TCS Daily


Tax Reform: The Narrow Road

By Robert M. Bryce - June 16, 2009 12:00 AM

"It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."
  -- Adam Smith

Taxes are the price of living in modern society with public goods. Many, if not most, agree that taxes are required but dislike the convoluted tax forms that place a burden on businesses and people.

The complexity of the tax codes has given rise to a whole industry of intelligent professionals who will ensure your taxes are correctly done, and often will help you game the system to reduce your tax burden. The complexity also leads to unintended interactions between rules, for example the Clinton 1997 tax break on housing capital gains is thought to have helped drive the housing bubble - in hindsight a tax haven was created that provided incentive to "flip" houses and inflate the bubble. The current situation is one where the average citizen has a strong aversion to taxes, everyone has their favorite anecdote of the rich manipulating their way out of paying taxes, the transaction costs on small businesses are sizable, and resources are unproductively used by providing incentives for intelligent people to work in the "gaming" industry. The flat tax proposes to solve these problems.

The key attraction of a flat tax is its simplicity, reducing unintended effects and conflicts by sweeping away the complexity. Everyone takes their income and multiplies it by the flat tax rate. Every business does the same. Simple. Easy. Transaction costs are negligible, while unexpected distortions and gaming are largely eliminated. Many nations have moved to a flat tax system, and the results are promising (see The Flat Tax by Robert E. Hall and Alvin Rabushka).

The feature most disliked about the concept is its bluntness - incentive tuning cannot be done, for example by promoting certain behavior such as charity donations, and the tax is not progressive. As money has more value to those on the lower income distribution most - including Adam Smith, see the introductory quote - see progressive taxes as more "fair": at high incomes substitution and quality is the main gain to marginal increase in income, at lower incomes crossing a threshold from doing without to being able to obtain goods is the outcome of marginal increases.

The difference between not having and having is much more stark than the difference between good and better. In addition those at the higher incomes often received much of their gains by luck of birth and by social programs, such as subsidized higher education, which also informs peoples preference for progressive taxes. Proponents of flax taxes attempt to take this into account by including an income exception that is removed from earned income before applying the flat tax rate: at the lowest end this removal can either be zeroed or be used to apply negative tax (i.e. returns, or "automatic welfare", such as proposed by Milton Friedman). The fact that this feature is included speaks to the desirability for a nonflat aspect: what is important about "flat" taxes is not flatness per see (although some do think that flatness is the crucial feature) but instead the narrowness of the tax structure. Consider a tax system streamlined to a single parameter, income, multiplied by a single variable - a progressive tax rate. The crucial gains of flatness are gained - reduced transaction costs, eliminating unjust gaming of the system, decreased social disillusionment, and freeing of human capital to productive ends - while the progressive feature, which is already incorporated in flat tax proposals in an attenuated manner (via the exception), is retained.

It is important to note that Hong Kong, which consistently ranks among the top economic performers, has actually implemented such a system over 50 years ago and retains it; Powerful support for simplicity that retains progressive features. Hong Kong also allows deductions to incentivize charitable giving and house ownership (see "Hong Kong's Excellent Taxes", by Alan Reynolds at Townhall.com).

When it comes to taxes, perhaps it is time to heed the words of Matthew and join Hong Kong: "Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it. But small is the gate and narrow the road that leads to life, and only a few find it."


Robert M Bryce is an immigrant from Saskatchewan, living in Alberta. He is currently working on his Ph.D. thesis investigating fluid flows.
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98 Comments

Basic fairness
One of the advantages to a flat tax system would be the elimination of favorable treatment for corporate income and for unearned income (dividends and capital gains). I'm always surprised that the ordinary working yob is complacent in the face of having to pay taxes at twice the rate of a person who just has his gains from investments direct-deposited for him into one of his accounts.

No less a figure than Andrew Mellon had this to say on the subject, in his Taxation: The People's Business (1924):

"The fairness of taxing more lightly income from wages, salaries, or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man's life and it descends to his heirs.

"Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy and the people whose income is derived from investments. Such a distinction would mean much to millions of American workers and would be an added inspiration to the man who must provide a competence during his few productive years to care for himself and his family when his earnings capacity is at an end."

Well put, Andrew.

Some taxes are necessary
90% of current taxes aren't.

apparently roy believes that investments take no mental effort.
"Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy and the people whose income is derived from investments."

How else to explain this incredibly stupid statement.

Poor baby
I feel your pain.. having to go online to gather information about your investment portfolio. It must be so tiring!

You should try standing behind a cash register for a full shift every day. The pay is dirt wages, and you grow old fast. That is, you use up your capital (health and vigor) at a very rapid rate, accruing no interest on it.

That was the sense in which Mr Mellon penned his comment. And BTW ("How else to explain this incredibly stupid statement"), Andrew Mellon is a name you should certainly be acquainted with. He was the prototypical Wall Street banker of the 1920s, and served as out Secretary of the Treasury for much of the period.

For his time he was considered to be incredibly conservative.. and yet he recognized the need to give the little guy at least one tiny break. He felt labor should be taxed at a lesser rate than gains from capital investment.

Maybe you should read up on the career and achievements of Andrew Mellon, before you disparage him as being "incredibly stupid".

An intriguing premise
So we could dispense with 90% of our tax collections?

How audacious. Let's try this quick fact check.

Find the amount of federal revenues collected in the most recent year available. Divide by ten.

Then find the amount of interest paid on the federal debt, over the most recent twelve months.

Compare the one figure against the other. Assuming no other federal expenditure than repayment of interest legitimately offered for the use of funds already spent, the exercise should prove interesting.

Priming the pump
"The idea that we are going to tax and spend ourselves into prosperity is magical thinking."

Not really.. it's based on experience. We got out of the Great Depression, for instance, by the wartime spending we did for WW Two. And that didn't even provide any consumer goods for people to buy. But it worked anyway.

The rule is to spend to prime the pump when the economic engine gets stalled. That gets things rolling again, so people can get back to work producing things (that is, when we still had a producing economy). And so the government can pick up some revenue and pay back what it borrowed from the future.

Then when times are good, we tax more heavily, so we can pay off all our debts in time for the next recession to hit. That way we're clear to borrow again.

IF YOU'LL RECALL.. it was only back in 1999 that the way was clear for the government to apply a little fiscal discipline, and pay down all our accrued debt. We were doing just fine in that regard for the last 3-4 years of the Clinton administration.

Then something very BAD happened. We got the absolute worst government this country has ever had.. and federal spending doubled while taxes got slashed.

The ensuing train wreck was predictable.

We agree
"Using taxes to "promote certain behaviors" reminds me of the demonstrations in my psychology classes in which they put chickens in Skinner boxes."

Then you would be against taxing capital gains and dividends at a fraction of the taxes we pay on wages. Those tax breaks were sold as providing an incentive to stimulate investment.

As if people who had money to burn could do anything else with it!

Mellon was a supply-sider, Roy
You are citing the fellow you basically deny as proof of the Laffer Curve.

It was Mellon's tax cuts that spurred economic growth and increased revenues from the rich. 75% of federal income tax revenues were provided for by the top 10% of taxpayers in the 1920s.

Roy and Bogus History
We did not get out of the Great Depression by spending ourselves out of it.

FDR's War Against Capitalists prevented that from happending.

What changed in WWII? FDR was forced to give up on his War Against Capitalists, sack many of his more rabid New Dealers and accept economic policies that rewarded profit in order to get war production up.

"The rule is to spend to prime the pump when the economic engine gets stalled."

Total Keynesian BS that has never worked. It didn't work when Roy's precious stimilus checks were sent in the mail in the summer of 08 and it is not working now.

Only incentives matter. Period.

"IF YOU'LL RECALL.. it was only back in 1999 that the way was clear for the government to apply a little fiscal discipline, and pay down all our accrued debt."

Again, more BS from Roy. The budget was never really balanced and even if it was, it that would have had nothing to do with paying off accrued debt either.

"and federal spending doubled while taxes got slashed."

But tax revenues went up. So the problem wasn't a fall in tax revenues (like is what is happening now under Obama) but rather too much spending (which is happening even worse under Obama, too).

What does this mean?
"In addition those at the higher incomes often received much of their gains by luck of birth and by social programs, such as subsidized higher education, which also informs peoples preference for progressive taxes."

Maybe this is what happens in Canada. In the USA, with a greater free market, most who have higher incomes earned them and did not benefit from a silver spoon and in many cases, not even from a good public education.

That is what makes the USA so great. An uneducated, dirt poor immigrant can, and has become a millionaire, and for some a billionaire. Any tax policy must not punish such people and it must not discourage the philanthropy so many have establish with their foundations.

Exactly What is Unearned Income?
Is this from the same people whose believe in the infinite plasticity of language have given us the "earned income tax credit" or "voluntary compliance"?

While you are at it Roy, tell us how corporate income is taxed favorably, when it is taxed TWICE?

Please, I can't wait to see your convoluted derangement.

Cash Registering
You should try standing behind a cash register for a full shift every day. The pay is dirt wages, and you grow old fast. That is, you use up your capital (health and vigor) at a very rapid rate, accruing no interest on it.

Have you actually done this, or are you just conjuring up imagined comradeship, eh Terkel?

You want to use your physical vigor fast? Try being a night-shift nurse, a corrections officer, a crab fisherman or a railroad conductor in Nebraska in January.

The reason the pay is dirt is because its so damn easy just about anybody can stand there and say "paper or plastic" and find the electronic bar code in order to run it over the laser.

And yet I find it fascinating, you can always tell the person that wont make a career out of clerkin'.. the ones that offer the shopper a warm hello, don't panic when you hand them $20.62 for a $19.62 purchase, movequickly enough to keep their lines moving, etc, etc. Interesting, these folks are often retirees who theoretically should be lacking stamina the teenagers have...

Then there's the gem I had yesterday, twirling her hair, and chatting with her coworker for a good 20 seconds, dressed like she was soliciting, cracking gum, before noticing a 230 pounder standing in her aisle, no greeting, nothing but the barest minimum..probably thinking she deserves a promotion to shift supervisor. Maybe in a few years the lightbiulb will go on, and she'll move on- if not, well.. You know what Roy, the latter character should be grateful she's employed AT ALL.

See here's the thing Roy, the food you eat, the healthcare you consume, require people do do difficult jobs, so people like you can collect UNEARNED INCOME.


Where is the water?
The pump has been primed.

Where is the booming economy?

Prming a pump take little water
If you have ever primed a pump you would know little water is required.
Any excess is just wasted down the well.

Across the board tax cuts have been proven to be quite effective in truly priming the economic pump.

That's precisely my point
Well, not that Mellon was ever a supply sider. The term hadn't been invented. Nor that he knew anything about the Laffer Curve, which hadn't been invented yet. Nor that the long-term growth he supposedly fostered led to anything but the worldwide collapse of the banking system.. as prolonged and uncontrolled growth spurts invariably do.

What I was saying was that during his stint at Treasury he personified the kind of lawless, regulation-free environment that plunged us all into the Big One.. and yet he still was able to recognize the basic injustice of giving tax preferences to unearned income.

In fact he thought wages should get the tax break, as laborers were depleting their real capital-- that is, their vigor and health-- rather than being able to build on it as the capitalists could do!

He was an unlikely champion of the working man. It shows just how far the political dialog has come in this country. Richard Nixon, today, would be considered a lefty in many ways.

Are you sure you don't know this one?
For shame. I thought you were supposed to be in the business.

Unearned income:

"An individual's income derived from sources other than employment, such as interest and dividends from investments, or income from rental property. also called unearned revenue. opposite of earned income."

http://www.investorwords.com/5141/unearned_income.html

Wikipedia also has a nice essay on the term.

"While you are at it Roy, tell us how corporate income is taxed favorably, when it is taxed TWICE?"

There are two taxable moments here. The first is when the corporation (a legal person) earns a net profit. And the second is when it distributes a part of this as a dividend to its investors.

Here's a diagram with three taxable moments (arms-length transfers of money): A man earns his pay, owing taxes on it. Then he pays his bookie $10 for a lost bet. The bookie may or may not actually pay the taxes.. but he is legally obligated to. And the bookie gets a haircut with it, so the barber pays taxes a third time.. on the same ten spot.

Guess what happens if the barber spends that tenner on anything?

Flimsy and specious
It was WW Two defense spending that built the ladder that allowed us to climb out of the Depression. FDR wasn't able to get it done in the 1930s because he didn't spend enough. It was an audacious plan, and he chickened out.

If you 'll recall, we played the capitalist game before he came to office. And by the rules of that game, everyone ended up broke. All the money people put into banks got lent out, first to legitimate enterprises. Then it got caught up in an escalating speculative spiral. And when it all collapsed, nothing was left of our savings but tons of IOUs.. just like today.

So THAT'S what happened when the capitalists won. They burned up all our money. WW Two provided the convenient pretext to invent some new money, getting the country back on its feet.

You certainly know that to be true. A shame you can't admit it.

BTW, that drop in tax revenues that "is happening now under Obama".. are you sure that's not from the depression that hit during George Bush's eighth year in office? It isn't from those millions of jobs lost from unwisely deregulated capital markets? How did Obama affect revenues before he was even nominated for office?

Starting a business
Joanie, there's one thing you need to know.

Small business owners have been taking it on the chin. It's the corporate fat cats who've been benefitting under federal and state policies.

The big guys have been paying into everyone's campaign chests.. so they own all the legislators, whether federal or state, Democrat or Republican. And they get huge corporate tax breaks.

Someone has to make up the shortfall. And that's the little guys, the mom and pops. They're in the same boat as the wage earners.

In every state in the union the corporate players play a game with legislators. They start a bidding war to see which state can give away the biggest tax breaks to lure them there. JOBS, you know. NC is often the winning bidder. And some of those new jobs we've paid a million bucks apiece for. Jobs paying $28,000.. do the math.

Of course most of the better jobs go to people the incoming company brings with them. So all the locals get to do is (a) pay more taxes to make up for them and (b) do the yard work on the corporate lawn.

I do not understand how you can carry a picture of me in your mind that says I criticise business. You don't remember I used to run one? I got no tax breaks. As a mom and pop I paid my personal income taxes, small business (schedule C) taxes and both sides of my self employment (SE) taxes. And when I hired other people I had to pay half of their FICA taxes as well.

I never accepted a dime of investment money. If I had done so, it would no longer have been MY business. It would have belonged to someone else. So I have no particular desire to see investment money become free of taxation, while everyone else has to pay extra for them.

Here in NC it's small business owners, those with a dozen or fewer employees, who are responsible for the majority of ACTUAL job growth. And we never get a break. Ever.

Don't want one, either. All we ask is that the corpulent corporates and the bond traders pay their own fair share.

He put it in the wrong end of the pump
Two points. First, Obama has done a **** poor job of pump priming. Instead of entering the cash infusion at the bottom, and letting it trickle up, he put it all at the top. Those hundreds of billions were wasted on the already rich. They thanked him and held onto the cash, rather than spending or lending any.

The second thing is, the economy is already starting to rebound on its own. No thanks to the Obama-Geithner-Summers economic team. So slowly, jobs and lending are coming back.

Toiling in the fields
This may be one of the best things you've ever written here. If you've actually done all those jobs you list, corrections officer, crab fisherman, etc, you know whereof I speak.

I'm always impressed by the degree of professionalism I see at the bottom of the employment chain. All of them, aside from the occasional newbie, knows her turf, is uniformly professional, helpful and polite, and has an innate sense for representing the interests of her employer while on the job. You get all that, for only seven bucks an hour, no benefits.

Of course one of the checkout women at WalMart did mention to me, when I enthused about the low prices there, "I guess. Of course I can't afford to shop here, myself."

We don't ever see the kind of bad employee in NC you describe. Having worked in the mills for generations, we know how to give first quality service at the fifth rate of pay.

My own bad jobs? Shovel work, but that was outdoors. Hoeing turnips and pouring concrete.. likewise. And I did put in a year clerking, once. I'd say the worst was in a printshop bindery, collating, cutting and stapling an endless number of checkbooks and parking ticket books.

In a job like that I wouldn't mind the boss making ten times what I made. The guy deserves it. But a hundred times, which is what you find in a corporate setting? I think not.

The other thing is that through the luck of the draw, better genes or a better upbringing, I was able to advance to better things. Half of us, though, have inner resources that are, by definition, below average. They can't advance but so far. And I believe to the core of my being that THAT far should include a living wage.

Bush tried such priming. Did it work?
Instead of wasting all the money trying to give money back to people, why not save some money and don't take so much in the first place. Or, cut taxes.

"The second thing is, the economy is already starting to rebound on its own."

How can this be with all the government efforts to 'stimulate'?

You mean tax cuts for the rich?
That doesn't do anything. They already have more money than they can spend. All they do is gamble with it. They're the ones, in fact, that constituted the market for the Grand Casino in exotic derivatives. They had more money than was good for them.

Pump priming refers to people who have unmet needs, because they're not making enough income. And the purchases they can't make translate directly into jobs that can't happen. And stores that can't open. And houses that can't be built.

All that glorious "investment" you speak of didn't create all that many new jobs. The big money was in financial services.. and stayed there until it imploded.

as usual, roy discounts those who think for a living.
There is nothing unusual about discounting the value of a skill that you don't posses.

If you had been following my rule, the payments on the debt would be zero.
As usual, roy tries to evade the truth of an arguement by diving into irrelevent minutea.

Is there any disproven myth that roy doesn't believe?
Spending did not get us out of the Depression. It was Roosevelt's taxes and regulations that created the Depression.

roy actually believes that printing money can make one rich.
In roy's world, transfering money from one pocket to another will make you richer.

man oh man, roy really does believe this garbage, doesn't he.
All we have to do to create nirvana on earth is to give lots of money to the people that roy approves of.

another myth, another post by roy
The vast majority of those tax cuts went to poor people.
Of course you won't hear about that because it doesn't suit roy's hatred of those who have succeeded.

but, but, but, that would allow people who work to keep their money
And in roy's world, such a thing can never be tolerated.
The money of those who work must be taken and given to those who don't. Because that is fair.

I didn't gamble with mine.
I paid down debt.

But this is what happens when 50% pay all taxes. Those who paid taxes received the refund.

The fact it was ineffective demonstrates the point that such pump priming doesn't help.

What has been proven to work are reduction in taxes across the board.

What refund?
Do you mean that money we had handed out to us last year? That was a useless gesture.

Anyone who paid taxes didn't need it. The people that really could've used it to help meet expenses would have been the low income families, dropping off the bottom of the ladder.

Measures that would help now would be ones alleviating onerous debt. I'd like to see federal intervention mandating workouts for homes entering bankruptcy. And effective national interest rates for consumer loans is the right approach.

Notice that neither approach costs the federal entity a lot of money.

The Laffer Curve pre-dates Laffer
Even Keynes knew about it -- and agreed with it.

Laffer only gets the credit (which he will deny to any and all how will listen) simply because he 'rediscovered' it.

Roy's distorted sense of History and no sense of Economics
"It was WW Two defense spending that built the ladder that allowed us to climb out of the Depression. FDR wasn't able to get it done in the 1930s because he didn't spend enough. It was an audacious plan, and he chickened out."

Utter nonsense. It was spending on cost-plus contracts that GUARANTEED a profit to war production firms combined with putting up to six million men in uniform that drastically reduced unemployment and jacked up industrial production.

Several of FDR's New Dealers were appalled and many of them either quit or were asked to to.

FDR had to make the hard choice between having his head chopped off by a Japanese katana sword because he stuck with his anti-capitalistic ideology or winning the war.

To his credit, he made the right choice.

"And by the rules of that game, everyone ended up broke."

Prove EVERYONE ended up broke -- especially since the nation was on the road to recovering from the stock market crash within a year. Then Hoover messed it all up. FDR just continued on with Hoover's Economic Suicide.

"They burned up all our money. WW Two provided the convenient pretext to invent some new money, getting the country back on its feet...You certainly know that to be true."

No money was 'burned' Roy except by the Fed, not Hoover or FDR. That was why the deflation was so severe.

"BTW, that drop in tax revenues that "is happening now under Obama".. are you sure that's not from the depression that hit during George Bush's eighth year in office?"

Nope. Because it is happening NOW...while the GREAT ONE is in office and after his Glorious Plan was enacted. We didn't have near 10% unemployment under Bush.


Actually, it does make one richer
...at the expense of making the other poorer. Robin Hood economics does work for the individuals engaged in such enterprises.

But what's really, really bad is how it destroys the future incentive to produce more wealth, to increase productivity even further. And that is what is happening now under Obama just as it did under FDR and later under Nixon-Ford-Carter and then later in the only term of Bush Daddy followed by the first term and the first half of the second term of Bill Clinton.

Of course, you know all of this Mark. I am only being redundant as a matter of record for those reading these posts who do not.

roy contradicts himself again
"Do you mean that money we had handed out to us last year? That was a useless gesture."

Funny! That is not what you were posting on these vary forums. You kept saying how it would 'pump prime the economy' and that businesses would hire as a result.

Oh well, nice to know that you have have come around to the side of common sense on this one though.

Broadcasting and narrowcasting
You're right-- I guessed wrong on that one. I figured any broadcast sowing of money would result in an upsurge in purchases.. and it didn't happen that way. The money was spread so widely it went out to people who didn't need it as well as to those that did.

A more narrowly targeted stimulus would have done much more precise work. The two reforms I mentioned, capping consumer loan rates (revolving credit) and ordering mandatory renegotiation of foreclosure-bound mortgages would have reduced debt burdens generally for people in over their heads, and would have done double duty by resolving nonperforming loans. To the degree that mutually agreeable workouts were not possible, a couple of hundred billion would have gone a VERY long way toward letting everyone come away from the table happy.

It would have served the purpose of ridding the system of a lot of those toxic assets that caused so much trouble. And saved us from the burden of assisting several hundred thousand homeless families.

The rest of the money could have gone toward emergency loans targeted toward homeowners who've lost their jobs and couldn't keep up with their payments. These loans could be interest free and payment free until such a time as the recipient was working again.

Naturally I don't expect anyone in the current administration to be thinking about these kinds of remedies. Their first instinct is to bail out plungers who are down to their last hundred million, and let the money trickle down from there.

Discarding a broken model
Mark's little sally was an idiotic response to my comment. And yours is just an amplification of it.

Your entire premise-- meaning you all, the forces of capitalism-- is that the system you promote "creates" wealth.

First, there can be no increase in ACTUAL wealth unless there is an increase in net production per unit of population. That is, as the population increases there needs be increasing production just to stay even.

This isn't happening. There is the ILLUSION of wealth creation, as seen from the top. But that's because what's happening is the continuing extraction of wealth from the lower strata of society up to the topmost layers.

Which, of course, is unsustainable.

Second point. By "wealth", what you really mean is the increase in monetary profusion at this level, rather than primary production relative to population-- there is more MONEY around than there ever used to be. And this is in direct contradiction with one of your core beliefs-- that the money supply remain constant.

What I'm saying is that you can't increase "wealth" either way. Total fruits of the economic system are not increasing in tandem with the increase in population, and total production is not increasing in tandem with either the increase in the total money supply or the increase in idle money reaching the top-- where it is frittered away into unproductive investments.

The money that reaches the top follows the same pattern, over and over and over again. It accumulates, feeding a speculative bubble until it pops and evaporates. And the reason it does this is that it has nothing REAL to feed. Production is limited by the amount of stuff consumers can afford to buy, and that's not infinitely expandable in the face of dwindling working class incomes. It is not limited by the amount of money that can be pumped into the investment sphere.

Back in 2002, between seven and eight trillion dollars in "wealth" vanished in a puff of smoke. This last time around the figure was eleven trillion. Gone.

This is not a model for growth. It's a machine for the efficient destruction of capital. And its mode of action is by this time very well known to all who have studied it.

Profiteering in the Big One
You wouldn't earn a passing grade in Econ 101 with this answer:

"It was spending on cost-plus contracts that GUARANTEED a profit to war production firms combined with putting up to six million men in uniform that drastically reduced unemployment and jacked up industrial production."

Wages are a COST. Profit is what remains after all costs are paid. So in a cost-plus arrangement the company can pay its workers peanuts.. or it can pay them well, according to its whim. Then after all the payouts, they just tack on their margin of profit.

The number of men and women (the actual producers of most wartime industrial production were women) being put to work in the effort was determined by the quantity of government orders received for materiel.. NOT the amount of profit the war profiteers could steal for themselves. These profiteers were actually a parasitic growth on the system of wartime production, with their need to extract scarce capital for personal gain. They contributed nothing.

In fact they diverted capital from the actual goal of producing armaments and provender, into their own pockets.

Thanks for the lesson, prof. You're all wet.

Your greatest lie
Even on your own side-- hell, even in the pages of Townhall Magazine-- you won't find anyone daring to suggest that the present surge in unemployment wasn't directly caused by the freeze in the capital markets. Which in turn was brought on by unwise speculation in dubious financial instruments. None of this was Obama's fault. He was a member of Congress when all that was going down. The bad loans that precipitated the crisis were being originated in the early and mid 2000s.

And all real economists agree that when such things occur, it's employment that is the sticky element. That is, it's the last sector to return to normal after the capital markets get repaired.

It was peripheral to the discussion
My point was that even Andrew Mellon, a paragon of capitalism, believed that income from labor should be taxed at a lower rate than investment income.

As for the Laffer Curve, a classic red herring, it should be obvious that there is a sweet spot, where if you cut rates any further you simply get less revenue. Or would you like to disagree?

But what are they thinking about?
CEOs and CFOs do make their living mostly sitting around thinking. But what they're thinking of is ways they can game the system into diverting more of the profits earned by the entire company into their personal pockets. So they are in all too many instances parasitic growths on the activities of the corporation.

Elsewhere I've made the comment that to the degree that their thinking actually ends up benefitting the company, they might be worth ten times the wages of a man on the factory floor (the traditional limit was forty times). But certainly not several hundreds of times the wages.

These sorts of activities are counter to the mission of the corporation, which is to provide a return on investment. They are a drain to the fortunes of shareholders just as much as to employees. It's broken and it needs repair.

Nice to know Roy agrees with me
"First, there can be no increase in ACTUAL wealth unless there is an increase in net production per unit of population. That is, as the population increases there needs be increasing production just to stay even."

No, that is an increase in productivity, which can lead to increases in wealth (more investments) and/or standards of living (consumption).

"But that's because what's happening is the continuing extraction of wealth from the lower strata of society up to the topmost layers.

Yeah, the government is that topmost layer. It is the government that 'extracts' wealth -- Robin Hood style. Investors 'build' wealth.

"By "wealth", what you really mean is the increase in monetary profusion at this level"

No I don't. If you think so, you only provide further proof you have no idea what I was writing about.

"there is more MONEY around than there ever used to be. And this is in direct contradiction with one of your core beliefs-- that the money supply remain constant."

Yeah, so? That only proves that the government is even more into the Robin Hood 'wealth extraction' business even more.

"What I'm saying is that you can't increase "wealth" either way. Total fruits of the economic system are not increasing in tandem with the increase in population, and total production is not increasing in tandem with either the increase in the total money supply or the increase in idle money reaching the top-- where it is frittered away into unproductive investments."

Yeah, so? That only further proves the Robin Hood Economic Theory of Government Banditry, Roy.

"This is not a model for growth. It's a machine for the efficient destruction of capital. And its mode of action is by this time very well known to all who have studied it."

Yeah, fiat currencies and outright government Robin Hood thievery does that to an economy, Roy.

What are You Speculating About
Its clear that you've never worked as a CFO or CEO; or a direct support role. They don't "sit around" doing anything all day and they don't spend most of their time thinking.

The essence of the C-suite is an amalgamation of a great many talents-the "hard" skills of a particular industry and the soft skills of dealing with people.

The most important skill is learning. You constantly have to make decisions, often on incomplete or unattainable information. You have to be able to read, to speak, to infer, toi summarize, etc.

I just spoke to man this evening who "hired out" as an electrician for a company that was going bankrupt in 1976. Now retired, he recounted that in the first four hours-he understood why the company was in dire straits, with people standing around doing nothing.

As for your evaluation of worth; unless you own the stock-the pay of the employees (in absolute or relative terms) is not only beyond your ability to properly evaluate, its NONE OF YOUR BUSINESS.

Dork.



Unearned Income- What you don't know
Is Taxation or theft. Anything else, whether paid for labor, skill, capital is EARNED. Its disgusting to hear politicians speak of tax "revenues".

What you quoted is an artifice of the tax code; invented by ignoramus class warriors such as yourself, who wanted to target income they somehow thought ill-gained.

As for Title 26, just about everybody understands it to be an affront to justice, fairness, simplicity, brevity, clarity and any other desirable attribute of law, regulation or policy.

The great lie
Is "pump priming". Politics remains the art of "bread and circuses" and politics is now the circus.

Pump priming may be a memorable metaphor; it is not however a term of art used by anybody with even a rudimentary understanding of economics. It is most often used by economic illiterates who eagerly lap up the spoon-fed to gullible a**es who think they actually understand what's going on-but its nothing but a metaphor for the simple-minded aka Roy and other morons who don't understand the difference between spending money indiscriminately or to reward political friends; for say maliciously prosecuting Jewish poultry (here not in Germany) merchants in the 1930's or spending millions for a turtle tunnel today and real economic production.


A new screen name for Roy? "Flimsy and Specious"
The chief attributes of his TCS screeds.

Actually, if you are going to assert "deregulation" of capital markets - you should just go by BE "Bovine Excrement".

Seriously, are you THAT STUPID?

Unbelievable
"Wages are a COST. Profit is what remains after all costs are paid. So in a cost-plus arrangement the company can pay its workers peanuts.. or it can pay them well, according to its whim. Then after all the payouts, they just tack on their margin of profit."

Yeah, so if their profit margin was 8% and that rate was locked by the contract, then they had a huge incentive to jack up the costs that is calculated by.

Why do you think today's NASA and DoD contractors have as many layers of management as they can get away with on their cost-plus contracts? They have a huge incentive to jack up the costs as much as government contract overseers let them. Thus was born the $900 hammer and the $17,000 toilet seat.

This is one of the reasons why they had wage and price controls in effect during WWII, to clamp down on the gaming of the system. It didn't really work since businesses found ways of getting around that (like offering employees health care) faster than the government could/would close the loopholes.

"The number of men and women (the actual producers of most wartime industrial production were women) being put to work in the effort was determined by the quantity of government orders received for materiel.. NOT the amount of profit the war profiteers could steal for themselves....They contributed nothing. "

Sorry, but you NEVER get this: The owners of production wouldn't bother ramping up said production unless it was worth it for them to do so. The 'men and women' wouldn't produce jack if the plants remained shuttered because the capitalists would continue just sitting on their money & productive assets -- which they did in the 1930s thanks to the New Deal Jihad Against Capitalism that FDR & Cronies were real big on executing just like Obama & Cronies are doing today.

In fact, the ***** initially understood this far better than the New Dealers. That was how Hitler got German unemployment down to just 2% in just his first two years of power. That is why many industrialists in America became enamored by fascist economic policies.

In other words Roy, they had more incentive to learn German and wear swastika arm bands than they did to produce one ounce of war material for FDR under the old New Deal policies. FDR was told this point blank and had to make a decision -- either continue with the class-warfare and lose the war, or acknowledge capitalist realities and win it.

Too bad you can't accept the realities of what really happened back then, unlike FDR. Cling to your myths, Roy. Just don't expect the rest of us educated in actual history to buy into them.

Everything that happens now is Obama's fault
...because every little bad thing that happened under Bush's watch was his considered fault by you and the media and other leftwing cronies. I am only applying the same standards of 'who gets blamed and when' as applied to Bush and other past presidents to Obama, Roy.

And this is ESPECIALLY true when Obama and Cronies DECLARED that things would improve and have DECLARED things have improved even though they haven't.

Bush did not increase government spending like Obama is doing now. Bush did not increase the government's debt like Obama is doing now. That's all Obama.

And, like I said before, 'We didn't have near 10% unemployment under Bush.'

"And all real economists agree that when such things occur, it's employment that is the sticky element. That is, it's the last sector to return to normal after the capital markets get repaired."

No, that is the last statistic that starts to be reduced. But if it keeps rising, then that means things haven't even bottomed out yet, Roy. And all that his happening AFTER Obama said his stimulus plan would 'save' us!

Obama PROMISED that everything would be 'fixed' if only we gave him the power. So, he gets the blame for not delivering AND for things becoming worse. That's how it works in the American political system. Most voters are not ideological. They vote based upon their perceived sense of overall performance. That is what really killed McCain's candidacy and Bush Daddy's and Carter's. If things continue the way they are or even get worse, the first casualty will be the Dem controlled Congress in 2010. This has all happened before.

"The bad loans that precipitated the crisis were being originated in the early and mid 2000s."

Nope, the bad loans originated under Clinton's watch. Hell, they really originated under Carter's watch thanks to the CRA MANDATING bad loans previously considered by banking regulators as unthinkable in the first place.

No, Mellon believe ALL income needed to be taxed less
period

Increasing wealth
You say "No, that is an increase in productivity, which can lead to increases in wealth (more investments) and/or standards of living (consumption)."

Do you realy define increases in wealth as being nothing more than increases in investments? That is, investments equal wealth?

Where does that money come from? Doesn't it have to be removed from the commercial economy most mortals engage in? That is, for there to be more money entering the world of speculative investment, doesn't it have to be taken from the round of wage earners and shopkeepers?

That's not an increase in wealth. It's a transfer from one set of pockets to another. From ordinary people to the fortunate classes.. those with more money than they need to spend on purchases.

The way investors "build wealth" is to utilize the rules of the game-- rules they have put into place by buying Congress-- to facilitate the multiplication of the money in their control. Ordinary mortals can't do this, beyond the extent that they are able to scrape together some savings, and have to trade their labor for money.

The rules have been contrived in such a fashion that the absolute need for money to multiply overwhelms the ability of a finite system to actually pay out. The money increases beyond the limit of repayment. And so it founders and crashes. Real estate is the purest example, where rising speculative values become unsustainable in a predictable round of unproductive activity.

Needless to say, this kind of pseudo-economic activity actually BUILDS nothing. It's a misuse of resource to waste money in this fashion.

I again note that such compulsive speculative activity periodically purges money that, had it remained in the ACTUAL economy (the producer-consumer economy), would have given rise to prosperity for all. That is, the $7-8 trillion lost in 2002, and the $11 trillion lost this past year.

Now think about this. Why would a profit-making company require investment? If it were making a profit, could it not use a portion of that profit to fund daily activities?

No? It needs to expand? Then it neds to put a portion of its profits aside, until it's able to do so without becoming indebted to others.

The reason Detroit found itself in such troubles was precisely because it was living on borrowed funds just to make payroll and pay its vendors, having squandered its profits in rounds of unprofitable activity.

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