Relevant and even prescient commentary on news, politics and the economy.

A line of connection in experienced disconnected thought: Southern economic growth, anti-union, free trade job loss, today’s economy

by divorced one like Bush
caution, a long read

I’ve been reading: Making Government Work by Ernest F. “Fritz” Hollings. Yes, that Hollings of Gramm and Rudman legislation fame. It is kind of rambling read, but I now understand why our congress of the democratic party side has been acting like moderate republicans and not liberal or progressive. I recommend it just as a bit of a fly on the wall experience, be it a southern conservative Democratic fly. He does not like unions. He does not like free trade as currently practiced.

And, as much as he hates unions, he can not see that his fight against GATT and NAFTA in support of the textile industry as jobs moved south and over seas is and was the large version of his attracting jobs from the north east because of the cheap, non-union labor. He understands the impetus of cheap labor found in Mexico and China for business as a problem of “free trade” for our country as currently practiced, but totally fails to see it in his anti-union position. He can see the “fight” between nations for capital in flows due to labor cost advantages and how that is harmful to higher developed nations, but Hollings never indicates an understanding that he helped create the game of pitting one area of people against another by bidding down labor when he promoted the south as a union free area. That is, he sold his state, and thus sold out the northeast and the north midwest auto/rust belt social progress by bidding a lower labor cost. He fails to see his south played and still plays the roll of China to the unionized areas of America.

I mention this as an introduction to a person mentioned in the book who gave testimony in front of his senate committee hearings on GATT and NAFTA 11/15/94: Sir James Goldsmith. I present him and this bit of history as a compliment to Stormy’s postings on trade and the related postings regarding ours and the worlds current economic condition. Senator Hollings listened, but he did not hear.

Sir Goldsmith you can imagine, is no small potatoes. Nor is his background of the character one would expect as to be not so much in favor of GATT and NAFTA. Consider:

Anglo-French billionare financier
The Goldschmidts (family name changed to Goldsmith), like their neighbors and relatives the Rothschilds, had been prosperous merchant bankers in Frankfurt since the 16th century.
He was a greenmail corporate raider and asset stripper. (Including US timber companies.)
In 1990, Goldsmith also began a lower-profile, but also profitable, global “private equity style” investment operation. By 1994 executives working in his employ in Hong Kong had built a substantial position in the intermediation of global strategic raw-material flows.
Goldsmith… believed Britain had been victim of a socialist conspiracy and that communists had infiltrated the Labour party and the media.

So, what are you thinking? Money and more money, of the world market…total conservative. Certainly eccentric, if not a little paranoid regarding the communist bogyman. Except, he wrote a book in 1993: The Trap.
From the intro:

We have convinced ourselves that there exists only one valid economic and social model: our own. By attempting to impose it universally, we have exported to almost every corner of the world our diseases: crime, drugs, alcoholism, family breakdown, civil disorder in urban slums, accelerated abuse of the environment and all the other problems that we experience daily.”

But, this is the money quote:

“The economy is a tool to serve us. It is not a demi-god to be served by society.”

So, with no further ado, I present the Ross Perot of Europe in the epic battle of free trade, Sir James Goldsmith: (the audio of the transcript is at the same site)

I believe in free markets, I believe in free enterprise and I believe the purpose of the economy is not just to improve indices but to improve the state of the nation–yours, mine. So I’m not an anti-free-market man nor an anti-free-enterprise man; quite the contrary.
[regarding a prior witness] What you’ve heard today is the view from big business, of which I was part. And I believe the view from society in general is totally different.

Let’s pause right here and let that statement sink in. Society has a different view of the effects of “free trade” as practiced.

That’s nothing to do with productivity, Mr. Chairman; that’s moving to get the cheap labour forty times cheaper. And please don’t think this is unskilled jobs; these are skilled jobs; these are high-tech jobs going there. Of course there are also the unskilled jobs, but the skilled ones are going to highly skilled people and they are moving offshore; and if you think that’s productivity, then I think you would be wrong.

Well, surely the measure of competitiveness is the balance of trade. And as you, Senator, pointed out, if you have the second worst balance of trade in history, 150 billion dollars, that’s not being competitive in world markets.

In his [prior witness] testimony he talks about 500 billion dollars to be invested in China. And then what does he say? He says what America needs–and no doubt this is true about Europe as well–is an increased rate of savings. What for? To invest in China?…we can’t increase our rates of savings just to invest them elsewhere and where we bleed to death in terms of capital and we bleed to death in terms of jobs.

And this is the big point, Mr. Chairman. What we are witnessing is the divorce of the interests of the major corporations and the interests of society as a whole.

Ok, time out. I just want to make a plug for my coined bit of nomenclature: United Corporations of Global. It’s an entirely new nation that has no grounding to any boundaries of the continents and thus no patriotism to any nation. Let’s all chant: UCG, UCG, UCG, UCG…

Sir James Goldsmith goes on in his opening to present some figures showing the decline to society’s non-GDP measures since free trade has come on the scene. So we’ll skip to the closer quote:

Now I’m not here as a bleeding heart liberal; I’m a hard-headed realist and it is my view that if we try and make profits and at the same time destroy our nations, no one will benefit from it–even those who make the profits. (can you say “2008”?)

Returning to the beginning of this post regarding Senator Hollings lack of connection to his own approach to saving the south, I present this comment made during Sir Goldsmiths testimony:

…These thinkers were telling us–in fact I was at [Renaissance] with President Clinton when Michael [Porter] from Harvard was there and he was still lecturing on the comparative advantage, David [Richardo], and I just looked and said, yeah, the comparative advantage, that’s why BMW’s come to South Carolina. We have never made an automobile in our history. I mean, come on, it’s the wage advantage; 30 dollars in Munich, 15 dollars in Spartanburg;

And that, ladies and gentleman, is the display of the disconnect of our thinkers in Washington concerning all issues. The disconnect is the segmentation of thought regarding the mechanisms of relationships when forming a position on an issue. Senator Hollings just laid right out there his selfish thought process. Now, I don’t mean this in a derogatory way. Read his book, you will see he always held in desire what is best for the people. Unfortunately, the set called “the people” changes with the focus of the argument. The mechanics of the issue is never seen as being the same at a scale unrelated to the scale of the current set of “the people”. His desire to help his south (small set of “the people”) made him unable to recognize in his approach to improving the economy of the south, the same mechanical principles he was arguing to prevent in the hearings regarding GATT and NAFTA. That is the selfishness unrealized by him. He is anti-union still today.

Returning to Sir Goldsmith’s testimony, these are relative to today:

The reason why this time there’s been a recovery in indices and GNP despite very substantial pressure, downward pressure, on interest rates and facilitating credit through the banking system is because salaries, earnings, have either gone down or risen very little relative to the period of recovery. And that is the whole philosophy, is we can keep inflation down by keeping wages down; and we have forgotten the purpose of the economy, which is to enrich, to create a stable society, and to include the population, the vast number of people in active life; and instead we believe that if we can reduce salaries we can keep inflation down. That’s the wrong way around; we just forgotten what the economy is about, what its purpose is. (Can you say last 8 years? Really, though it has been the last 28 years regarding interest rate decline, wage decline, inflation moderation with rising GDP.)
The alternatives are not just closing the market, becoming protectionist; the alternatives are not saying we are now going into protection and we’re going to isolate ourselves from the world, each one of them. The alternative is to have regional trading blocs which have similar economies so we’re not trying to make our labour forces compete with people whose labour costs 2 percent of theirs and thereby destroying them–but–and reducing their salaries and eliminating their jobs–but having negotiated bilateral agreements between trading blocs so that each region, each nation, imports those products that it needs, not those products that destroy its jobs.

Senator, when I was young I was taught, as we all were, that if we managed to create extraordinary material prosperity we would solve our problems. And we were brought up in the belief that there was an inevitability of progress: progress of wealth, progress of stability, progress of civilization. Well during the last fifty years, since I’ve been more or less an adult, we’ve had the greatest period of economic prosperity, economic growth in history. We have succeeded beyond our wildest dreams…And what has happened? Have we solved our problems? Are our towns more stable? Are our families more stable? Is there less crime, less people in prisons? Less people in–are there more people in permanent and noble employment? What have we done? We have profoundly destabilized our communities. We have done everything that was wrong in social terms; we’ve deracinated, we’ve uprooted people from the countrysides, we’ve shoved them into towns, we haven’t given them jobs; we’ve created ghettoes and underclasses; we’ve increased crime and drug addiction and family break-down–all this in a period of maximum prosperity. Why? Because we were only interested in economic indices. We forgot that the purpose of the economy is not just to improve the index; it is to improve prosperity along with social stability and social contentment. And GATT is typical of the economic instrument, whose purpose is to increase corporate profits; whose purpose is to increase gross national activity; and whose result will be the destruction of the stability of our society, a continued break-down in family life, a continued increase in crime, impoverishment and all the other ills that we are now suffering.

Read that last part again: …whose purpose is to increase gross national activity; and whose result will be the destruction of the stability of our society, a continued break-down in family life, a continued increase in crime, impoverishment and all the other ills that we are now suffering.

I think Sir Goldsmith was thinking in linear terms as to the increasing negative effects of the form of free trade being set up. I don’t think he imagined the deregulation that would give a false sense of reinforcement to the “free trade” weakening of the foundation. That business was able to shore up the crumbling base via debt against the social decline, just means, as we are now experiencing, that the crumbling of the pyramid will be of a greater energy. That is assuming we can not shore up the breaking of the foundation such that it is a controlled falling of the pyramid. Though, if we are lucky (fingers crossed, salt over shoulder) we may just engineer a solid repair of the base before it all falls down.

Can we broaden the discussion now?
Thank you.

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It’s not that Schiff was so correct, it’s that the shows were so manipulative

by: Divorced one like Bush

Crooks and Liar’s posted this video, but their presentation seems more from a position of how correct Peter Shiff was. I think what is more important, and a better lesson to learn is how much crap was being presented by Fox as real, reliable, truthful information that “you can use”. Listen to the other “panelists”.

If we do not learn to understand “crap” reporting, if we do not learn to understand story telling for selfish purpose, if we do not learn to understand that propagandizing is not solely a political tool, but more importantly an economic tool, we will not solve our’s and the worlds current economic condition.

What this video is, is the unvailing of one of the real life experiences of the Truman show we have been living in since Reagan, only this interpretation of the story used the constructed world of finance on the stage known as the economy.

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Obama, is he or isn’t he … real?

by: Divorced one like Bush

As we watch the “team” Obama is putting together and the discussions regarding how reflective of progressive ideas they are vs same old, same old, I thought I would add to the hunt for Obama’s true identity. These are comments from his policy positions regarding development of our living environment and the economic relationship. I was keyed to these via a notice I receive from the Smart Growth movement.

Build More Livable and Sustainable Communities: Over the longer term, we know that the amount of fuel we will use is directly related to our land use decisions and development patterns, much of which have been organized around the principle of cheap gasoline. Barack Obama believes that we must move beyond our simple fixation of investing so many of our transportation dollars in serving drivers and that we must make more investments that make it easier for us to walk, bicycle and access transportation alternatives.
Level Employer Incentives for Driving and Public Transit: The federal tax code rewards driving to work by allowing employers to provide parking benefits of $205 per month tax free to their employees. The tax code provides employers with commuting benefits for transit, carpooling or vanpooling capped at $105 per month. This gives drivers a nearly 2:1 advantage over transit users. Obama will reform the tax code to make benefits for driving and public transit or ridesharing equal.

The top 100 metro areas generate two-thirds of our jobs, nearly 80% of patents, and handle 75% of all seaport tonnage. In fact, 42 of our metro areas now rank among the world’s 100 largest economies. “To seize the possibility of this moment, we need to promote strong cities as the backbone of regional growth. And yet, Washington remains trapped in an earlier era, wedded to an outdated ‘urban’ agenda that focuses exclusively on the problems in our cities, and ignores our growing metro areas. Strong cities are the building blocks of strong regions, and strong regions are essential for a strong America….that is the new metropolitan reality and we need a new strategy that reflects it . . .

Obama furthers his argument that type of transportation is important in the overall picture of our living arrangements which relates to the overall quality of our economy.
Responding to Transportation for America’s petition:

We need our next president to lead an initiative to invest in public transit, high-speed trains, places to bike and walk, and green innovation. We need a president with a plan that can put millions to work in jobs that can’t be outsourced, bring down the costs of travel, and create a sustainable infrastructure that will keep America on the cutting edge.

Obama answers:

And I think you’ve identified an important part of the answer as well. Our economy is slowing down, we need to stimulate it. Jobs are disappearing; we need to create new ones. At the same time, our infrastructure is crumbling and we need to rebuild it.
I had already proposed creating a National Infrastructure Reinvestment Bank, funded with $60 billion over 10 years, to expand and enhance, not replace, existing federal transportation investments.
I will invest $150 billion over the next decade in renewable sources of energy to create five million new, green jobs – jobs that pay well and can’t be outsourced; jobs building solar panels and wind turbines and fuel- efficient cars;…
I support Amtrak funding and the development of high-speed freight and passenger rail networks across the country.
As you know, all of these measures will have significant environmental and metropolitan planning advantages and help diversify our nation’s transportation infrastructure. Everyone benefits if we canleave our cars, walk, bicycle and access other transportation alternatives. I agree that we can stop wasteful spending and save Americans money, and as president, I will re- evaluate the transportation funding process to ensure that smart growth considerations are taken into account.

So, he talked the lingo of progressive minded people. Do these statements suggest that the ideology behind his pragmatism is progressive?

If the change we wanted was not to be bull shitted anymore, and the one I’m listening to is talking “change” using lingo, presenting policy plans of what I want, was I wrong to think they were talking no more bull shit? Are those talking like Glen Greenwald correct in that people should not be surprised with Obama’s appointments? Maybe, but then based on the above Obama words, that would mean we (you and I) just plain have to approach our relationship with governing as suspect until proven otherwise. Unfortunately, that means we will always be a day late and a dollar short having never known at the time of the decision if we made the correct one because you can not go by what is said.

Hey, I posted about Goolsbee and even asked if bringing in Jason Furman was a concession to the Clinton/blue dogs, did it mean the DLC kept control of the money issues. Does this mean that the non blog savy voter can not rely on what Obama said? Do you understand what the answer of “yes” means? Are those informing us that we should have known better, also saying that knowing the talk of “change” by Mc Cain et al was bull shit were not real in our understanding of what Obama was saying?

Come-on already! This is like blamming people for the down economy because of their consuming in an economy that is 75% consumption. We’re progressives, for christ sake… We Trust.

Do you know what happens to a person when they can never get a straight, no hidden agenda answer from one they count on? They go nuts.

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Eliot L. Spitzer, is back

By: Divorced one like Bush

I was wondering why Mr. Spitzer had not been heard from? Was his personal indiscretion so great that his knowledge and expertise would not trump such?

He has an opinion at the Washington Post yesterday.

The new president’s team must soon get to the root causes of the mistakes that have brought us to the economic precipice. Yes, we have all derided the explosion of leverage, the failure to regulate derivatives, the flood of subprime lending that was bound to default and the excesses of CEO compensation. But these are all mere manifestations of three deeper structural problems that require greater attention: misconceptions about what a “free market” really is, a continuing breakdown in corporate governance and an antiquated and incoherent federal financial regulatory framework.

One of the great advantages U.S. capital markets have enjoyed over the decades has been the view — held worldwide — that there was an underlying integrity to the representations market participants made, because the regulatory framework in which they were made was believed to provide genuine oversight. But as we all know, the laws requiring such integrity are meaningless without a government dedicated to enforcing them.

We do not need additional fragmented areas of federal regulation to handle hedge funds, sovereign wealth funds or derivatives. We need a unified approach that addresses the underlying issues: what kinds of leverage we wish to tolerate, how to measure risk, how much disclosure various trading products should provide.

Three overarching priorities should guide government actions in the new structure. First, we need better control of systemic risk.
Second, investors must be protected with adequate, accurate information. Firms must offer transparency both to individual investors and to government regulators.
[third]…we will have to step back from the current environment in which government has become a guarantor of all major risk. The so-called moral hazard will serve to devalue risk in the market, and this too will have a debilitating long-term effect on capital flows. Only if private actors have to bear the real risks they incur will the market function properly. We are now perilously close to nationalizing risk.

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The National Money Hole, should it go?

This is a very important issue that should be discussed at all econ blogs. It has far reaching ramifications and frankly, I want to know why we did not hear more about the closing of the National Money Hole from president elect Obama. Nor was there one word coming from the Republican Governors Association meeting.

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

I think the last commentator is correct: If you love America, you throw money in its hole.

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FYI: AIG’s new money deal

mmckinl mentioned the new AIG deal.

Naked Capitalism has a post by Yves Smith regarding the new and improved AIG plan titled: The looting continues (Bannana republic watch). It reviews a WSJ article and notes that AIG is getting a rate cut (5.5 point reduction) with more money for a longer term (5 years instead of 2, is this to protect the money class through this first term liberal hippie commune period?) and we are buying junk at $0.50 on the dollar thus potentially setting up a windfall for those who already bought crap for less. The author’s position is also that WSJ is doing their usual water toting for the money from money class.

In the end the author quotes a 1994 article by Nobel prize winner George Akerlof and Paul Romer : Looting: The economic underworld of bankruptcy for profit.

Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

I would ask: Is AIG the linchpin to assuring the financialization of our economy is extended well beyond Bush’s and prior neo-liberal economic policy hawks (DLC, Blue Dogs, Clinton) legacy?

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What do we want our economy to do? Misuse of GDP

by Divorced one like Bush
(successfully I might add)

I had the following quotes sitting around for awhile. Like May of 07. Being that we have a “crisis” with our economy (I have a hard time with the word crisis being used, it implies suddenness, unseen), a new governing philosophy in place and we really, really, really have to broaden our discussion, I feel this is the time to post some thoughts on GDP. It goes along with asking what I think is the most important, “In the beginning”, big bang question to ask now that we have been a “great social experiment” for TWO HUNDRED and THIRTY TWO years: What do we want our economy to do for us?

I think it’s about time we ask this question, No? The “for us” is the important subject of the question.

But even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all. Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife. And the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
Robert Kennedy, University of Kansas. 3/18/68

Unfortunately GDP figures are generally used without the caveat that they represent an income that cannot be sustained. Current calculations ignore the degradation of the natural resource base and view the sale of non-renewable resources entirely as income. A better way must be found to measure the prosperity and progress of mankind”
Barber Conable,
former President of the World Bank, 1989

Simon Kuznets – GDP’s creator – in his very first report to the US Congress in 1934 said[2]:
…the welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

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TV serials as an indicator of inflation

by: Divorced one like Bush

Just a little point of order regarding how bad this economy is.

Lost in Space 120 episodes, 33.2 per season
Batman (on twice weekly) 120 episodes, 53.33 per season
The Virginian, 249 episodes, 27.67 per season
The Beverly Hillbillies, 274 episodes, 30 per season
Gilligan’s Island, 98 episodes, 32.67 per season

New season started this year around September 22. Last Monday night (10/27/08), CBS sitcom night, my date night with my flower girl… every one of the shows was a repeat.

It’s bad enough we get 7 minutes of commercials all timed to the other networks, but now they can’t even get to Halloween before running out of new shows!

We’re entering a depression, and we can’t get new comedy? Guess I’ll just have to rely on the real thing. All 190 of them.

On no! They’ve been co-oped.

There is only one solution. We must all immediately call our congress critters and the presidential candidates and demand a bailout for the sitcom industry! It is our only salvation, our only true hope. It is what worked in the past regarding our sanity and stopped us from becoming like the bankers we loath.

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Taxation’s Rhetoric: Today and yesterday’s economic crap

by: Divorced one like Bush

In a posting regarding which presidents would be considered socialist I found the following curious:
1921 – 4% 73% Census
1922 – 4% 56% Census
1923 – 3% 56% Census
1924 – 1.5% 46% Census
1925-1928 – 1.5% 25% Census
1929 – 0.375% 24% Census
1930-1931 – 1.125% 25% Census

1982-1986 12 brackets 12% 50% IRS
1987 5 brackets 11% 38.5% IRS
1988-1990 3 brackets 15% 33% IRS
1991-1992 3 brackets 15% 31% IRS

2001 5 brackets 15% 39.1% IRS
2002 6 brackets 10% 38.6% IRS
2003-2008 6 brackets 10% 35% IRS

Notice anything about these 3 groups of income tax rates? No, I’m not suggesting that the lower rates are the smoking gun of today’s economic crap. Don’t want to run afoul of those scoldings of association is not causation critiques. But, do you not find it just a bit curious that approximately 8 years prior to an economic troubling time we get talked into reducing that tax rates? Three periods in history, all preceding an economy of crap. Varying degrees of crap, but crap just the same. We even had a housing bubble for 2 of them!

None of these tax changes can happen without convincing. A dialog has to have happened to convince the people that it is a good idea. And, I bet that the rhetoric of tax reduction is only part of a package regarding the overall idea of what is best to “grow the economy”. I bet, that tax reduction presentations have never been presented as a stand alone, single issue, unrelated to accomplishing a larger money shift. Being that we are relating today to the Big One, while at the same time hearing muttering that we are in “new territory”, my Angry Bear side asked: What else is similarly presented in the 20’s as part of a sales job of an over all ideology that preceded today’s and yesterday’s crap?

Installment Sell

Manufacturers realized they could expand their profits if they could grow their markets and so installment selling was introduced. The increased production volumes reduced the unit cost of items making them more affordable, and easy terms made for easy sales.

There is a reprint of an article specifically looking at the pros and cons of credit purchasing. Rather fascinating reading.

PAYING FOR THINGS ON “EASY” TERMS has become such a conspicuous element in American life, and so large a factor in our prosperity, that the economists have been doing a great deal of worrying about it. Source: The Literary Digest for March 5, 1927

Sub-prime anyone? Oh, did you notice that it was a concerted effort to sell the consumer that installment purchasing was good? I wonder if blaming the consumer for spending what they did not have was part of the discussion when the economy turned to crap then?


Christmas distribution of bonuses in Wall Street, when finally added up, is expected to prove the most generous ever made except during some of the flush World War years.

No accurate account of sums paid out can be made, according to the New York Times, because many firms do not announce their benefactions, but last year’s total was estimated at $50,000,000, and it is expected that the Wall Street firms paying bonuses are being no less generous this year. In fact, some firms which have never paid bonuses will start the custom this Christmas. Probably the largest distribution, we read, is being made by banks, which have been exceptionally prosperous.

Converting that $50 million we get various amounts: $586 million via CPI, $494 million via GDP deflator, and (drum roll please), $1.999 million via unskilled wage factor.

There was one perspective that was not accurate in their prophecies for America:

America has played square in China, and will have an inside track in China against the commerce of other nations.
China buys one billion dollars worth of outside goods every year. But that’s only, a drop in the bucket compared with what this customer may buy some day. “When the per capita foreign trade of China,” runs one government report, “is equal to that of Australia, the total will be sixty-five billion dollars a year which China will pay to the outside world for her imports.
“You can’t help seeing American business grow in China,” a business man from China told me. “Why, it has multiplied itself by four within the past dozen years. It’s eight times bigger than it, was thirty years ago.

The inaccuracy? The quotes are from a perspective of the American selling to China, not from China. And you thought Nixon opened up China.

Getting back specifically to the tax reductions, this web site offers a lot: The Tax History Museum
From reading the site, it appears a progressive tax system was put in place for the WW I war effort. They even put in a munitions tax to “appease” opponents of American involvement in the war; levied on manufacturers of military equipment, it was designed to prevent war profiteering”. There was an “excess profits” tax put in place which appears to be what the later progressive income tax became. Arguments for it were as today: equality. Against it:

It attracted bitter opposition from business groups, who considered the tax a threat to managerial prerogatives. They were certainly justified in their suspicion, since both Wilson and his allies in Congress considered the levy a legitimate means of business regulation.

Well slap me silly! A tax used to curb the excess of business. I hear some of you saying: Excessive CEO compensation regulation please?

After the war, the argument was that such high rates were “unsustainable”. It was the party of today’s tax cuts who yesterday cut the taxes:

Republican lawmakers joined with a series of GOP presidents to engineer tax cuts in 1921, 1924, 1926, and 1928. Andrew Mellon — who moved into his Treasury office in 1921 and stayed their until 1932 — was the principal architect of these reforms.

Certainly some Democratic elected joined in (early Blue Dogs, DLC’s of their time?).

In 1980 we got schooled in the Stockman trickle down theory of economic growth which included lower taxes will raise collections and bolsters economic growth. It was all about cutting taxes by his confession though. So, as I look to find evidence of selling tax cuts as a part of an ideology sell job regarding how an economy should run, such being clues that in the near future we will have economic crap, the following regarding Mr. Mellon’s position just confirms how ignorant we have been in our recent times (post 1981) to have followed those who suggest tax cuts as part of their economic program:

“Any man of energy and initiative in this country can get what he wants out of life,” he wrote. “But when initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends.”

Worse yet, Mellon argued, high rates didn’t even raise money. By encouraging both legal tax avoidance and illegal tax evasion, they eroded the tax base and reduced overall revenue. Lower rates, he said, would actually raise money by spurring economic growth and reducing the incentive for tax avoidance. “It seems difficult for some to understand,” he complained, “that high rates of taxation do not necessarily mean large revenue to the government, and that more revenue may actually be obtained by lower rates.”

Can we have been any more stupid, shown our ignorance more than to have taken as a new idea, language regarding taxation’s need to be reduced and it’s effect on filling the government coffers that is as old as almost the day progressive taxation came into existence? Unfortunately, our stupidity has been worse than accepting Mr. Mellon’s similar arguments to those used by Reagan et al suggests. That is because, back in Mr. Mellon’s day he at least understood what Mr. Buffet of today understands but congress and by extension US do not:

Of particular note, he suggested taxing “earned” income from wages and salaries more lightly that “unearned” income from investments. As he argued:

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

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


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Larger, greater than expected…Declines

by Divorced one like Bush

US Initial jobless claims decline larger than expected in May 31 week (6/5/08)

Mortgage finance giant suffers much larger-than-expected loss due to reserves for credit losses and slashes its dividend to preserve capital. (8/8/08)

Factory orders decline more than expected in August (10/2/08)

Retail sales for September posted its steepest fall in 3 years, down by 1.2%, larger than the expected 0.7% decline…The New York Fed manufacturing index plunged to a record low for October, sharply worse than expectations to -24.62…Meanwhile producer prices climbed higher than forcast…(10/16/08)

The University of Michigan consumer sentiment survey posted its steepest drop on record, collapsing far more than expected to 57.7 in October… (10/18/08)

A larger than expected decline in building approvals reflects continued investor caution due to high interest rates, economists say. (Australia, 9/30/08. )

So, what does it say when we read headlines that start with “Larger than expected decline”? Really.

What world, because it is a world phenomenon as shown with the Australia opening news line, are these people living in such that what they read in the data surprises them? Should we not be concerned that those who are being relied on to manage our economy have not expected what they are now seeing? Reading many articles starting off with that phrase “Larger” or “bigger” or “greater” “than expected decline” does not bode well for all the analysis that has been relied on by the managers (would this include investors?) of our economy. I mean, I posted here in comments some time ago that my flower shop has been seeing a steady decline since August 1996. I noted when the first quarter reports for this year came out, based on my flower shop, that we would see some good numbers, but it would only be a burp of pent up desire to spend and should not be considered positive because of the major drop in April and May (usually one of the largest months for flowers).

Do you remember the commentary on how the rising oil prices would not hurt the economy because it was still “relatively” cheap? Was the talk that if oil got back down to $70/barrel then we would know the pricing was speculation? Well? What, are we not concerned now to know if the oil price rise was speculation or not? Or is this another “larger than expected decline”?

Yet, here we are reading commentary that, if we are honest and real, should be giving us great pause as congress formulates policy. Such commentary of surprise as numbers are reported should be raising questions such as: Are we monitoring relevant data for our purpose? Are our theories of what is significant regarding our economic intent valid? Is the data an accurate description of what is happening in our economy? And, the most basic: Why are we surprised? Why were our expectations wrong? Should we be looking for a different school of economic thought than the one that has dominated? (Some time ago, here in RIland an economist from URI thought that tolls collected for the Newport Bridge was a good indicator for our state economy. He found that he was correct.)

Is now the time to broaden the discussion or are we going to wait for more unexpected surprises?

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