Saturday, September 25, 2010

Are we having enough "trickle down" yet?

The Koch brothers got richer by $11B in 2009 with the help of tax paying Americans. Now they think we should worry about "our" debt (that's the message they instill on angry Americans through their Teaparty promotion) while they happily burden our children to continue giving them the tax breaks that add a cherry on top of their huge slice of the pie. 
$11B is about as much as all the income from the inhabitants of a city the size of Detroit MI, San Jose, CA, or Jacksonville, FL. The dimension of these mega fortunes is hardly comprehensible, but there is no point in demonizing the individuals, as distasteful as some of their political activities may be in some cases. What is important is to identify this trend towards inequality, as R. Reich has done in his article, and understand what caused it and where it leads. 
Just like previous times we reached such peak inequality (1916, 1929), the 2008 Economic Collapse was the outcome of fiscal policies that bred greed among the economic aristocracy (those who don't need to work and operate in an environment of excess where fortunes are nurtured through the manipulation of financial assets). These people are focused in growing their money by playing the complex monopoly game that is our economy. A large part of that game is played by government in the laws that it enacts and how it enforces them... or not. Everything from ideology, lobbying, even corruption, is part of that game. Ideology moves the masses that are required to corrupt the democratic institutional machinery. Lobbying is required to motivate the government mechanisms in their favor. And when everything else fails there is always the power of naked bribery, not an exception of in our "Nation of laws". 
The myth that these are the job creators we should shower with praise is nonsense. Entrepreneurs are moved by a work ethic that is meaningless when you grow into "permanent" wealth. Job creators are driven by the pursuit of growing wealth through creativity, and would not be discouraged by high taxes on hoarding (reinvestment gets higher deductions with higher marginal rates). Instead our system of low tax islands for the super rich promotes a form of predatory financial feudalism that sucks the oxygen out of real job creating entrepreneurial creativity.
I think that the Right, which is engaged in sustaining the privileges of the plutocracy (by definition of its own nature) needs to be challenged ideologically. We must debase its influence with the large majority of angry Teapartiers, who have bought into ideological myths that cloud their collective (poor) judgment. The results from the last 30 years of "trickle down economics" are a reality now, much different from the picture that was painted by the benevolent smiling Reagan of the 1980's. 
It is clear that in the post war boom the fruits of economic growth were evenly distributed. If you were rich and doubled your fortune in a decade, you could see a poorer neighbor doubling his meager earnings in the same period. The proportions (presumably justified by merit) were maintained (statistically speaking, not literally). But since 1980 the average family had to first double the number of their paid-work hours (by switching to two income-earners) and then reduce their savings capacity or increase their debt to keep up with their deserved American Dream, while the privileged elite grew into a permanent state of self-propelled excess. Most happy talking American dreamers remained blind to the emerging imbalances hoping for the rewards that could not be justified by Reason but would be sustained by Faith (hence the proliferation of Affluence Evangelists, a new branch if Christianism uniquely lacking in self-awareness).Those who did not buy into the mass marketed consumerist lifestyle became social outcasts as a result of their peculiar financially responsible proclivities, but they were few.
No point being judgmental. The numbers tell the story and wrote the history. The middle class went broke, as a result of the unsustainable misplacement of wealth distribution. The machine that depended on the production-consumption cycle broke down. Those who produced could not consume at the rate that their productivity created wealth. Those who accumulated wealth did not need to consume and simply hoarded, not by evil purpose but because their needs were different from the average person. The machine kept going on credit that filled the gap while it consumed all the fat remnants from better times, until it was rescued at the edge of collapsed (temporarily, it seems).
When an economy produces the inequality we have moved towards for 30 years it becomes like any number of examples, from Haiti to Brazil. The latter one is moving towards higher equality through "socialist" programs that help feeding and educating the poor to be productive and aspire to socio-economic improvement. Haiti of course is an example that you can keep going in the direction of feudalism beyond any believable limits, in spite of a historic beginning as inspiring as our own. 
Brazil was a basket case for generations. The self deprecating joke among Brazilians who blamed their fate on their own nature was that God had created this wonderful country with unimaginable riches and perfect climate, safe from cataclysmic threats like earthquakes and hurricanes, but to compensate he created the Brazilian people. It appears that an illiterate teenager turned self-educated union leader did not buy into that myth. Under 8 years of Lula's leadership this country had an amazing turn around with growth that touched all levels of society. Equality puts the dream within reach of all and that has economic repercussions.
Over the last 30 years of right wing inspired economic policies we have gone backwards. The dream has turned into a nightmare for highly indebted college graduates who can't find a decent paying job, while self-righteous CNBC guests spout their wisdom that Americans simply have to get used to lower incomes so they can be globally competitive. No awareness of the uncompetitive growth of CEO's compensation (triple GDP growth between 1981 and 2006) which is extraneous to their economic models. Clearly, financial whizz kids (not necessarily smarter than anybody with access to the opportunities that put them in the right place at the right time) find themselves highly deserving of multi-million dollar bonuses from their dogged devotion to financial predatory lives. The market determines it (doesn't it?).
Well, the belief in the market is highly self-serving in most cases. When you account for externalities (socialized costs that we all pay for like pollution that is not reflected in the price of fuel), market power (like monopolies or plutocratic advantages), social goods (that are paid for unequally and benefit all in unrelated unevenness), it is very often opaque what direction the market really points to. Clearly the freewheeling free market dementia of the Bush era did not produce any better results than the last time it was tried (in the Coolidge/Hoover era). But the same forces that propelled it then are back in charge and need to be discredited once again. There is plenty of evidence for those who want to see. But apparently many are more reluctant to see that evidence than willing to abandon false prophecies and the self-aggrandizing mythology of reactionary propaganda.

Saturday, May 1, 2010

about a smallish government ambition...

Anyone who can see through the skin deep rationales from the small government ideologues knows that it's easy to stir up anger at government overspending by blaming socialism and other ominous progressive conspiracies. The caricature rings too true in the case of the Medicare recipient who blames overspending on everyone else's programs while he defends that his benefits should be untouchable. The blame for overspending is always someone else's. We want our services as long as someone else pays for it.

The truth is simple. Government is not growing into a socialistic centrally controlled economy. In fact the large government initiatives that built the infrastructure of this country have no parallel today, except in the case of military spending (ignored and untouchable in the right wing paranoid mind set). The cost of government is largely calculated through a misleading and questionable accounting fallacy. Most of the so called "cost of government" is in fact absorbed by programs that pour the funds right back into the economy, and not to support fat salaries of fat cat civil servants. In fact the most material motivation civil servants might have is the possibility of incurring favor with the "private sector" plutocrats that might one day return the favor (a form of delayed bribery, which is nonetheless corrupt). Medicare and Social Security are the largest and growing sector of the federal budget. That, at least, is not a fact in dispute.

Right wing conservatives hiding under the mantle of fiscal responsibility launch attacks on those institutions that provide a measure of safety to the most vulnerable in our society - a requirement of a civilized society. They point at the cost of these programs as the reason for the shrinking wealth of the middle class, burdened by high taxes. Meanwhile we see the rise of a gilded class of short term gamblers who are driven by greed to put our economy on a self destructive race to short term fortune hunting. We see our financial institutions pull the world to the edge of catastrophe moved by executive swindlers who will gladly pursue their destructive strategies with the calculation that their fortunes will be well consolidated in time to step out of the game when the inevitable collapse comes.

The reality that is screaming to be recognized is that, when a society as rich as ours allows such concentration of wealth, it places a heavy burden on the individual, who faces the opportunity of outrageous wealth, to act in a way that is inconsiderate of the values that keep us together as members of a community, Americans, or members of the human family. Most, if not all, will take the mammoth payoff without as much as a moment of annoying ethical second guessing. Isn't the market telling them they deserve it all? Aren't they the smartest ones who are doing God's work, God being the "free market" whose invisible hand touches us all in our pockets? I know He's been in my pocket, but, for the anointed, He has been showering them with limitless asset blessings. The truth is that faced with such adulation from an ideology that idolizes wealth, and the opportunity to a lifestyle beyond any conceivable dream of the average person, these people act, understandably, in a pattern that can only be categorized as sociopathic. Undoubtedly they are as impotent to change their fate as anyone facing the same promise of blissful opulence, with as many exceptions as there were anti-Nazi activists in 1939 Germany. People are merely pawns of History in large measure, and pawns of an economic logic propped up by a new version of the age old ideology of dominance, which underlies any number of corrupt systems of power concentration from absolutist monarchs of ancient times to fascism of recent decades. Wealth and power are co-joined twins who show up throughout history, wherever the balance of freedom and community is trampled on by an exploitation-based institutionalized inequality.

If we look at the numbers we see a well documented trend towards wealth concentration that has been blessed by an ideology of paralyzing complacency. This ideology of greed, masquerading as free-enterprise, has us paralyzed in the face of the inevitable self-destruction that is firmly planted in our path. We came very close to irreversible catastrophe which receded only by patching the losses of the big financial behemoths at the expense of Average Joe taxpayer. It was simply another step towards higher inequality where the wealthiest Americans will have us all blackmailed anytime their losses hurt for compensation. And all we have to do is pay up. In that ratchet game, when the economy goes up, they get all the gains, when it goes down we get the losses. That is how we have come to fatten their slice of the pie by taking away from the rest of us (top 1% tripled their after tax income from 8% to 24%, from 1981 to 2006) while their share of taxes actually gets transferred to the Middle Class (one third of it in the same 25 years).

As we are all getting poorer, with standard of living standing still only by switching to two-wage earner families since the 70's (cost of labor peaked in 1972) a few get outrageously rich by literally having their hands in our pockets. Like the saying goes: we rob banks because that's where the money is, and it's been revealed in our times that the easiest way to rob a bank is to own one.

While our manufacturing economy shrinks, the financial services industry explodes, consuming the larger part of our wealth. The top six banks used to have a capitalization equivalent to 17% of GDP but now they add up to 60% of GDP. They fail and we all go down, or so they want us to believe. The process of saving them requires the Fed to provide liquidity (loan them money at 0% interest) while they turn that money back around to buy government debt at 4%-5%, gobbling billions without creating one cent of value. The creative technological advances that provide the life blood to the manufacturing industry, the machine that creates value, keeps shrinking, while these "financial services" serve themselves of anything that they can get their hands on: our savings, our pensions (where else are pension funds, 401-ks, IRAs, going to look for protection from the shrinking value of the dollar? Capital markets are the answer). The only argument in favor of maintaining this structure in place is the impossible-to-rebate ideology that the market is infallible and our only hope for the survival of the uber-efficient capitalist system.

So when we look at government and its size, it's easy to fall into the trap of thinking that we can't afford Social Security and Medicare, which are pushing us toward bankruptcy. No! These services are a small measure of necessary redistribution required for survival of a system that gives all the winnings to the very few, as if the rest of us who work hard and in many cases create real wealth are in fact a burden and not the real toilers on whose backs the gilded profiteers slide along oblivious of humanity in their ungodly deception of godly aspiration.

It's not the Postal worker, or the fire fighter, or even the maligned DMV worker that is costing us our mortgaged future. It is this class made of hubris and arrogance, and mostly human frailty, that is at once the product and the agent of a capitalistic dream's delusion of grandeur. A capitalism on crack that will shower the greedy with the gold transmuted from the toil of the large American masses, and the blood of the faceless masses of an even more remote world of "terrorism and anti-American rage". Just step back for a moment and see what your eyes are trying to tell you. Add a little common sense to the facts that even Fox News millionaire populists can't obscure, and without the contortions of the misinformation antics that assail us every time we turn to Rah-Rah media, things will start making sense.

Tuesday, January 12, 2010

Suddenly, after 8 years of gutting the ship of state, the Right is impatient with the trim of the sails. Here's to reviving memories!

Prompted by questions about an insinuation I made regarding the Bush administration I find myself writing a longer answer than I initially intended, in my compulsion to clarify my own mind about the history. In a few hours I tried to put a few ideas together to describe how I came to understand that the Bush administration had followed a formula that Madison had warned us about: "If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy."

Just relying on memory of the chain of events I tried to find links of pages documenting them. Maybe the dots can be connected differently, but my interpretation is coherent with the facts. I have not cherrypicked facts to make my point because I know of no facts that contradict my narrative, I simply googled some of the events I mention to facilitated anyone's investigation of these facts. In any case it is easy enough to do further research online, whether the intent is to support or contradict this interpretation.

Many people believe that 9/11 was the result of a willful neglect of warnings that an attack was about to happen. There are many indications that Cheney, Rumsfeld, and influential neo-cons wanted an excuse to go into Iraq from the first day in office ( ). As outrageous as it sounds it is not much of a stretch compared to tactics used in the past by overzealous right-wingers such as in the Iran-Contra scandal. As it turns out they did use 9/11 as an excuse to go into Iraq by exaggerating non-existent threats. In the process they declared a war against a ghost country/army - Terror - and created a bloody conflict that killed hundreds of thousands and destroyed the livelihood of millions, all at a safe distance that could be witnessed on TV by a horrified but untouched populace. The argument that we were at war was used successfully, combined with voting shenanigans, to re-elect Bush in 2004.

In the 8 years of that administration billions of tax-payer funds were used to bribe occupation collaborators in Iraq ( ). Billions were awarded in contracts to Halliburton, KBR, and organizations that sprouted out of the blue to fill the need to stir the pot of terror with mercenaries hired in Peru, Chile, Central America ( ). The lives of our military were gambled away on a battlefield so frivolously created, while back home traumatized young veterans' suicide rate shot up to 6000 per year as the war went on ( ). Meanwhile the propaganda machine touted the dangers of a color coded Terror threat to keep the public in fear and in line. More people were at risk of choking on a pretzel than from terror attacks at home over all those years. But the merchants of war had their endless orgy of profits, and this country, that hasn't had a real war in it's mainland for over 200 years, spread terror and death among millions of brown people, on the opposite side of the world. They stirred up the hordes of those who understandably hate us and therefore enlarged immeasurably the numbers of potential recruits to the cause of anti-Americanism. There was Abu Graib, Guantanamo, illegal torture (to be redundant) perpetrated in the name of the American people. ( ). This process made us more likely targets of a threat that appears to be initially neglected and subsequently carefully nurtured, judging from the results.

Undoubtedly the war business was a success for enriched arms merchants (including some of the largest corporations in America that would presumably bankroll the Republican Party ad infinitum). The depletion of our treasury was useful in other ways. The debasing of government offered more opportunities for privatization of any operation that could yield profits for the corporate moguls. There was a great plan to dig into the Social Security funds and enrich the hunting grounds of Wall Street predators. Taking money from unprepared involuntary overnight investors would be like shooting fish in a barrel. But the memory of 2001-2002 crash and the corporate fraud scandals from Enron to WorldCom were still fresh in people's minds and that effort thankfully failed. Yet, the credulous mobs nurtured by the religious right were mostly appeased with the version of facts presented by a president that they identified with. He was one of them, a man on a Christian mission. As Aristotle warned: “A tyrant must put on the appearance of uncommon devotion to religion. Subjects are less apprehensive of illegal treatment from a ruler whom they consider god-fearing and pious.”

And while he did the PR work Bush's brain, as Carl Rove came to be known, conspired with the “dark side” in Cheney's office to persecute political foes, by hook or crook. Where the US Attorney was ready to collaborate in the witch hunt Democratic foes were taken down. A governor election was overturned in the dark of the night after the winner had been declared (Alabama) and the presumed winner was thrown in solitary confinement for months without the ability to contact his own wife and lawyer ( ). Where the US attorney was not cooperative he was thrown out, accused of incompetence, and replaced with a “true believer”. ( ).

Under cover of war powers (even a war that had been invented by them) the administration found ways to get around courts and infringe on the rights of any and all citizen by collecting phone call recordings into the huge NSA databases in collusion with corporate telecom giants, such as AT&T. Again corporate America and the “permanent majority” party scratched each other's backs (

All this was part of a grand plan for 100 years of Republican majority. Tom Delay the majority leader who scruplelessly ruled the House rigged the redistricting in his home state to bar any chance of opposition representatives being elected. He twisted arms to pass a deficit busting bill in the middle of the night giving the pharmaceutical companies a sweetheart deal ( ) saddling seniors with the perplexing “donut hole”, and adding Big Pharma to the list of political supporters. He was unable to finish his term leaving under a cloud of perfidious indictment for bribes and lobbying deals with tearfull lobbyists that for so long had operated above the law. Rumsfeld was discarded as a face saving act from Bush after the debacle of the 2006 elections, as the failures of Katrina brought to the surface the true incompetent nature of this government. The people started questioning the trust they had bestowed on this man that they believed had been chosen by God. Reality started infringing on the fictional story that had been manufactured to disguise the simple goal of this team: permanent and total power.

The castle of cards started to crumble. It was a downhill ride all the way to the end. Democracy bobbed back up, partly saved by a disaster brought about by the incompetence of those who so recently saw themselves as permanent masters of our destiny.

Sunday, January 10, 2010

If the richest Americans paid taxes (or "The great sucking sound of the trickle-down tax-cutting Reaganomics deception")

YYesterday I published the following tweet:

If rich paid their share (say 20% on income over 60K) we'd all be better off and still reduce deficit by 100 billion (IRS 2006)#p2 #tlot.

Immediately I was excoriated by a couple of RWNJs (right wing nut jobs in twitterspeak). I don't use this term to denigrate a whole sector of the American public, but I think it is fairly applied to those who are online to promote their ideology of ignorance and irrationality. I can respect Conservatives who will debate me on substance and well researched facts, and I have experienced that many times on Twitter. However, there is a cacophony of reactionary noise whose sole purpose is to promote a point of view devoid of any reasoning or self-awareness. I said what I said after surprising myself about what the numbers published by the IRS point out, and as a result of an interchange with a proponent of the flat tax. I always looked at the flat tax concept as a way to defraud a short-attention-span public that does not bother to go through the numbers. Clearly that concept is mostly useful to mask the fact that the complexity of the tax system is anything but the progressive scale (as opposed to a flat tax). Just to humor myself I went trough the IRS data and did a quick calculation.

Here are the IRS numbers out from the 2006 tables:

· number of tax payers with AGI above $64,702 (top 25% - closest to $60k available figures): 33,929,730

· total tax paid by top 25%: $883,153 million

· tax paid by top 25% on income below $60,000: ($8,440 joint filers $12,000 single filers) let's say $10,000

· total AGI of top 25%: $5,535,830 million

From these figures I calculate:

· total tax paid for income under $60K=33,929,730x10,000=$339,297million

· total income over $60K=5,535,830 million-33,929,730x60,000=$3,500,046.2 million

· that taxed at 20% is: $700,009 million

· adding the two components: 339,297 million + 700,009 million = $1,039,306 million

which is clearly more than what they paid. In fact the difference is $156,153 million, even more than my initial published claim, which so outraged the right-wingers. This is how much they added to the deficit in 2006 compared to a model where they actually paid a meager 20% tax rate.

These results should be surprising to most people, and I think they will be surprising even to high income earners, say people earning $200,000 who currently pay much higher average rates than the 20% marginal rate I suggest in this example.

What has been very hard to grasp, and this example aims to illustrate, is how incredibly biased the tax system is towards the super rich, those who never have to do one day of productive work in their lives. I can hear the usual reaction with accusations of class warfare. Nonsense! If we have an unfair class system there will be class warfare - it's human nature and a historical fact. This nation was founded on class warfare against those who oppressed the colonists. Are we moving towards a class divided nation? The inequality that arose form the tax policies initiated by Reagan speaks for itself, and yet, with such unfair tax system the vitriolic rants from the right are always about cutting taxes. Yes, cutting taxes is great, but not the way Conservatives have been doing it (in collusion with many Democrats, this is well understood). The tax cuts at the top were just an excuse to shift the burden to the Middle Class. A real fair system would reallocate the benefits and the burdens of our nation in such a way to maintain a balance. If you read my previous posts you know that in the last 30 years that balance has been destroyed. My claim is not that the rich are bad and are oppressing all of us. Some certainly are, just as a matter of statistical probability. Some actually speak out against this unfair system (Warren Buffet, Bill Gates Sr., George Soros). Statistically there are always people of principle that will go against the lower instincts of hoarding and greed. The point is, this is not about individuals. It's about a fair system that we can all support. And historically it's not hard to go back and find examples of fairer tax structures that kept this country united, prosperous, and growing with the certainty that each generation could expect to be better off than the previous one. I don't mean to be nostalgic, but, can we have that back? Is that what Teaparties are saying when they talk about "getting America back"? If they are, they sure are misguided about who they trust to get them there!

This suggests that we need to trash the current tax system. Simple tax reform that will benefit all of us, including those who will continue to be outrageously rich, but can do that without the motivation to act in ways that are destroying our country, the global economy, and therefore endangering their own preservation. Any way you look at it, and in line with my previous findings, the tax system has been rigged to benefit the ultra rich at the expense of huge deficits that are then blamed on necessary services to the public (education, infrastructure, etc.).Let's fight against abuses and fraud that cripple our government, but not trust those lies about cutting taxes and debasing good (our) government. We came out of a much deeper Depression when we had a president that stood up to the big money mindless greed; we need to understand that we must do that again. Left to their devices they will drive us into the ditch like they did last year, or even worse. Not because they are bad people, but because they are doing what humans do in a system that promotes destructive, abusive, hoarding behavior.

Saturday, August 22, 2009

Health care safety net: ideology of profit vs. a Human Right of civilized society

Realism must overcome seductive ideological formulas:

The most repetitive argument I hear against broad health care coverage is that the government should "get the hell out of the way". I don't know what is the appropriate response to this sort of ideological chauvinism. It reminds me of the bizarre "revolutionary" formulas that were proposed by similarly inflamed radicals, in the opposite end of the political spectrum, back in the 70's, in an analogous historical context of economic despair for a large segment of society. What they have in common is the self righteousness that comes with the impatience with a world that does not want to fit into a neat little formula, which is so obviously at odds with reality if you can step back from the narrow view. Unfortunately that self righteousness is not unlike any other form of closed world view that commonly devolves into plain bigotry.

Clearly someone who thinks "markets do whatever they do and humans better get used to it", have their values twisted by a need to justify a world view that in many ways satisfies their narcissism. It's human nature to think that their privileges are the result of an order that rewards those who are deserving and punishes all others. I don't know that it is possible to bridge the gap and find common ground with someone that is a proponent of this point of view, which is confined to a historical condition they cannot overcome.

Let's look at facts that don't necessarily support the myths we've been living with for 30 years:

The reality is that we live a period of extreme economical distress for half of the population and shrinkage of options for the Middle Class. The health care problem is the tip of the iceberg. It results from an increasing difficult set of realities for the working poor, who find it physically impossible to overcome their condition. While their income has gone nowhere (2.5% increase for half working Americans since Reagan came into office) their share of GDP growth was used to leverage the increasingly predatory growth of the the top 1% whose share of the pie increased from 8% to 22%, leveraging the effect of economic growth (116% since 1981) by a factor of 3. Part of this wealth effect has skewed the cost of health care, education, housing, which have also grown at a higher rate than the GDP pushing 1 in 2 Americans further down into the underclass that has less options today than it ever had since we recovered from the last Depression.

The simple mechanism of extending Medicare to everyone by choice, at cost, would be very easy to implement. But it would be highly threatening of the health insurance industry that failed to provide security in this environment of increasing economic disparity. They're fighting a loosing battle. There is simply no capacity for the underclass to access a service that is tailored by and for people who live a different reality.

The type of fiscal policy that allowed us to overcome a higher relative debt burden after World War II is impossible to defend these days as any gain by the beneficiaries of so called free-market policies is stridently protected with accusations of socialism against any threat to their greed driven machine that aims to counter the increasingly growing disparity. In the current environment, policies that taxed more than 90% of the stratospheric slice of the highest incomes to provide free higher education and sustainable levels of wage disparity, would be considered downright “communistic” by today's self proclaimed defenders of American values and Capitalism. We may have evolved much over the last 30 years, but while we focused on bringing the country together by breaking down social barriers resultant form historical patterns of bigotry, we let ourselves go along with economics of greed by swallowing the palatable concept that the wealthy are the providers of opportunity and the motor of this economy, and free markets are self regulating. This ideology is historically predictable, and those who buy into it are well advised to broaden their views. Every time an elite finds ways to establish dynastic privileges to a life of leisurely opulence it provides itself with an ideological justification to gain acceptance by a larger segment of society, that extends the longevity of the unsustainable status quo. The reality of economic success is coincidental with the growth of an enterprising Middle Class that has access to the consumption of the goods its growing productivity delivers. Any society where the state does not provide mechanisms to equalize access to opportunity tends to digress towards extreme inequality and deliver unsustainable deterioration of living conditions reflected in areas such as access to life sustaining health care, education, and housing. Since the policies that regulated that balance started to be challenged with Reagan there has been a decline of standards of living for half of our population (even for the vast majority of the other half their economic success hasn't kept pace with the GDP growth). Right wing ideologues would have us believe that these are people deserving of their fate, except when they cynically use their systematically promoted ignorance to manipulate them into supporting the policies that keep them from opportunities for success. Not unlike the slaves that paradoxically fought besides their masters in various turning points in History, including the American Civil War.

The current trend towards economic disparity is alarmingly unsustainable, and the deep precipice we reached at the end of the Bush administration is likely to pull us down further if we don't find a way to overcome the deep delusion many have been living under, since Reagan proposed the seductive panacea of tax cuts to overcome economic sluggishness.

The protection of a Human Right is incompatible with profit motive:

Basic health care delivery cannot be a profit motive any more than other safety nets provided by the state in all developed societies. Who would think of for-profit unemployment insurance? Does not mean individuals are not well advised to provide for their own capacity to survive unexpected income fluctuations, and there is wide room for an industry that caters to the aspiration to financial independence beyond that level of protection. Likewise, there is plenty of room for supplementary benefits to be offered by a profit driven health insurance industry.

The question is, what are the basic levels of health that should be protected and what is the cost that we can sustain on a universal access model. There are too many holes currently leading to bankruptcy, premature death, and avoidable disability. It's not for the private insurance system to provide the solution as they proposed in 1994 and have amply demonstrated themselves to be incapable of. The argument I make is that there is in fact no room in the solution for that industry, and any attempt to accommodate it is an oxymoron and doomed to fail.

Monday, August 10, 2009

The cost of Reaganomics

As my previous (1st) posting explains, my analysis of IRS data shows a huge shift of earning capacity from the bottom to the top of the earning scale, between 1981 and 2006 (last year for which data is published). That was a simple number crunching exercise focusing on the results of 25 years of Reaganomics.

Clearly, my interpretation has a point of view: we'd be better off if the fruits of growth were more evenly distributed. That seems to me a balanced point of view, given that 1981 was chosen simply because it was the year when Reagan started the sea change that followed, not because we were coming out of some highly equalized socialistic era of forced redistribution. In fact, we were quite far from Eisenhower policies that today might be considered downright communistic by the conservative talking heads, with a top tax rate of 91%. So much for these talking heads' consistency! While on one hand they clamor against any effort to revert to Clinton era rates (39.5%), where we had record breaking years of uninterrupted growth and job creation, on the other hand they claim JFK as a supply sider (, because he cut rates to 65%. With that impressive intellectual elasticity it must be hard to hold on to a more down to earth following, hence the well known proclivities of the GOP base, which I won't go into here.

Attempting to stay away from technical economics arguments, that have no scientific consensus but seem to embolden many who claim to understand them, I just want to draw attention to the obvious, that the numbers demonstrate: As the economy grew by 116%, the top 1% of taxpayers saw an income growth of 331%, and the bottom 50% saw virtually no progress.
Is this good, bad, or indifferent? Conservatives will have us believe that it is inevitable. If that is so, then there is no recourse against a progression towards social chaos and eventually revolution. Of course, that implication is not so palatable and they prefer to ignore it.
I believe that it is bad; that the state has to interfere to regulate the concentration of wealth that denies the middle class the means to invest, innovate, and be entrepreneurial. Contrary to popular reading of Reaganomics, the wealthiest Americans who benefited from this wealth transfer are not the ones who create the most jobs, the newest innovations, and the dynamism of a democratic capitalist system. Instead it is the middle class that generates creativity driven by the aspiration for a better life (when you are the untouchable what ambition will drive you to abandon your sweet opulence for a life of effort? Such nonsensical view of history can't seriously be argued). Rather than promoting economic growth in the long run the massive wealth transfer that denies the average American the margin to overcome a subsistence mode, reverts us to a feudal model where wealthy people are in a permanent leisure class that has a birth right to opulence and no need for any social contribution, much like the monarchy that the American Revolution overthrew.
It is very hard for someone that makes millions off lending to the Treasury to aspire to an easier life style, not accounting for the thrill of gambling that is likely to consume a fair proportion of those who look for an escape from boredom. But the differences are so huge that there is broad margin to absorb the proverbial black sheep without threatening the continuity of the big fortunes (one million dollars provides more safe income than an average American earns working full time - now multiply that by 100 or 1000 and that is the realm of the leisurely opulent).

My observation, for what it is worth, is that we are well on the road to a feudal model. What I hear from underclass right-wingers (funny concept huh?) is that "if we increase the taxes of the rich who will give us jobs?" Where is the self-reliant streak that defined the American spirit forever? As an answer I don't think we need to look for refuge in any economic ideology; all we have to do is calibrate our political action in function of real economic results. In that sense the visible results of Reaganomics warrant very strong political action. I believe that is what drove the Obama victory and the Democratic majorities in Congress. But the level of frustration with those in power is clearly less visible once they lose the position of formal political control (GOP government). They still control the media, the Supreme Court, and the economy, which gives them much leverage to peel off the outer layers of the historically congealed majority.
So it is important to drive home the simple matter of fact truth: that this is all about economics, not about economic ideology. Almost everybody knows how to balance a checkbook. There is not much more to it, with all due respect to the intellectual debaters.

The formula should be easy to detect. While taxes for the rich were cut, they were raised for the middle class (social security taxes) under the false pretense that it was to secure the future of Social Security; while instead, the bloated deficit has been blamed on entitlements rather than the tax cuts. Compounding the scenario we have skyrocketing executive compensation, financial bailouts to pay millionaire bonuses, health care costs growing 2.5 times faster than GDP, stratospheric education costs in the top schools, everything to indicate that we arrived at a true economic oligarchy, sometimes described as the two Americas: leisure and power for some, and servitude for the rest of us. No more land of the Free here.

Most don't recall the days when socialism was born from a similar class system, but they were not good times for anybody. Are we slipping back to that? Rather than malign socialism, as right-wingers are so inclined to do today, they need to know that the real malignancy is found in the conditions that drive us to seek refuge in socialism. How about learning the lessons of History?

Thursday, August 6, 2009

Where did the 10 Trillion Dollar Debt go (and who has it now)?

I'm not an economist, and I have no interest in ideological debates between different schools of thought. I think the average tax-payer finds no useful purpose for that type of discussion, but is interested in economics and the way economic policies impact their lives. The esoteric discussion of technical views promoted by one school or another tend to obscure the reality that is accessible to the informed person and the discernible trends that show where the country is headed, and to which the government policies are pertinent.
In the political debate about taxes and spending political ideology always seems to be the opinion driver, and facts and figures are easily concocted to support one point of view or another.
I have recently been furnished a table (shown) that plausibly makes the point that top income earners pay most meaningful taxes and therefore it's at the top that tax relief is warranted... until you add another column to figure out the effective tax rates, and find out that at the top of the income range the tax rates drop significantly, from 35% to 24% and 21% (which would defeat the point being made). And in fact, for the richest Americans, the rate was 17%. The analysis is always framed in terms of the tax burden on each income range group, as if that really told the hole story. But is that really a true picture of reality? Heck NO!

The truth is:
1. reality is dynamic, with accellerating changes in last 25 years.
2. in real terms the tax burden is being shifted downwards in the US as income moves massively towards the top earners (America's Tax burden Shifts Downwards
3. since supply side economics was appropriated by conservative politicians there has been a historic wealth transfer effect towards the top fraction of the 100 percentile (fraction of the top 1% earners).

I've seen a variety of articles claiming one thing or another, but my curiosity lead me to the raw data published by the IRS (
In that mountain of data I managed to discern a real trend that explains why the working poor have to work multiple jobs to earn less money today than when the the GDP, even in per capita terms, was less than half what it is now. All that growth was floated up towards the top.
Reagan came to office in 1981 and introduced the notion that by cutting taxes the economy would grow. Without debating the merits of that aspect, the actual policy resulted differently depending on your income bracket. There was no growth for the bottom half and a huge expansion of wealth towards the top. When I say top I'm talking about a fraction of 1% but most IRS data does not discriminate beyond that 1%.
So, in 2006, last numbers available, the top 1% had expanded their share of earnings to 22.06% of the total American Pie, from 8.31% 25years prior, in effect sucking up a large part of the wealth effect of GDP growth that the average citizen assumes was distributed by all Americans.
Paraphrasing J. K. Galbraith, it is a seldom admitted fact that more equitable economies perform better than ones where the wealth is held in high concentration. You know, he's comparing evolved countries to the proverbial Banana Republic. Clearly we are moving backwards on that scale. Is that inevitable? That does not happen in other developed economies that don't follow our model... but, we are the best - let's not forget that! No argument works better than patriotism to prevent us from learning from others.

It is the function of the government to determine fiscal policy, and the result of the policy of the last 30 years has been this huge displacement of the wealth towards the top layer, no! sliver. When the tax topic is discussed the issue is always framed in terms of the burden placed on the highest income earners. In 2006, they say, the top 1% paid 40% of all taxes up from 20% in the early 80's. True, but if you look deeper and figure out that they almost tripled their share of the income pie, having only doubled the share of the tax pie was a pretty good deal. In fact their effective tax rate dropped from 33.37% to 22.79%. And this figure is misleading in the sense that the richer you are the less tax you paid. The actual percentage for the top 400 tax-payers in 2006 was 17.17% (IRS figures).

Let's add some perspective to this data:
What the data tells us is that since reaganomics was introduced as a fiscal policy of "small government and low taxes", it was used to create a huge health effect biased towards the top layer of tax-payers, leaving 50% of working Americans out in the cold while the economy more than doubled (116% economic growth per capita and adjusted for inflation, 2.5% total growth in 25 years for half of tax paying Americans).
In my view it is not much use to debate the low tax small government aspect, which seems to be palatable to most people, but that is not what in reality happened. What happened, in this age where lobbyists multiplied and PAC contributions to politicians mushroomed, the interests of the pay masters were well looked after, while the democratic power of the little guy shrunk. Welcome to US democracy in the 21st century! The century inaugurated with the Florida fiasco that turned the political destiny of this country in the opposite direction of what the other 49 states had determined! Sorry, off topic... or maybe not!
But let the dupes for the so called conservative right understand that one out of two Americans are worst off than ever in 25 years in spite of large productivity increases. As their income stagnated, housing, health care, education, all the benefits of an aspiring upwardly mobile society were priced out of their means. Higher Education, which was practically free 30 years ago, requires now that even higher middle class students (80-95 percentiles) mortgage their futures for decades. Housing, by virtue of the bubble bursting, associated with unemployment resulting from the 2008 crash, has become a mechanism of wealth destruction reversing the traditional role of wealth growth motor of the middle class. And health care costs which have zoomed past GDP growth as executive salaries and shareholder returns are prioritized by a profit seeking insurance industry have become a luxury out of reach of a large part of the population, leading to the current debate on reform. Meanwhile, as we have become increasingly aware, there is a thin slice of society who spends their vast means figuring out how to profit from the activity involving the savings of all Americans (401-ks, pension funds, investments), therefore producing nothing, and effectively taxing our savings as a whole, to award themselves multi-million dollar bonuses when luck strikes, and getting bailed out by tax payers when their inflated leveraged pies in the sky fall back to earth. No accident, these slick operators are exactly in the part of the curve where the tax rate drops precipitously from 35% to 17%. That's the sweet spot! It is in fact somewhat unfair to place everyone in the top 1% in the same class. Anyone making less than $1 million actually pays the highest tax rate, but the IRS does not provide details within that 1% class where all this happens.

Ultimately I think there is a challenge here for the economists of all the various vociferously competing schools of thought: how do you explain to the average Joe how we got here, why we should continue or change, and where different trends will lead us. I think it's fair to say that supply siders did not get us what they promised (trickle down, remember?), so a fair share of suspicion is warranted on anything they have to say for themselves now... but, give them a chance to talk (1st Amendment and all that!). Once we know what the choices are, then it's a political choice, not up to economists.

Finally, to give us a perspective we can relate to the size of the growing debt:
In 1981 the top 1% (Richie) earned 8 times the average of the other 99% (Joe); 25 years of trickle down and in 2006 Richie earned 28 times as much as Joe.
At 1981 income distribution levels each Joe (all 99 out 100 Americans) would have added $8,319* to their 2006 income, and $74,716** to their accumulated income since 1981, while Ritchie would have more than doubled his wealth. All Joes would have an aggregate wealth gain in 2006 of $10.039 Trillion***, which is the actual wealth transfer effect of these 25 years. This is enough to pay off most of the debt and secure the viability of Social Security and Medicare, in spite of the gross mismanagement of the last 8 years.
When we hear politicians proclaim their fiscally conservative principles, here is a useful fact: the cost of the fiscal fiasco we find ourselves in is about the same as the amount of wealth transferred to those Americans that already had it pretty good in 1980, presumably operated through our government fiscal policy through the Reagan-Bush-Bush eras. Although the Clinton era was not a complete reversal, it did reverse the deficit spending trend, which is what the effect adds to.
So when you hear someone say "we can't afford it!", just ask yourself: are they talking about wasting money in a new Ferrari for Nino (okay, that sounds like an example from the Sopranos - not what I intended)? Or are they talking of paying for life saving access to medical care, access to education for growth and opportunity, or sustaining the ultimate safety net of Social Security? Well, when you have the answer, then you'll know if they're serious.

Notes on calculated values (all figures from IRS data):

*((2006 earnings of top 1%) -total AGI x (1981 share of top 1% earnings))/(99%of population)=
=(1,791,886-8,122,040 x .0830)E6/(1,357,192 x 99)=8,319

**same calculation for each year from 1982 through 2005 and accumulated

*** 99% of population x per capita accumulation=
1,357,192 x 99 x 74,716= 10.039 E12 = 10.039 Trillion

****population is #of tax returns