Topic: Commentary
There is a lot going on with the economy at the moment and it seems that very few people, neigh hardly anyone, is really grasping the situation. That in and of itself is pretty remarkable.

Recently the media has sounded worries about "stagflation", which is what I have been addressing here for years. The fundamentals behind all of this should be quite obvious, but no one seems to be addressing these fundamentals. A recent New York Times article called Totally Spent by Robert Reich, whom I do respect, hinted at the issue, but even he failed to completely grasp it.

In Totally Spent Reich stated:

"WE’RE sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.

The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.
    
The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power - and not just temporarily."

This is all true. Reich's assessment of the situation is spot on, but when he comes to addressing the situation that's when he goes off course.

The remedy that Reich proposes is this:

"The only way to keep the economy going over the long run is to increase the wages of the bottom two-thirds of Americans. The answer is not to protect jobs through trade protection. That would only drive up the prices of everything purchased from abroad. Most routine jobs are being automated anyway." 

Okay, well, he's sort of on the right track, but not really. The keys here are "automation" and "abroad". As I stated back in 2003 (National investment program and Labor in foreign countries), the only real solution lies in both improving wages abroad and increasing ownership of capital among the broad population. At that point automation, which is what we need more of, can actually be a real benefit.

The thing is that the Democrats and the "pro-labor" folks have it all wrong. Improving the economy is not about "protecting jobs", indeed protecting jobs is the worst possible thing we can do. The best way to understand this is to look at the fundamentals.

Improvement in the standard of living, which is what the economy is all about, is about increasing production. More than that, it is about increasing efficiency, and efficiency basically means producing more with less human work or less energy invested. The way to increase efficiency is through automation, not "increasing wages" for Americans. Increasing wages for Americans is what drives jobs overseas, so you can't increase wages in America without increases in wages in foreign countries as well without expecting to lose jobs in the process.

The only solution is two fold. First, increase the distribution of capital ownership in America and secondly work to ensure that wages in the rest of the world rise as well. At present, the exact opposite of these two things are what is happening. It is true that wages are going up in foreign countries, but not as rapidly as they should be, and in fact American policies work to keep wages in foreign countries down, they do nothing to help them rise.

The major key though is distributing capital ownership. Capitalism is all about capital ownership. The owner of the capital is the one who owns the rights to the profits. Workers have no rights to profits, indeed the workers are the ones who work to produce the profits that the capital owners take from them, thus the problem that America finds itself in today. The wealthy have become exponentially more wealthy over the past 20 years, while wages have completely stagnated over the past 30 years. The reason that the wealthy have become exponentially more wealthy as wages have stagnated is because productivity has increased, but all of the gains from that productivity have been realized via profits and thus they are realized by the capital owners and executives.

But we really shouldn't be trying to increase wages or to make people dependent on wages, what we should be doing moving to a situation where the share of capital ownership is more evenly distributed, where every individual is "a capitalist". As automation and computerization, etc., play a larger and larger role in production, individuals have to share ownership of the "means of production". That is the single and only possible solution to the long term economic problems that will be faced in a progressive and technologically advancing economy. The road that some places in Europe have taken, especially France, has been to limit the advancement of technology in order to preserve the role of the worker, thereby limiting profits and productivity. This does preserve a more equal distribution of wealth, but it also limits economic growth and the creation of new wealth.

In America we have taken the opposite tract; we have allowed and encouraged the advancement of technology and productivity, but we have completely left the worker out of the loop and thus all of the rewards have gone to a relative few capital owners. This is why we find ourselves in an economic predicament today and until this fundamental problem is addressed the American economy is going to continue to suffer the problem of increasing productivity while the working classes aren't able to drive demand for goods because they have too little income.

There really is no reason why an economy in which productivity is increasing should have any type of recession. The only reason we are having economic problems is because the fruits of the labor of workers is not being paid to those workers, and because the fruits of capital ownership are not being shared by the population. Over the past 30 years the cost of education and skill acquisition has gone up dramatically. Worker knowledge and productivity has gone up dramatically, and mechanical efficiency has gone up dramatically. That all means that we can produce more with less effort today then we could in the past, and workers have been key to these4 advances, even shouldering the higher cost of education themselves, but there has been zero payoff to workers. All of the fruits of these advances over the past 30 has gone to capital owners, and capital ownership has remained largely consolidated in the hands of a small few. Thus, those small few have reaped the rewards that have been created by millions of workers in America and around the world.

But in order to continue to encourage economic development, we cannot turn to "job preservation" or "wage increases" as the solution to this theft from the working class. The only real solution is to enfranchise the working class with capital ownership, and that is why my proposition of a National Investment Program is the only solution that can address the future economic development of America.

The economic situation in America is very, very different than anything we have faced in the past.As Robert Reich correctly points out, we are now reaching the end of a series of stop gap measures that people have taken to deal with the phenomenon of stagnant wages and increasing productivity. Those steps are primarily the entry of women into the workforce, thereby increasing the number of income earners per household, the extended use of credit, and working longer hours. But we have reached the end of that road. Once all the women have entered the workforce, once we are all working the maximum number of hours that we can healthily sustain (we are already past that, hence some of our healthcare problems), and once we have maxed out our debts (which is the current problem) then there are no more stop gap measures to take. We have finally reached a tipping point in our economy where fundamental structural changes are required in order to continue economic progress and to prevent a long term economic decline and possible depression.

The key to remember is this. As long as productivity is increasing, there is no real reason why any economy should ever go into decline. The only reason for an economic decline during a period of increasing productivity is an improper distribution of the fruits of productivity, such that all of the fruits go to one small group, thereby leaving the other group unable to sustain or improve their standard of living, in spite of the increasing capacity of the economy to enable such progress.

The tools and techniques for extending economic growth in the American economy over the past 30 years are all used up now, they will not able to continue working any longer. Taxes have been cut over the past 30 years to the point that they can't be cut anymore. Interest rates have been lowered to the point that not only can they not be lowered any more, but increased lowering has now also become ineffectual. Workers have already done everything that they can to keep pace, aside from going back to increased working of children there isn't much more that families can do to improve their revenue streams. And now costs are rising, and will continue to rise for fundamental reasons. There is only one meaningful solution, and that is the broad distribution of ownership of capital.

Topic: Commentary
There are many instructive parallels between Hillary Clinton's campaign for the Democratic Party nomination and the Iraq War.

Like America invading Iraq, Hillary had all of the advantages on paper and all of the material advantages from the beginning, yet, those advantages were squandered with poor judgement and lack of planning.

Like the Bush and Cheney administration, Hillary went into this campaign with arrogance and assumptions that it would be a cake walk for her, only to find a strong insurgency that she was unprepared to fight against.

Like George Bush and Dick Cheney, as the failures have mounted she has continued to move the goal posts and blame others for her failures.

Like George Bush and Dick Cheney, she assembled a team of cronies and surrounded herself with loyalists and yes (wo)men who blinded her to reality and in whom she instilled so much fear that they were too afraid to actually exercise their best judgement if it contradicted her views.

Like the Bush and Cheney administrations, when things have not gone her way she has lashed out and attacked her critics and opponents.

Like George Bush and Dick Cheney, she has spread propaganda and lied in order to sell her agenda to the public.

Face the facts, Hillary Clinton had every advantage in the world going into this contest: name recognition, political ties, a national network of supporters, money, and a large head start in the campaign process. Yet, despite all of these advantages she has not just been beaten by a "superior speaker", she has been soundly out campaigned and out organized and out fund raised. Organizationally, she has done many things wrong, while Barack Obama has done many things not just right, but better than just about any political campaign in history. This in and of itself should speak to the leadership qualities of these two candidates.

How can Hillary be "ready to lead on day one" when she obviously wasn't even ready to lead her own campaign? If Obama is so lacking in substance, then why has he been able to materially out-organize her at every turn, despite having none of her advantages?

And now we get to the real issue. Now that Hillary has been backed into a corner her true self is coming out, the vicious attack dog and dirty underhanded politician.

Barack Obama was able to rise to his current standing in the race by the virtue of his own message. He didn't need to attack or insult Mrs. Clinton to make his case. However, now Hillary is not only willing to attack Barack Obama to make her case, but she clearly sees this as her primary strategy even though this is a primary campaign, knowing that her attacks do nothing but weaken the Democratic party and could potentially sabotage the election of the Democrats. John McCain doesn't even need to waste his time attacking Obama at this point; Hillary Clinton, from Obama's own party, is doing all of that work for him. But, John McCain is still attacking Obama as well, but instead of trying to do what is best for the party, which is to run a positive campaign so as not to diminish either Democratic candidate, Hillary is now essentially partnering with the Republican party to tear down the Democratic front runner! Hillary is now sacrificing her own party on the alter of her personal ambition. It is truly shameful.

Lets look specifically at some of the actions that the Hillary campaign has taken in recent days:

1) They fed a story to the press about Obama supposedly "plagiarizing" his own friend Deval Patrick - yet they claimed that they had nothing to do with launching this story.

2) Despite denouncing public financing for her campaign from the start, she is joining the Republicans in unfairly attack Barack Obama on campaign finance issues when he isn't even the nominee yet.

3) Has created a new front propaganda arm called the American Leadership Project (ALP) (kind of like the Project for a New American Century?) that is designed to "independently" attack Barack Obama.

4) Has created a propaganda website called The Delegate Hub, which supposedly "clarifies" the facts about the delegate count in the Democratic race. On this website the delegate numbers assume that the Michigan and Florida delegates will be seated, and a number of other distortions are made.

Look at her campaign, it is so reminiscent of the first term of the Bush administration. Her staff is fighting amongst itself, and I wouldn't be surprised to start seeing leaks against her coming out of her own campaign staff. Hillary Clinton is now doing more damage to the Democratic Party than the Republicans have been able to do in the past 30 years. If Hillary can't even wage a descent campaign with all of the advantages in the world, how on earth could she be expected to run the White House?

Topic: Commentary
It will be a sad day in American history if Hillary Clinton manages to get the nomination of the Democratic Party. Hillary has done her best to convince women that her campaign is an affirmation of feminism, but in reality her candidacy has nothing to do with feminism.

Unfortunately, millions of women have been convinced otherwise, and seem equally convinced that any opposition to her is an affront to all women and an affront to the feminist movement, and thus they will support her no matter what and they simply see the race as an issue of race vs gender.

The irony is that in this primary with the first major viable female and black presidential candidates, the contest is really nothing about race or gender, despite everyone's attempts to make it so, most notably Hillary herself.

The reality is that this is a primary campaign where the choice is not between a woman or an African American, but between one of the most secretive and manipulative political figures of the past 20 years in American politics vs. a new and inspirational natural born leader.

Hillary Clinton truly is the Dick Cheney of the Democratic Party, and the election of Hillary Clinton to president would be to simply put the yin to the Bush administrations yang into power. The election of Hillary Clinton would not be a rebuke of the Bush years, it would not make a change in American society and it certainly wouldn't change American politics. The election of Hillary Clinton would be ensuring at least four more years of Bush style leadership, with the exception that the agenda would be slightly different. The methods and approaches would be the same though.

Sure Hillary would not appoint judges to the Supreme Court that would be likely to overturn Roe vs. Wade, but what we can be sure of is that the nomination process would be virtually identical to the Bush nomination process, with the only exception being that the ideologies would be flipped.

Hillary, like Dick Cheney, has been one of the most secretive forces in American politics since 1992. Like Dick Cheney, she has worked behind the scenes, gone to great lengths to keep her activities secret, and has a history of strong arming those who disagree with her.

Let's look at all of the reasons not to elect Hillary Clinton:

1) Doing so would practically be a violation of the law on term limits. Certainly, though it may not violate the letter of the law it violates the spirit of the law. The intention of term limits is to prevent corruption and the building up of power through cronyism. Clearly, where it is Bill or Hillary officially at the helm, this principle is still violated.

2) There is no way that Bill Clinton will not enter back into a level of power and influence that no other president in American history has had after the end of his term. The whole issue of electing spouses simply sets a horrible precedent. It is bad enough that we have to deal with the political dynasties of parents and offspring, but now we also have to worry about husbands and wives as well?

3) Hillary has been very calculating from the time she was in the White House as first lady in terms of planning to capture the presidency. After her time as first lady, she then carpet bagged her way into New York because she knew that it was an influential place from which she could launch her bid at president. During her time as Senator she has been focused on building her personal political power and alliances, not doing the business of New Yorkers. She is among the top 10 earmarkers in the Senate. Why? Because she has been using earmarks, like all politicians do, do buy political support.

4) Hillary sets a horrible example for women and power. Instead of a woman who has clearly earned her place through the same type of hard work as her peers, Hillary is an example of using underhanded tactics and riding the coat tails of her husband to get to the top. Obviously she wouldn't be running for president today if her husband had never been president. This isn't really a feminist message at all.

5) In her pattern of secrecy she has refused to release her tax filings and also refused to release the documents from her time in the White House. In the process she avoids taking any responsibility for this, saying that it is Bill's decision, not hers.

6) She has pandered to lobbyists and corporations more than just about any political figure in the Senate. In her typical old school politics style, she has worked at trying to amass a base of power by pandering to the powerful. This is reflected in the manner is which she began with the most pledged super delegates as well.

7) Even now she is trying to change the rules of the game and work to seat delegates from states that at the outset everyone agreed would not be seated. I agree that this was a poor decision in the first place, but those were the rules that she agreed to from the start. Changing the rules now is simply one more example of her underhanded ways.

If Hillary Clinton gains the nomination of the Democratic Party, it will be through another Bush style assault on democracy. Having Hillary Clinton in office would be like four more years of Bush/Cheney, with the only exception being that it would be a Democratic version of Bush/Cheney.

Topic: Facts and Figures

First, I have to say congratulations to Barack Obama last night, it was a great victory and an amazing speech. They seem to get better every time.

Now on to business.

Almost a year ago I posted here about the inherent problems with bio-fuels, and recently major scientific studies have confirmed those fears.

The New York Times wrote about these studies in an article called Biofuels Deemed a Greenhouse Threat.

This article makes it clear that my previously voiced fears were well founded, and indeed it does appear that bio-fuels have unleashed a very ugly genie.

It seems clear from this article and these studies that essentially all bio-fuel production other than the relatively small production of bio-fuels from waste and possibly algae, should be stopped.

At the very least, any and all subsidies of bio-fuels should be terminated immediately.

The studies do point out that the sugar cane grown in Brazil is the only real potentially viable bio-fuel crop, but I wouldn't even consider that viable, because this sugar cane still causes land use problems by displacing farmland.

Growing crops for bio-fuel is simply not viable idea, and it is time that this practice is resolutely denounced by environmental groups, industry, activists, and government organizations.

At this point there are only two real groups who have any real interest in bio-fuels, and that is the farmers and industry that stand to profit, as well as the politicians who can use government subsidies to buy votes.

Any politician who supports government subsidies for growing bio-fuel should be absolutely denounced in unequivocal terms, because the only reason to support bio-fuel is to buy votes, and supporting bio-fuel is something that is ultimately harmful for everyone in the long run and it is having major and immediate negative impacts on the economy and on the environment.

Bio-fuel is driving up the price of food, it is driving subsistence farmers off their land, it is destroying forests,  and it is contributing rapidly to greenhouses gases and global warming.

There is basically almost nothing good about bio-fuel at all, unless you are a farmer who happens to be the one supplying it. And I don't begrudge the farmers the desire to make good money by supplying it, and I don't blame the farmers, but the fact is, that this is simply a really horrible product and a horrible movement, and it really needs to be stopped as soon as possible.

From the New York Times article:

"Almost all biofuels used today cause more greenhouse gas emissions than conventional fuels if the full emissions costs of producing these 'green' fuels are taken into account, two studies being published Thursday have concluded."

"The destruction of natural ecosystems — whether rain forest in the tropics or grasslands in South America — not only releases greenhouse gases into the atmosphere when they are burned and plowed, but also deprives the planet of natural sponges to absorb carbon emissions. Cropland also absorbs far less carbon than the rain forests or even scrubland that it replaces."

"In the wake of the new studies, a group of 10 of the United States’s most eminent ecologists and environmental biologists today sent a letter to President Bush and the speaker of the House, Nancy Pelosi, urging a reform of biofuels policies. 'We write to call your attention to recent research indicating that many anticipated biofuels will actually exacerbate global warming,' the letter said."

"But even with such restrictions in place, Dr. Searchinger’s study shows, the purchase of biofuels in Europe and the United States leads indirectly to the destruction of natural habitats far afield."

Please see my previous post on this subject from last March:

Against Bio-fuels 

Topic: Commentary
With the news that the economy isn't quite on track, the reaction from the Federal Reserve and the government is to cut the federal funds rate and to come out with some kind of government "stimulus package". Given the other economic conditions in the country, this is really just a sign of crack addiction.

This all goes back to core fundamental problems that have been discussed on this website for quite some time, and while it is true that economic fluctuations come and go, I think that this is really indicative of a much larger and longer term problem.

This really does go all the way back to the Reagan Revolution and the track that Reaganomics put this country on. That track is a track of major deficit spending, manufacturing off-shoring, and tax and interest rate cutting.

This country has been addicted to these things for 2 or 3 decades now, and its a situation that inevitably leads to problems, because growing an economy through tax cutting, borrowing money, and farming out work can't go on forever. At some point taxes can no longer be cut and the reduction of spending becomes a lack of investment in the future. At some point you can't borrow any more. At some point your income can't be generated without producing tangible goods, and likewise, at some point the gap between the enfranchised wealthy and the working classes becomes so great that the wealthy no longer find opportunity within their own country and their capital increasingly leaves the nation to seek out other opportunities. At some point the working class just can't afford to provide the profits to the wealthy anymore.

So, now, after having recently reduced interest rates to their lowest point in generations, the Fed finds that it needs to reduce them again. But where does it all stop? There never was any real "recovery" after 2001 in the first place. All that there was was another bubble created by massive borrowing, and now apparently the only medicine that the Fed can come up with is more of the same. But borrowing more doesn't help us. We are already in over our heads.

The Bush administration's plan, and those of pretty much every politician, involves simply borrowing more money from the federal government to give back to citizens, but what good does this do us really? Its like you realize one day that you are in over your head in debt and you can't pay your bills so you apply for another credit card. That is basically the only plan that the nation's best economists have come up with so far.

But what is the core of the problem here? The core of the problem is that taxes have been reduced too low on the wealthy for too long, capital ownership in America has become too concentrated in the hands of a small portion of the population, and the public has taken on massive debt essentially as a means of redistribution to the wealthy.

The federal government basically works for the corporations and the wealthy in America, it has done this in earnest since the Reagan era. The wealthy and corporations haven't been paying their way. They have been receiving more value from public resources than they have been paying. As a result, the public has gone massively into debt paying for the services that have primarily benefited the wealthy. The wealthy have realized real material gains and left the public institutions holding the bag. But that can't go on forever of course, and that's where we find ourselves today.

We have the largest gap between the rich and the middle class since just prior to the Great Depression. We have a higher debt to GDP ratio then just about any time in American history aside from during World War II. We have the lowest per-person savings rate since the Great Depression. And, we already have low taxes and low interest rates, which means that we really can't count on cutting those things to continue to help "aiding" the economy. The value of the dollar is falling, the price of internationally dominated resources are rising (namely oil, metals, and labor). A large number of Americans are getting ready to retire. Material American infrastructure is deteriorating and in need of major investment to maintain. And to top it all off we are still stuck in a seemingly endless war, which I don't think we will be honestly and fully out of for another 20 years. This war in the Iraq and Afghanistan is going to be a drain on the American economy for at least 10 years, if not longer, and the only way that it won't be a drain for longer is if we simply cut and run and leave the place in a mess.

My assessment is that 2008 will be the year that people look back on 20 years from now as the year that the long term decline of the American officially began. Of course there will always be ways to push the time back, but 2008 will be the clear demarcation. The only way out of this mess as far as I can see is major technological innovation, but unfortunately the American education system hasn't really put us in the position for that as well as we might want, nor is American society or the legal system really setup to make the right moves anyway, even if we had the technology.

The way I see it, America has absolutely squandered the opportunities of the past 20 years. We are the richest and most powerful country in the world, and even with that we have an overwhelming debt, we have a relatively poor education system, we have overpaid athletes and underpaid teachers. We have totally misplaced priorities, we've wasted trillions on the military, and the capital that wealthy Americans have amassed with the aid of the American public is fleeing the country, which, ironically, is kind of a good thing if it helps to improve foreign economies (not that it necessarily will).

And the kicker to all of this is that all the Republicans want to talk about is cutting taxes more. The dollar is falling and the markets are aborting largely because of the American debt. Cutting taxes while running a deficit, when you already have a massive outstanding balance, is not an option. And that is the predicament, and that is why the problem is as big as it is, because there simply is no easy way out. None of the tools that have been used to "stimulate" economic growth for the past 30 years can continue to work. We are now in a position where every move is a bad move. It's like Chinese handcuffs, where the more you wiggle the tighter they lock on.

As I said, certainly there are economic cycles, and certainly things will improve at some point, perhaps even shortly, but I think that we are looking at the beginning of a long term relative decline in the American economy at this point. This country has become addicted to debt, and right now the only solution being proposed is more of the same...

Topic: Semi-random Thoughts
Unfortunately it doesn't seem that any of the presidential candidates, even Obama and Edwards, have good ideas for economic reform in America. Having said that, here is what I would like to see done:

Healthcare Reform : The primary goal should be eliminating employer provided health insurance. The second goal should be universal or near universal basic care.

Tax Reform : Move to a single income taxation system, basically eliminating the discrepancy between wage, capital gains, and inheritance taxes. Also dramatically reform the income taxation rates. Increase tax collection to pay down debt.

Government Spending Reform : Completely eliminate the current earmark privileges. Reduce the military budget (after ending the war in Iraq). Fully adopt PayGo at the Federal level.

Trade Reform : Eliminate all tariffs. Require labor, environmental, and safety standards for trade with the US. Use fines for violations instead of tariffs. Open trade with every country in the world. Enforce standards on a per-trader basis, not per-country basis.

Social Security Reform : Change how benefits are calculated to use a combined median-wage and inflation index instead of the current average-wage index. Reduce the Social Security payroll tax by 1%.

Those are the basic policy positions I would take, but lets look at them a little more deeply.

Healthcare Reform

I really don't know why the Democrat haven't figured this out, but it is a shame that they haven't. Healthcare reform can be billed as, and can in fact be, the greatest pro-business move in America in 50 years. We have to get employers out from under the burden of providing health insurance. This is the single biggest selling point of a national healthcare system. By removing health insurance from employers this helps both employers and employees.

This would eliminate a huge burden from employers and it would make things much easier for employees. You would no longer need to worry about losing your health insurance if you lost your job, you wouldn't have to worry about health insurance when switching jobs. This is an opportunity for real tangible change that would make everyone's life easier, so I can't figure out why politicians haven't picked up on this. The current growing trend, and what several of the candidates are proposing, is mandatory health insurance. This is a horrible idea, it is the worst of all worlds, and the only reason that this approach is even being proposed is because the health insurance companies like it, of course. This is where Edwards is right, it doesn't seem that Obama has the backbone to stand up against these corporations. Mandatory coverage just puts even more strain on the employers to provide coverage and more strain on people who lose or switch jobs. Employers provided health insurance is horrible. It provides an incentive for employers to discriminate against good workers who have health problems, and it gives them an excuse to pry into employees personal lives. This is an abomination and must be gotten rid of.

The solution is a national health insurance system. This needs to be clear, we aren't talking about government run health care, but rather government run health insurance. In fact, I wouldn't even recommend a truly government run health insurance system either, but rather I would recommend a quasi-government system, where the government acted like a broker, to give government the ability to drive down prices and make demands, but keep the actual insurance in the actual insurance in the hands of private industry. Everyone's healthcare would be provided through the government, but would be held and run by the private insurer, just like it works now with employers. Your employer provides you the insurance, but they aren't the insurer. Same idea here, except the insurance is paid for via taxes, and is provided to everyone who pays taxes. There would still have to be a separate system to deal with people like the homeless, etc.

Tax Reform

The tax code needs to be simplified, no question there. The main reason it is complicated in the first place is due to corporate and special interests. Most of the deductions need to be simply eliminated, including things like the deduction for interest on a home mortgage, etc. Why should renters, generally poorer people, be subsiding the people who can afford to buy a house? It is popular, but it makes no sense. Eliminate deduction for dependents also. Why should without dependents subsidize those with dependants, typically children? Its basically a tax on being childless. There are many other much more complicated rules, most of which are popular, that also need to just be eliminated.

As a further simplification, eliminate the different types of income, and just have income. There are some valid arguments for the different classifications, but they are more trouble than they are worth. The Republicans have been wanting to get rid of the so-called "death-tax", the estate tax, then fine, let's get rid of it, and just count inheritance as normal income, problem solved (not the way they wanted to, but hey). Right now the wealthy a pay lower tax rate on capital-gains than they do on wage income, but the poor and middle class typically pay a higher tax rate on capital-gains than they do on wage income. This further skews investing in America to favor the wealthy.

After we simplify the code and simply count yearly income as income, next the tax brackets need to be radically overhauled.I have tinkered with taxation brackets several times, but here are my latest views. First we have to look at the current income tax brackets for 2007:

$0 - $7,825 - 10%
$7,825 - $31,850 - 15%
$31,850 - $77,100 - 25%
$77,100 - $160,850 - 28%
$160,850 - $349,700 - 33%
$349,700 and over - 35%

Keep in mind that these brackets are cumulative, i.e. we all pay only 10% on our first $7,825 of income, then 15% on our next portion of income, etc., thus what you actually pay is much less than simply looking at the percentage next to you yearly wage income.

The problem with these brackets is that they have way too much to do with low levels of income and don't address income at the really high levels. This was not typically the case in American history, when usually the tax brackets dealt most with the very high income levels.

What I propose is to eliminate most of the brackets at the bottom end and dramatically reduce taxes there, while adding many more brackets going up into the millions. Here is what I would propose:

$0-$30,000 - 0%
$30,001 - $100,000 - 10%
$100,001 - $300,000 - 15%
$300,001 - $500,000 - 20%
$500,001 - $1,000,000 - 25%
$1,000,001 - $3,000,000 - 30%
$3,000,001 - $5,000,000 - 35%
$5,000,001 - $10,000,000 - 40%
$10,000,001 - $50,000,000 - 45%
$50,000,001 and over - 50%

Some things to keep in mind here are that most people with an income under $30,000 today pay almost no income tax anyway, due to deductions. I would eliminate the deductions and just have these people file a simple form saying their total income was under $30,000 and move on with it. We waste tons of money dealing with the nonsense in this tax bracket, and usually it ends up that they pay no taxes anyway, but why waste time with the filing and processing instead of just calling it a simple zero?

The numbers are a little hard to compare since I would eliminate many tax deductions, but generally this would be a tax cut for everyone with an income under half a million. The average income tax rate actually paid by those in the top 1% in 2006 was 19.4, per the Congressional a Budget Office (see blog post from Dec. 18th below).

The percentages I provide here would be much closer to what would really be being paid, whereas due to deductions the current percentages greatly overstate the payments in those brackets.

Keep in mind also that under the current income tax system these percentages are applied only to wage income. Under my system these percentages would be applied to ALL income, including inheritance and capital gains. This means that capital gains for people with an income under roughly $500,000 a year would be taxed less than they are now. For people over that level of income they would essentially be taxed more.

Adjustments to these numbers would have to be made to ensure that enough taxes were being collected. Tax revenue would generally have to be increased over current revenue in order to, combined with cutting spending, be able to operate without a deficit and pay down the debt.

Government Spending Reform

The biggest and most direct spending reform would be the complete adoption of PayGo, where any bill that cuts tax revenue or that incurs a cost must pay for that cost in the same bill. Congress has already adopted PayGo, this was done in 1990, but the Republican controlled congress, under the leadership of Tom Delay, then developed ways to work around the PayGo rules. These ways need to be removed and PayGo needs to become solidly enforced again.

In addition to this, earmarks need to be completely eliminated as they currently are. There were $29 billion worth of earmarks in 2006, for projects considered to be unnecessary "Pork" projects. In 2007, under the Democratic Congress, that number dropped to $13.2 billion, but this is still way too high. There could perhaps still be some earmarking system, but not the current system whereby individuals can add earmarks on their own without any review, to an already established bill. At the very least a committee should be setup to review earmark proposals before they can be added, or a whole new process should be setup for the funding of projects of interest to a given state. I would perhaps favor a standing 6 person bipartisan committee, with an additional 7th person that has to be a Congressman from the same state as the Congressman requesting the earmark. This committee would review and approve earmarks before adding them to current bills. The committee would have to support the earmark by a simple majority.

Trade Reform

Trade is the area where America interacts most with the world, and this is greatly overlooked as one of our greatest public relations tools. Firstly, I do favor free-trade, but I also favor-fair trade and safe-trade and think that these things are immensely important for addressing everything from terrorism to global warming to immigration.

Firstly we should stop, as well as we can (this depends on cooperation as well), from dealing with countries and start dealing directly with corporations. There are many advantages to this, though it also can make things more complicated. When we negotiate trade deals at the national level to reward and penalize companies for things that they aren't directly responsible for, and also this drives companies to move around from country to country based on trade deals, but there is no need for all that, and its a waste of resources and everything else.

We should very simply come up with one set of rules, any anyone who wants access to American markets has to follow those rules. As long as you follow the rules then you get free and unfettered access to the American markets, no tariffs. If you don't follow the rules you can be fined or, if the infraction is bad enough, barred.

The biggest problem with tariffs is that they punish the wrong people. Tariffs typically drive down wages in the country of origin, because in order to stay competitive while still paying the tariff it gives an incentive to pay workers less. This is the opposite of what we should be doing. What we should do instead is require compliance with a given set of pollution regulations, minimum wage, and employee rights. These rules would be the same for everyone. If you can't obey the rules then you pay a fine or are barred. This would move what is currently being paid in tariffs to the US into wages and improved working conditions in the home country, which would in turn also eventually open up more foreign markets for American companies as well, without adversely affecting consumer prices in America. At the same time, it would reward good corporate stewards for being good stewards no matter where they are. This would help to foster better relations with places like Iran and even perhaps Cuba, which could be opened up to trade as long and the proper conditions were met and of course as long as the home country allowed it. This would do more to promote progress and democracy than shutting off interaction with such places as we do today.

Likewise, poor stewards in good countries would be penalized more than what they are now or instead of simply relying on the home country to penalize them. There may be problems getting other countries to agree with these terms, that would remain to be seen, but basically any country that didn't agree would simply still be under a tariff. Regardless, we should work towards removing all tariffs and breaking down the barrier to trade, while at the same time focusing much more on ensuring the quality and fairness of that trade.

Social Security Reform

I have written about Social Security several times on this website and already covered what really needs to be done with it here:

Getting a grip on Social Security: The flaw in the system

Basically, Social Security is really not that bad off and with just a minor adjustment can easily be made solvent. In fact, with the minor adjustment so much money will be saved that it would be possible to reduce the Social Security tax, making it effectively another tax break for the middle class.

All that really needs to be done is to stop using average wage indexing. I think a good way to do would be to use a combined median-wage and inflation index instead. This would currently reduce the rate at which Social Security payment would be projected to increase. Some people complain about this, but there is no need for complaint. Currently Social Security payments are scheduled to increase dramatically above the rate of inflation, so people 30 or 40 years from now are schedule to get as much as 40% more per paycheck, after adjustment for inflation, than people today. This really makes no sense. Why should people in the future be getting paid more than people today? There is no reason why, and it wasn't even understood that this would happen the way that it has when the legislation was passed, because what has happened is that since wage discrepancy has dramatically increased over the past 20 years, the average wage has gone up much higher than the median wage, yet, the people making the high wages in the top 1% that are pulling that average wage up are not paying Social Security taxes on those wages. Thus, the poor and middle class are having to pay for increasingly higher payments even though their wages aren't going up. This is a hugely unfair tax on the middle class, and its really unnecessary.

Conclusion

I think that these economic reforms would strengthen the American economy, simplify the tax system, be more fair, and help the poor and middle class, while not harming American businesses, indeed the overall effect would be beneficial to business.

Topic: Commentary

I watched several different coverages of the Iowa caucus last night, and have read several articles today, but none of the coverage seems to pickup on the biggest point to come out of Iowa, which is that economic populism won the day.

This is very interesting because Mitt Romney had made several statements over the past couple of weeks which I think really showed that he has no clue about what is going on in America. Many of the pundits simply attribute the loss of Romney to his Mormonism, but I think that it had just as much to do with his economic comments. Romney clearly took economic positions favoring the typical "trickle-down" economics of the post-Reagan Republicans and saying things like "there are not two Americas", referring to Edwards' comments on the growing economic divide in America, and also attacking Huckabee's economic policies in Arkansas, where he did many things that helped the poor.

I think that while what is going on the Democratic side of the aisle is by far the most exciting, what is going on in the Republican camp is by far the most interesting.

It seems that many Republicans are finally getting it, and finally looking for an alternative to the pro-corporate policies of the post-Reagan era. I certainly do not favor Mike Huckabee due to his religious views, and more importantly his interjection of his religion into politics and government, but I will say that he is at least a true "compassionate conservative" as best as that can be true (though he still displays social intolerance to several groups, such as homosexuals, the nonreligious, and holds a demeaning view of women). I think that Mike Huckabee is the first candidate in a long time that actually truly matches the views of many social conservatives, who are both economically populist and socially conservative. This scares the hell out of the Republican establishment.

What is taking place in the Republican Party right now is all of the various factions within the party are breaking up. You have Mitt Romney who represents the typical pro-corporate social conservative, you have Guiliani who represents the more pragmatic pro-corporate and hard on crime agenda but lacks the religious elements, and you have Huckabee who represents the pro-faith social conservative agenda, but with also economic populism and a more forgiving view on crime. Of course there are others in the mix a well, each holding out different elements of the Republican platform.

What I also think is interesting is that the two front runners from each party are the two candidates that are the most alike from each party. Obama and Huckabee are the two candidates that are the most similar to each other from the different parties, so this shows a real consensus in America I think, I think that Obama did very well to pickup on that, because in fact I think that Obama has a better chance of picking up Huckabee supporters if Huckabee doesn't become the nominee than anyone in the Republican party.

When voters from both parties are heavily backing economic populism, that really demonstrates that the winds of change are coming, at least in the public's mind (whether it actually happens or not remains to be seen). I like John Edward and favor his policy statements the most, but don't think he can win a national election. I'd like to see an Obama/Richardson ticket, but there could be a fear that having both and African American and a Hispanic candidate together might scare some people off, which is too bad, because I think that Richardson really fills in the gaps of Obama's resume very well. I don't think that Obama will have any problem being elected the first black American president in his own right, but I think there is a possibility that if he partnered with Richardson then some of the more xenophobic independents and cross-over Republicans could be scared off.

But by far what is most interesting is what is going on in the Republican camp. The Republican pundits, including people like Rush Limbaugh and folks at FOX News, are attacking Huckabee because it has really never been about the "values". The "values" have always only been a Republican tool to manipulate voters into voting for pro-corporate policies, but now that a serious candidate has come along that touts the values but doesn't support the pro-corporate policies they want nothing to do with him. What Huckabee really does, in my opinion, is expose the Republican Party and its media backers as frauds. They don't really care about the "values", but they now see that they are unable to control the monster of their own creation, that their propaganda has taken on a life of its own, now they are terrified. Granted, Huckabee's policy statements are actually absurd, such as replacing the income tax with a sales tax, but the opposition to him among the Republican elite goes to a much deeper level.

See my article from 2004 basically predicting this breakup of the Republican Party:

The Contradictions Inherent in American Conservatism

News pieces covering the Huckabee controversy:

Limbaugh, Other Conservatives, Slam Huckabee 

Huckabee Described As 'Christian Socialist' 

Rush Interviewed on Fox News Channel Iowa Caucus Coverage

Topic: Semi-random Thoughts

With the Iowa Caucasus taking place tonight I have heard many pundits and reporters decrying the Democratic Party caucusing system. The system they are using is antiquated, but it has many advantages and should be a partial model for all major elections.

If you don't know about the Iowa Democratic Party caucus voting system, they basically have a 15% threshold that any candidate must meet in order to receive any delegates, and if they don't reach that threshold then there is a 2nd round of voting whereby the voter can change their vote to a different candidate that has already met the 15% minimum. This allows voters to avoid wasting their votes.

This could all be made much simpler however with an instant-runoff system.

The voting system in America is really a horrible system which virtually guarantees the perpetuity of the two dominant parties. This problem could easily be overcome with an instant-runoff system, and even in cases where it didn't affect the two party system, it would still greatly improve the voting system and make it more equitable and representative.

In the system we currently have for basically all of our elections a person gets a single vote. They can choose to cast that vote for a single candidate. When there is more than two candidates, this almost always ensure than the most popular candidate will not get elected. The reason for this is quite simple.

Let's say that there are three candidates. When more than two candidates are in a race it is most often the case that two of the candidates share some political leanings and the reason that two candidates sharing similar political leanings are running is because that political leaning is probably the most popular in the country. The election of 2000, when Gore, Bush, and Nader ran is a perfect example.

In our current system, what typically happens is that the voting block of the most popular political leaning gets split when there is more than two candidates.

So, for example, in 2000 both Gore and Nader were "progressive" or "liberal" candidates. Bush was the conservative candidate.

Because there were two progressive candidates the progressive vote was split. This, as we all know, "cost Gore the election", something that is a hot button issue that I don't wish to get into. But, due to the way our voting system works, the conservative candidate won, even though far more people voted progressive. Gore won the popular vote all by himself, but when you factor in the Nader vote it is clear that the voice of the nation was in favor of a progressive leader, not a conservative one. Yet, the conservative won because the progressive vote was split. Something similar happened when Ross Perot ran in 1992, perhaps costing Bush Sr. the presidency. Perot tended to attract more conservative voters, thus siphoning voters away from Bush Sr.

With an instant runoff system, instead of simply selecting one candidate on a ballot you rank the candidates on the ballot from 1 to N, with 1 being for first choice, 2 your second choice, etc.

Thus, in the 200 campaign people who wanted to support Nader could have ranked him 1 and Gore 2 (or chosen to only vote for Nader and rank no one else). In 1992 Perot supporters could have ranked him 1 and Bush 2, etc. In such cases, after their primary candidate failed to gain enough votes to win the election then the votes would have gone to their secondary candidate, thus in 2000 Gore would almost certainly have won and in 1992 Bush Sr. would possibly have won.

The instant-runoff system has many advantages. Not only would it prevent the problem of "wasted votes" when there is more than two candidates, but it would also make other parties more viable and have a greater voice, making the political system more responsive to voters. The instant-runoff system would give a lot of people the confidence they need to vote for a third party candidate, knowing that if that candidate doesn't win, at least the election won't be likely to go to the person they totally oppose.

There is really no downside to this system, other than having to retool the voting procedures and machines, but it is doubtful it will happen because the two main parties know that it would empower alternative parties, so it is in their interest never to adopt such a system. Nevertheless such systems are gaining support and are being adopted at the local level around the country. You should defiantly support such a system in local politics in your area if you ever have the opportunity, it could be the single most important change to the American voting system in American history.

To learn more about instant-runoff voting systems see:

http://en.wikipedia.org/wiki/Instant_run-off_voting

http://turbulence.ucsd.edu/~bewley/muppets.html

And by the way, congratulation to Barack Obama!

Topic: Facts and Figures

Report Says That the Rich Are Getting Richer Faster, Much Faster

The New York Times recently reported on a new CBO report on taxation and income distribution which shows that the incomes of the wealthiest 1% have continued to grow at an accelerating pace over the past 5 years while the incomes of the bottom 90% have effectively stagnated. Slight growth is shown in the middle income range, though very modest.

This report showed the same trends that were already highlighted in my article on taxation, In Depth Analysis of American Income and Taxation,  namely that the tax burden is shifting from the super wealthy onto upper middle income households. Those with an income between about $90,000 and $400,000 are seeing their tax burden increase while those with incomes in the $500,000+ range are seeing their tax burden decrease.

Unfortunately, it seems that most politicians, including those running for president, fail to correctly point this fact out, and thus many of the upper middle income households view themselves as "the wealthy" so that when talk about the wealthy being under taxed comes up, these people self-identify with "the wealthy" and end up frequently taking sides with the super-rich, not realizing that it is the tabs of the of the super-rich that they are picking up. In other words, the upper middle class tends to vote along with the super rich to reduce taxes "on the rich", but they don't realize that they aren't a part of that group, and in fact when taxes are reduced on the rich, the upper middle class is to takes the brunt of the tax shift.

The result is that the very influential upper middle class votes against themselves repeatedly and unwittingly supports lowering the taxes of the wealthiest 1% at their own expense.

But let's look at a few highlights from the New York Times article:

"The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans"

"The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher."

"The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003. The total 2005 income of the three million individual Americans at the top was roughly equal to that of the bottom 166 million Americans"

"Earlier reports, based on tax returns, showed that in 2005 the top 10 percent, top 1 percent and fractions of the top 1 percent enjoyed their greatest share of income since 1928 and 1929."

"About half of the income going to the top 1 percent comes from investments and business."

"On average, incomes for the top 1 percent of households rose by $465,700 each, or 42.6 percent after adjusting for inflation. The incomes of the poorest fifth rose by $200, or 1.3 percent, and the middle fifth increased by $2,400 or 4.3 percent."

"The share of their income that the top 1 percent paid in all federal taxes and in income taxes fell. The total tax rate dropped 1.8 percentage points, to 31.2 percent, from 2003 to 2005 while their average income tax rate declined one percentage point, to 19.4 percent, largely because of the cuts in taxes on capital gains and dividends."

While neither the article nor the report state it, I believe that the modest income increases for middle-income households in 2005 was related to the rising real estate prices at that time and the sales of homes by middle-income households. I would predict that when the 2007 numbers come in we will see that incomes for middle-income households actually declined when adjusted for inflation between 2005 and 2007.

During his Nobel Peace acceptance speech Al Gore recently called on both China and the United States to take the lead on environmental issues, and during the climate change summit in Bali Western nations led by Canada urged for China to be subject binding emission reduction targets.

Nations argue over emission cuts 

Can the Planet be Saved in Bali?

U.S. says no to firm emissions targets 

Is there really any fairness in asking China to reduce its emissions however? Absolutely not. Much is made of the fact that China is projected to surpass America as the leading emitter of carbon dioxide and leading overall polluter very soon, but this is really to be expected. China has five times the population of the United States, so it should be expected that the country will eventually produce more pollution than America.

Per-capita emissions for China are still far below American and European emissions. China is calling on the United States and the West to lead the way, and I agree, it is America that should be taking the lead on emissions reductions.

Unfortunately, instead of actually trying to solve the problems, developed nations, primarily America, are using environmental issues as another foreign policy weapon and as another way to try and gain advantages over other nations. America cannot be used as the standard against which to judge other countries. It is already well established that it would be impossible for every country in the world to rise to the living standards of the United States. The United States also consumes five times more resources than it produces.

With a population of only 300 million people, however, we cannot say that other countries with larger populations cannot exceed the overall levels of consumption and pollution of the United States. This would be tantamount to legislating poverty upon the world.

Any emissions caps and regulations have to be based on per-capita metrics. What this will mean that is the United States will have to make the biggest cuts in emissions, because right now the United States far exceeds everyone else in the world in per-capita emissions and resource consumption. Looked at on a per-capita basis, China and India are not even close to Western levels of pollution and consumption.

Obviously, however, the pollution and consumption of China and India are still problematic, so what will that mean as their levels of consumption and pollution rise? The only thing it can mean is that levels of pollution and consumption in the West will have to go down. This is the problem. Leaders in the West know this and are working now to try and address it, but it cannot be fair to require that the living standards of other nations remain below ours.

The issues are even more complicated than this however. Not only does the developing world contain much more of the world's population, but it is also where much of the production for Western consumption is done. This is especially true of China. Not only are raw per-capita emissions much lower in China than they are in America, but a very large portion of Chinese pollution is really a product of American consumption, not Chinese consumption. In other words, we in America are directly responsible for a lot of the Chinese pollution. It is effectively as if we are running an extension cord from America to China and then complaining about the energy usage measured at the Chinese meter, even though we are the ones using that energy.

Industrial production is one of the major sources of pollution, and is the most concentrated source of emissions. Over the past 30 years much of American production has been moved offshore, but Americans are still the consumers of that production, so in fact, even though the emissions of China have risen rapidly over the past 10 years, much of this represents the moving of American factories from America to China, but the goods are still being shipped right back to America, so we Americans are still the ultimate sources of the pollution, not the Chinese people.

This factor will complicate any efforts to come up with a global pollution regulation system, because factoring in where production takes place vs. where consumption takes place will not be easy. Overall, for global emissions standards and reductions to be fair they have to be based on per-capita emissions and in addition to that they have to take into consideration where the products of industrial production are consumed. We can't have places like China producing all of the goods for the West and then telling the Chinese people that they can't own cars because they produce too much pollution because the West has moved all of its factories to China.

There is no way around the fact that the West and especially America must lead by example and must make dramatic reductions in levels of pollution and consumption. We cannot put the burden of reducing emissions on the larger poorer nations of the world. The responsibility is ours and we need to take that responsibility seriously.