This is the most sensible article I've read in a while.
"At issue is the old Who/Whom choice. Given the mathematical fact that debts that can’t be paid, won’t be, the question is who should get priority: the 1% or the 99%?
Debt-ridden austerity and downsizing government is being urged as if it is inevitable, not a policy choice to put bondholders and the 1% over the 99% – a reward for the lobbying money it has spent on buying politicians and misleading voters to believe that cutting property taxes and cutting taxes on the rich will help the economy."
Well i started to write down all the factual errors, or odd assumptions, but when it came to 15 I stopped. Therefore, instead of addressing each of the false statements, I will respond generally.
ReplyDeleteIt was been said that WWII had two lessons for the world; the horrors of the nazis taught us not to judge people's character by their blood, and the soviet atrocities taught us not to judge people by their income. I think much of the western world has learned not to judge people by their blood. Unfortunately, most of the left today DO judge people's character by their income. If someone tells me that person A is rich, I make no assumptions (good or bad) on their character. Not so much for the left or this author. The 1% is equated with corruption, manipulation, and other negative traits.
Too bad.
I wonder if this author would have been cheering when Mennonites were sent to Siberia for being wealthy farmers in the 1930s in communist Russia.
I did not read this article as one of bashing the rich, rather as one that was detailing how policy is favoring the 1% not the 99%.
ReplyDeleteI was hoping that you, as someone who understands the financial system much better than I do would comment on a few things:
1) because of low interests, pensions cannot pay to pensioners what they had counted on. Bondholders, on the other hand are getting what they counted on. To what extent do you see this as true, and to what extent is this the result of policy?
2) do you also see the irony (I certainly do) in some of what is being claimed by some, namely that if the rich are rewarded with tax breaks they will work harder and smarter and the country will benefit as a whole. That is the rich are offered a carrot, and they are deserving of that. The poor on the other hand need to get their social benefits taken away. That is the only way to get them to work harder and smarter, and for the country to benefit. In other words, they need to be prodded, and are deserving of that.
Your reference to the Mennonites in Russia is interesting.
ReplyDeleteAs you may know, Mennonites for the first time in their history experienced wealth in Russia. Prior to their migration to Russia, they had always been in disfavor with rulers because of their refusal to support the ruler's wars. As a result they were always on the margins of society, and the ruller's policies prevented anyone from getting wealthy. The problem of rich and poor was not as big question for Mennonites prior to Russia as it became in Russia. For the first time in Russia, where they were allowed their own municipal government did it become a big problem.
The villages were divided into Wirtschaften. I understand a Wirtschaft was the size of farm it was deemed one family could look after. There was provision for poorer families, and these had halbe Wirtshaft. There were also the wealthy ones, and these lived outside the villages. These were the ones who had large work forces of Ukrainian peasants.
It so happens that the Kroekers had a halbe Wirtshaft in Russia (which I'm sure is one reason your Opa survived). It also happens that both of my grandparents had an estate (which is one reason why they lost absolutely everything in 1920, and would have surely perished in the following years had they not been able to emmigrate).
There were prophets at that time who talked about the injustice of the wealth distribution (I understand they spoke more about the wealth distribution among Mennonites than between Mennonites and Ukrainians), but I doubt that anyone "cheered" when the wealthy Mennonites were the first losers in the turmoil fomented primarily by inequity in greater Russia.
Incidentally, comparing conversations I had with my grandfather and conversations I had with your Opa, my grandfather was way more negative about communism than your Opa was.
There is absolutely no doubt in my mind that the reason socialism is more acceptable in Northern Europe than in the US is that there is a much more realistic perception of the allure of communism there. They have had their conversations with communists. What American has?
It was in Ethiopia that I had my conversations with communists. It was there that I began to understand to what extent the ideology "if you remove the oppressor, the oppressed are free" can captivate people. The only way to address this captivation is to address the injustice.
On Point 1.
ReplyDeleteBoth bondholders and pensions (they are they same thing, as pensions hold bonds) because of low interest rates, are receiving lower returns than expected. So it is not true that bondholders are getting favorable treatment vs pensions. The average pension fund, has 65% of their assets in bonds - they are the primary holder of bonds. I do see the cause of the low rates coming partly from policy. Because the government is running such a large deficit, the Federal Reserve is being very accomodative by keeping interest rates low, and pumping out dollars. This is very destructive longer term to us all, but near term is enabling the government to run deficits, and enabling banks to lend at low interest rates. However, ironically, the large government deficits being financed by printing money - is near term helping those with stocks and other hard assets, and hurting the poor.
On Point 2:
I don't see the irony. I think both rich and poor, should be incentived to be work hard and not live off the work of others. The evidence is quite overwhelming, that raising taxes on the wealthy, won't increase the amount of money the government receives.
Here is what I read:
ReplyDeleteRomney believes that people whose income comes from capital, like him—from dividends, interest, capital gains, rents—should pay little or no tax. He would exempt a married couple making up to $250,000 from taxes on capital gains and dividends. So you could own $12-and-a-half million worth of stock, collect dividends at the current average rate, and pay no taxes whatsoever.
Ryan would completely eliminate taxes on capital, on estates and on gifts.
For the one year we have Romney's tax return, his income is almost all "carried interest," which is taxed at 15 percent. That’s the rate paid by schoolteachers. But, of course, Mitt Romney is making over $20 million a year. If you’re a worker who makes that kind of money, you pay 35 percent, not 15.
In addition, Romney pays the taxes on behalf of his five sons. He put property he valued at about a million dollars into a trust fund. That trust fund is now worth $100 million, which tells you how porous the gift tax system is in America. And his sons now get tax-free income for life, each of them having roughly $20 million there working for them, and they don’t have to do a thing to get their income from it.
My comment: surely something is more than nothing! Furthermore, I fail to see how such a policy can encourage entrepreneurship.
Yes, I believe the tax code is broken with income tax rates far too high relative to capital gains taxes. Republicans want to lower the income tax rate to narrow that gap. Democrats want to raise both rates. In either case, there will be a large gap between capital gains and income tax rates that neither solves.
ReplyDeleteMeanwhile, we know from basic math, that if we raise taxes to 100% on the wealthy and stupidly assume that they woudld continue to work just as hard and hire in that environment, the US would still be running a very large and unsustainable deficit. So is the larger issue spending and entitelments (Obama and the Left want to increase) or is it taxation?
Wow. So I will disagree with both of you guys perhaps. I cannot keep up with the prolific posts and I generally have to think a fair amount about my posts since most of this stuff is a bit new for me. I am going to respond to the first couple of posts, not the last few.
ReplyDeleteI read the article and I felt that it was quite overstated. Sounded a bit more like a conspiracy theory then an economics article. I have no idea about the facts or not but going strictly by the feel of the article I could agree with Karl that factually it is very iffy.
Having said that I CERTAINLY did not get the impression that the author would "cheer" if the wealthy were sent to labour camps and or killed. I felt he overstated his case but not to that extent. He was basically saying that if the poor are going to suffer so should the rich. If taking away bond payments to the rich is equivalent to killing them then the rich have to rethink how they feel about money.
A question that did come up for me was how do we as a society take care of the vulnerable. The elderly are vulnerable and there pensions were there to care for them. If the pensions cannot support the elderly then what do we do? Do we not pay as much elsewhere? Do we let them figure it out themselves? Do we still pay them but much less then they thought? Do we pay them what they thought they would get but go into huge debt to do it?
I guess later on you do talk about it. It sounds like Eric is saying to tax the rich more to make up the difference. Karl is saying cut spending and do not raise taxes so that leaves either let them figure it out themselves or pay them much less then they expected. Am I accurate? Are these the only good options?
Mark
The final comment by Karl has me a bit puzzled. He states, "So is the larger issue spending and entitelments (Obama and the Left want to increase) or is it taxation?" Is it just Obama or is it the Left who advocating increased spending? As I am sure you are aware the Right in the USA has increased spending much more then the Left has. In fact the last 5 Democrats prior to Obama actually reduced the public debt as it relates to GDP and the last 4 Republicans have all increased it. I could not find stats as easily on Canadian Prime Ministers but I do know that the current government has run the largest deficit in Canadian history.
ReplyDeleteObama has increased spending a lot but the "Left" has generally decreased spending and the "Right" has generally increased it. It may be more accurate to ask if the problem is spending and entitlements (Obama, although the left usually decreases spending and the right increases it), or is it taxation?
Mark
I think we have hit this topic before. I would certainly not characterize Bush Jr/Sr or Ford on the RIght, and we also have to remember which ideology controlled congress (they control spending) in each administration. However, and perhaps more importantly, I think we should be asking what the structural change brought about by each President was. Medicare and Medicaid - the biggest entitlement issues hitting the budget - were more Leftist ideas, which due to actuarial reasons, did not begin to crush the budget until 20 years after implementation. So while this undeniably increased the size of government, the impact was only felt 20+ years after they were implemented.
ReplyDeleteTake Obama, his biggest piece of legislation was the passage of Obamacare. The fiscal impact of that only begins in 2013 with full impact by 2020. The budgetary forecasts are that it will add $1.8 trillion (up from $700b forecast prior) to the debt in the next 8 years. That is a massive structural change to the government (particularly the exit rate in 2020), but the impact takes a long time to take hold. So do we blame that budget problem on the next President, or should we blame the one that passed the legislation?
I agree that both RIght and Left (today the Right) judge a President all too often in isolation and not in the context of the times (state of economy, state of foreign strife, demographics, etc..). From that standpoint, just as Bush and Reagan inherited big recessions, so did Obama. However, I don't believe there is much denial, by either conservative or liberal, that Obama wants to increase the size and scope of government, while Romney wants to shrink it. Amongst major politicians, only Paul Ryan has had a serious plan for entitlement reform, while the Democrats have never even proposed a budget while in power.
So yes, i want to reiterate that the Left wants to talk about taxation which is not the big issue mathematically. The big issue is entitlements, and only one side appears serious about addressing the problem.
I may have to try and read back in the blog and see what you all have talked about in the past. I could probably learn just by going back and check the topics.
ReplyDeleteMark
As you know, I'm no advocate of income tax. On the whole this is a disincentive to work and innovation, and I can see how increasing the income tax rate need not lead to increased tax revenue. However there are so many other taxes: the bad ones (in my opinion): payroll tax and real estate tax; and then the good ones: land tax, resource extraction tax, pollution tax, carbon tax, capital gains tax, inheritance tax, consumption tax. In their concern about the deficit, why wouldn't either of the parties advocate a tax other than income tax? I don't get it, other than that the rich don't like it -- but then no one likes to be taxed.
ReplyDeleteTwo questions:
1) When I hear the Right use the word "entitlement" these days, it sounds like they are saying an entitlement is a bad thing. Is this what they are saying?
2) Can you direct me to a good summary of Paul Ryan's plan for entitlement reform?