Topic: Commentary
Yesterday NPR ran a story about how lobbyists for domestic cement producers influenced the implementation of a cement tariff against cement coming from Mexico in the early 1990s under George H. W. Bush. This report is a classic example of the fact that it is capitalists who primarily thwart free trade, and that it has been largely the Republican Party over the past 20 years that has been the main opponent to true free trade practices.

You can listen to the program via the NPR website here:

Politics and Cement Mix with Unintended Consequences

Protectionism is a tendency of capitalist, fascist, and national socialist systems. Under all of these systems there either a vested interest and/or an ideology that promotes the favoring of domestic producers over a global economy.

In capitalist systems it is the capitalists themselves who seek to influence the control mechanisms of the government in ways to favor their own private interests. It is the capitalists who seek to manipulate the market in ways to enhance their own market positions.

Capitalists do not want to operate in a free market. A true free market is the least profitable market for a business to be in. Market restrictions and regulations are used to create advantages for some companies or industries over others, and thus it is the capitalists themselves that are the ones who use government in ways to undermine the free market, limiting competition so that they can increase profits.

On the other hand, Marxist economists and Marxist-like economists strongly promote free trade. This is for several different reasons, based on the views of the individual, but for Karl Marx himself, he promoted free trade specifically because he felt that free trade would accelerate the development of the capitalist system to the point that it would undermine itself, because Marx viewed capitalism as inherently unstable.

In his 1848 speech on free trade Marx stated:

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

Some Marxist-like economists favor free trade for more constructive reasons however. A major reason to support true free trade is to promote international integration and break down barriers between societies, creating a global community and a global economy where more workers can enjoy the fruits of their labor.

What is important to take away from this is that tariffs are a typically "right-wing" form of government intervention in markets to promote the interests of specific domestic individuals at the expense of the global community and at an expense to consumers. The beneficiaries of tariffs are almost exclusively domestic capitalists, who receive an economic benefit from the use of government force and taxpayer money used to enforce rules that are specifically designed to transfer money to specific individuals or industries at the expense of everyone else.

It is capitalists themselves who manipulate the market through the use of government force, in order to increase profits by limiting competition.

For Marx's discussions on free trade see:

On the Question of Free Trade

Topic: Semi-random Thoughts
How many times do we hear it: the phrase, "So and so 'earned' X number of dollars last year", or "So and so 'made' X number of dollars"?

This is something that we see and hear every day in every discussion about incomes and the economy, but it's a phrase that is dead wrong in expressing the reality of how incomes work.

Just today, while listening to NPR, I heard a report which stated that while the wage-gap is closing in America, "Blacks, women and other minorities still earn less money than whites for doing the same work".

What they really mean to say, however, is that Blacks, women and other minorities receive less money than whites.

If Blacks, etc., are indeed doing equal work and getting less pay, then in fact they are EARNING more than they are receiving, hence the fact that this is a problem.

The use of the terms "earning money" and "making money", are highly deceptive in American economic language. What is really meant is "receiving money". The difference between "making money" and "receiving money", of course, is substantial, and the use of the terms "earn" and "make" are a part of how the American establishment frames the issue of individual compensation.

The reality is that anyone's income is not a measure of how much value they have created, indeed, it is a measure of how much value they have received, and this distinction is critical.

The easiest way to demonstrate this concept is to think about two hourly employees. Both employees are paid $10 an hour to unload equal sized boxed from trucks. Employee A moves 100 boxes during his shift, and Employee B moves 50 boxes.

If they both work the same amount of time they will both be paid the same amount, but can we say that they both "earned" the same amount, or that they both "made" the same amount?

No, they obviously didn't both add the same amount of value to the economy. Employee A did two times as much work, and thus created two times as much value, but both Employee A and Employee B received the same amount of pay.

If you were to hear an account of their day's work in the American media you would be told that the two employees earned $80 a day.

The reality, of course, is that they aren't both earning $80 a day, all that we know is that both are receiving $80 a day.

Now, the fact is that everyone's income, from the most poorly paid person in the world to the person with the highest income in the world, is nothing more than a measure of value reception, not value creation.

The system, so we are told, is supposed to result in individuals receiving compensation equal to their contribution, but the reality is very far from this. In fact, the reality is that the relative relationships between contribution and compensation have become extremely skewed in America, in some cases by orders of magnitude.

Now, I don't have data on hand to back this up, and I suspect that backing this claim up would require a multi-million dollar study conducted by a team of economists and that such a study would be obstructed significantly by the American wealthy, because the fact is that, on the whole, the American wealthy are receiving many times more value than they are creating, and the American middle-class, the American working poor, and most significantly perhaps, the foreign workers who make American products, are all generally making much more than they are receiving.

The use of these terms, earning and making, in framing economic discussion is significant, and that is why all people who wish to speak accurately must take action to reform our language, and reform our usage of these terms. When discussing incomes it is appropriate to use the term "receive", not "earn" or "make".

What are you going to say the next time someone tells you how much someone "made" last year? Tell them, "You mean they received $X, I'm not really sure how much value they actually created."

Topic: Announcements
As you may or may not have noticed, I have been making structural changes to the website (moving and renaming files), which has also resulted in the resetting of many of the hit counters. I am in the process of making some design changes as well, which will be published over the next couple of weeks. Because of this, and many other issues that have kept me busy, I have not had as much time to write as I would like, but new articles are in the works and will be coming out soon. My site host also recently upgraded the serves, which resulted in several days of down time and poor performance, but hopefully those issues have passed.

Thanks

Topic: Semi-random Thoughts
I just got back from a local, individually owned, sub and pizza shop. It's one of those hole-in-the-wall places that is located in the bad part of town, near all the machine shops and auto mechanics, and it has the best food around. It is old and dingy and covered with photos of local customers and pictures drawn by children. It was packed full of local workers in on their lunch break. I noticed some roofers, an electrician, a female fire fighter, and many others whose professions I couldn't identify.

One would think that this should be a very Leftist crowd, but in fact the impression, as is typical, was the opposite. A few Bush bumper stickers on the cars outside identified at least some of the patrons as self-proclaimed "conservatives", and the nature of the pictures and decoration of the place hinted towards an overall "conservative" leaning as well.

Many of the patrons were obviously regulars, as the workers knew most of them by name.

Then I got to thinking about what it really means to be "conservative".

A lot of people who consider themselves "conservative" are people who "like the way things used to be".

The interesting thing about this is that from an economic perspective American has traditionally been much more Leftist than it is today, especially during any period of time in living memory.

The issue of the economic history of American society is further complicated by the issue of slavery and continued racial injustice, but in order to understand what exactly it is that conservatives are associating with, one has to understand the historical composition of White American society.

Historically, White American society has been very egalitarian, which is to say that Whites in American society have all been relatively equal to each other economically since the 1600s, when compared to any other country in the world.

This relative equality was often accompanied by a dramatic inequality between Whites and other races, such as Black slaves of course, but what Whites remember as the "good ole days", were the days when they and their peers had close social bonds, when everyone in town was fairly equal in terms of property ownership, when all of the stores were locally owned any operated by their neighbors, when the man in the post office knew everyone's name, and when values were widely shared by the community.

What many American "conservatives" are fond of, is the Leftist nature of our American past.

I find it interesting that independently owned businesses around America, like this sub shop, are so heavily admired and supported by "conservatives", who also call themselves "right-wingers" and vote Republican, when it is corporate capitalism that is transforming America and undermining the way of life that they admire.

I find it quite ironic that American politics and American society was dominated by "liberals" and the Democratic Party from the 1930s through the 1970s, and yet, this is the time that many of today's conservatives look back on as "the good ole days".

Topic: Commentary
Democrats: Bankruptcy bill unfair
Bankruptcy `reforms' are a lopsided measure
Bankruptcy bill doesn't do enough to stop lending abuses

The bankruptcy bill that is currently pending in the Senate is essentially a means by which the credit card industry, and capitalists in general, are perusing greater use of government force to subsidize their industries.

The goal behind the so-called bankruptcy bill is to make it harder for people to file for bankruptcy. The claim is that too many people are filing for bankruptcy that have the means to pay back their debts.

First of all, the documentation shows that only an estimated 3% to 4% of those who file for and are granted bankruptcy may be able to have paid back more. Second of all, profits for the credit card industry have gone up by 168% since 1997, clearly showing that the industry is not suffering from the so-called problem.

What this is really about, however, is something much deeper.

The credit card industry is one of the most sophisticated industries in the world. The credit card industry is a leader in personal profiling and data collection on individuals. They have extremely good measures for determining the credit risks of individuals.

This industry has also continually extended credit to more and more risky customers, granting fast and easy credit to almost anyone. What this industry is doing, is asking the government to facilitate their own high risk behavior. Every extension of credit by a lender is a type of gamble. It's a gamble on their part that the individual will pay back the loan with the interest.

What this industry is doing is its going after individuals who they know are very high risks, and then extending them credit and now they are asking for the government to not only condone the activity, but to actually facilitate it.

So, what is this business of credit really all about?

The first thing that we hear about from defenders of the credit card companies, is that people should be responsible for their spending.

Okay, fair enough, but why shouldn't the credit card companies be responsible for their lending? They are taking risks, and they know, VERY WELL, what those risks are. What they want is for the government to enforce a situation that allows them to take even greater risks in order for them to be able to expand their market share. That's what this is really all about. They want government backing of their risk taking.

Now, as to the personal responsibility to consumers. Both the credit card industry, and all industries in general, are increasingly targeting poor consumers, people who they know don't have enough money to responsibly buy the products that they offer. Sony wants to sell more PlayStations, Kenwood wants to sell more car stereos, Tommy Hilfiger wants to sell more cloths. What do they do? They advertise products that cost hundreds of dollars to low income consumers on a relentless basis. But even with that, people still can't buy what they don't have money to buy, and they still will be at least somewhat responsible when the only money they have is in their pockets. So what to do now in order to increase sales, especially with the level of poverty increasing in America?

Extend easy credit to high risk consumers.

You target people who can't afford all the things that are advertised to them, and then you rub "free money" in their face. You keep pounding them with ads every moment of every day, on broadcast television, on the radio, in magazines, and then you give them credit cards, and then, when they buy more than they can afford (big surprise right), then you want to call in the federal government and force these people to work it off.

You put them in a situation that increases the likelihood of them spending more than they normally would without credit, and then, when these people who are one paycheck away from being broke lose their job, or have a car accident, or have a medical emergency, and they can't pay their bills, then you want the federal government to step in and basically make them indentured servants.

Make them pay, make them pay, make them pay.

These people are being repeatedly encouraged by the credit card industry, and by all industry, to be irresponsible spenders, to buy everything they can, to max out their cards, to "live on the edge", to get what they can and "satisfy their wants".

It's not like we have a society that encourages financial responsibility. No, in fact we have the opposite, and it is the capitalists who are the ones that are encouraging financial irresponsibility.

What this bill is about is the ability of private industry to encourage and facilitate financial irresponsibility in order to expand their markets with the support from Uncle Sam to back them up when all of their risk taking and prodding and encouragement of personal financial irresponsibility yields its predictable results.

If this industry were serious about trying to responsibly extend credit to low income consumers, then why don?t they offer things like "needs only" credit cards, that could only be used to buy necessities, such as food, gas, school supplies, and medicines, etc. The financial industry is one of the most sophisticated industries in the world. They could do it if they wanted to, but then, I guess, maybe there just "isn?t a market for that".

Topic: Commentary
Senate Defeats minimum-wage plans

Afer 7 and a half years without an increase in the minimum-wage, Senator Ted Kennedy proposed a $2.10 increase. This was met with a Republian proposal for a smaller increase that was accompanied with tax breaks and other incentives for businesses, and, of course, both of these ideas were met with opposition and both measures failed.

One of the biggest problems with the minimum-wage, actually, is its irregularity. It's something that impacts business owners that is almostly compeltely impossible to budget for since its adjustment is relatively random and arbitrary. I'm not going to take the time to debate the merits of a national minimum-wage, but rather I'm simply going to propose that minimum-wage adjustments should be set on a perminant schedule.

The minimum-wage should be updated this year, and then it should be set to automatically increase with the rate of inflation on the same date every year. What that would do is make the minimum-wage consistant, and make it easier for industry to budget for it, as well as making them aware that its going to be adjusted, presumably up, every year. In the event of deflation, of course, it would also automatically decline.

Additionally, a specific date should be scheduled to visit the issue of the minimum-wage every year prior to the adjustment date. Legislators could use that meeting to make additional adjustments to the minimum-wage.

For example, if nothing at all is done, then the minimum-wage would automatically increase at a rate equal to last years rate of inflation. Legislators could, however, take action to reduce the rate of increase for that year, to prevent any increase, to actually reduce the minimum-wage, or to propose an additional increase, above the rate of inflation.

Whatever the case is, the change would still take place at the same time every year.

This would keep the minimum-wage automatically updated with inflation, while still allowing law makers to make adjustments if it was deemed important to do so, and it would force law makers to actually TAKE ACTION to reduce the minimum-wage. Right now all that opponents of the minimum-wage have to do is do nothing, while it puts the entire political burden on law makers in favor of increasing the wage to do something. This would put everyone on equal footing and force opponents of the minimum wage to take action and bear the poitical responsibility for that action, as opposed to simply doing nothing and allowing the wage to to be erroded away due to inflation.

Of course this will never actually happen.

For information on the economic impact of minimum wages see:
Minimum Wage and Its Effects on Small Business

Topic: Semi-random Thoughts
A common mistake that many people make when thinking about politics is to confuse approaches taken to solve problems with the objective of the problem solvers.

This confusion is not helped at all by the political process in the United States (or possibly anywhere else), as politicians and pundits seek to muddy the political waters instead of clarify them.

The problem has gotten so bad in America that it seems even the politicians and many so-called experts have become confused.

The very first distinction of any political platform should be its goals. What does the political platform hope to achieve?

There are two major reasons why political objectives are not made clear:

• The party in favor of the objective does not want to state the objective because they feel it is not popular
• The opponent to the objective wants to derail the discussion onto process because they feel the objective is popular

One of the biggest failures of the so-called "Left" for the past 50 years has been a focus on approach, while forgetting the overall objectives and failing to develop and support a clear set of goals. Instead, "Liberals" and "Leftists" (really two very different groups by the way) have become bogged down the defense of specific programs and laws, while losing sight of the big picture. This has been true all over the world, especially since World War II. The major exception to this in America was the Civil Rights movement of the 1960s.

The American "Right", or at least the Neoconservatives and the Christian Right, on the other hand, have developed a highly ideologically charged political platform over the past 30 years that focuses on the big picture and on overall objectives. In the process, over the past 30 years, American Liberals and Leftists have allowed themselves to be defined, not by ideology, but instead by specific laws, programs and procedures. Indeed, many on the "Left" have fallen into the trap themselves, of feeling as though they need to defend specific pieces of legislation simply because it was introduced by a Democrat at some point in history or because it was a political victory for Liberals or Leftists at some time in the past.

This, of course, is nonsense.

Laws and processes do not define political positions, objectives do.

An example can easily demonstrate this point:

Let's say that a car is stuck in the snow. Jim and Bob see the car and Jim says that they should help get the car out, while Bob says to just ignore it and forget about it. The objective here is getting the car out of the snow, and Jim is in favor, while Bob is opposed.

Jim goes over to the car and talks to the owner, who is stuck. Jim, then, proposes putting a piece of wood under the tires and trying to drive the car out. Putting wood under the tires is not an objective; it's just a means to an end.

So Jim puts wood under the tires and they try to get the car out. It gets a little ways, but then it fails. Even though Jim's plan on how to get the car out failed, his objective is still the same.

It would not be correct here to call Jim a "wood user", and then for Bob to insult Jim and say that his whole ideology is a failure because the steps he took to try and reach his goal failed. Just because the approach that he took failed to achieve the ultimate goal does not mean that his objective isn't a good objective, and it does not mean that Bob was right not to care about the car in the ditch, simply because one method that was tried to free the car failed to accomplish the task.

There are always at least two debates on every issue: what should be done, and how to do it.

This is the difference between an objective and an approach and it is important to distinguish these differences in politics. What ultimately defines our politics is not the approach that we take, but rather the goals that we have.

Objectives are long term goals, whereas approaches regularly need to be changed and adapted based on the conditions, and some approaches may simply fail to produce the intended results.

This is where the Republican Party has been able to significantly undermine the Democratic Party in America, because: #1 the Republican Party has defined the Democrats by their approaches, and #2 the Democratic Party has allowed itself to be defined as such. In addition to that, Republicans have defined the Democratic Party as representative of all "Leftist" ideology, even though that is extremely far from the truth, and if there are unforeseen negative results from specific approaches that have been taken by Leftists or Liberals then it is claimed that those results were intentional objectives.

The consequence of this is that many Leftists and Liberals have, over the years, ended up defending policy that fails to meet even their own objectives, simply because they feel that they need to defend approaches that were taken in the name of goals that they believe in.

If your objective is to get the car out of the ditch, and putting pieces of wood behind the tires doesn't work, then propose a new solution. Instead, in many cases, what has happened is that instead of looking for a new way to get the car out of the ditch, Jim gets bogged down in a discussion with Bob about the merits of using woods behind the tires. Bob then begins telling the onlookers that Jim intended to prevent the car from getting out of the ditch and the Jim simply gets more and more defensive about the approach he used, while neglecting the fact that Bob never intended to help get the car out in the first place.

Political ideology is not defined by approach. "Leftists" and "Liberals" are not inherently in favor of government programs and government spending, and "Conservatives" and "Rightists" are not inherently opposed to government programs and government spending. In fact, in the traditional sense of the terminology, both Conservatives and the Right are the most pro-government of all political ideologies. When the Left vs. Right political spectrum was developed it was the conservative Right that was in favor of preserving the aristocracy and the rule of Church and State over the masses. It was the Right that declared that laws were not determined by the consent of the governed, but instead by the Divine Right of Kings and Popes. It was the Right that said that the State had the authority to regulate all trade and taxation without representation. All of that is exactly what the "Liberals" and "Leftists" rebelled against in Europe and America.

The "Left" needs a return to ideology and a return to a platform defined by objectives, not by specific laws, policies, or programs.

Indeed, I submit that the Republican Party in America is now using "Leftist" ideology to appeal to voters. Any platform that claims to hold the interests of the working-class and the common man at its heart is, as far as I am concerned, using Leftist appeals. Ultimately, that is what "Leftism" is, it is the struggle for the rights and interests of the common man, without exclusion based on race, gender, or other means. Many may claim that the "Right" does not really have the interests of the common man at heart, but what is significant is that the "Right" is appealing to the working-class successfully, and in many cases doing so with what would traditionally be considered "Leftist" rhetoric.

"Leftists" must stop allowing themselves to be defined by things such as "big government", which is simply an approach to problem solving, and start defining the problems and outlining objectives, with an open mind about how the objectives can be reached.

Topic: Commentary
If you pay any attention to Latin American politics, as we do here in South Florida, then you have heard about Hugo Chavez, the president of Venezuela, and his land reform policies. His policies have been much derided in the American media. Recently, President Chavez also announced that the ideology behind his politics is socialism. This made headlines in the press, but the reality is that the actions of the Chavez administration, thus far, have been reasonable and much needed in Venezuela.

Nothing gets Americans worried more, perhaps, than talk of the government "redistributing land", and that is exactly what is taking place in Venezuela under President Chavez. Ironically, the United States of America is the largest example of the use of government land redistribution in the Western world. Not only this, but the criteria that Chavez is using for a small portion of his land redistribution program is based on John Locke's concept of Natural Law property rights.

In Venezuela right now, 5% of land owners own 80% of the private land in Venezuela. This huge inequity was created under earlier regimes that were working largely with foreign oil companies. A few people who made fortunes in oil bought up vast tracts of land in the early 20th century and also the 1970s. This would be the equivalent in America of something like several individual families owning entire states such as Arkansas or Colorado, and then making these entire states gated and privately controlled and policed with private militias.

Something has to be done to correct the situation. The situation has now caused agricultural problems in Venezuela because so little of the Venezuelan land is being farmed because these large land owners are not using all of their land because they have so much. At the same time there are millions of Venezuelan citizens who have no means to buy property, but who do want to work and who are ready, willing, and able to farm the land.

The first step of the Chavez government was to issue land grants from government owned land.

Under Hugo Chavez, the government has issued, and is issuing, a large number of land grants to propertyless peasants for use in farming, which is exactly what the United States of America did from its inception on through the early 20th century. In this way, President Chavez's land reforms are very similar to the Homestead Act of 1862, signed by Abraham Lincoln.

Additionally though, President Chavez's reforms call for the government acquisition of privately owned land where either ownership of the land cannot be proven, or where there is a very large land holding and a portion of the land is sitting idle.

First of all, in Venezuela, a lot of land has simply been claimed, by no right recognized by any government. Some of this land was never lawfully purchased. This is because Venezuela has a troubled history already. Over the past 100 years some powerful families and regional bosses have simply gated off sections of land and "claimed it".

Secondly, even some lands that were lawfully purchased may be reclaimed under the Chavez plan if it is unused and the owner is a large land-holder. In some case large areas of land are owned by foreign companies, but are going unused. This is the most contentious aspect of the Chavez land reform, but in fact there is support for these measures among the very founders of the concept of private property rights. John Locke, a 17th century British philosopher, and inspiration for many American libertarians, was one of the major founders of the concept of private property. Locke was also a major inspiration for America's Founding Fathers. Locke's view on private property was this:

It will, perhaps, be objected to this, that if gathering the acorns or other fruits of the earth, etc., makes a right to them, then any one may engross as much as he will. To which I answer, Not so. The same law of Nature that does by this means give us property, does also bound that property too. "God has given us all things richly." Is the voice of reason confirmed by inspiration? But how far has He given it us- "to enjoy"? As much as any one can make use of to any advantage of life before it spoils, so much he may by his labour fix a property in. Whatever is beyond this is more than his share, and belongs to others.

But the chief matter of property being now not the fruits of the earth and the beasts that subsist on it, but the earth itself, as that which takes in and carries with it all the rest, I think it is plain that property in that too is acquired as the former. As much land as a man tills, plants, improves, cultivates, and can use the product of, so much is his property. He by his labour does, as it were, enclose it from the common. Nor will it invalidate his right to say everybody else has an equal title to it, and therefore he cannot appropriate, he cannot enclose, without the consent of all his fellow-commoners, all mankind. God, when He gave the world in common to all mankind, commanded man also to labour, and the penury of his condition required it of him. God and his reason commanded him to subdue the earth- i.e., improve it for the benefit of life and therein lay out something upon it that was his own, his labour. He that, in obedience to this command of God, subdued, tilled, and sowed any part of it, thereby annexed to it something that was his property, which another had no title to, nor could without injury take from him.

Nor was this appropriation of any parcel of land, by improving it, any prejudice to any other man, since there was still enough and as good left, and more than the yet unprovided could use. So that, in effect, there was never the less left for others because of his enclosure for himself. For he that leaves as much as another can make use of does as good as take nothing at all. Nobody could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst. And the case of land and water, where there is enough of both, is perfectly the same.

John Locke - Chapter V of Second Treaties on Civil Government 1690

As you can see, Chavez's policies are not without precident and not without a grounding in concepts of personal property rights. The fact of the matter is that land reform is something that has taken place in almost every country on earth, usually many times, with both good and bad results. The Chavez administration has actually been proceeding with caution in a measured manner thus far. When land ownership becomes extremely concentrated, something has to be done, and in fact there are many moral and philosophical arguments, as well as historical precidents, that support the land reforms measures being taken by President Hugo Chavez.

For more on this topic also see:
Venezuela's Agrarian Land Reform: More like Lincoln than Lenin
The Homestead Act of 1862

Topic: Facts and Figures
The Social Security issue fascinates me because it encompasses so many issues: macroeconomics, the media, presidential deception, public beliefs, fundamental economic ideology, and more.

Overall I think that President Bush's attempt to promote private accounts for Social Security has been great because it has caused many people, including myself, to learn a lot more about this system, and the more I learn the more I see how good a system it really is.

There is a core fundamental issue that has created the so-called "crisis" in the Social Security system, and I just figured out exactly what it is and how it works. As I have mentioned in my two articles on Social Security:

Social Security: Bush's Lies vs. Reality

The Truth About Social Security

General income disparity and wage income disparity have increased dramatically since 1980 in America. This is a major factor in how the "crisis" has come into being. The exact way in which wage disparity has led to "the crisis" (which isn't really a crisis at all as we will see) is this:

• The Social Security tax, or really the OASDI tax, is levied on wages up to a certain point. That point is currently $90,000. Wages above that point are not taxed by OASDI.
• Social Security benefits are adjusted yearly according to WAGE INDEXING. Wage Indexing is based on AVERAGE WAGES.
• Over the past 25 years, average wages have increased and are projected to continue to increase, well above the rate of inflation.
• Over the past 35 years, MEDIAN wages have remained relatively flat, which is to say roughly equal to the rate of inflation.

The result of this is that the scheduled benefits to be paid out to average workers in 2050 are 40% higher than the benefits paid out to current retirees in real terms.

Basically, even though the income of the average worker (median income) in America has barely increased in real terms since 1973, the average income of the country has gone up significantly because the wages of the top 10% have pulled it up. Since the adjustments to benefits are made based on average wages, that means that the benefits being paid out to beneficiaries have been going up at a rate higher than the incomes being taxed to pay into the system.

The above graph shows the percentage by which the average wage is higher than the median wage, over time. As you can see, there has been a 10% increase in the difference between the average and median wage since 1974.

This is a problem because of the wage cap. The high incomes at the top end of the pay scale have pulled the level of scheduled benefits up, but those high incomes are not taxed by the Social Security system, so we have benefits going out that are adjusted by a different factor than what is used to bring payments in. In short, the middle class and poor are being called on to meet the spending requirements set by the wealthy.

I have not yet heard anyone explicitly address this issue. I did not understand it completely until just now. I understood that wage disparity and the wage cap were problems, but I wasn't sure exactly in what way it was causing the problem.

Now that the problem has been defined, solutions become quite easy.

Of course I will continue to contend that wage disparity is the real problem in the first place, but I'll assume that fixing wage disparity is beyond the scope of fixing Social Security. Therefore, there are various ways to fix this specific problem, which would also fix the Social Security problem as it exists today in general. The following are independent steps that could be taken to solve the problem:

• Base the benefit adjustment schedule on inflation indexing instead of wage indexing
• Base the wage index on median wages instead of average wages
• Remove the wage cap completely

Doing any one of these things should alleviate the problem, while Bush's privatization plan actually makes the problem worse.

The problem actually exists in the way that benefits have been calculated since the 1970s, but it has become more noticable with time because of the massive increases in wage disparity. This problem would actually exist with or without the baby boom generation. Wage discrepancy, and a calculation that doesn't take wage discrepancy into consideration, is the source of the problem. The reason that it wasn't an issue in the past is because there was lower wage discrepancy in the 1940s-1970s.

In fact, I now argue that the middle-class and poor have been significantly over taxed since 1983, when the payroll tax was overhauled, due to this calculation error, which is exactly what this is, an error. Regardless of whatever else is done, this error HAS to be corrected. It's like a bug in a computer program; it is a flaw pure and simple. We have, as far as I am concerned, been overpaying beneficiaries for the past 10-20 years and are currently scheduled to continue doing so. The amount of overpayment has probably been small thus far, I would guess a matter of less than $100 per check, but with so many checks it all adds up.

The working-class, with 30+ years of stagnant wages, cannot continue to pay a tax based on the rise in wages for the top 10% of wage receivers. Of course, the best solution here would be for the working-class to fight for increased wages in the first place and for wage disparity to be reduced, but we can't wait that long to fix this problem, which is actually the product of a flawed algorithm.

What could be the very best solution overall would be to eliminate the wage cap and change over to using median wage indexing. This should both make the system indefinately solvent, and actually provide enough of a boon to allow the OASDI tax to be reduced by 1% to 2%. There is your "privatization", just reduce the tax and let people keep more of their money in the first place.

Please write to your Senator, or to all Senators, and urge that this issue be acknowledged and addressed:
US Senators

Topic: Facts and Figures
Back in the 1996 Newt Gingrich put together an outline for the Republican Party on how to frame issues by using language called Language: A Key Mechanism of Control. He had a list of positive words that Republicans should use when describing their own policies, and a list of negative words to use for describing Democrats and their policies. The purpose was to get all Republicans framing issues in the same way, and ensure that all of the Republican politicians were using their words in the most "persuasive" and "effective" way.

Now Dr. Frank Luntz is taking Republican propaganda to the next level. Who is Dr. Luntz? Dr. Luntz is founder of Luntz Research Companies, an organization that advises corporations and "conservative" politicians on how to frame issues and select words. Luntz conducts polls and does other forms of market research to determine how the public views issues and assess the dominant public beliefs. Luntz then advises clientele on how to play to existing perceptions/misperceptions.

For Luntz it is not about determining facts, it's about determining perception. It is about playing to beliefs.

An internal document produced by Luntz Research Companies for the Republican Party was leaked onto the Internet and has been making its way around the blog circuit. Right click on the following link: Luntz Document and select "Save As" to save a copy of the file.

This propaganda coaching document covers many topics, and is well worth a full read in order to see the tactics behind the Republican machine: you will be impressed with how closely Republican rhetoric over the past 3 or 4 months follows these guidelines.

Of the many topics covered by the document, I'd like to focus on Social Security.

Some of the major suggestions made by Luntz are to:

• Use the word personalize instead of privatize
• Replace the idea of Social Security with the idea of Retirement Security
• Reinforce the idea that the government cannot be trusted with Social Security funds
• Appeal to people's emotions instead of using facts
• Associate the President's plan with financial security
• State that the government has taken this money from tax payers and Republicans want to return it to them
• Appeal to the children. Talk as much as possible about children and grandchildren
• Drive home that the system is going bankrupt
• Appeal to bipartisanship. Claim that the Republicans want to work on a bipartisan basis

There are so many issues to discuss about this that it's hard to know where to begin, but first I'd like to make a connection to demonstrate just how this document has been put to use.

Regarding the term "privatization" Luntz states:

DMUP the word "privatize" from your lexicon forever, but always link reform options to the success of programs like the Federal Thrift Savings Plan, IRAs and 401(K) plans.

In fact, as it now stands, 48% of Americans believe that people retiring before they do will benefit the most from Social Security, while only 17% believe that they personally will benefit the most. That's why it is so important to replace the word "privatize" with the word "personalize."

Personalizing Social Security has a 17% higher favorability rating than privatizing it. That is, 51% of Americans believe personalizing the program is a good idea, while only 34% believe privatizing is.

41% of Americans prefer a PERSONAL retirement account to an INDIVIDUAL retirement account.

If necessary do what I do, and institute a strict policy among your staff that anytime someone uses either "privatize" or "individual" in the context of Social Security they must pay you $50. It works.

Now, having seen the way in which Republicans as a whole have been instructed to tailor their language, watch the following clip of US Senator Rick Santorum as he is questioned during a "town hall" meeting on February 22, 2005. Click the image below to view the clip.

As you can see, the lexicon is both in effect and receives applause. Interestingly, the Senator stated that "no corporation is taking over this money" and that "you are going to hold this money". That's interesting because I thought that all investment was a means of giving money to someone else to hold. I think that Wall Street would be interested to learn how people can invest in stocks without corporations "taking over the money". If what the Senator says is true then it puts our entire investment system into question, because after all, the act of purchasing an initial offering of stock is indeed the act of transferring funds to a corporation for them to use as they see fit.

If "we are going to hold this money" that would imply that its going to be under our bed in a shoebox getting zero interest.

At any rate, that's beside the point. The point is that its both interesting and somewhat scary to see these tactics at work, and this is just one example, but this isn't simply advice given to the President, this is a total party-wide system of verbal coaching, coordination and propaganda. These memos aren't designed to advise the President, they are designed to advise every Republican member of the House and Senate on how to "speak with one voice" and, more importantly, "tell the people what they want to hear".

Now to move to some other quotes from the document:

One of the really interesting approaches that Luntz suggests is to use the following type of statement when addressing the public:

I ask you to focus on the facts, study the issue, and then make up your own mind. When it comes to financial literacy and Social Security, the more you know, the better off we'll be.

This is interesting because in fact Luntz advises Republicans not to get too involved in the facts, but rather to appeal to people's emotions. Basically, the tactic here is for the Republicans not to present facts, but rather to tell people that they want them to independently research the information for themselves.

This does a number of things. First of all, the reason that the Republicans shouldn't present facts is because they don't have many real facts in their favor. By telling people to research it themselves, it gives the impression that the Republicans are confident that the facts support their case, but in reality they mostly rely on the fact that most people won't actually take the time to really research and understand the facts. Additionally, this can put people who try to present facts at a disadvantage. A common Republican tactic for years has been to accuse Democrats and "liberals" of being "intellectual elitists", such that when they do try to present facts, which can be a daunting task sometimes, the Republicans can then accuse them of intellectual elitism and trying to misrepresent reality with complex numbers. Presenting facts can sometimes lead people to feel as though they are being talked down to. Republicans rely on this by not presenting facts, telling people that they should come to their own conclusions, and then appealing to emotion. As soon as other people try to present facts to that same audience, many will then feel talked down to or will simply be disinterested in the more technical aspects of analyzing the situation. It's an attempt to setup a no-win situation for anyone presenting factual information.

The Overview of the section on Social Security starts out:

Those who define the issue determine the outcome

This chapter is unlike any language text I have ever written because Social Security is unlike any other government program. Sure, you will find the traditional "words that work" boxes sprinkled throughout the document and helpful hints about what phrases to emphasize and what language to avoid. But this is a much more conversational document because Social Security is so personal and so much a part of the American psyche that it simply can't be dealt with in the traditional manner. It is not enough to say the right words. You need to feel it as well.

A "truism" that Luntz states should be the core of the Republican message is:

It's YOUR money. YOU earned it. YOU sacrificed for it. The government TOOK it from you. Now its YOUR chance to take control of YOUR retirement. Remember, its YOUR future. It's YOUR life. And from now on it should be YOUR Social Security.

A suggested "Perfect Statement":

Under the current system, people who are just entering the work force today will earn almost no interest on the money they put in over their lifetimes. That's right, almost no interest. And even workers in their forties will receive a paltry two percent return on their Social Security benefits. That's less than the inflation rate.... Our nation's workers deserve better.

As I will show in other examples, this document doesn't even present factually correct talking points to Republicans, and thus it's no wonder that they have been making no many misstatements.

The reality is that there is no real way to calculate a "rate of return" on Social Security at all, because its not a traditional investment system, it's an insurance system. The "rate of return" for Social Security is like the "rate of return" on your home insurance. If you never file a claim then you have a negative rate of return. If your house burns down then you have a high rate of return. The rate of return is totally dependant on what services from Social Security you use, how long you live, and what your income levels were when you were working. People with a lower income get higher relative benefits once they retire, so poor people get a higher "rate of return" than the rich. More on this will be addressed shortly.

Although Luntz does advise Republicans to rely on emotional appeals, there is obviously a need for at least some facts. Luntz suggests to stick to "four straightforward facts":

First, when Social Security was first created, men made up the vast majority of the workforce and had a life expectancy not much more than 60 years. Today, in a majority of households, both men a women are working, and our life expectancy has risen more than 10 years. We are living longer, healthier, more productive lives and that trend is going to accelerate as we continue to lead the world in medical breakthroughs. But while that is great for us here today, that's not great for an antiquated Social Security system.

There are a number of problems here. First of all, the fact that more women work today actually helps the Social Security system, it doesn't hurt it. Women were still able to draw retirement benefits from their husbands when they died in the past, which meant you had more people drawing benefits that didn't pay in than is the case today. Secondly, living more productive lives should alleviate problems with Social Security, not make them worse. The real problem is that while we are leading more productive lives, the pay for the bottom 85% of the population hasn't increased one bit since 1970 in inflation adjusted terms, while pay for the top 1% has sky rocketed. The reality is that: yes, we are all more productive, but we aren't seeing those gains, hence the Social Security funding problems in the first place. And lastly, the US is declining in its role of leading the world in medical breakthroughs.

Second, it is a fact that in the 1950s Social Security had about 16 workers paid in for every person drawing out. Today, the ratio is just 3 to 1, and when our kids retire, it will be down to two workers for each beneficiary. The burden we will be placing on the workforce is unimaginable, and it's getting worse. Think you taxes are too high now? Imagine what they will be in the future if we don't make the necessary changes in the present.

This is a highly misleading statement for reasons that I have demonstrated in other articles on this website:

Social Security: Bush's Lies vs. Reality

The Truth About Social Security

The truth is that the ratio of workers to beneficiaries has been 3 to 1 for more than 30 years.

Third, it is a fact that the expansive Baby Boomer generation continues to age- and the oldest of them turn 60 next year. Because of that, the number of workers in America has increased since the 1950s, but the number of retirees has increased much faster.

I'm not even sure that this statement makes sense or what it's point is supposed to be. Its actually a let down considering this guy is supposed to be a propaganda master.

And fourth, it is a fact that the return on your Social Security dollars is a paltry two percent (actually 1.6%). That's it - two percent. That's not even more than inflation! That's not enough to retire with a nest egg. That's not enough to retire with a sense of security. To me, depending on a two-percent rate of return over the lifetime of paying into Social Security is more of a risk then trying an alternative approach.

This statement is a complete farce. First of all, as has been stated, its impossible truly calculate a "rate of return" for Social Security, but there have been calculations done that show what some averages are.

According to The Hill:

A Treasury Department paper written in 1995 looked at data from Social Security beneficiaries and concluded, "Social Security net returns are strongly progressive." For working males, the rate of return was 5.5 percent. Social Security's rate of return for lower-income males was 6.17 percent and for higher income males, 5.04 percent.

In June 2001, Social Security economists and actuaries wrote a paper, referred to as Note 144, on rates of return for hypothetical workers. They concluded that low-income "two earner couples" born in 1955 will earn a 3.2 percent rate of return, a medium income bracket would earn just a 2.15 percent rate of return, and a high income bracket couple would earn just 1.49 percent.

Note 144 also states that making rate-of-return comparisons with private investment plans is inadequate because Social Security offers benefits that most private plans do not, such as guaranteed cost-of-living adjustments based on the consumer price index and benefits for life in the event of disability.

Even the extremely low hypothetical "rates of return" mentioned by Luntz are already adjusted for inflation, yet he claims otherwise.

Furthermore, the Social Security Commission explicitly states that trying to calculate a "rate of return" for Social Security is really mostly meaningless:

In September 1998, the General Accounting Office reported that there was substantial disagreement about whether it is appropriate to apply the rate of return concept to the Social Security program. The GAO report said:

Supporters of such an application point out that a rate of return would provide individuals information about the return they receive on their contributions to the program. However, others contend that it is inappropriate to use rate of return estimates for Social Security because the program is designed to pursue social insurance goals, such as ensuring that low-wage earners have adequate income in their old age or that dependent survivors are adequately provided for. In addition, calculations for rates of return rely on a number of assumptions that affect the resulting estimates. For individuals, the actual rates of return can vary substantially from the estimates due to various uncertainties, such as a worker's actual retirement age and future earnings.

SSA strongly agrees that it is inappropriate to apply individual rate of return estimates to Social Security. Social Security, like other social insurance programs such as Medicare, is not designed in a way that it could be appropriately evaluated by individual rate of return estimates. The program is designed to provide adequate income for workers and their families when the worker retires, becomes disabled, or dies. Historically, the program has been judged by the extent to which benefits replace pre-retirement earnings and how much those benefits help reduce poverty, not by estimates of the individual rate of return on contributions.

Furthermore, the program's full value cannot be accounted for when using individual rate of return estimates. Social Security is more than a social insurance program that protects people when they retire. It also protects workers against other risks over which they have little control. Almost 3 in 10 of today's 20 year-olds will become disabled before age 67 and 1 in 6 Americans will die before reaching age 67. Individuals benefit from Social Security not just through their own worker benefits but through the protection provided to workers' families against these risks. Currently millions of Americans are directly benefiting from that protection: about 1 in 3 beneficiaries is not a retiree but a disabled worker, dependent of a disabled worker or a survivor of a worker who has died.

Our ability to inform workers of the rate of return on their Social Security contributions is limited for several reasons. For example, the Social Security program is a family program that, generally, provides greater benefits to workers with larger families. But our records do not include family linkages until benefit applications have been filed. Similarly, replacement rates for lower income workers are greater than for workers with higher incomes. Without knowing lifetime average earnings or the size of a worker's family, any information provided in the Social Security Statement could significantly misstate many workers' actual rate of return. Moreover, any rate of return estimate would be extremely sensitive to periods of unemployment and other related factors.

So, interestingly, right now, Social Security is an extremely family friendly program that helps low income large families the most. More to the point, Social Security isn't a retirement system! No one has ever claimed that people should rely on Social Security as their only means of retirement. Its a SECURITY SYSTEM, not a retirement system.

I found this next quote to be a particularly nice gem:

Let's face it - seniors love to talk about their kids and grandkids, so talk about them. Tell them about the opportunity America has to insure their retirement security. This point, though simple, is extraordinarily powerful, ESPECIALLY with older women... It is the ONLY way that you can sell them on this proposal.

I think that speaks for itself.

The last example that I'm going to highlight touches on a very fundamental issue, that of the ability to pass your "personal Social Security" investments on to your heirs. As an example of "words that works", Luntz puts forward the following:

It's their money but the problem is the federal government has spent it. Now we need a tangible asset alongside Social Security so people can point to it and say "that's MINE, and if I don't live to collect my Social Security that's inheritable wealth". It's something that they can depend upon in their old age.

Actually, the fact that the current system is a collective pooling system is exactly what makes it superior for its intended purpose, which is caring for the elderly and disabled. Part of the way that Social Security works, as has been said, is like an insurance program, where everyone pays into the pot, and only those that survive to collect benefits get paid out of it. That means that a part of the funding comes from the fact that not everyone collects. Removing that aspect from it significantly reduces the viability of the program and the amount of money in the pot to pay the benefits of seniors. Right now Social Security can be collected by dependants in the event of a death, such that if you die your children under 18 would get your benefit, or your wife could get your benefit. By making it inheritable it guarantees that there will be less money per beneficiary, because some of the money is going to be taken out of the pot to be passed on to people who would ordinarily not be beneficiaries.

In short, like every insurance program, the strength of the system is that it pools risk. Exactly what is weak about the Bush proposal is that it individualizes risk.

Their proposal is the equivalent of saying that when you pay for your car insurance, that if you die in a non car related way that all the money you paid into the system would be paid back out to an heir. Okay.... that sounds nice...., but that would mean that the cost of insurance would either have to go up dramatically or else benefits would have to be reduced. Once you eliminate risk pooling, the whole system is shot.

That is also another reason why even making privatization optional hurts the entire overall system, because the more people pay in, the lower overall risk is and the greater that overall benefits can be. Once you start reducing the size of the pool the whole system becomes more problematic.

Well, that is enough analysis of this document in regard to Social Security. I highly recommend that you download the document and read it through yourself, then simply watch TV and read the news and you will see that on many issues, not just Social Security, the Republicans are speaking from this playbook in ways that have been devised to be intentionally deceptive.