Wednesday, September 28, 2011


I often have the feeling that our politicians are akin to the street hustlers who like to lure passerby into shell games of “keep your eye on the pea”.  Some of these folks have astonishing skills, and it’s virtually impossible to track the pea as it moves from one shell to another – and is most often clandestinely palmed in any case.   Somehow or another, the pea never seems to be where the eye and logic say it ought to be, and the tourist or passerby lured into the game always loses his or her wager. So long as you play for small stakes on a nice day, it’s a pretty harmless way to pit your skills against the shills who run and surround the table.

Unhappily, our political leaders – who are supposed to articulate and explain solutions - have become shills on a grand scale.   Day after day, they seek to conceal truth with self-serving and ideological statements that bear little relationship to fact and make it impossible for citizens to either reach sensible conclusions on public policy issues or hold leaders accountable.  

Let’s examine some of the rhetoric we’ve been hearing about the President’s recent proposals on taxes. 

According to John Boehner, the Speaker of the House, the proposals are nothing but a collection of “job killing small business tax hikes”.  Rick Perry thinks the proposals “penalize investment when it is needed most” and Mitt Romney has denounced the plan as having “a crushing impact on economic growth”

Now, be sure to keep your eye on the pea.  The facts are that the proposed taxes, which only partially reverse the individual rates introduced by the so called Bush tax cuts, apply to business profits, not business revenues, and thus have no impact whatever on the ability of any business, large or small, to conduct business.  Moreover, studies done by the Joint Committee on Taxation and by the Tax Policy Center, a nonpartisan research organization, show that less than 3 percent of filers with small business income pay  the top two income tax rates, and many of those who do  are doctors and lawyers in partnerships.  So the number of true small employers who would be impacted by the proposed changes is miniscule. All other businesses would be unaffected!!  That doesn’t sound like a job killer to me – and it’s not.

Repeated surveys by various business groups establish that the primary reason business is not investing and hiring is that demand is weak. It’s hard to see how it could be otherwise, because there are some 15 million Americans who cannot find work, the Federal governments various efforts at stimulation are gradually going away and state and local governments are laying off employees.   Moreover, U.S. median real (that is, adjusted for inflation) household income is lower than it was in 2000 and real average hourly earnings are now lower than they were in 1970, more than 40 years ago.   Moreover, the U. S. has become one of the least egalitarian of all the world’s developed societies, with the top 1% of the population controlling a higher percentage of wealth and claiming a higher percentage of income than has been true since 1929.    
It’s pretty clear that the Bush tax cuts didn’t accomplish much beyond increasing annual deficits and our steadily accumulating debt.  In the years since 2000, employment and income growth have slowed or stopped, debt has skyrocketed, the economy has slipped into recession and we have endured an extraordinarily weak recovery that now seems likely to give way to still another period of recession.   
Taken together, the Bush tax cuts reduced the government’s tax revenues by about $1.8 trillion between 2002 and 2009 and if extended for another decade, will reduce government revenues by an additional $3.8 trillion.
The President’s proposals, taken together, which do not roll back all the elements of the Bush tax cuts, would raise about $1.6 trillion during the next ten years, recovering only a portion of what a full repeal would raise. The President’s proposal would raise the top two marginal rates to 36 percent and 39.6 percent from the 33 percent and 35 percent rates in effect today. It would also restore the estate tax, raise the capital gains tax on wealthy individuals from 15 percent to 20 percent, limit the value of deductions for wealthy taxpayers and increase corporate taxes by eliminating tax breaks now enjoyed by oil companies, the coal industry and other businesses.   None of these proposals are draconian, none are inconsistent with tax rates and provisions in effect in the early 90’s, and none are likely to have any meaningful impact on private sector investment.

But, say the shills, raising taxes will limit the willingness of the wealthy to invest.  Is that true? To tell the truth, I don’t know, but I am struck by the fact that those who shout the loudest never offer any evidence, but merely assert what they apparently believe is obvious.
 I have looked high and low for any careful study of this question and haven’t found anything.  My own view is that if the capital gains rate went up to the old 28% -- which is about 10 points less than the proposed maximum individual  income tax rate – it would have no adverse impact whatever.  I think taxing capital gains at a marginally lower rate than wage income makes sense because some portion of the “gain” an investor realizes over time is simply inflation, which should not be taxed.  However, if an investor has money he or she wants to put to work, the probability that the tax on any gain realized will be 28% rather than 15% isn’t going to cause me – or anyone else, in my view – to put the money under the mattress or buy a very low yielding CD. 
Add it all up and it seems to me that raising taxes on the richest Americans, and on those individuals and corporations who enjoy the largest tax breaks, would give the government more ammunition with which to fund programs to ameliorate the adverse impacts being caused by excessive debt and a lack of jobs. 

Tuesday, September 20, 2011


In recent days, there has been a fair amount of publicity about the little town of West Pittston, Pennsylvania. The story is pretty simple. In 1990, after suffering floods from time to time, the town had a referendum as to whether it should join other cities along the Susquehanna River and build a levee to protect itself from flooding. For various reasons – including a desire to preserve their lovely water views – the residents voted no. Now that the view has given way to the flood, residents are asking themselves just what their predecessors were thinking – or smoking – that led them to opt for a view rather than a levee.

I think the story is a reasonably apt analogy of what we have been doing in the United States for the last 20 years or so. After World War II, the United States used its resources to build a powerful economy by investing in its educational system, in its infrastructure and in lots of public and privately funded research and development. We also encouraged immigration, thus regularly leavening society with ambitious new citizens.

In those days, we had – for whatever reason – a collective understanding that investing for the future would create continuing opportunities for future generations. These days we cannot seem to distinguish between investing and spending, seem focused on consumption rather than production and appear unwilling to recognize that failing to invest will leave future generations without the capabilities required to succeed in an ever more competitive world.

In the early 1950’s, we were spending nearly 5% of our GDP on infrastructure, while simultaneously laying other foundations for the success of future generations. We built the best educational system on the planet, created world class communication capabilities, encouraged research and development by both government and industry, urged businesses to increase manufacturing and distribution productivity, and built transportation systems able to move goods into, out of and within the country quickly and efficiently. These days, we spend less than 2% of GDP on infrastructure, and would need to spend $2 trillion just to repair what we have allowed to deteriorate. Since we have never created an adequate funding structure, there seems little hope we will find the money needed. Moreover, we have no effective mechanism to plan for the additional roads, bridges, water and septic systems, airports, mass transit systems, electrical distribution capabilities, and other things our kids and grandkids will need in future years.

Hardly a day goes by in which we are not reminded, in one way or another, of the growing consequences of our myopia. Our schools are turning out students unable to compete with students from other countries. Our electrical distribution grid is so heavily loaded that whole sections of the country go dark in response to minor problems at single facilities. We remain dependent on other countries, many of them actively hostile, for major portions of our energy. Our prisons hold a larger percentage of our population than do the prisons of any other country. Ever larger traffic jams rob industry and individuals of thousands of productive hours. The inflation adjusted median income of our workers is lower than it was 20 years ago. 46 million citizens live below the preposterous poverty line of $22,314 for a family of four. 50 million citizens lack health insurance. 15 million people are unemployed. Our debt is out of hand, our annual deficits are enormous and our future obligations exceed the nation’s net worth.

Despite these awful realities, we seem unable to grasp the reality of our situation. We continue to choose leaders who talk in ideological generalities instead of specific solutions. We insist on injecting irrelevant social issues into a political dialogue that should be focused on our economic future and we seem determined to drown out any voice that offers solutions alien to our own beliefs.

As I write this, the airways are alive with talking heads denouncing the president’s jobs bill, which incorporates provisions for higher taxes on the wealthiest Americans. Does any serious person doubt that the government needs more revenue? Can serious people dispute the reality that in the early 1990’s, when the wealthy paid higher taxes, we had a more productive and more successful society?
I think the answer to those questions is no. Does that mean we can solve all our problems with higher taxes? Of course not. But to solve our problems, we cannot eliminate government, which can do things individual citizens cannot do. Only government can regulate food safety. Only government can build infrastructure. Only government can provide public education. Only government can provide for the national defense. Only government can regulate commerce. And all those things, and many others, need to be done.

Right now, because the economy is in very bad shape, there is a particular need for government. We have 15 million unemployed Americans, and a sadly lacking infrastructure. Back in 1933, when Franklin Roosevelt confronted a similar situation, he put people to work in federal agencies whose works endure to this day. Is there some reason we can’t put our people back to work rebuilding what has slipped away? If there is, I don’t know what it is. The talking heads would call it a socialist idea – I call it common sense.

But government can become too big – and too expensive – and it is both today. We cannot pay public employees more than taxpayers in the private sector earn for similar work. We cannot assuage every politician’s desire to accommodate every constituent and lobbyist. We cannot spend multiples of what others do on defense, and we cannot be the world’s policeman. We cannot assure everyone in America of a good life – only a chance at a good life. We cannot cure every disease, perform every procedure, and provide every drug that anyone may want. There are limits.

We must limit the reach and scope of government, but we must do so without depriving it of the resources needed to perform its essential functions. To make sensible choices, citizens must gather knowledge, and to do that, we must do more than listen to the talking heads. We must study newspapers, read books, attend seminars, listen to our neighbors and be open to alternative opinions. We must use the web to dig for facts. We must write to and talk with those we elect to every level of government, and we must be willing to devote a lot of time and attention to these important issues. In short, we must be lots more involved than we are.

If enough of us are willing to do those things, we’ll find a way out of the current morass. If we aren’t willing, things will continue as they have, to the detriment of our kids and grandkids.
I hope we’ll choose to fix the problem rather than follow failed leaders towards the unhappy future their performance promises.

Sunday, September 11, 2011


I grew up in a country I was proud of and that held out the promise of opportunity to everyone.

I remember delivering newspapers when I was 12 or 13, and generally admiring whoever was Mayor, Governor or President and agreeing with most of what they were doing. I remember being proud of our victories in World War II and of what we had collectively accomplished by becoming “the arsenal of democracy”, being embarrassed when others got into orbit first and proud when we were first to the moon, being awed by all the new roads, dams, buildings and technology being developed and built, being a bit star struck when I first saw New York. I remember traveling in various parts of the world and being proud that America was a country trusted and admired by most of those we met.

I remember political arguments too – Dewey and Truman, Kennedy and Nixon, Reagan and Carter, and other memorable contests. There were always conflicting opinions within the family and among friends, and there were lots of heated arguments – but politics was something widely and often discussed. Almost everyone read the newspapers, it wasn’t considered rude to bring up politics at a dinner party and everyone was expected to have an opinion – and some facts to support it. And though everyone felt strongly, most people wanted to be – and were -- polite.

I went to work when I was 15, and there were plenty of jobs for any kid willing to work. And most kids did want to work, since there weren’t many families passing out big allowances or new cars in that America. Most people had enough money, but very few had lots and everyone was awestruck when it came out that some big shot had made a million dollars in a single year. Almost everyone I knew, except a very few rich kids, went to public schools and if the school didn’t do a good job, the parents were all over the principal and the teachers to get things fixed.

The America I grew up in is gone, and won’t ever come back. As nostalgic as I am from time to time, I also remember that we didn’t have Novocain in those days and I know full well that the politicians of my youth were not inherently better than those who lead today. But there are important aspects of that old America we should all be loath to do without – particularly its ability to build facilities that were the envy of the world, to offer its citizens a best in the world education, to offer abundant jobs and opportunities, and to inspire collective action by an involved citizenry.

But if we want to reclaim those abilities, we are going to have to stop behaving like morons and begin to speak up about the many and obvious lies we hear from our present and aspiring leaders.
Only morons continue to accept statements that are clearly not true. Our politicians – already engaged in another round of the seemingly endless Presidential campaign – this time for an election still 14 months in the future – continue to say things that few if any believe:
• We are told that recovery is around the corner when it is clear that we are either in or about to enter yet another recession and that real prosperity won’t return for many years – and only then if we make major changes soon.
• We are told that jobs can be created by further tax cuts despite the clear reality that our problem is insufficient demand, not a lack of supply. Lenders and companies have ample funds but too few customers – jobs, not lower taxes, build consumer confidence and capability.
• We are told that regulations are strangling our producers, and there are doubtless some excess regulations and some over-zealous regulators. Overall, however, there is clear evidence that ineffective and inadequate regulation empowered those who caused the financial crisis, and that effective regulation is needed to assure safe food, clean water and clean air.
• We are told that Medicare costs must be cut, but our government continues to deny Medicare the right to demand that U. S. drug companies sell it their products at the same prices they charge foreign health care providers or to build a system and staff of quality inspectors to stamp out the billions of dollars of fraud perpetrated against the system.
• We are told we cannot afford to maintain the nation’s infrastructure – our roads, bridges, airports, water and sewer systems, electrical grid, etc. – despite the fact that allowing it to disintegrate will make it impossible for us to compete successfully with other, better equipped countries in the years ahead and doom future generations to an ever lower standard of living.
• We are told that we must spend less on education and must not impose a national educational curriculum despite clear evidence that our children are learning less well than children in other countries.
• We are told that taxes must be cut still further, despite the fact that our government is spending more than it has on services we collectively demand and despite the fact that income inequality is greater than it has been since 1929 and is steadily getting worse.
• We are told that our tax code is too complex – who would not agree – but we lack the will to simplify by eliminating the thousands of pages of regulations that define the many special interest deductions, exemptions and credits.
• We are told that Social Security benefits will exceed Social Security tax receipts sometime soon, but lack the will to increase taxes and adjust benefits to safeguard the nation’s most fundamental safety net.

We all know that what the politicians are saying simply isn’t so. Yet we are increasingly unwilling to talk to one another about our problems, preferring instead to mimic the ideological incantations of the talking heads, whether liberal or conservative. It hasn’t occurred to most of us, apparently, that the words have little meaning and less import. We don’t need labels, we need solutions. Some of those solutions will be “liberal” while others will be “conservative”, and it really doesn’t matter what we call them. To find answers, we need to climb down from our ideological bandwagons and engage one another in real conversations about middle ground solutions that will solve our problems.

We can create a better America, but only if we start tuning out the false messages and focus on the fact that if we want our country to do better, it’s going to take a huge collective effort.
The first step should be to recognize that there is no easy way out of our present problem. We have dug a deep ditch, and to get out, we are going to have to stop digging, and change our ways.
For some time, until we recapture the vitality that has always characterized our country, everyone is going sacrifice something and we will have to coalesce to insist on some major changes:
• Most will pay higher taxes. Like it or not, our government cannot provide the package of services we collectively want without more revenue. Hopefully, we will simplify the tax code, chop out all the loopholes and deductions, and adjust rates to produce the funds we need while simultaneously reducing the enormous inequality that has crept into our country. We’ll raise more money, improve productivity by saving millions of man hours now devoted to filling out tax forms and have some modest impact on equality.
• Some will sacrifice leisure, and either go back to work or seek a second job. Many will sacrifice the larger car, the larger house, or the second home they covet. Some will eat at home more often and many will have to spend more time working to improve the performance of their local school than they would prefer. Everyone will have to either use less or pay more for energy.
• We need to move fast to get America back up to speed. We’re about $2 trillion behind in maintaining our infrastructure, and the very first thing we should do is create a big public/private infrastructure bank and use it to put several million Americans back to work fixing and building the facilities we will need to make America #1 again.
• We need to get our kids back in the game by teaching them more intensively than we have been doing. We need a national educational curriculum administered by attentive local authorities. We need more mathematics and more science, more demanding vocational training programs, longer school days and years, and better teachers. It will cost more – but is there a better investment than our kids?
• We need a national energy program to free the country from dependence on others. We need to use the Infrastructure Bank to build a better electrical distribution grid. We need legislation to require more intensive use of natural gas, higher gasoline taxes to discourage excess gasoline use and better public transportation options.
• We need to fix Medicare. Requiring drug makers to offer Medicare their lowest prices and stamping out fraud are both easy to do – and both will yield enormous savings. To take advantage of Medicare’s low administrative costs, we should offer every citizen the option of joining. While some may choose private insurers, I think most will opt into the public system.
• We need to fix Social Security – and this is one we know how to deal with. Lots of studies have established that a combination of tax increases and benefit adjustments, including means testing for our wealthier citizens, can promptly put Social Security on the path to a solid future.
• And finally, we need to re-create the middle class by restoring the link between productivity and compensation. It’s a sad fact that average per hour compensation has not increased, in real terms, since the late 1970s. Productivity has risen dramatically, but the returns on that productivity have gone almost exclusively to either capital or the highest earners in our society. The result is a higher level of income and wealth inequality than we have had since 1929. Whether that discrepancy gets fixed through revisions in the tax code, by reforming corporate governance or by strengthening the union movement, we all need to face the fact that equality matters, and that we can have neither a dynamic economy nor a politically cohesive citizenry if a small percentage of the people have most of the money.
To accomplish any of this, we’re all going to have to do a better job of educating ourselves, of listening carefully to the other guy’s point of view and talking to one another about how to get America’s mojo back.
I hope we will.