow those actions which would allow the company to prosper.
3. Executives of companies which are convicted should be charged as accessories to the crime and be subject to conviction and punishment as any accessory would when a crime is committed by a real person.
Let's see what the right thinks about these rules.
Update 9/27/11 I just saw a great Bumper Sticker
"I'll Believe Corporations Are People When Texas Executes One"
1. Corporations should be subject to the all of the rules for personal income taxation.
2. When convicted of a felony, instead of just being subject to a fine, the company should be put into a receivership, for the term of the normal prison sentence for the crime. The receiver would allow only those actions which would allow the company to continue to live and disallow those actions which would allow the company to prosper.
3. Executives of companies which are convicted should be charged as accessories to the crime and be subject to conviction and punishment as any accessory would when a crime is committed by a real person.
Let's see what the right thinks about these rules.
Update 9/27/11 I just saw a great Bumper Sticker
"I'll Believe Corporations Are People When Texas Executes One"
Wednesday, August 10, 2011
The Pre-Ordained Failure of the Super Debt Commission
When I opened my copy of today's "The Morning Call" (Allentown, PA) I found that the lead article was a piece about Sen (R) Pat Toomey's recent meeting with local business people in Pottsville, PA. Toomey asked the loaded question of who felt that government regulations had worsened their businesses in recent years. Obviously, what followed was a litany of woes cited by the business people. They attacked labor laws and environmental laws as being costly and burdensome. What they did not address was who would pay the costs of the damages caused by the absence of the rules they criticized.Shortly after reading this I heard that Toomey has been appointed to the Super Debt Commission which is designed to create policies to reduce the Federal Deficit.
The problem ignored by Toomey is that businesses generate costs that are not included as cost of production because the consequences are external to the production process. Polluted water means that drinking water facilities have to be more robust to reduce the industrial pollution. Air pollution increases the incidence of lung diseases and subsequent medical costs. The costs of mitigating these problems are put on people who may not even be consumers of the products. Regulation puts the cost of the damages into the cost of the goods or services produced. This way, consumers pay the true cost of the products they use.
I have often heard business people state that they would not pollute because they and their families also live in this world. It may sound like a good argument until you begin to question specific actions. Several years ago a Vice-President for Manufacturing (at an unnamed company) was complaining to me that a certain state's (also unnamed) water rules were unreasonable. He said that the water his company used had come from the ground and, after being used and treated, what went back in was completely potable. I asked him if I could go to the water return system, get a glass of water, and serve it to him. His response was: "...you mean you want me to drink it?" When I said yes, his reply was: "no way in hell will I drink that stuff!" I then asked how he could state that the water was potable if he wouldn't drink? He sputtered and asked me to leave his office.
Toomey, and the rest of his Regressive cohorts play on a well known problem in the realm of public choice. The problem is that governments must create programs that come out somewhere in the middle of the public wants. This means that everybody is unhappy. Lets face it, when you want a cell phone there is a wide variety of models available. You can pick what you want. When the government tries to set policies regarding the parts per million that of a pollutant that are acceptable nobody is happy because some people think the level is too low and some think it is too high. The same applies to average classroom sizes in schools. In elementary schools I have seen studies indicating that 15 - 18 pupils would be optimal.However, I went to school in an era when our average class size was between 35 and 40. Most of my classmates went on to college and have entered fairly high level professions. If a school district sets a class size at 23, the only people who will be happy are those that think 23 is appropriate.
The right wing in this country, including Toomey, play up on this dissatisfaction with government decisions in an attempt to convince people that government can't do anything right. If Toomey and his cadre of conservatives continue to pander to this discontent and they only accept spending reductions, I expect that the commission is predestined to failure.
The problem ignored by Toomey is that businesses generate costs that are not included as cost of production because the consequences are external to the production process. Polluted water means that drinking water facilities have to be more robust to reduce the industrial pollution. Air pollution increases the incidence of lung diseases and subsequent medical costs. The costs of mitigating these problems are put on people who may not even be consumers of the products. Regulation puts the cost of the damages into the cost of the goods or services produced. This way, consumers pay the true cost of the products they use.
I have often heard business people state that they would not pollute because they and their families also live in this world. It may sound like a good argument until you begin to question specific actions. Several years ago a Vice-President for Manufacturing (at an unnamed company) was complaining to me that a certain state's (also unnamed) water rules were unreasonable. He said that the water his company used had come from the ground and, after being used and treated, what went back in was completely potable. I asked him if I could go to the water return system, get a glass of water, and serve it to him. His response was: "...you mean you want me to drink it?" When I said yes, his reply was: "no way in hell will I drink that stuff!" I then asked how he could state that the water was potable if he wouldn't drink? He sputtered and asked me to leave his office.
Toomey, and the rest of his Regressive cohorts play on a well known problem in the realm of public choice. The problem is that governments must create programs that come out somewhere in the middle of the public wants. This means that everybody is unhappy. Lets face it, when you want a cell phone there is a wide variety of models available. You can pick what you want. When the government tries to set policies regarding the parts per million that of a pollutant that are acceptable nobody is happy because some people think the level is too low and some think it is too high. The same applies to average classroom sizes in schools. In elementary schools I have seen studies indicating that 15 - 18 pupils would be optimal.However, I went to school in an era when our average class size was between 35 and 40. Most of my classmates went on to college and have entered fairly high level professions. If a school district sets a class size at 23, the only people who will be happy are those that think 23 is appropriate.
The right wing in this country, including Toomey, play up on this dissatisfaction with government decisions in an attempt to convince people that government can't do anything right. If Toomey and his cadre of conservatives continue to pander to this discontent and they only accept spending reductions, I expect that the commission is predestined to failure.
Tuesday, August 09, 2011
I Hope I'm Wrong
As I read the news and listen to the commentators I begin to fear that a prediction I made during the election campaign of 2010 will come true. At the time I told those who asked for a forecast:"...if the Tea Party gains significant control in the new congress we can expect 14% unemployment by the time of the 2012 election." I based my conclusion on a belief, which has proven itself in the recent debt ceiling debate, that right wing obstructionism would prevent any governmental ability to bring us out of the economic doldrums.
I pointed out, at the time, that the bulk of the stimulus ended up replacing tax income that state and local governments lost during the recession; with the expiration of the stimulus spending and the subsequent cuts in state and local spending accomplished through layoffs we could expect to see a rise in unemployment and a possible double dip recession. As we have seen, the new debt ceiling legislation not only eliminates the renewal of the stimulus package, but it also cuts additional spending from the federal budget. This lowered level of spending means that there will be fewer jobs in many different sectors with a subsequent reduction in consumer spending. In addition, extended unemployment benefits have also been eliminated. Unemployment benefits act as an automatic stabilizer in that they allow the unemployed to maintain at least a minimal level of spending.
The evidence that my prediction for an economic downturn may come true came in yesterday's announcement that worker productivity dropped and today' announcement by the FED that economic growth has been less robust than they had thought.A reduction in productivity is usually an indicator that firms will be laying off more people. It is a sign that they have more workers than they need. If we add slower economic growth and state and local layoffs to this scenario it is not unreasonable to expect growth to turn negative. Given the prevailing attitude in the House of Representatives getting any type of government stimulus into effect will be virtually impossible. In the absence of government intervention to stabilize the economy we can expect an accelerated downturn.
Some might ask what the FED can do. Bernanke has said the FED will do all in its power to stabilize the economy. The problem is that the Fed's greatest tool is the ability to raise and lower interest rates. The problem is that lowering interest rates is a method of stimulating business investment and consumer purchases of homes of durable goods. Business investment is not only dependent upon the interest rate but is also dependent upon demand for the goods and services produced. If consumers are not working, or expect that hey might be laid off, they will not be buying durable goods and houses. As a result the demand that is necessary to set off business investment will not be there. Add to this the fact that banks might not want to lend if they foresee a downturn. Excess reserves, funds that banks can lend, are already extremely high and in the event that bankers are less than enthusiastic about economic prospects can go higher.
All in all, the more I observe about what is going on the more pessimistic I get. I truly hope that I am wrong and that somehow our elected representatives will wake up and do the right thing as opposed to the dogmatic. If so my predictions would not come true. If they follow the current course there is a high probability that I will be right.
I pointed out, at the time, that the bulk of the stimulus ended up replacing tax income that state and local governments lost during the recession; with the expiration of the stimulus spending and the subsequent cuts in state and local spending accomplished through layoffs we could expect to see a rise in unemployment and a possible double dip recession. As we have seen, the new debt ceiling legislation not only eliminates the renewal of the stimulus package, but it also cuts additional spending from the federal budget. This lowered level of spending means that there will be fewer jobs in many different sectors with a subsequent reduction in consumer spending. In addition, extended unemployment benefits have also been eliminated. Unemployment benefits act as an automatic stabilizer in that they allow the unemployed to maintain at least a minimal level of spending.
The evidence that my prediction for an economic downturn may come true came in yesterday's announcement that worker productivity dropped and today' announcement by the FED that economic growth has been less robust than they had thought.A reduction in productivity is usually an indicator that firms will be laying off more people. It is a sign that they have more workers than they need. If we add slower economic growth and state and local layoffs to this scenario it is not unreasonable to expect growth to turn negative. Given the prevailing attitude in the House of Representatives getting any type of government stimulus into effect will be virtually impossible. In the absence of government intervention to stabilize the economy we can expect an accelerated downturn.
Some might ask what the FED can do. Bernanke has said the FED will do all in its power to stabilize the economy. The problem is that the Fed's greatest tool is the ability to raise and lower interest rates. The problem is that lowering interest rates is a method of stimulating business investment and consumer purchases of homes of durable goods. Business investment is not only dependent upon the interest rate but is also dependent upon demand for the goods and services produced. If consumers are not working, or expect that hey might be laid off, they will not be buying durable goods and houses. As a result the demand that is necessary to set off business investment will not be there. Add to this the fact that banks might not want to lend if they foresee a downturn. Excess reserves, funds that banks can lend, are already extremely high and in the event that bankers are less than enthusiastic about economic prospects can go higher.
All in all, the more I observe about what is going on the more pessimistic I get. I truly hope that I am wrong and that somehow our elected representatives will wake up and do the right thing as opposed to the dogmatic. If so my predictions would not come true. If they follow the current course there is a high probability that I will be right.
Monday, August 08, 2011
The Sophistry of the Job Creator Argument
About an hour ago I was on the treadmill in the gym watching Rep. Phil Gingrey (R, 11th GA) explain how he disagreed with the 63% of the American public that believes that the recent debt ceiling agreement benefited the rich at the expense of the middle and lower classes. He used the argument that people making more than $250,000 were the entrepreneurial job creators and that higher taxes would stifle job creation by this class. This is an argument that has been coming up since the Bush administration and it appears to me that hearing it while on a treadmill is extremely appropriate.
Once again, the right wing is showing that their approach to economics is religious rather than reasoned. I state this because someone once said that religion is the suspense of reason and reason based upon research shows that taxes do not have the effect that the Gingrey and his cohorts claim:
1. Around the time of the 2010 election a small business association asked its members what it would take to get them to hire more people. The response was: an increase in the demand for the goods and services that they produce.
2. A article published in CFO.com (April 2004)reported on a study entitled "Tax Breaks Don't Boost Investment". The research looked at 275 companies that were given tax breaks to stimulate investment. The smaller companies, which were closer to the entrepreneurial level, actually decreased their investment by an average of 13%. The researchers conclusion was that demand was the true determiner of planned investment.
I believe that there are only two possible explanations for the Right's persistence in their opposition to tax increases: as I stated earlier they have turned their economic philosophy into a religion or they believe that its okay because they've got theirs and '...to hell with everyone else...'. This holds true especially in light of the fact that S&P included the seeming impossibility of raising taxes in the current environment as one of their reasons for downgrading U.S. Government debt.
Once again, the right wing is showing that their approach to economics is religious rather than reasoned. I state this because someone once said that religion is the suspense of reason and reason based upon research shows that taxes do not have the effect that the Gingrey and his cohorts claim:
1. Around the time of the 2010 election a small business association asked its members what it would take to get them to hire more people. The response was: an increase in the demand for the goods and services that they produce.
2. A article published in CFO.com (April 2004)reported on a study entitled "Tax Breaks Don't Boost Investment". The research looked at 275 companies that were given tax breaks to stimulate investment. The smaller companies, which were closer to the entrepreneurial level, actually decreased their investment by an average of 13%. The researchers conclusion was that demand was the true determiner of planned investment.
I believe that there are only two possible explanations for the Right's persistence in their opposition to tax increases: as I stated earlier they have turned their economic philosophy into a religion or they believe that its okay because they've got theirs and '...to hell with everyone else...'. This holds true especially in light of the fact that S&P included the seeming impossibility of raising taxes in the current environment as one of their reasons for downgrading U.S. Government debt.
Tuesday, August 02, 2011
Capitulation
Barack Obama has just given the Tea Party the Victory that they need to sell themselves in 2012 election. They can point to what has been done and say "See what we have done. Elect more of us and we'll do even better". They've already stated that this "compromise" didn't go far enough, and they mean it.
What could Obama have done? In his first two years he could have used the regular congressional sessions to obtain the needed legislation. However,he was just too accommodating to use the Bully Pulpit and the presidential "...aura..." against the Blue Dogs of his own party let alone the opposition.
In the current deal my contention is that he was open to being snookered because he truly believed that the Republicans were willing to deal. He never realized that their only goal was to see that he didn't get re-elected "...come hell or high water..." I'm afraid that he still doesn't get it. He lost not only the battle but the war.
Hello 19th century. The Republicans (... Tea Party...) want to repeal every piece of social legislation since Teddy Roosevelt. Yes, I said Teddy. There has been talk of repealing child labor laws and the anti regulation attitude will lead to the end of anti trust legislation. Remember, they see the 19th century as a Golden Age just as they falsely see the Antebellum South with slavery resulting in stable families for African Americans. They are deluded and are very good at using Goebbels methods to convince average Americans that their warped views are accurate.
For the first time I'm actually pessimistic about the country's future. In the past when my students asked about the country's economic problems I talked about the resilience of the American people and our can do attitude. Now, with our leadership believing that most of the unemployment is structural and a belief by most people who are working that the deficit is our highest priority, I think we are in for a long period of decay:
1. Reducing payments to education will reduce our competitiveness and leave our workers unprepared for the newer high tech jobs. Our best bet will be to teach students how to say "Would you like to Super Size That?"in several languages (Chinese,Spanish,and Hindi).
2. Without investment in our infrastructure we will be unable to ship our goods, keep our water clean, and maintain our cities.
3. The failures in the items listed above can lead to the USA resembling a 3rd world nation.
What could Obama have done? In his first two years he could have used the regular congressional sessions to obtain the needed legislation. However,he was just too accommodating to use the Bully Pulpit and the presidential "...aura..." against the Blue Dogs of his own party let alone the opposition.
In the current deal my contention is that he was open to being snookered because he truly believed that the Republicans were willing to deal. He never realized that their only goal was to see that he didn't get re-elected "...come hell or high water..." I'm afraid that he still doesn't get it. He lost not only the battle but the war.
Hello 19th century. The Republicans (... Tea Party...) want to repeal every piece of social legislation since Teddy Roosevelt. Yes, I said Teddy. There has been talk of repealing child labor laws and the anti regulation attitude will lead to the end of anti trust legislation. Remember, they see the 19th century as a Golden Age just as they falsely see the Antebellum South with slavery resulting in stable families for African Americans. They are deluded and are very good at using Goebbels methods to convince average Americans that their warped views are accurate.
For the first time I'm actually pessimistic about the country's future. In the past when my students asked about the country's economic problems I talked about the resilience of the American people and our can do attitude. Now, with our leadership believing that most of the unemployment is structural and a belief by most people who are working that the deficit is our highest priority, I think we are in for a long period of decay:
1. Reducing payments to education will reduce our competitiveness and leave our workers unprepared for the newer high tech jobs. Our best bet will be to teach students how to say "Would you like to Super Size That?"in several languages (Chinese,Spanish,and Hindi).
2. Without investment in our infrastructure we will be unable to ship our goods, keep our water clean, and maintain our cities.
3. The failures in the items listed above can lead to the USA resembling a 3rd world nation.
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