American Dream: Why is the American Middle Class So Damn Poor? [239]

What Income Inequality Looks Like

IF INCOME INEQUALITY WERE MINIMAL THEN THE SLOPE OF EACH LINE WOULD BE ROUGHLY THE SAME (The Top Line is the 95th Percentile, the Bottom Line is the 20th Percentile)
IF INCOME INEQUALITY WERE MINIMAL THEN THE SLOPE OF EACH LINE WOULD BE ROUGHLY THE SAME (The Top Line is the 95th Percentile, the Bottom Line is the 20th Percentile) | Source

The American Middle and Poor Class Have Been Falling Behind for 14 Years

AND SO HAS AMERICAN EDUCATION; MANY BELIEVE this is no coincidence. A recent analysis from :TheUpshot of the New York Times has shown that in 2010 the American Middle Class, meaning the median income in America is either tied with or behind Canada; the expectation is that today, it is well behind Canada. Below is an excerpt from a table prepared in :The Upshot analysis:

America Is Quickly Falling Behind Economically

PERCENTILE OF AFTER-TAX INCOME
1980
1992
2004
2010
95%
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
90%
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
90%
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
80%
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
70%
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
60%
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES
MEDIAN
UNITED STATES
UNITED STATES
UNITED STATES
UNITED STATES/CANADA
40%
UNITED STATES
UNITED STATES
NORWAY
CANADA
30%
UNITED STATES
AUSTRIA
NORWAY
CANADA
20%
UNITED STATES
DENMARK
NORWAY
NETHERLANDS
10%
UNITED STATES
NORWAY
NORWAY
NETHERLANDS
5%
NORWAY
NORWAY
NORWAY
NETHERLANDS
WHICH COUNTRY HAD THE HIGHEST AFTER-TAX INCOME?

DEMOGRAPHIC SURVEY #1

ARE YOU

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On top of that, a recent 685-page economics tome by French economist Thomas Piketty, analyzed over 100 years of tax records from France, Germany, the US, the UK, and Japan determined that the US, while not quite there yet, is on the trajectory that will replicate late 18th century French economic inequality, just before the Revolution that led to the top 1% having their heads chopped off. Piketty's book, Capital in the 21st century, was released in February 2014 and immediately sold over 200,000 copies and has captivated Wall Street, the cream of Washington's policy makers, and think-tankers.

His fundamental conclusion is that the "rich really are getting richer" and that "wealth doesn't trickle down, it trickles up" (something I have been saying all along; he just proved it). Further, he firmly believes his data shows that his 18th century metaphor will become reality if the inequality if left unchecked.

Piketty found that in the US, the only times inequality decreased was during war, depressions. or when government directly intervened like with the New Deal and the Marshall Plan. He takes US tax policy to task blaming it as being part of the inequality problem. Ironically, one reason the graduated income tax was started in 1913 (progressive era) was to redistribute income or "level the playing field" as it were. But, over the intervening 100 years the Conservatives generally won out in taking the "gradients" out of the "graduated" thereby transferring the wealth back to the wealthy; especially in the last 30 years. The last tax cut by President Reagan effectively made the income tax almost a flat tax with only a small nod to the poor.

One thing I wasn't aware of that Piketty pointed out is that the idea of a robust American middle class is a recent phenomenon and has occurred basically during our lifetimes; from the 1950s to the 1980s. After that, it went into decline. Prior to the depression, there were never that many good years in a row for a middle class to establish itself given that a 2008-sized recession or larger occurred, on average, every 5 to 6 years!! In fact, the longest period between recessions of any kind since 1789 to 1940 was 5 years!!!

Like the 2008 Great Recession, most of the downturns only affected the bottom 90% of income earners; it was only in the five or six big depressions where the top 9% felt the pain as well; the top 1% was rarely troubled by these momentous events.

TRICKLE UP not TRICKLE DOWN

What Did These Other Countries Do Right That America Did Not?

THEY INVESTED IN EDUCATION. THEY TRAINED IN NEW SKILLS, AND THEY REDISTRIBUTED WEALTH, that is what they did. After the 2008 Great Recession begun by America which then spread around the world because those financial systems were as complicit in making bad loans as our own investment and commercial banks were, Europe and Canada invested in their education system. America, on the other hand, ended up doing the opposite even though President Obama tried, through his stimulus program, to prevent the underfunding of America's educational system.

He knew most of the State and local governments would education as one of their first austerity moves; all he had to do was look back in history to understand that. His effort paid off for a couple of years but then the money ran out, the economy had not recovered because of the political headwinds he faced and the States cut education big time.

Except after the Great Depression, around 1996 with the new Welfare Reform Act, and then again in 2009 with the stimulus, America has never had a real interest in training workers displaced either due to economic downturns or changes in technology for jobs that required new skills; it is that old "rugged individualism" thing rather than "what is good for America thing", I suppose. Lucky for Canadian and European workers, their governments don't take that view and they help their workers learn new skills. Consequently, as of today, the bottom half of their income earners earn more than our bottom 50%.

Finally, they understand that capitalism, left unchecked leads to income inequality, so they do something about it (yes, most of Europe and Canada are essentially capitalistic countries, I think only Norway is still socialist in terms of economic systems). They use their tax system to turn the "trickle up" effect that Piketty determined actually occurs into a true "trickle down" which conservatives wrongly claim happens.

It is the combination of these factors that you will see, if America does not change its ways, the next column in the table above to contain only the top two rows with the name UNITED STATES.

This Is Not A Chance State of Affairs

IN FACT, WE ARE DOING IT TO OURSELVES ON PURPOSE! Well, that is sort of stupid isn't it; shouldn't we just stop? Unfortunately, it isn't that simple. Like the climate change deniers, the same group of people and politicians deny, regardless of what the facts show, that the economic system their philosophy tells them to adopt can possibly have such a terrible outcome. It never has before, they say.

Well, yes it has, but they won't believe that either, for there is always a way to rationalize each individual example of failure away. The problem is, they have to rationalize 25 failures away, if you count the 2008 Great Recession. There were 24 major recessions between 1785 and 1929 that need explaining as well. (These weren't the only ones, but the others were not caused by economic policies) To counter this criticism they point to the great economic boom since America was born because of their philosophy. Well that is not quite true either.

Yes, there were periods of great economic growth, between recessions, depressions, and wars; but most of it was generated by the push West and then the expansion into those territories. So long was there was new land to conquer or settle, the economy could expand. It wasn't until the West Coast was fairly well settled that the American economy started feeling the same constraints we see today. Because of this ability to expand, there was a natural safety valve when the economy went south, people moved West.

As a result, it wasn't until 1929 when people and policymakers understood there was something wrong with the way we "always did things economically" and FDR and John Maynard Keynes sent us down a new path; which worked much better. But time passes, people die, and memories fade; but ideas don't. The ideas of "a man is an island", "the rugged individualist", "big business knows best", "the only good regulation is a repealed regulation:, and "government is bad" gained popularity once more as did the failed economic system of laissiz-faire or Classical economics. By 1981, we had forgotten the need for income equality and by 2001 all the lessons learned from 1929 were relegated to the trash heap as they interfered with business as usual. Seven years later, right on schedule came the Great Recession of 2008.

And because, as previously mentioned, we did all the wrong things during the recovery, e.g., not enough stimulus, not enough support for education, not enough training of new skill sets, not returning to the Clinton tax rates (after recovery happened), and the opposition Party opposing all efforts of the Party in power to institute a recovery plan, we get a report in 2014 that Europe and Canada has pulled ahead of half the income earners in America.

DEMOGRAPHIC SURVEY #2

THINKING ABOUT POLITICS, DO YOU FIND THAT YOU

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© 2014 My Esoteric

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LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Unfortunately, Both Piketty & Saez used tax returns to evaluate the data which itself is inherently flawed. He looked at adjusted gross income. This is flawed on various levels. One key flaw is that in the early 1980’s a big shift began from defined benefit plans to defined contribution plans. Because of the caps on dollars that can be contributed by an employee, this disproportionately reflects more on reducing reportable taxable income from middle income earners. If you make 100k and max a 401k, you eliminated between 17.5-22.5% of your income that his work excludes. While someone making 1 million annually is only sheltering 1.75-2.25% of their income. None of these data points reflect in his research. MIT economist James Poterba found that those in the 28% marginal income tax bracket held about 32% of their assets in tax deferred accounts. Yet in contrast the top 1% of earners held less than 6% of their assets in tax sheltered accounts.

Another major flaw in his work was the emphasis on personal returns without looking at income shifting. In the 80’s there were a number of changes to the tax code that created incentives to shift income to pass thru entities. So a good degree of income that was in the past reported as a corporate income ended up shifting to S-corps, LLC’s and other variations that report as personal income. This is not however a change in income, but a change in how we report income. Today about 25-30% of the income from the top 1% comes from such pass thru entities. In 1981 it was only about 8%. And that figure is growing at about 9% per year since 1986. That doesn’t reflect a greater disparity…just a change in what type of return is being filed. Piketty’s work does not address this in any detail. It simply looks at the increase in personal income and does not account for income shifting. As an example, Fidelity Investments, one of the largest fund companies in the world is organized as an LLC. If this was 1970…that would not be the case. LLC’s didn’t even exist then.

Along with the same tax acts that simplified the code there were also countless deductions that used to be available for higher end earners that no longer exist. In the 50’ and 60’s a professional attorney or Dr who was a high end earner could reduce their taxable income to near ZERO with things like depreciation via Real Estate Investment Partnerships. That is no longer available and forces more reporting of taxable income that did not exist before. The income was always there, just not being reported. Also not accounted for in his work.

Then you also have income rotation. The US treasury put out a study a few years ago that demonstrated that about only ½ the people in the top 1% in 1996 were still there in 2005. That’s because there is a great degree of rotation in who comprises this 1% of top earners. Much of it is someone selling a business, or some appreciated stock that kicks them into a higher bracket temporarily. There is a very high degree of income rotation with different people moving up and down the income scale. When corrected for Capital gains…the increase in ordinary income doesn’t show much of a change. Piketty did almost nothing in his work to delineate between wages and capital gains. Rather only looking at AGI. In fact the disparity in income between the top and the bottom is greatly influenced by stock market returns from year to year. In 1986 the top 1% earned 30% of their income from capital gains. By 1992 during a recessionary period…it was only about 5% with a much smaller disparity.

Then you have other areas of tax reform that encouraged more tax reporting. Qualified dividends were declared a 15% rate in 2003. The income reported from dividends from the top 1% of earners doubled from 4.2% to 8.4% in 5 years. That wasn’t that they were making so much more money. It’s that they shifted from tax free municipals to deriving income from taxable sources because the rate went from 35% to 15%. Another form of shifting income. This is also part of the reason that the aggregate tax revenue went up not down. Because the incentive was there to use reportable income sources.

There are countless other examples of the flawed work that Piketty has done, which has been widely criticized. Looking at tax returns doesn’t tell you very much without looking at what is or isn’t taxable income. Employee benefits are whole other story that is a form of non taxable compensation that didn’t exist in such abundance as it does today. For decades now we have been creating more and more incentives for lower end earners to shelter more of their money, although they don’t always utilize all the options they should. And we have also been creating incentives for higher end earners to report more income that was historically reported differently or just never reported at all. That is a good thing as far as I am concerned.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Now that is a lot to take in and requires me to read his book, not just look at the plurality of economists who agree with him, at least according to the article I read. Unlike climate change which has the backing of 99% of climate scientists, I suspect the best Piketty is going to get is a plurality of economists, at least until they can digest all 700 pages.

The thing is, what he has found supports (or maybe I ought to reverse that) what I have found in cutting other economic data in several different ways; they all point in the same rich getting richer direction; so does the mathematics of capitalism and so does history.

One fact you present that I find very surprising is the churn rate of the 1%ers over such a short period of time. Even if your dates had included 2008 - 2010, 50% would still astound me. If you had said top 10%, then maybe not so surprised.

Do you know if Piketty had his work peered reviewed? The article didn't say.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

By the way...my comments are not intended to suggest that the American Middle Class doesn't or shouldn't feel like they are getting poorer. I think that is absolutely the case. But I don't believe it's a result of such a wide jump in income disparity. I believe it has much more to do with the purchasing power of the currency, and the ridiculous changes we have made to the way in which we calculate the cost of living which doesn't fairly represent the average Americans daily experience. To me it's more of an issue of price stability. That, and to be frank...Americans expect a lot more today on a relative basis when compared to my grandparents generation. I have 4 televisions in my home today. My grandparents grew up listening to the radio for entertainment. But they had one radio. Not one in every room.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Correction...the rotation of the top 1% was about 25%. The link to the study by the treasury was in a piece I wrote about this topic and specifically Piketty/Saez last year. Have a read if you like http://hubpages.com/politics/National-Income-Dispa...

I believe his work was pier reviewed. But I am not sure. I read it some time ago. That being said, he is not necessarily lying about tax returns. It just seems he is totally unfamiliar with the changes to our tax code and the concept of tax shelters and what is actually included in a tax return in the US.


JayeWisdom profile image

JayeWisdom 2 years ago from Deep South, USA

I like that line, "...the US, while not quite there yet, is on the trajectory that will replicate late 18th century French economic inequality, just before the Revolution that led to the top 1% having their heads chopped off." If only....

Did you read the article in the online Daily Ticker today, 'Why Canada is Prospering and America isn't?" Here's the link to the article that gives three areas in which American should copy Canada (but won't), and why the citizens of Canada are living much better lives because they don't have a corrupt political system.

http://finance.yahoo.com/blogs/daily-ticker/why-ca...

It's my opinion that the U.S. government began to push American prosperty (for anyone other than that top 1%) downhill with Reaganomics, which never worked with its stupid trickle-down theory (even the man who designed Reagan economic policies later issued a statement that it didn't work then and doesn't work now), but is still clung to as gospel by GOP politicians and believed by their avid followers. Since Reagan also urged American businesses to move their companies to Mexico and other countries, I also credit him with the overseas migration of U.S. jobs, particularly manufacturing, that got us into this state of affairs. When I hear anyone praise Ronald Reagan, I want to throw up. He and W. Bush had a lot in common--that 'folksy' look and meaningless patter (and Reagan's was meaningless long before he got AD), and both caused irreparable harm to the U.S. for which we are still paying.

Speaking of W Bush, I read recently that there is proof he planned the war in Iraq months before 9/11, which he then used as an excuse for an aggressive, expensive and deadly war that accomplished nothing but deaths.

Time for me to back out when I get started on a rant! Anyway, your article (as usual) is full of facts. Unfortunately, the naysayers will continue to deny the truth while they stick their heads in the sand.

Voted Up++ and shared.

Jaye


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

This notion that the tax reform bills of Reagan or Bush 43 which were modeled after the tax reform of JFK ‘s administration, was somehow a gift to the wealthy is hardly supported by any evidence. In each of these 3 tax reforms, the wealthiest earners paid more in aggregate tax revenue to the treasury than they did before the reform. In the case of EGTRAA, not only did the total revenue of the top earners go up, but so did the overall percentage of the national tax burden paid. This is all about incentive. All three reforms incented individuals to declare income. In the case of the Reagan administration, contrary to popular political propaganda…it was not about tax cuts as much as tax simplification. A laundry list of unproductive deductions where thrown out and offset by lower marginal rates. Ultimately marginal rates are irrelevant. What is relevant is effective rates and aggregate revenue. And what the IRS data clearly shows is that since the end of WW2 when the income tax became more prominent, regardless of marginal tax rates…the treasury collects between 15-20% of GDP. That figure never changes very much. The revenue to the treasury as a share of GDP was virtually identical when top rates were at 92% as they were when top rates were at 28%. That’s because the 90% rate of the past was a fantasy. Virtually nobody was paying it then either. And all that happened in the 80’s was a bunch of uneconomical deductions that simply waste resources were thrown out in exchange for lower marginal rates to arrive at basically the same number. Such simplification deploys resources more efficiently which would help explain some of the explosion of capital investment in the 80’s. Granted…the tax code is still way more complicated than it needs to be.

A recent paper by the National Bureau of Economic Research shows that the effective tax rates were much lower in the 50’s when inclusive of all taxes then versus today.

http://www.nber.org/papers/w15369.pdf


JayeWisdom profile image

JayeWisdom 2 years ago from Deep South, USA

http://consortiumnews.com/2013/10/17/the-abject-fa...

http://rationalwiki.org/wiki/Supply_side_economics

From the linked article just above:

"David Stockman, one of the architects of Reaganomics, became critical of his own project after the Reagan administration. He reappeared in 2010 to talk about his deconversion from the Church of Tax Cuts and to chastise the current GOP for its support in extending the Bush tax cuts."


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Thanks for your thoughts and compliments @Jaye. Those were not the three differences I was expecting to read, although I can certainly agree with the first two. While I agree with your sentiments, mine aren't quite as hardcore. For example, I don't think Reagan actually urged American companies to move off-shore, I certainly agree his policies created a climate where that move was advantageous to businesses. Nevertheless, Reagan was responsible for a seachange in the relationship between business and society; a lot of was for the good, but other parts set the stage for the Great Recession of 2008.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I really don't appreciate links that give me headaches, @Landmark, lol, and that last one definitely did. It is going to take me weeks to absorb and understand it, just to determine if it is even relevant to this subject, let alone to figure out what it means, if it does.

Anyway, I took a quick look at the 2006 Piketty-Saez study you mentioned to see if I could tell how they parsed the tax data they had. It seems to me they did address several of your points regarding the components of income and accounted for them. They also identified a couple of other issues you had, noted they were problems and tried to make adjustments for them. Still others, such as the transfer payments, I didn't see addressed at all in my quick look.

Also, I don't know if Piketty was able to improve things in the next 7 - 8 years, before he published his latest work in February 2014. He did make a good point, however, if you can't do it with these tax records, it can't be done, at least across countries, because sufficient reliable data does not exist.

It seems I am now forced to create an index for myself so that I can find which hub discusses which fact. I went into some depth in one of my hubs about the Reagan tax "cuts". After looking at it from a few different angles, when the dust settled after the last of his tax changes went into effect, the net result was a tax increase on the middle and poor classes and a tax decrease on the rest where the increase and decrease is measured as the effective tax rate paid by each group compared to what it was before Reagan took office. This is somewhat substantiated by a noticeable uptick in the GINI index in the late 80s and early 90s.

You did give me an idea for a new table to create, btw, with your comment on the percentage GDP that personal income tax revenue represents; it would look at the distribution by income quintile of % of total taxes paid. If what I say is true, then, after the data is normalized, we should see a shift toward to the lower income groups picking up more of the tab after 1986 whereas if you are right, the shift ought to be the higher income earners.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Sorry if the link gave you a headache…lol But it relates closely to total tax liability as a true effective rate. It covers other topics such a fiscal spending. But I linked to it on the relevant basis of true effective rates. Piketty Saez really only addressed these issues by doing exactly what you just said. They basically conceded that you can’t extract the proper data from ones AGI in a tax return. To absorb that much data and replicate is essentially impossible. However, there is an enormous amount of data on the increase in things like defined contribution plan participation which was non-existent prior to the 80’s. We know what average contribution rates, employer matches and average balanced are. We also know there is a wide disparity on the percentage of one’s income that is sheltered depending on how much money they make which is restricted by ERISA law. We also now that the top earners can’t and don’t hold as high a percentage of their income in tax shelters. So by definition, they must declare a higher percentage of the wage portion of their income. There is also a ton of IRS data on income shifting and the increase in pass thru entities. The reasons they were most widely critiqued was they drew some conclusions without really accounting for this type of info along with various other issues with any real degree of depth. I don’t entirely fault them because I agree it’s probably impossible to quantify. But that also means they make some extreme assumptions in their conclusions. And as the tax return data tells us from the treasury and various other studies, there is a fairly high degree of income mobility in the US. The wealthy are not the same people year over year.

Perhaps their more recent data is more accurate. I have not had the opportunity to read any new publications. The point I am making, is that this is far more dynamic of an analysis then they attempt to portray this to be. You frankly can’t even compare one nation to another because the tax codes are often vastly different. We could even say that to some extent from state to state in the US.

Things like the GINI Index also don’t quantify all forms of income. We run into the same problem there as well. As an example, when I worked for Fidelity I was entitled to a 7% company match on the 401k and another 10% profit sharing contribution which we received every year. Everyone from the mailroom to the top planners received this up to the IRS limits. This does not reflect as income in any way, and is 17% of my compensation. There are countless other employer driven fringe benefits that get excluded from such measurements of income. And to be frank…I don’t think any measurement of income distribution will ever measure wealth. When you work for a company making $1 million a year you tax liability and income will look very different on paper from a person making that income who is self-employed with far greater tax benefits. Income doesn’t necessarily represent one wealth.

As far as the tax burden…you’ll find that the top 10% of earners paid 48% of the Federal Income tax burden in 1981. By 1988 it was about 57%. The top 1% paid 17.6% of the total income tax liability in 1981. By 1988 the top 1% paid 27% of the total tax bill. Now if you look at increases in things like payroll taxes, those are increases that are levied equally. And technically are forms of social insurance in which you are supposed to be paying the equivalent of a premium towards a future benefit. These shares of taxes paid in aggregate revenue jump around a lot based on the type of tax. So as I said earlier, when we look at jumps in income, they often relate directly to increased capital gains liability when rates are more favorable to realize a gain. Or substantial increases in the stock market such as what we saw in the 1980’s.

The wealthy typically pay a higher portion of the overall bill when rates are more favorable, because they can typically exercise greater control over when they choose to realize this income. A good example was the jump in revenues in 2012. There were all kinds of accelerated dividends being paid along with realized gains before the 2013 rates changed. That is essentially what the laffer curve was all about. It simply states that there is an optimal rate in which rates are not high enough do discourage either income reporting or economic activity. And not low enough to generate too little revenue to the treasury. What rate that optimal rate actually is can be debated. Since we never collect more than approximately 20% of GDP…it seems to me that anything other than a flat tax of 20% with virtually no deductions, or perhaps a flat 20% consumption tax in replacement of the income tax will achieve the same result. Otherwise we are chasing our tails for the same result. And a lot of resources are getting redirected very unproductively to a few fields. Lawyers, Accountants and Financial Planners like myself to mitigate the liability and maneuver thru the maze. But the notion that you’re going to have an 80% rate and actually collect 80% is somewhat comical. Have you ever met a person who is actually willing to risk a capital investment, and then if they make money will only keep 20% of the gain. Who would ever commit an nickel of capital to an such venture ???


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@Jaye. I think you may want to go back and reread Stockman's book. His main critique of the Reagan administration was in the area of spending. And the same could be said of the Bush Administration. Federal spending was excessive under both administrations. Reagan fought congress to reduce spending...while Bush’s administration brought on their own profligate spending. His main critique was on excessive credit creation and the role of the central banks to control credit creation. This was not some indictment of supply side policies. Unfortunately, whether we agree or not with monetary policy, credit creation and money in general in the global economy has become endogenous, and will remain that way without a monetary standard.

If you’re going to cite a source…please use some credible resource…and not some hatchet job article filled with misinformation. The budget surplus cited in the article under the Clinton administration was a projected surplus. Unfortunately, after the tech bubble imploded (which was not his fault) in his last year the revenues were not what they were projected to be, and 2000 tax receipts came in low enough to cut the surplus in half before Bush signed a single tax law change into effect. Clinton was as much of a supply side economic policy President as Reagan. He correctly targeted cuts to capital gains to stimulate capital ex. And budget surpluses are not necessarily a good thing. A budget surplus means the monetary base is contracting. People often write about these things with little to no understanding of how the monetary system works. A budget deficit in general in no way concerns me. We have run budget deficits almost constantly for 2 centuries. A deficit and or national debt is only relevant in the context of a percentage of GDP. And I would also argue the composition of how productively we create that deficit is relevant. A budget deficit of 2 % of GDP is normal and probably healthy in most cases. When we run a deficit of 10% of GDP we need to be concerned. If we ran a surplus every single year in perpetuity…which is impossible, we would incinerate the entire monetary base.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, I was looking for where we talked about Piketty's new book "Capital ..." to let you know I started reading it and that the damn thing is 3" thick in small type!!.

But, I read your last comment here and am curious if you have a couple examples of a contracting monetary base when the federal budget was running a surplus. If you use the end of Clinton's term, do a little extrapolating and pretend he had been reelected for a third term with the same or somewhat more centrist Congress and 9/11 with our Afghan response.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I have not read anything recent from him. I have in general felt he does a good job with research, but just comes to some unrealistic conclusions.

The monetary base can only expand by one of two mechanism's...annual Federal Deficit's and Federal reserve lending to banks. Base money is defined as bank reserves plus currency in circulation. By definition, a budget surplus decreases base money in every example of a surplus (The gov't taking in more than it is spending). And any increase in the deficit is an increase in the monetary base for the opposite reason. Please note I am referring to the monetary base and not the money supply. M2 money supply is mostly bank created credit and does not constitute net new money.

The only way in which this contraction can be counterbalanced is credit expansion via Fed lending. Banks have no mechanism to decrease reserves on their own. Ultimately, Fed lending is a function of the demand for credit. Banks lend as a multiple of reserves. And when they need more reserves, they ask for it...and practically speaking, they always get it. So theoretically if credit was expanding faster than the increased surplus...then the monetary base could remain the same or increase if banks actively requested increased reserve lending. But that is impractical for any extended period.

My opinion is that this should be a function of the organic changes of expansion an contraction.

During periods of expansion, people spend more money because they are making more money. Their spending equals income…which equals increased tax revenue…which equals deficit reduction…which translates into a contraction to base money.

During periods of contracting growth or recession, spending will decline and cash may be hoarded out of fear, or the patience of a consumer/investor looking for prices to achieve absolute value and eventually reach an equilibrium. This cash hoarding means less spending…which equals less income…which means less tax revenue…which equals an increase to the deficit and the corresponding monetary base.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

This is the book he released on February.

- "By definition, a budget surplus decreases base money in every example of a surplus (The gov't taking in more than it is spending). " But what about during periods of sustained, reasonably good (3.5 - 4%) growth with increasing productivity and wages?

If tax rates and gov't spending are held constant, then increasing growth does several things happen, money supply grows, tax revenue grows, deficits decrease until surpluses begin when debt begins to decrease. As debt decreases, doesn't that free up more money for investment and more growth? Obviously this cannot continue indefinitely, but I would think it could have for a reasonable period of time.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I think you're confusing the money supply with the monetary base. They are not the same. A declining deficit mean less "net money" is created annually. And a surplus removes money from the monetary base. Only the gov't can create "net currency" legally speaking. So if the Federal gov't spends $2 and taxes $2.50...the $0.50 is a contraction to the monetary base. Nothing has been freed up. Granted, there are times when this is necessary. If deficits get to big, there are obvious consequences. But if we ran a surplus in perpetuity, that would also be a problem.

The money supply or broad money reflected in the M2 money supply can expand with a balanced budget, surplus or a deficit.

Here is why...The money supply is largely bank credit. This is where many people get confused. When you borrow money from a bank, they did not lend you someone else's deposit. They invented the dollar out of thin air, which is based on a multiple of the reserves they hold. In fact most of the digital money in our accounts is in reality bank credit. Essentially the loan creates the deposit...although most people assume the opposite. That credit is theoretically infinite, because when they have lent out the maximum allowable as per their reserves, they can go to the Fed and ask for more money, which expands the monetary base...and then lend as a multiple of that. But if we had a constant surplus...and a constant increase in the money supply...that is a massive credit bubble.


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My Esoteric 2 years ago from Keystone Heights, FL Author

OK, you made me look, and you are right, I was thinking of M1, in inverse of MB. So let me lay out the pieces, which is how I normally figure things out (hell, sometimes I have to go back to the number line to see why things are positive and negative and I am math major for goodness sakes).

So, with MB we have 1) vault money, 2) notes and currency in circulation, and 3) required and excess reserves held by the Federal reserve. MB is changed by, in America's case, the purchase and sale of securities through 1) Open Market transactions, 2) the setting of reserve requirements, and 3) the setting of the various interest rates under their control.

On the other hand, debt and budget deficit are controlled by economic growth, tax policy, and spending policy. The two interact via economic growth, primarily, although certainly tax and spending policy can determine Fed actions.

Now, back to my example, but this time I hold MB constant meaning there is no change in minimum reserve requirements or fed controlled interest rates. That leaves excess reserves held at the Fed and currency/coins in circulation to float. Changes in open market transactions is a question mark at the moment.

Using the Clinton era as a model, taxes were raised somewhat and spending growth was reduced somewhat. Ultimately, between 1995 and 2000, revenues increased 28% and spending 8%, ending up in a surplus. In that time MB increased from a little over $400B to a little over $600B and it looks like the effective Fed Funds rate held constant at about 5.5%

So something had to grow, either the required reserves or the amount of currency in circulation. I would argue both due to the increase in the growth-based demand deposits which, in turn, increases the amount held at the Fed in reserve as well as the amount of currency released into circulation from new loans.

In addition, what happens to that $.50 you mentioned at the top? The gov't at this stage can do two things with it, 1) spend it, putting it back into the economy or 2) retire debt, which I guess means buying 50 cents worth of debt through the open market. If you do the latter, doesn't that 50 cents ultimately end up in someone's hands to spend, invest, or save?


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LandmarkWealth 2 years ago from Melville NY

The likely answer to your time frame cited is reserves via Fed lending. Reserve requirements are somewhat misleading. Let’s say that a bank is permitted to lend at a multiple of 20 to 1. If they have maximized their amount of lending as per their reserves, they either borrow via the overnight rate from others in the banking system, or they go to the Fed. So even if the banking system in aggregate has utilized all of their lending capacity, they just ask for more and practically speaking the Fed gives it to them. Reserve requirements are somewhat a non-issue. Even when the Fed raises requirements to theoretically slow credit creation, they simultaneously lend more than enough to meet the demand for credit and the new increased requirements. Which is why I have come to believe in the theory that money under our fiat system is essentially endogenous. So while the base is contracting via the budget surplus in such a situation, it could be expanding simultaneously at a more rapid pace via lending. That can lead to some obvious problems if that continues for too long as well.

A good example is today. As a result of the actions of the Fed’s quantitative easing measures, there is a huge amount of excess reserves in the banking system. Because of an anemic recovery bordering on recession, there has been a total breakdown between reserves and fractional reserve lending. The banks have capacity, but companies aren’t making capital investments fast enough. So let’s say for arguments sake that all of a sudden we had a balanced budget or even a surplus tomorrow. There is so much of excess reserves in the banking system today that it’s unlikely that banks would ever need to increase reserves in order to meet any new demand for credit for some time. So the surplus today would likely see a contraction in the base and an expansion in the money supply for a time if activity picked up. Whereas in the 90’s…there was no such massive excess reserves. So as the fiscal side was contracting the base, the banking side was meeting the demand for credit creation and the Fed kept giving them more and more money to multiply. It’s not possible for the base to expand in any other way. The only other possibility is if a nation is exporting more than they are importing in terms of currency, and the money supply is increasing because of foreign currency. I don’t believe that was the influence in the 90’s…but I would have to check that.

Since bank credit can expand and contract rapidly, you can and have seen some extreme shocks to the money supply. And every dollar of increased reserves a bank asks for is to service the creation of debt. Each new dollar is created with a corresponding liability and then eventually extinguished. This is part of the reason I would like to see a monetary standard of sorts. Not necessarily Gold, because I think it’s less practical. Perhaps a basket of commodities. I am not really sure, because it is a tough issue in my view. But under a fiat monetary system…I regard the fractional reserve system as very dangerous. And I don’t trust any group of political appointees at the Fed to monitor this close enough. When a unit of currency is required to be converted into something of tangible value…I believe it makes the extension of credit more sensible. And frankly the Fed’s inability to limit credit creation is quite apparent to me.

The example of $0.50 of surplus would be as follows. They could spend it, but they are still taking in more than they are spending presuming the surplus scenario is still in effect. Debt is retired via a surplus. Except the vast majority of treasuries are held by our own gov’t in intergovernmental debt, our own central bank, central banks of foreign nations, as well as state and local gov’t. So budget surplus in no way increase the monetary base, and the increased debt reduction is not creating more currency in circulation. Open market operations such as QE can increase the base, but that doesn’t necessarily increase the money supply, or at least not as rapidly as we have seen in recent years. The reserves can just pile up and gain no real velocity. The problem is when they do can velocity, I don’t trust the Fed to be able to drain the pool in a way that will not create a great deal of turmoil.


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LandmarkWealth 2 years ago from Melville NY

Keep in mind that I am not suggesting that surplus are necessarily bad. Only that the fiscal side of increases or contractions to the monetary base should not be actively influenced by political authorities. If you look at the period leading up to WW2, the US moved back and forth between relatively small deficits and surpluses as a share of GDP from year to year (excluding the Civil War and WW1). Increases or decreases in economic activity dictated this. When activity slowed, we added more money. When activity increased the creation of currency slowed. That fact that we had different constraints around the creation of currency is also a factor. In a sense, we were producing the very countercyclical deficits that Keynes suggested. Since the active attempt to influence this thru political authorities, we have seen Debt and deficits as a share of GDP rise to dramatically higher levels. This creates a lot of price instability and hurts the purchasing power of the dollar. And we have almost never produced countercyclical deficits since the 40’s. And I believe the purchasing power of our currency has declined much more than what the BLS would like to suggest. There are couple of research reports on this that point to the changes in how we measure price stability, as well as the difference in aggregate inflation versus the price changes in everyday items. And I firmly believe that the middle class feels more poor because their purchasing power is actively being destroyed. Inflation helps rich people…and hurts poor people. The gov’t taking a more active role in economic activity has shown me nothing but a twisted penchant for trying to inflate away problems at the expense of those who can afford it least. That’s why the whole modern money theory scares me. It’s another step towards even less constraint and more political influence on the creation of currency.


bradmaster 2 years ago

My Esoteric

There must be some subject or issue that we can agree on, but this is not one of them

There are a number of reasons why the middle class is declining.

The biggest reason is that most of the middle class jobs have disappeared, as well as the industry that supported them. Without these jobs, the middle class worker becomes unemployed, and or has to take a lesser but available job.

The other problem is the Income Tax targets the middle class.

The poor don't pay taxes, and the rich have hundreds of ways to defer, reduce, or eliminate taxes, thanks to the Internal Revenue Code. The average middle class worker can't take advantage of these tricks.

The mergers and acquisitions of the last several decades have taken away many jobs, and the salaries of the jobs that are left have not increased over the years, because of the competition for these jobs. It is like musical chairs.

And while putting the rich into a higher tax bracket doesn't mean they actually pay the higher tax. How else would the rate of billionaires be increasing.

Europe certainly can't be one of the countries that you are referencing as doing something smart with the middle class.

Socialist want to redistribute wealth, but capitalism is based on working for wealth without the help of the government.

It is ironic, that since the sixteenth amendment passed, and the tax brackets to make the rich pay more, that it has failed to get that result.

Thanks

bradmaster


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LandmarkWealth 2 years ago from Melville NY

We’ll I don’t entirely disagree with you that depending on the industry, a number of middle class jobs have disappeared. But a good deal of that is structural and not cyclical. As we advance technologically, we create more jobs in much higher skilled areas. As a consequence, many of the traditional middle class jobs become antiquated. But even those whom are employed and haven’t been let go from their field with middle class incomes still feel like they are being beaten up. That is what I mean by price instability. Even if you are working, the cost of every day essential items are increasing too rapidly.

I won’t disagree with the tax impact at all. Taxes in general are higher than necessary. The gov’t is taking in record tax revenue as it is. And the share of revenue as a percent of GDP is fairly constant.

I can’t agree with you about M&A. When a company provides a service or a product, they do so based on demand. M&A doesn’t change the demand for that product or service. It typically is about creating synergy. Often times there is simply just too much redundancy in a company both before and after a merger. Companies that are run well hire only based on need. Not just to pay people to stand around and do nothing. That approach is left to Gov’t Agencies. The search for greater efficiency is constant. So if someone is let go as a result of a merger, and their counterpart on the other side of the merger can do both jobs simultaneously…then they were never really needed to begin with. Most of the time this can be traced back to technology. We don’t need a room full of women to operate the company switchboards anymore like we did in the 50’s. But we do need a bunch of highly skilled people to build the phones systems and know how to repair all these complex systems. But rarely does the switchboard operator go back to school and reinvent themselves. It’s not that they can’t. They just don’t.

There are many other factors. The recent surge in energy production has changed the economics of manufacturing in the US, and brought some of these jobs back to our shores. But again, manufacturing jobs today are much more highly skilled. We have a large percentage of the population that lacks the skill set to meet the demand for the jobs being created. Only the pursuit of education and training will change that.

Putting the rich into a higher bracket doesn’t mean they will pay more in taxes as a percentage of their personal income. Yet, they do already pay the most disproportionate percent of the overall tax burden paid in recent history. So it is not true to suggest they don’t pay more. The top 1/10 of 1% pay more than the bottom 50%. This is why I am such a big flat tax advocate. Regardless of marginal rates, revenue as a share of GDP never changes. The tax code could produce the same revenue with much less complexity under a simple flat tax. Enormous amounts of resources are wasted very unproductively both at the large corporate level and small business level on tax compliance.


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LandmarkWealth 2 years ago from Melville NY

By the way, if you break it down to the top 10% of earners, they pay about 70% of the total tax burden. In 1985 they paid about 55% of the burden. So the trend is the opposite. And tax shelters have grown substantially for middle income earners since the early 80's. They hold a much higher percentage of their net worth in tax shelters like 401k's/403b's than the wealthiest Americans because of the contributions limits being capped. These only began in the early 80's.

If you're concern is the effective rate paid as % of personal income, that seems to me to be largely irrelevant. The treasury is taking in record revenue in American History in aggregate dollars, and as a share of GDP...the numbers are always 15-20% since the end of WW2.

In 2013 the gov't collected 16.7% of GDP. That is the precisely the exact percentage it was in 2005, 1971 & 1958. So clearly tax rates have no bearing. Revenue collected on economic activity remained constant, and a higher percentage of it was paid by the top 10% than it was 30 years ago.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

What is driving the disappearance of the middle class isn't jobs, @Landmark is correct about that and it isn't taxes either, although that is part of the solution. It is the migration of wages and wealth from the bottom to the top.

My case is made this way:

* In 1960, the top .1% earned about 2.2% of total income; by 2010, that share has grown to 7.5%

* In 1960, the top 1% earned about 8.52% of total income; by 2010, that share has grown to 18%

* In 1960, the top 10% earned about 34% of total income; by 2010, that share has grown to 48%

* In 1960, the next 40% (the Middle Class) earned about 40% of total income; by 2010, that share has Decreased to around 33%

* And finally, in 1960, the bottom 50% earned about 26% of total income; by 2010, that share has Decreased to 15%

In addressing @Landmarks point about the top .1% paying more than the bottom 50%, the argument boils down to this.

1. You can agree or disagree that a civilized society shouldn't tax its citizens on the money they earn to simply survive; that would/should be against public policy for by definition, that drives either a welfare state or a state of street beggars that makes today's problem look very appealing indeed, your choice.

2. You can agree or disagree that a civilized society shouldn't tax its citizens on the money they earn lets them earn a meager living (better than survival but not low quality); that should be against public policy as well, because that at the very least encourages a welfare state and speaks very poorly of, in my opinion, the morality of its citizens who are in a position to change things.

If you are a social Darwinian and believe one human being has no obligation to another human being, then you would be for taxing everybody on every cent earned ... a straight out flat tax. If you don't believe that way, then you would think certain amounts of earned income should be free from taxes in order to increase the welfare (in its original meaning before conservative politics made it a dirty word) of the citizens at the bottom rung of working society.

Well, the vast majority of the 50% who don't pay federal income taxes (but do pay SS and Medicare taxes) fall into category 1 or 2 above. It is current government policy not to tax its citizens to death, therefore that is why the top .1% pay more than the bottom 50%.

Further more, current tax policy favored the middle class more than it did the wealthy (save for the capital gains break rich people get; it is a myth, for the most part, that the majority of "investments" which qualify for capital gains treatment have little impact on economic growth. I think capital gains breaks should start at investments held five years or longer.)


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My Esoteric 2 years ago from Keystone Heights, FL Author

It was said "... and a higher percentage of it was paid by the top 10% than it was 30 years ago." And why would that be? Maybe its because the top 10% earn 47% more of total income than they did 30 years ago. They have more to tax and the other 90% have less to tax.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

As to income tax revenue (excluding the smoothing effects of SS and Medicare) the share of GDP was 11.5%, 10.1% (after the Kennedy tax cut), and 9.4% (after the Reagan tax cuts, the Bush-Clinton tax increases, and the Bush 43 tax cut) respectively for 1958, 1971, and 2005. Its predicted to be 9.9% (after the Obama tax increase) for 2014 when all is said and done.


bradmaster 2 years ago

My Esoteric

Getting double teamed is exciting.

If taxes are irrelevant, then why do they keep increasing?

How do you account for the increase in billionaires in US?

Again, I am not a fan of statistics, but especially not of percentages.

The GDP includes government spending, so factor that out.

Change the percentages into real numbers, then compare them.

Even if we use a ten percent for middle class and ten percent for the highest class, the highest class is going to pay more taxes.

So using percentages doesn't tell the story.

Only wage earners pay FICA, capital gains doesn't.

Flat taxes are no better than the current taxes because it involves the government with their IRS and their IRC.

A National Sales Tax, not a flat tax would be similar to the current State Sales Tax. The mechanism is in place, and it removes the IRS and the IRC only if the NST totally replaces personal income tax.

Your account about M&A is flawed, and you might tell your story to the over 19,000 Microsoft Employees that no longer have a job. Is Microsoft high tech enough? These M&A may not affect the demand for the product, but they do reduce the size of the workforce, and that is the issue. You also neglected to factor in that a monopoly, or in the case of today's super global conglomerate M&As, the loss of workers is only part of the issue, the other part is that the consumers don't have the competition to regulate the price points for the products. Basic economics, the monopoly is the most efficient form of business for the company, but it is the worst form of business for the consumer.

The high tech industry has been farming out manufacturing and tech support since the 1980s. These were skilled worker jobs that were lost.

These included many high tech jobs, and now they are gone. What is left is the prototype manufacturing but not the production manufacturing.

Many of the high tech jobs that used to be located in the US, are being done in foreign countries. This includes a lot of computer and electronic design. So, I don't know where you get your information.

Boeing is a perfect example because of all the companies in different states that it acquired, and it moves most of its work to Washington. Which is great for Washington but not for the states that lost the jobs.

This was answering both of you.

Thanks

bradmaster


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LandmarkWealth 2 years ago from Melville NY

The only issue is that because of the migration of changes in the tax code…the % of income shifting is misleading. Much of the change in income is due to how we simply report income differently than in 1960. What would have been reported as C-corp income in 1960 is now very often pass thru income via S-Corp’and LLC’s which shows on a personal returns as personal income now. And the advent of the qualified defined contribution plan allows for a much greater percentage of income which can be routinely sheltered by a middle income earner. A person over 50 years of age making 100k can shelter 23% of their gross income today in a standard cookie cutter 401k plan. That was unheard of in 1960. Additionally, preferential treatment of capital gains and dividends have pushed unreported municipal income into the status of reported income. These tax code changes greatly exaggerate the shift in income, because it is all based on tax reporting. But the incentives of how a business reports income whether corporate or personal has changed dramatically since 1960. The incentives to choose income to be generated via tax free investments versus taxable investments has also changed. In many of these cases we are simply reporting the same income that went unreported or underreported years ago. But the income was always there on a relative basis. And those specific changes are largely for the better. Not to mention how many ridiculous tax deductions where thrown out in the 80’s when marginal rates went down.

All capital gains related investments contribute to economic growth in one way or another. Any mechanism that increases the velocity of money contributes to growth. If I bought a stock and sold it in 2 months, there are countless steps that employ financial professionals, technology professionals, compliance experts, clearing firms, auditors, marketing professionals etc… all along the supply chain. Not to mention without the market for the purchase of that security, there would be no incentive for an organization to ever go public and raise the capital to expand a business.

The point about tax revenue is that when marginal rates went up or down, the revenue was not impacted. I am not sure where you got that data from. But as per the IRS below….prior to the Kennedy tax reductions, individual income taxes generated 7.3 % of GDP in 1959. By 1964, several years after the JFK reductions…the individual rates generated 7.3% of GDP. In 1978 the individual rate contributed 7.9% of GDP and by 1987 after the “86” tax act the individual rate contributed 8.2% of GDP. Once again… no significant change. The changes are a direct result of economic activity…expansion or contraction…not marginal rates.

http://www.taxpolicycenter.org/taxfacts/displayafa...

Also keep in mind that when you are looking at revenue collected via social insurance like Social Security, Medicare…50% of that is borne by the employer…not the employee.

It is wrong for you to categorize support for the flat tax as socially Darwinian. It is rooted in practicality. I support the flat tax. That does not mean I believe people have no obligation to their fellow man. It simply means that I think the gov’t is an ineffectual source of aiding our fellow man. In fact I would argue it does more harm and crowds out more effective charitable work. I just see no reason to have 70k pages of tax code that expands with new laws each year…and yet we still arrive at the same numbers. It’s all a shell game to control behaviors…and is one incredible waste of resources.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Except for three tax increases on the wealthy (Bush 41, Clinton, and Obama) what increases would you be talking about?

I account for the increase in billionaires from the transfer of wealth from the poor and middle class to the top.

"Again, I am not a fan of statistics, but especially not of percentages. The GDP includes government spending, so factor that out." nor are you a fan of economists it would seem since they all (every one) seem to think government spending belongs in GDP. In fact the whole system of economic mathematics falls apart when you remove the government from the calculations.

"Change the percentages into real numbers, then compare them." tells me you wouldn't make it in my career field, cost and economic analysis. :-) The moment you do that you stop, except in very few circumstances when the numbers are close in time and space, being able to compare numbers one to another.

Take, for example, the fact that California spends $1 B a year on education and New Jersey spends $1 M on exactly the same thing, meaning the education things money is spent on in state are identical. Tell me something about which state might do a better job of supporting education with just those to numbers.

"Only wage earners pay FICA, capital gains doesn't." ... and the point is?

"Flat taxes are no better than the current taxes because it involves the government with their IRS and their IRC." .. it sounds like you would rather not have government at all.

I think I agree with you on M&A, they rarely make good economic sense for the overall economy, only for the pockets of those involved in the process itself. It basically screws everybody else.

"These included many high tech jobs, and now they are gone. What is left is the prototype manufacturing but not the production manufacturing." ... this was another thing the futurist brought up in 1991 at the Air War College, he was rather upset about then and is probably apoplectic today.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ bradmaster

GDP has always included gov’t spending. An increase in billionaires and for that matter millionaires is a result of being the wealthiest planet on earth. People seem to forget that until the end of WW2, the US was not a globally dominant economic power. This is a good thing…not a bad thing.

The benefit of the flat tax is simplicity. It is still inherently progressive. But it can eliminate wasted and unproductive resources. There is no reason to believe it would generate more or less revenue in relation to GDP. It would simply permit more overall productivity while resources are deployed more effectively, which would contribute to greater aggregate GDP. The national sales tax is not a bad idea in theory. But you still can’t replace the IRS unless you create another gov’t body to collect and account for the sales tax compliance. The states don’t have the resources and the Feds would still have to hold them accountable thru some agency of gov’t. The other issue with the sales tax in terms of replacing the income tax is black market activity. I would expect that to increase quite a bit. If we were to replace the income tax with a sales tax, I would prefer something more like a VAT tax, so we impact the lines of production…and not the point of sale to the consumer. But there are other problems with that.

The answer to your question, about why taxes keep going up...that depends on what era you’re comparing it to. I would argue that taxes are largely the same since the end of ww2. We have just made them more and more complex. The highest marginal rates were much higher in the 50’s…even though nobody actually paid those rates. The marginal rate is really not relevant. Effective rates are really what matters. My complaint is the time wasted to arrive at that effective rate. Ultimately, tax rates are also a mechanism to attempt to control the monetary base by increasing or decreasing the supply of currency, even though it is not done very well.

Regarding M&A…if 19,000 people are layed off by Microsoft…then their jobs were not needed. If you can provide the same service and meet the same demand with less people…than that could have been done with or without the merger. That just means the company was run inefficiently to start with, and is likely a big reason for a merger to take place. Monopoly is certainly not an issue in the high tech world, as electronics are incredibly cheap on a relative basis. I can buy 4 DVD players for what one VCR would cost me in 1980. And that’s in non-inflation adjusted dollars. And if they are farming out the jobs, then they aren’t that skilled. Microsoft specifically imports software engineers into the US each year because they can’t find people here with qualified skills. At the end of the day, we live in a globally competitive economy. And it will become more competitive as emerging markets become developed markets. Nothing will stop that, so American workers need to learn to compete globally, or become antiquated. We are all paid and worth only that which the market demands for our skills. And it’s up to us to make sure our skills remain in high demand, or we fall behind.

The Boeing example is not an example of market forces. Boeing and other companies who generate large amounts of revenue from gov’t contracts are just examples of crony capitalism. A large % of their demand is not being dictated by the consumer…but rather gov’t bureaucrats. If it was a truly competitive market, then they’d be forced to compete with startups. But when you’re dealing with companies that compete for gov’t contracts…you don’t just start up a company and put in a bid. In a competitive market, other companies would be competing for that same labor.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, the percentages represent total income, wage and capital income. Taxes don't matter much since these are before tax reports and in any case, Piketty, which is where the numbers came from (I finished his book, btw) was very careful to make sure he had an apples-to-apples comparison over time. We went into how he did that, and I buy into his methodology.

The people who comprise the top 1% and much of the top 10% wouldn't own companies (its only the owners who are impacted by this) who would devolve from C to S or LLC; almost all are to big to do that. I think S and LLCs grew from the bottom up by letting sole proprietorships and partnerships to shield themselves from liability. As to the sheltering of income, it is only the very top of the middle 40% and the top 10% who would have significant income represented in the category, and wouldn't that "understate" income and therefore understate the transfer from poor to rich?

I must dispute "All capital gains related investments contribute to economic growth in one way or another." Tell me how my purchase of 100 shares of IBM off the NY Exchange on day 1 and selling it for $1 more 400 days later (resulting in $100 of long-term capital gains) contribute to economic growth 'from investment'? (not counting the effect of the trading fees, of course)

Keep in mind, the purpose of the capital gains welfare benny, is a reward to encourage people to invest in companies for them to start up or increase capacity, things like that. It isn't, I don't believe, for an activity that happens in everyday transactions, which is what I think "there are countless steps that employ financial professionals, technology professionals, compliance experts, clearing firms, auditors, marketing professionals etc… all along the supply chain." is.

However, your "Not to mention without the market for the purchase of that security, there would be no incentive for an organization to ever go public and raise the capital to expand a business." is what I think Congress had in mind when they created a lower capital gains tax break.

"I am not sure where you got that data from. " ... probably the same place you did, but mine includes corporate income tax revenue as well. The two together represent general revenue rather than "dedicated" revenue such as SS, Medicare, and the various excise taxes.

Unfortunately, a flat tax without cutouts for the poor, is by definition, social Darwinism; because of its massive regressiveness, it can't be anything else but.

You may be right that ". It simply means that I think the gov’t is an ineffectual source of aiding our fellow man.", but the problem is, all other solutions are even worse. "Aiding our fellow man" was a total failure from 1800 to 1933 from a societal view. The only people that benefited from local charities which minimal-state liberals believe in, are those that belong to preferential groups, e.g., white Protestants, Catholics, residents of the City of X, so on and so forth. What ever help there was, was spotty, discriminatory, and simply not up to the job in bad economies. For 133 plus years, poor Americans were forced to live in that misery because of an outmoded ideology which is so long in the tooth, it is black with decay.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

This was a good article I read in the NY times on exactly this topic. Companies like Microsoft are trying to hire more than they are letting go. They just can't get people with the right skills, so they have to bring them in from other countries. M&A isn't the problem. The problem is labor force that has too many people equipped for antiquated menial labor jobs that are not and never will command higher wages, because the people that can do them are a dime a dozen.

http://www.nytimes.com/2012/10/01/technology/micro...


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Of course taxes matter. Income that isn’t reported on a tax return can’t be reflected in the data. If I recall you are self employed these days. Does your K1 represent your true income, or are you deducting all kinds of non-business related things. Rather than self incriminate yourself, I won’t ask you to answer that, because I already know the truth after 17 years of planning. Many things are expenses rather than income before they ever hit the tax return. There are countless other flaws in Piketty’s work. Unless he is now accounting for the fact that a disproportionate amount of the income disparity comes from capital gains, and not ordinary income. That matters a great deal, since it is not a reflection of compensation, but rather the risk of existing capital. Has he also adjusted for the fact that as per the US treasury ¼ of the top 1% are different people within a few years.

On the contrary, only 12% of people who took the self employment deduction made less than 100k. 46% of all people with an AGI of over 10 million claim self employment. Between 100k and 1 million the self employment status changes rises rapidly.

http://smallbiztrends.com/2014/04/higher-earners-l...

As per James Poterba, economist at MIT, The national average % of income deferred to defined contribution plans is 7%. The top 1% of earners hold and average of only 6% of their assets in qualified plans. Middle income earners hold an average of 32% of their net worth in qualified tax shelters. That is a fairly significant percentage of income that is not being reported.

The shares you bought in IBM required someone to produce the trading confirmation, someone else to produce the clearing of the trade thru the clearing house, someone else to route the order to the market maker, another person to maintain the electronic system that the trade is routed thu. Of course the firm that you placed the order thru must rent an office to conduct business. The rent is paid to a commercial real estate company who has employees who must maintain and operate the building. Each of these people must be paid. Each of them spends their income on food, housing, transportation..etc. And each of those dollars subsequently turnover in the economy. Of course the profit of the firm is often used for investment banking purposes which subsequently brings companies to market which allow them to expand. And in some cases is used to finance new startups. Every step of the way there is an increase in velocity. If you and others didn’t place the trade…all of these people have less or no work.

“The two together represent general revenue rather than "dedicated" revenue such as SS, Medicare, and the various excise taxes.”

Either way you argument still doesn’t hold water. In 1959 the combined individual and corporate revenue generated 10.7% of GDP. In 1964…(well after the JFK reductions) the combined revenue was 10.8% of GDP.

In 1971…the combined personal and corporate revenue was 10.1% of GDP. By 1987 (well after Reagan’s reductions) the combined personal and corporate revenue was 10% of GDP.

I will refer you to the chart once again. No substantial change linked to marginal rates.

http://www.taxpolicycenter.org/taxfacts/displayafa...

And I assume you took 50% of the payroll tax revenue to the treasury out of the equation when measuring the burden on the middle income worker, since the employee/lower wage worker is not paying that revenue, but rather the employer does via the dollar for dollar match.

I disagree entirely. The 60’s are a classic example. The decline in the poverty rate was accelerating quite rapidly prior to the Great Society. Since then there has been no substantial decline. Charities did an excellent job of addressing the needy and still do in many cases. It’s only when the gov’t crowds them out, that they fail to address the problems of society. Although I am not always in agreement with everything he says…Ron Paul brought up an excellent point a few years ago. When he worked for charitable groups providing medical care as a doctor, they charged the poorest people the least amount of money. Basically whatever they could afford. After Medicare came along they charge the maximum. Why not, the gov’t can print endless amounts of currency. Just another market dislocation that destroyed not only price discovery, but charitable work.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Actually, my K-1s do reflect actual pay and distributions. While my partners might want to add a few personal expenses into the business, that's not my style, so we don't. I am quite aware that many do as well as the largess of perks corporate execs get (that federal workers don't). But again, all that does is Understate the problem, making the wealthy even wealthier, doesn't.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

If course those shares I bought did all of those things, so did the donut I bought this morning. Shouldn't I get a tax break, using your logic, for buying the donut? Maybe a rebate or something? I don't see the difference; in one case you buy stock and in the other you buy a donut.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

What it does is demonstrate one of many mechanisms to prevent people from reporting income. The larger point about pass thru entities, is that they have exploded since the early 80’s. When nearly half the people making 10 million are claiming self employment…nearly all of that income would have been reported as corporate income (C-corp) and not been part of the personal income data as early as the 70’s. Once the incentives changed to report it as personal income, then income was shifted to personal income when things like LLC’s where created. When we talk about income disparity, we’re not comparing how much a plumber makes working as a sole proprietor vs the annual revenue of a “5 guys hamburger chain”. We’re comparing him to the employees of that C-Corp. Yet now many are reporting this income as personal income. Once again, the income was always there…it is just reported differently as personal income…not as a corporation. Even Fidelity Investments registered as an LLC. All of the profits of a firm with over 2 trillion in client assets get distributed to the owners as personal income. That’s a huge difference.

The answer to your question about the donut is sure. If the donut paid you back a dividend, interest payment or capital gain, then I have no reason to wish to tax you extra on it. To my knowledge, it is tough to classify the consumption of a donut as a capital investment, as once you consume it…it is absorbed, and discarded as waste. The tax break is on the profit or the cash flow you get back from the dollars spent…not on the dollar spent. If you know of a way to eat a donut and then turn that into a profit or cash flow for yourself…please let me know.

Keep in mind…many of these tax breaks for the wealthy are non-existent anyway. The lower rates on capital gains and dividends doesn’t exist for someone making 350k…because of AMT. They also in many cases get taxed on phantom income on stock options…which has resulted in taxes on income they never even received. As a result a large % of people in the top 1% never see these breaks, which is why they are so creative in other ways.


bradmaster 2 years ago

LandWealth

your comment,"The point about tax revenue is that when marginal rates went up or down, the revenue was not impacted. I am not sure where you got that data from. But as per the IRS below…."

I just took a snippet to let you know which comment.

That long comment didn't answer any of my specific comment.

The bottom line is that TAXES are simply for Revenue. The current Income Tax system is an invasion of privacy, a loss of constitutional rights, and social reform. Income Shifting is not a tax issue, it is a social issue, and to simply get revenue, the current system, along with most of the IRS and IRC should be entirely replaced by a National States Tax like those of the State Sales Tax.

The problem is that the SCOTUS fails to see unconstitutionality of the 16th amendment as applied and reapplied every year. People and companies make bad business decisions based on their tax liabilities.

It is not equal to apply different marginal rates, yet the SC in cases of national revenue turns a blind eye. The current system is mandatory system that forces people to sign under penalty of perjury, and also requires giving up your constitutional rights of self incrimination. It is backed up by several criminal and pecuniary sanctions, all for revenue.

A National Sales Tax would give the government more revenue, quicker, and without the need for the bulk of the IRS, civil and criminal divisions. There would be only minimal invasion of privacy, and no constitutional rights would be sacrificed.

BTW, percentages are misleading because raw numbers tell more about the issue, in every case.

I don't have any way to know when there are responses to my comments, so that is why it took this long to respond.

bradmaster


bradmaster 2 years ago

Landwealth

I use to live in NYC, and Hicksville, so I know a lot about that area.

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LandWealth

“advent of the qualified defined contribution plan allows for a much greater percentage of income which can be routinely sheltered by a middle income earner. A person over 50 years of age making 100k can shelter 23% of their gross income today in a standard cookie cutter 401k plan. That was unheard of in 1960”

Bm:

This is a defined CONTRIBUTION plan, and it has no guarantees of benefits. Many of these plans took a severe loss in 2008. A defined benefits plan would be a better plan, much like the Federal Employee Retirement System.

When these people lost most of the retirement funds, they lost their future benefits, but the didn’t lose, because who knows how much higher the taxes will be when these 401Ks will be when they are used as benefits?

Why do you qualify your example with AGE?

A lot of things have changed since the 1960s, and most of them not good ones. At a $100,000 a year as gross income, how much does that get you to live on in California, or NYC?

LW:

But the income was always there on a relative basis. And those specific changes are largely for the better. Not to mention how many ridiculous tax deductions where thrown out in the 80’s when marginal rates went down.

Bm:

This is ambiguous, “relative”, “largely for the better”, “ridiculous tax deductions”?

The 1986 Tax Reform Act, was used to take the only deductions that the average worker had away from them forever. But the marginal tax rates were not fixed.

Many of these taxpayer deduction were important to how much it cost to go back and forth to work. And when in 2008 the gasoline per gallon price hit the $5 mark, congress wouldn’t even give the people a three month during the summer relief from government gasoline taxes.

Lw:

All capital gains related investments contribute to economic growth in one way or another. Any mechanism that increases the velocity of money contributes to growth. If I bought a stock and sold it in 2 months, there are countless steps that employ financial professionals, technology professionals, compliance experts, clearing firms, auditors, marketing professionals etc… all along the supply chain. Not to mention without the market for the purchase of that security, there would be no incentive for an organization to ever go public and raise the capital to expand a business.

Bm:

Most of this is done by computers and the average investor. Day traders started once there was no need to get the advice of stock brokers. This average person use of computers to invest is one of the reasons why we had the dot com, and the sub prime bubbles. On top of that many institutional investment companies can change the market just from their massive holdings. The Stock Market of today runs along the same rules as it did before the investors were set free from the brokers. This makes the Stock Market and the Commondity Market, including the Money Market targets for speculative but artificial movements that ripple across the economy.

Responding to your last sentence, this was actually a bad thing that caused the dot com bubble, and all bubbles burst, and this one was no exception.

Lw:

Once again… no significant change. The changes are a direct result of economic activity…expansion or contraction…not marginal rates.

Bm:

A lot of these changes were not good, and many of them were consequences from the changing economics caused by the federal government. Since 1990, we have been engaged in very expensive military actions, and while this improves the bottom line of defense industry products, it doesn’t help the average worker or consumer. When the government spends all of this money it goes out to a limited number of approved vendors, and then it triggers the need to generate more revenue.

Lw:

Also keep in mind that when you are looking at revenue collected via social insurance like Social Security, Medicare…50% of that is borne by the employer…not the employee.

Bm:

SS and Medicare are TAXES.

Independent Contractor pay the full amount. It is recorded in two different places on the tax form, but it comes out of the same pocket.

The fact that these are taxes first, and they were never managed for the benefit phase creates an economic liability for the government that requires more taxes to keep this Ponzi scheme afloat.

The employer could have been contributing this TAX money into a privately managed pension, and health fund for the benefit of the employee, and not for the greed of the government.

Lw:

It is wrong for you to categorize support for the flat tax as socially Darwinian. It is rooted in practicality. I support the flat tax. That does not mean I believe people have no obligation to their fellow man. It simply means that I think the gov’t is an ineffectual source of aiding our fellow man. In fact I would argue it does more harm and crowds out more effective charitable work. I just see no reason to have 70k pages of tax code that expands with new laws each year…and yet we still arrive at the same numbers. It’s all a shell game to control behaviors…and is one incredible waste of resources.

Bm:

I never said anything about social Darwinian.

The Flat tax is not much better than the current progressive system in that it still requires all of the IRS, and the IRC to remain.

A National Sales Tax is much better, and it has the same mechanism which exists in most state sales tax, but it must totally replace the current personal tax system.

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bradmaster


bradmaster 2 years ago

My Esoteric

Sorry, I am several comments behind at this point.

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My Esoteric

Except for three tax increases on the wealthy (Bush 41, Clinton, and Obama) what increases would you be talking about?

I account for the increase in billionaires from the transfer of wealth from the poor and middle class to the top.

Bm:

How exactly are billionaires created, what is this mechanism of transferring wealth?

My Esoteric

"Again, I am not a fan of statistics, but especially not of percentages. The GDP includes government spending, so factor that out." nor are you a fan of economists it would seem since they all (every one) seem to think government spending belongs in GDP. In fact the whole system of economic mathematics falls apart when you remove the government from the calculations.

Bm:

The government spending is technically not a product, and massive government spending as during the wars of the last twenty years, don’t show a valid picture of the economy. T

How was that economic mathematics in 2008, when Congress and the majority of economists didn’t have a clue about the impending economic collapse for the US?

Economics is an art, not a science, because economists differ in their opinions, especially from each other.

To factor out government spending, it would be more valid if you use actual data and not percentages. This causes a blurring, and it doesn’t indicate the particular areas of change. And there have been so many, in the war efforts, FEMA, economic loss from 2008, and the payouts of unemployment, food stamps, and welfare. Not to mention all the loss form the sub prime bubble burst, and all the underwater loans. Etc.

==

My Esoteric

"Change the percentages into real numbers, then compare them." tells me you wouldn't make it in my career field, cost and economic analysis. :-) The moment you do that you stop, except in very few circumstances when the numbers are close in time and space, being able to compare numbers one to another.

Take, for example, the fact that California spends $1 B a year on education and New Jersey spends $1 M on exactly the same thing, meaning the education things money is spent on in state are identical. Tell me something about which state might do a better job of supporting education with just those to numbers.

Bm:

No offense, but your field doesn’t really have a great track record.

How is there any reason to make that statement? California and NJ are two different places, with a different culture, different population, basically different.

So you think percentages of money spent indicates educational performance?

For government expertise your field, take a look at the Trident Submarine, and the Army Tank, Sgt York, and others. That is why the raw data needs to be examined. I have used statistics in my technical software, and computer presentations. What it accomplishes is an aura of WOW. It looks like you got your stuff together.

And I know for a fact that in the defense industry, there is no such thing as coming in under budget, because your next project will get lesser funds than you request because you over estimated your last project.

-==

WE AGREE

"Only wage earners pay FICA, capital gains doesn't." ... and the point is?

"Flat taxes are no better than the current taxes because it involves the government with their IRS and their IRC." .. it sounds like you would rather not have government at all.

I think I agree with you on M&A, they rarely make good economic sense for the overall economy, only for the pockets of those involved in the process itself. It basically screws everybody else.

"These included many high tech jobs, and now they are gone. What is left is the prototype manufacturing but not the production manufacturing." ... this was another thing


bradmaster 2 years ago

LandWealth

LandmarkWealth 39 hours ago from Melville NY Level 1 Commenter

@ bradmaster

LW:

GDP has always included gov’t spending. An increase in billionaires and for that matter millionaires is a result of being the wealthiest planet on earth. People seem to forget that until the end of WW2, the US was not a globally dominant economic power. This is a good thing…not a bad thing.

Bm:

The middle class is shrinking, and the upper class has increased taxes, and yet can still become billionaires? It is not a good thing, because the tax system as many explain it is supposed to shift wealth to make it more equal?

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Lw:

The benefit of the flat tax is simplicity. It is still inherently progressive. But it can eliminate wasted and unproductive resources. There is no reason to believe it would generate more or less revenue in relation to GDP. It would simply permit more overall productivity while resources are deployed more effectively, which would contribute to greater aggregate GDP.

Bm:

The flat tax is the same bad system of today, and the tax rate can still change upward, and upward.

======

Lw:

The national sales tax is not a bad idea in theory. But you still can’t replace the IRS unless you create another gov’t body to collect and account for the sales tax compliance. The states don’t have the resources and the Feds would still have to hold them accountable thru some agency of gov’t.

Bm:

The states do have the mechanism to easily include the NST..

It would take a small fraction of the IRS to manage the NST.

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Lw:

The other issue with the sales tax in terms of replacing the income tax is black market activity. I would expect that to increase quite a bit.

Bm:

We already have tax evasion schemes today, but their evasions are not a patently obvious as one of evading sales tax. If there is a black market avenue, then close it. It is less complicated than looking for violations of the IRC.

Lw:

If we were to replace the income tax with a sales tax, I would prefer something more like a VAT tax, so we impact the lines of production…and not the point of sale to the consumer. But there are other problems with that.

That is more of an issue of how corporate tax works today. The corporations pass on the tax to the consumers.

Lw:

The answer to your question, about why taxes keep going up...that depends on what era you’re comparing it to. I would argue that taxes are largely the same since the end of ww2. We have just made them more and more complex. The highest marginal rates were much higher in the 50’s…even though nobody actually paid those rates. The marginal rate is really not relevant. Effective rates are really what matters. My complaint is the time wasted to arrive at that effective rate. Ultimately, tax rates are also a mechanism to attempt to control the monetary base by increasing or decreasing the supply of currency, even though it is not done very well.bm:

Bm:

Marginal tax rates are offset by the IRC.

Higher taxes are also a function of available deductions. Increases in FICA are increased taxes, as well as moving the retirement age as it causes more taxes to be collected before a person can get their benefits. There are many indirect, de facto tax increases. And there are also the negative effects of the government not spending specific revenue on the specific areas. We pay many specific taxes like gasoline taxes, yet we don’t see it on the roads, not even with the WPA like money from TARP.

=====

Lw:

Regarding M&A…if 19,000 people are laid off by Microsoft…then their jobs were not needed. If you can provide the same service and meet the same demand with less people…than that could have been done with or without the merger. That just means the company was run inefficiently to start with, and is likely a big reason for a merger to take place.

Bm:

In the high tech field, M&As are means to getting rid of a competitor, and getting their patents. This is not a plus for the consumer as there is less competition.

====

LW:

Monopoly is certainly not an issue in the high tech world, as electronics are incredibly cheap on a relative basis. I can buy 4 DVD players for what one VCR would cost me in 1980. And that’s in non-inflation adjusted dollars. And if they are farming out the jobs, then they aren’t that skilled. Microsoft specifically imports software engineers into the US each year because they can’t find people here with qualified skills. At the end of the day, we live in a globally competitive economy. And it will become more competitive as emerging markets become developed markets. Nothing will stop that, so American workers need to learn to compete globally, or become antiquated. We are all paid and worth only that which the market demands for our skills. And it’s up to us to make sure our skills remain in high demand, or we fall behind.

Bm:

Even though you live near LI electronic row, your statements are not on point.

Your focus on unskilled workers is not valid, as many of these manufacturing jobs that have gone to the Far East, and other low salary countries have also been used to lower the tax liability of the US companies. This results in a loss of work for millions of people, and they of course go on unemployment, food stamps, welfare, and that raises taxes to pay for them.

Many of the high tech non manufacturing workers come here on an H1b visa, and yes these are qualified people. Many companies left foreign workers, and foreign companies do their work for them, at a ridiculously low price.

Nothing you said addresses how to solve that problem for the US and its workers.

---------

Lw:

The Boeing example is not an example of market forces. Boeing and other companies who generate large amounts of revenue from gov’t contracts are just examples of crony capitalism. A large % of their demand is not being dictated by the consumer…but rather gov’t bureaucrats. If it was a truly competitive market, then they’d be forced to compete with startups. But when you’re dealing with companies that compete for gov’t contracts…you don’t just start up a company and put in a bid. In a competitive market, other companies would be competing for that same labor.

Bm:

Once again, I have to respectfully disagree with your analysis.

Boeing is losing their tail to foreign competition. They are not the great corporation they were in the 1960s. They ate up the competition to survive, and in the process flooded the employment market with government specific skilled workers.

Fortunately for Boeing, they just got a lucrative new contract, with startup Spacex.

Basically because NASA has run out of useful steam. Who let out the steam, is a question to be answered for another subject.

As for Lockheed Martin, the F35 is not a supersonic fighter, stealthy but slow. And the software requirement is extending the time for its completion. Congress is not sure what to do with the F35.

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LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ Bradmaster

It would be tough to call the current income tax system unconstitutional, because we have a constitutional amendment that expressly enumerates the authority to tax income. You may not agree with it, but by definition…it is constitutional. Although I don’t agree with its current structure. To call it solely for the purpose of revenue is also a bit one dimensional since the Federal gov’t could theoretically function without any form of debt issuance and simply print money on its own…which would eliminate the need for revenue feedback. A number of Modern Money Theorist have proposed such ideas. I personally think they look better on paper than they would work in reality.

There is no absolute evidence that a sales tax would increase more revenue. Spending equals income…Income equals tax revenue. Regardless of whether it is point of sale, or compensation based…there still has to be spending either way. So regardless of where it is extracted…it would still be controlled based on spending either way. The only case for more revenue is that it may eliminate inefficiency and add to GDP. At least until people start buying toilet paper and napkins off the back of a truck, and the gov’t loses all that revenue.

%’s are quite relevant when it comes to tax revenue as a share of GDP. If tax revenue tripled in one year, it would not mean a thing if it was on 2% of GDP instead of the typical 15-20% of GDP. That would mean we have some major increases in budgetary expenditures, and the triples revenue wouldn’t mean a thing. In fact in such analysis, percentages are all that matter as a frame of reference.

With all due respect…Defined Benefit plans are totally unsustainable…and in no way better. They go under all the time, with minimal guarantees from the PBGC. They are just as subject to market risk because they are funded via market driven investments. In many ways they are more risky because they are investing based on an aggregate average of actuarial data which may not coincide with a specific employee’s target dates of retirement. You could have a pension fund administrator managing money far too aggressively or conservatively for your time table. And if you have a defined contribution plan, anyone can self annuitize the money at retirement via an private insurance company and effectually convert to their own private pension benefit, which is back 100% by the state insurance commissioner’s office in most states. It is far safer than defined benefit plan. Just as the emplyee’s of Pan Am airlines about their pension plan. My uncle worked there 35 years, and got $210 a month. The rest was subject to the creditors…which cannot happen with a defined contribution plan where the assets are yours and cannot be escheated to anyone.

The reference to the 1960’s had nothing to do with age. It was a reference to the way in which gross income is reported via pass thru entities that were either not available until the early 1980’s, or in some cases at least not tax beneficial due to the higher marginal rates at the personal level at the time. It is a reference to the way in which we report income on a K1 as personal income that used to be corporate income. This creates a much larger false perception of income disparity as to imply a more widening gap that is reality. This is not income shifting from one person to another. It is the same person reporting a personal income, that was once a corporate profit, and not adequately quantified in the Piketty/Saez work.

I don’t know what you mean by the tax rates were not fixed in the 80’s. The highest marginal rate in 1980 was 70%. By 1988 it was 28%. That was a significant reduction and change across the board to marginal income rates. It is true that due to the elimination of deductions, it was really more about tax simplification…which is a good thing. Most deductions where completely unproductive and incented debt creation. Credit Card interest as one example. And one of the biggest was Real Estate Investment Partnerships taking depreciation. That was one of the biggest money losing schemes on paper around. There were Dr’s and lawyers reporting losses on their tax returns annually. Which is why nobody actually paid 70%. The 80’s tax reforms where about taking away such nonsense and simply applying a lower marginal rate to arrive at the same numbers.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ Bradmaster

Trading is done electronically, not clearing, marketing, compliance etc. They all require actual people to process and record these activities. I have worked in the financial field for 17 years, and nothing could be further from the truth. In fact, we employ more people now than ever before…especially in the compliance field. If you’re someone who thinks they can day trade, then it is true that you likely won’t seek investment guidance. However, the fastest growing segment of the financial services field is the Registered Investment Advisor segment due to their fiduciary responsibilities, and the complexity that has developed around comprehensive financial planning. And that industry is 100% about providing financial guidance. Additionally, on the contrary…the stock market is more efficient and less manipulated than ever before. There are no more specialist on the floor of the NYSE who can front run big blocks. They really don’t exist anymore. And it was actually the large institutions and mutual fund companies that pushed for that transparency because they were so sick of getting chiseled out of a few pennies on a million shares that was hurting fund performance for their shareholders from all the front running…especially on the NYSE. Unless you’re talking about trading on pink sheets…which is a fool’s game...it has never been as transparent as today. I wish I could say that was true of the fixed income markets, which is where we see real mark ups and manipulation. Market bubbles where happening long before internet trading ever existed, and will always happen. How quick we forget about the countless corrections and panics across decades.

I will agree with your statement that we have spent too much money…regardless of whether or not it’s military or social spending. Countercyclical deficits are necessary in order to expand and contract the monetary base. Obviously we can’t have a budget surplus in perpetuity or we’ll collapse the monetary base. And we can’t run deficits of 10% of GDP in perpetuity either or we end up with an eventual inflation problem. So I am a firm believer that countercyclical deficits should be organic in nature based on private sector expansion and contraction without the gov’t attempting to influence this. The gov’t needs to limit spending to that which only the gov’t can do which cannot be provided for privately.

“SS and Medicare are TAXES”

You missed the point here. Myesoteric was referencing the fact that while marginal rates when down in the 80’s…payroll taxes went up on middle income earners. When we were discussing the aggregate contribution of tax revenue as a share of GDP, it is important to discount ½ of the contribution because half of that revenue comes from the employer, regardless of whether they are a small business owner or a national conglomerate. However, you are correct in that payroll taxes are ultimately a form of wage/benefit suppression which would be better utilized in the hands of the employer and employee.

You’re way off on gov’t spending as part of GDP. Keep in mind that all currency must originate via the gov’t, just like all wealth creation originates with the private sector. Without gov’t spending of some sort…there is no monetary base. We create net new currency via budget deficits. Without gov’t spending of some sort, unless we wish to revert to a national barter system…there is no spending at all. Now if you are arguing that the gov’t has become too large a share of GDP…I couldn’t agree more. But it must be part of GDP. So it may be a fair statement to say that GDP output is not always a fair representation of the state of affairs across the broad private sector today. To say that gov’t spending is not a product is sort of meaningless. No spending is a product…it produces a product or service. So can gov’t spending. Unfortunately, gov’t spending doesn’t do it very efficiently. But they do indeed ultimately generate products. When the gov’t pays to have a road paved, they contract out a company. Those employees get compensated and buy things in the private sector. Any time there is an increase in velocity, there is something getting produced regardless of the source of the velocity. The issue with gov’t spending is that rarely does the initial spending and increase in velocity result in an immediate equal amount of productivity. And as we know, the creation of new currency with increased velocity without regard for productivity causes inflation and price instability. Which is why I referenced earlier that countercyclical deficits should be organicly based on private sector demand.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ Bradmaster

The middle class is shrinking…but this has nothing to do with the tax system. In fact the number of wealthy people are also increasing over the last several decades. That means we have wealth mobility. Some of the middle class have become wealthy. The biggest strain on the middle class has been price instability. The current CPI measures do not represent the cost of living when isolated to everyday items. So the dollar will not stretch as far as it once did. Wealth is not finite. Because someone else became a billionaire or a billionaire two times over, that does not mean that someone else lost something. If I get rich, that doesn’t mean I somehow made someone else poor. The two have nothing to do with each other. The issue with price instability is back to the issue of gov’t spending and the share of GDP that gov’t now consumes. It is detrimental to the currency. And global currencies are in a race to the bottom.

“The flat tax is the same bad system of today, and the tax rate can still change upward, and upward”

And why couldn’t the national sales tax go up as well ??? And why would I not start buying simple items on the black market. I could entirely avoid the national sales tax on toilet paper, napkins, paper plates etc…by simply buying them off the back of a truck, which will most certainly pop up. If there are people willing to risk selling drugs illegally…a black market for simple household items will be no problem. No matter what, there will be a gov’t agency set up to attempt account for the revenue. The IRS will simply be replaced by another agency with the same authority to now monitor consumption rather than income. Do you want a Federal agency auditing your grocery bill ??? The states have nowhere near the infrastructure to manage this. They can barely manage the mess they have now. And regardless, if it’s a national tax, the state has no authority to regulate it…and there must be a Federal agency. Instead of the “Dept of Internal Revenue”….you’ll get the “Dept of Internal Sales Revenue Collection” Do you really think the Federal gov’t won’t create a massive bureaucracy to attempt to oversee every last dollar of revenue they feel is due to them ??? I think it is a bit naïve to assume not.

It is a hell of a lot harder to trace my grocery bill that I paid for in cash than it is to track wire transfers for tax shelters that are illegal. Even though the sales tax will never happen, I hope it does. My tax bill will go down quite a bit. I’ll be buying everything in cash.

The VAT tax is ultimately a sales tax. That would be much harder to avoid via the black market, and would require far less auditing.

“There are many indirect, de facto tax increases”

I agree…the totality of taxes is higher in most places when you look at the local level as well. If you add up property taxes, State Gas tax, State income tax in many places etc. But looking at the total aggregate amount of Federal tax revenue in relationship to the size of the economy…the numbers are no different than they were at the end of WW2. And that is why percentages matter. Total dollars are wholly irrelevant. To say I pay a lot more in taxes than my grandparents in total dollars is pointless. I also made more money this week than they made in a year.

“In the high tech field, M&As are means to getting rid of a competitor, and getting their patents. This is not a plus for the consumer as there is less competition”

Then why are prices so incredibly cheap in the high tech field. There is less price inflation than anywhere in the high tech field. And those same companies are importing people to fill jobs in the US because they can’t find qualified people. So it’s not cheap labor…and hasn’t been for some time. And every one of those price reductions means the consumer doesn’t need to make more money to buy the product. It’s an effective raise for the consumer. If every industry as well as gov’t ran as efficiently as the tech industry we’d be in much better shape.

Going overseas to build a plant does not avoid US taxes. That is a common myth. Foreign profits are still taxed in the U.S. In fact they are taxed twice. Once by the country of origin where the plant is, and then again in the US. This is a big reason why there are billions of profits waiting to be repatriated to the US.

I don’t know what “LI electronic row” means. The cost of anything I buy including electronics is cheaper in Florida or damn near anywhere else I go in the country…with the exception of maybe CA. For that matter you can order any tech product online for delivery.

“Boeing is losing their tail to foreign competition. “

That is sort of my point. This is not a free market. You can’t eliminate your competition across the country in a free market. The fact that the gov’t controls the distribution of who gets what contract is why there isn’t enough competition. However, private individuals will not be issuing defense contracts anytime soon. So that won’t change. Look at any industry that functions in a free market and M&A has been a positive.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

P.S. The social darwin comment was not a response to you...it was in reference to a comment made by myesoteric


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I was looking for this the other day and found it last night. This paper was put out earlier in the year. The most recent comprehensive data in this paper put out by economists from Harvard, Berkeley & the US Treasury shows essentially what many other studies have shown over the years. Upward mobility is still strong in the US. In fact economic mobility has changed significantly in the last 50 years. Perhaps we just think it's harder because we have become a more lazy and entitlement dependent society that expects things to be easier.

http://obs.rc.fas.harvard.edu/chetty/mobility_tren...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I saved this off, thanks. It looks like a much deeper analysis of data used in studies I have used previously. At first glance of the charts, it doesn't seem to conflict with anything I have seen. Not controversial is that economic mobility hasn't changed over time, has far back as the 1960s according to one study I saw. (Actually, for a couple of quintiles, it appears to have gotten worse)

Up for interpretation, of course, is the degree of mobility the charts suggest. Since I didn't read the words yet, I don't know what the author's take on it is, but in my mind it clearly shows a child born of Q1 parents does not have the same chance of making it to Q5 as a child who starts in any quintile who starts in a higher quintile.

It would seem to me that if mobility were high, the percentages would be much closer to each other and if it was low, it would look like it does.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I would argue that mobility has a lot to do with motivation and drive which obviously can't be quantified so easily. Men like Steven Jobs are/were obsessive workaholics. To move from Q1 to Q5 may be more a result of how hard you push yourself. There are many people, myself included that don't think the sacrifice it takes to get to the highest economic status is worth it. I'd rather leave a little early on Friday every once in a while now that I have earned it, and spend that time with my kids. However, that attitude will never make me a billionaire. Most ultra worthy people are so obsessed with personal achievement, they have nominal social lives as many of us would define it.

My main point is that to suggest something has dramatically changed fundamentally is an overstatement. If you are born into wealth, thank your parents for making the sacrifice before you. If you are born at the bottom, you'll be limited only by your own creativity, productivity and work ethic. The only obstacle I have ever had to my success has been excessive regulatory burden.


bradmaster 2 years ago

LandWealth

LandmarkWealth 12 hours ago from Melville NY Level 1 Commenter

@ Bradmaster

It would be tough to call the current income tax system unconstitutional, because we have a constitutional amendment that expressly enumerates the authority to tax income. You may not agree with it, but by definition…it is constitutional. Although I don’t agree with its current structure. To call it solely for the purpose of revenue is also a bit one dimensional since the Federal gov’t could theoretically function without any form of debt issuance and simply print money on its own…which would eliminate the need for revenue feedback. A number of Modern Money Theorist have proposed such ideas. I personally think they look better on paper than they would work in reality.

Bm:

I would again have to respectfully disagree with you, the 16th Amendment dealt with the apportionment among the states. As the current tax system is way beyond the apportionment issue, it could be deemed unconstitutional as applied.

I agree that there is more to the current system than just revenue. The way that the revenue is collected includes aspects of depriving constitutional rights. The right against self incrimination, filling out complex tax forms and keeping detailed records could be construed as Involuntary Servitude, It is also very invasive of privacy, and there was no reason to make the failure to file your income tax as a criminal sanction, unless it was to extort money from the people. Also having to file under penalty of perjury is another criminal extortion to compel compliance for simply raising revenue.

Lw:

There is no absolute evidence that a sales tax would increase more revenue. Spending equals income…Income equals tax revenue. Regardless of whether it is point of sale, or compensation based…there still has to be spending either way. So regardless of where it is extracted…it would still be controlled based on spending either way. The only case for more revenue is that it may eliminate inefficiency and add to GDP. At least until people start buying toilet paper and napkins off the back of a truck, and the gov’t loses all that revenue.

Bm:

A NST is simpler, making it less costly to get the revenue. It also gets the revenue faster, without involving a lot of paper work, and investigation.

It doesn’t have to be more revenue, but the NST is not invasive of personal privacy, there is no need to hire CPA, Quicken or keep detailed records. There is no giving up constitutional protections. There is limited criminal sanctions.

Any of the arguments about black market problems, are also present in a State Sales Tax. But, that doesn’t seem to be an issue.

-------

Lw:

%’s are quite relevant when it comes to tax revenue as a share of GDP. If tax revenue tripled in one year, it would not mean a thing if it was on 2% of GDP instead of the typical 15-20% of GDP. That would mean we have some major increases in budgetary expenditures, and the triples revenue wouldn’t mean a thing. In fact in such analysis, percentages are all that matter as a frame of reference.

Bm:

Government spending is the biggest single point spending, and with the spending on wars since the 1990s that sort of pollutes the GDP.

Percentages aren’t as meaningful as the raw data, and its detailed accounts. The population of the US has gone from 200 million to over 300 million. That means you get make the equation simply on percentages.

Ex. 80% of doctors recommend brand X.

What is the sample size. Maybe 4 out of 5 doctors, but that is only of the doctors surveyed. We don’t know that size, and we don’t know how many of the doctors surveyed used anything other than brand X because they got them free from the drug company.

=====

Lw:

With all due respect…Defined Benefit plans are totally unsustainable…and in no way better. They go under all the time, with minimal guarantees from the PBGC. They are just as subject to market risk because they are funded via market driven investments. In many ways they are more risky because they are investing based on an aggregate average of actuarial data which may not coincide with a specific employee’s target dates of retirement. You could have a pension fund administrator managing money far too aggressively or conservatively for your timetable. And if you have a defined contribution plan, anyone can self annuitize the money at retirement via an private insurance company and effectually convert to their own private pension benefit, which is back 100% by the state insurance commissioner’s office in most states. It is far safer than defined benefit plan. Just as the emplyee’s of Pan Am airlines about their pension plan. My uncle worked there 35 years, and got $210 a month. The rest was subject to the creditors…which cannot happen with a defined contribution plan where the assets are yours and cannot be escheated to anyone.

Bm:

The federal government seems to prefer it for their government employees, and they always get the fixed benefit.

Lw:

The reference to the 1960’s had nothing to do with age. It was a reference to the way in which gross income is reported via pass thru entities that were either not available until the early 1980’s, or in some cases at least not tax beneficial due to the higher marginal rates at the personal level at the time. It is a reference to the way in which we report income on a K1 as personal income that used to be corporate income. This creates a much larger false perception of income disparity as to imply a more widening gap that is reality. This is not income shifting from one person to another. It is the same person reporting a personal income, that was once a corporate profit, and not adequately quantified in the Piketty/Saez work.

Bm:

I no nothing about Piketty/Saez.

The income tax system changes every year, and drastically changed in 1986 with the Tax Reform Act. The fact that billionaires are increasing in numbers recently, illustrates the widening gap, when taken with the increase in the number of people in the lower tax brackets, and those that are below the paying tax bracket.

Lw:

I don’t know what you mean by the tax rates were not fixed in the 80’s. The highest marginal rate in 1980 was 70%. By 1988 it was 28%. That was a significant reduction and change across the board to marginal income rates. It is true that due to the elimination of deductions, it was really more about tax simplification…which is a good thing. Most deductions where completely unproductive and incented debt creation. Credit Card interest as one example. And one of the biggest was Real Estate Investment Partnerships taking depreciation. That was one of the biggest money losing schemes on paper around. There were Dr’s and lawyers reporting losses on their tax returns annually. Which is why nobody actually paid 70%. The 80’s tax reforms where about taking away such nonsense and simply applying a lower marginal rate to arrive at the same numbers.

Bm:

Those deductions were eliminated because the government chose to let credit card companies charge above the usurious rate. Then the SCOTUS backed up the government’s position by saying that a credit card company, that venue shops states for the highest legal interest rate can apply that rate nationally. That means it supersedes the state where the credit card customer lives ignoring that states protection against absurdly high interest rates. That is why South Dakota which has a sparse population became the meca for credit card companies. People are hooked on credit cards, and the least the government could do, in light of their refusal to curb credit card rates, they should have allowed the credit card deductions.

The cost of people getting to and from work is valid, and with all the taxes on gasoline those deductions helped the average person. It would be especially useful today with the high prices of gasoline. In S Cal, workers can travel long distances, in gas guzzling grid lock to eek out a living, and yet the feds want to skim the gross wages, instead of factoring the net from expenses of commuting to work.

So, unproductive from who’s viewpoint.

The Land Investment by doctors and lawyers is not simply personal income.


bradmaster 2 years ago

lw:

continuing

Lw:

I don’t know what you mean by the tax rates were not fixed in the 80’s. The highest marginal rate in 1980 was 70%. By 1988 it was 28%. That was a significant reduction and change across the board to marginal income rates. It is true that due to the elimination of deductions, it was really more about tax simplification…which is a good thing. Most deductions where completely unproductive and incented debt creation. Credit Card interest as one example. And one of the biggest was Real Estate Investment Partnerships taking depreciation. That was one of the biggest money losing schemes on paper around. There were Dr’s and lawyers reporting losses on their tax returns annually. Which is why nobody actually paid 70%. The 80’s tax reforms where about taking away such nonsense and simply applying a lower marginal rate to arrive at the same numbers.

Bm:

Those deductions were eliminated because the government chose to let credit card companies charge above the usurious rate. Then the SCOTUS backed up the government’s position by saying that a credit card company, that venue shops states for the highest legal interest rate can apply that rate nationally. That means it supersedes the state where the credit card customer lives ignoring that states protection against absurdly high interest rates. That is why South Dakota which has a sparse population became the meca for credit card companies. People are hooked on credit cards, and the least the government could do, in light of their refusal to curb credit card rates, they should have allowed the credit card deductions.

The cost of people getting to and from work is valid, and with all the taxes on gasoline those deductions helped the average person. It would be especially useful today with the high prices of gasoline. In S Cal, workers can travel long distances, in gas guzzling grid lock to eek out a living, and yet the feds want to skim the gross wages, instead of factoring the net from expenses of commuting to work.

So, unproductive from who’s viewpoint.

The Land Investment by doctors and lawyers is not simply personal income. These professional hold real estate in its most favorable tax form. I used to sell large apartment complexes for these professionals.

-------


bradmaster 2 years ago

My Esoteric

I feel like I am taking over your hub, and that is not my intention.

I am several large comments away from catching up with the current ones.

I have detailed and specific responses to you and LW, but if I were a hubber, I would write separate hubs on the issues discussed in this hub's comments.

But I am not a hubber, and it seems like the discussion is just the three of us.

I will wait for your input on how we should proceed from this point.

Thanks

bradmaster.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@Bradmaster

Once something is a ratified amendment to the constitution…it is by definition part of the constitution…and therefore cannot be unconstitutional unless removed from the constitution. The amendment reads as follows…

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

We can disagree with the amendment…but that is ultimately just semantics.

“A NST is simpler, making it less costly to get the revenue. It also gets the revenue faster, without involving a lot of paper work, and investigation.”

Why would it be simpler than a flat tax ??? I make X amount of money and I pay 15% with no deductions. A tax form could be two paragraphs with a flat tax if we wanted it to be. The revenue is no faster than payroll deductions which is bi-weekly in most cases. And there would most CERTAINLY be investigation into the compliance of revenue due under a NST. The Fed’s are not going to work on an honor system. You think much more of the gov’t than I do. There not that trusting. The black market in relation to state sales tax is nominal because the tax is nominal. If we apply a comparable degree of taxation to sales as we do to income, people would go to the same extent to avoid taxation as they do know with income tax. It would just be easier to avoid…until the gov’t starts to audit your grocery bill to track compliance.

The fact that the population has gone from 200-300 plus million is exactly why you must work off of %’s when looking at revenue. If you add a 100 million people GDP in raw data looks like we just got a whole lot richer. When you look at GDP in relation to the population you have perspective as productivity is divided across the population, as well as fiscal liability for the additional 100 million people.. You have that one totally backwards. That’s like saying that because you received a promotion that doubled your income that you are doing twice as well. That is only true if all other things remain constant. If your expenses went up 4 fold, than the raise doesn’t mean you are better off. So we look at all things in proportion. Obviously when we add 100 million people to the population, the GDP increase must be measured in relation to increased liability in SS, medicare etc.

“The federal government seems to prefer it for their government employees, and they always get the fixed benefit”

The Federal gov’t is the only place where Defined Benefits work…because only the Federal Gov’t can’t create net new currency out of thin air. When Pan Am was going under, they couldn’t just mint more money. And even the Federal gov’t doesn’t operate exclusively off of DB plans. They also utilize defined contribution plans like the Thrift Savings plan to ease the actuarial liability.

The fact that billionaires are increasing is a GOOD thing. We want to make more wealthy people. The Piketty/Saez reference it a study done on the widening income Gap which is greatly flawed because it doesn’t adequately take into account the changes in the tax code. It is often the source of an amplified suggestion of a widening income gap. To simplify it more…If I made 2 million dollars in 1979 and reported it thru a C-Corp and kept the money in the company, when my personal return was filed, I didn’t make that two million. When the tax code changed, many people now report that income via pass thru entities like an LLC on a K1. Now all off a sudden that income is personal and not corporate. So it appears that my income jumped up…when in fact it was just reported differently. That has been a strong trend since the early 80’s. It is not a jump in income as much as it is a shift from corporate to personal income. For a better understanding…I outlined it below…

http://hubpages.com/politics/National-Income-Dispa...

Credit Cards were just one deduction…along with depreciation etc. They were eliminated to increase the declaration of income. When rates are higher wealthy people shelter and declare less income, because they can control when the realize income far more than the average citizen. The 1980’s where some of the best work ever done in incenting capital formation. It pulled substantial amounts of revenue from shelters that were no longer available and turned it into reportable income…at a lower rate. And once again…the treasury collected essentially the same percentage of productivity. The prior system was less productive because an electrical supply company should be spending their time on electrical supplies…not maneuvering thru a complex tax system. The less resources you devote to tax compliance, and the more towards growing your business… the more productive you are. Both reforms of the 80’s eliminated complexity. Although we still have a long way to go with that one.

“The Land Investment by doctors and lawyers is not simply personal income. These professional hold real estate in its most favorable tax form”

I am not talking about investment income. I am talking about depreciating the value of a commercial building which is no longer permitted since the early 80’s. When you buy a building, you capitalize it. Back then you could depreciate your office by holding it via real estate partnerships. In today’s dollars, an Attorney making 500k could easily get their taxable income down to 50k.


bradmaster 2 years ago

LandWealth

I disagree with mostly everything you state, but I am waiting to see if My Esoteric wants us to use his hub any further. It appears it is just three people involved, I suspect that their is viewer apathy.

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

You can disagree...but the evidence is quite factual.

Taxes are constitutional whether we like the current system or not....because it is clearly enumerated in the constitution.

Other examples of fact...In regard to the deductions taken away, the passive activity losses that are no longer available are not opinion... they are fact. The outline of the changes under 26 USC 469 can be found here...

http://www.law.cornell.edu/uscode/text/26/469

It is a matter of fact, that tax revenue extracted from economic productivity aka...GDP was as consistent in 80's, 90's and 2000's after tax reform as it was in the 70', 60's and any other decade since the end of WW2. The revenue is broken down from 1934-2013 here...

http://www.taxpolicycenter.org/taxfacts/displayafa...

In regard to pension plans, it is a matter of fact that the PBGC is now on the hook for nearly 4000 currently defunct pension plans. And with the actuarial challenges the country has due to demographic changes in the US...defined benefit plans will no longer exist outside of the Federal Gov't in 30 years.

If you want to debate the impact of VAT tax vs sales tax or income tax, that is clearly conjecture...since each nation may respond differently. However, as the tax policy center clearly notes...in nations where the NST was attempted...tax evasion was clearly a bigger problem, as they cited below...

http://www.taxpolicycenter.org/briefing-book/impro...

"Evasion is higher under a retail sales tax than under a VAT for several reasons. First, retailing is the weakest enforcement link in the entire production chain. Second, if a retailer evades the tax, the full tax on the sale is lost under a retail sales tax, but only the tax on value added at the retail level is lost under a VAT. Third, there is no paper trail with a sales tax."

As far as enforcement goes...you are free to believe that somehow this will eliminate the myriad of IRS bureaucracy. We're free to believe what we wish. I for the life of me can't imagine why the gov't would simply work off of an honor system and assume we will all report our consumption without creating an audit process to verify the validity of taxes owed. You are free to believe that if you like. But I don't imagine a Fed gov't that would ever fail to develop an agency to verify taxes due.


bradmaster 2 years ago

LW

waiting for My Esoteric's response to my question to him.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster. why don't you become a hubber?


bradmaster 2 years ago

My Esoteric

I can't, I have been banned twice.

Under two different names

When they ban they don't give a reason, and there is no warning or dialogue. They just unpublish all your hubs. There isn't any way to know what hub or what caused them to do that.

It is all done with cryptic, ambiguous computer generated messages.

In any case, I think that I might have overstayed my welcome here, and my responses, and others have produced comments larger than a good size hub.

If you are going to write some more hubs with more specific issues, I would be more than happy to comment on them. At this point, the comments are more like the forum, and I could never get the picture with them.

You have been very kind, and responsive to my comments.

Looking forward to reading your new hubs.

Thanks

bradmaster

bradmaster


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Based on our conversations, I don't see why. While, in my opinion, some of your views are over the top, their still just your opinions without being nasty about them or denigrating to others, as I have seen so many others being.

BTW, I leave a lot of comments unapproved so they will show up in my comment box for me to find and finally respond to.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@LandmarkWealth, I didn't address this in a comment i to your hub, but the issue regarding the transition from C corp to S corp or LLCs in the 80s having a major impact on wage distribution is a bit deceptive.

To start with, non-wage income from C corps was in the form of dividends to the major stockholders, the ones who would "benefit" from switching to a S or LLC, assuming the corp chose to distribute its retained earnings in the first place. Assume the major stockholders take the C corp to a S corp with what ever the max number of owners allowed under that organization.

Assume first, the C corp was paying no dividends but the S corp distributes the difference in tax rates to its shareholders. This will be additional income reported by what were already wealthy people; thereby increasing inequality ... agreed?

Assume second, the C corp was paying dividends, which was already being counted as income . Again, lets assume they increase the payout by the difference in tax rates (why should they change the rate to more than this, the change in form offers no other cash advantage to the owners) and we are in the same position of increasing reported income for the wealthy.

None of the above applies because even if middle to low income groups owned stock in the C corp, they would not participate in the S corp or LLC; in fact, they would lose dividend income if it were being paid, making things even worse.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, my argument for continued lack of mobility, since it apparently hasn't improved in the last century, according to some studies, is this, which is related to your statement " To move from Q1 to Q5 may be more a result of how hard you push yourself. "

I absolutely agree with that view, but with an amendment which would make it read " To move from Q1 to Q5 may be more a result of how hard you push yourself and the obstacles placed by others in front of you."

If it were just your statement that was true, then I would expect that the chance of a Q1 making to Q5 would be more like 17% given Q2 is 16%, Q3 is 18%, and Q4 is 22%; instead, it is 7%. Now for the statistics to work out the way they do, given your statement then if you measured the population of each quintile as to "how hard each individual wants to push to get ahead", then the mean of each group would have to be statistically lower than the group ahead of it which says there is something about the children in the Q1 group which makes them less motivated as a whole, than the children in the Q2, Q3, Q4, or Q5 group. Do you believe this to be true?

If you don't, then my modified statement should be closer to the truth, I would think; that there are external forces that are significantly impeding economic mobility and have been for a long time.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@BradMaster, I am not entirely sure which questions you were looking to be answered, but, as somebody once said, let me say this about that.

On the income tax, @Landmark is quite right; the 16th Amendment was written specifically to let the federal government tax individual citizens. It has withstood many Supreme Court challenges from people who feel exactly has you do.

Further, the law is settled on the other issues you bring up regarding self-incrimination, etc.; none of what you suggest is actually correct, you may think it so, but no court in the United States would see your side of the issue.

I have read a few analyses which argue that between the two, a NST is more economically advantageous, but I don't remember why anymore. But the simple fact is, a NST will never fly in Congress while a flat tax might. However, a flat tax without a minimum exclusion of say $50K a person won't make it out of Congress either.

In any case, after having read Piketty, I have dropped my infatuation with both the NST and the flat tax in favor of a relative stiff progressive tax as it is the only real solution to income and capital inequality.


bradmaster 2 years ago

My Esoteric

The question was whether I should continue commenting on this hub.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Oh, no problem. For the most part, people simply read what I write without commenting anymore.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ myesoteric

It’s not deceptive at all. Non-Wage income from C-corps didn’t have to be paid out to shareholders at all. Dividends are not a requirement. Corporations that were not multinationals could hold profits in the company, and also run damn near everything through the company as an expense. They could pay for their entire lifestyle thru the company, which many business owners still do now for the purpose of minimizing profits…and pay only a nominal salary. But the benefit is the profit was never passed to the owner at all on paper, which also avoids double taxation under the C-corp. I am not talking about GM. By law these have to be non-publicly traded companies. (Which I can tell you is a big reason Fidelity never went public). And mid size business owners like that make up a substantial portion of the wealthy. So if the C-corp paid no dividends and then chose to transition to an S-Corp…they didn’t increase anything in terms of wealth inequality. The corporate income was theirs already…since they are the owner of all the shares within the company. They are making the same amount of money, just now taxed as personal income instead of corporate profit. This was common practice at the time and the reason why pass thru entity filings more than doubled from 1980-2007. And when the 1986 tax act was passed…they jumped by 37% in 1 year from 1986-1987. If you don’t believe it read the Congressional Budgets offices report on the shift in business filing. This is a 2012 historical breakdown…

http://www.cbo.gov/sites/default/files/cbofiles/at...

Another major flaw in the income disparity data that I didn’t detail yet is also municipal interest which has been a big source of income for the wealthy. Income interest which is tax free must still be reported on a tax return even if it is not taxed. However, that is a new phenomenon. Prior to 1987…this information was not required to be disclosed on a tax return as before tax income, and was never disclosed. So in any study on interest from Muni’s it is impossible to have included it in any data prior to 1987. It just appeared in the gross (before tax) income in “87”. This is nearly a 4 trillion dollar market in the US which was totally non-existent from a tax return prior to 1987. Does that mean the money wasn’t there prior to 1987 and just appeared as a huge jump in “gross” income for the wealthy. Of course not…it was always there…and simply unquantifiable.

I think as it related to wealth mobility, the issue of motivation can be different for someone who may start at Q1 versus Q3. But that is specific to the person and difficult to quantify as a group. At the lowest end of the economic scale I believe we have institutionalized a very large number of people by addicting them to the dependence of social entitlements and wiping out their motivation. There are an awful lot of people who are products of being provided basic necessities for survival and are now unwilling to do much more. I grew up around a whole neighborhood of them. I also think that there are a number of people who respond very differently to being raised in poverty and use it as a motivator. By the same token some people born to greater means are lazy because work ethic isn’t instilled, as they have it too easy. At the end of the day…this is largely irrelevant. Regardless of the obstacles one has, it is up to them to overcome them. And in the US, as much as any place in the world…that can still be done as much as ever in recent history. There is not and never will be a utopian existence where we all have exactly the same resources. And even if we did, we’d still have different outcomes. It’s no different than watching a sporting event. Some players are born more athletically gifted…and others just have to work harder to get there. What you accomplish still has nothing to do with what the other guy has, or does. So who cares what your neighbors starting point is, it doesn’t change what you have to do. If you are starting in Q1…then push harder and stop waiting for the gov’t to give you something, as many people seem to think it should. That expectation is the biggest obstacle to wealth mobility in my view.


bradmaster 2 years ago

Lw

Once something is a ratified amendment to the constitution…it is by definition part of the constitution…and therefore cannot be unconstitutional unless removed from the constitution. The amendment reads as follows…

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

We can disagree with the amendment…but that is ultimately just semantics.

Bm: What I said was that as the 16th Amendment was Applied, it was unconstitutional by depriving people of their constitutional rights under the Bill of Rights. My comment was directed to the Tax Laws themselves. There is nothing but apportionment in the 16th Amendment.

Lw:

“A NST is simpler, making it less costly to get the revenue. It also gets the revenue faster, without involving a lot of paper work, and investigation.”

Why would it be simpler than a flat tax ??? I make X amount of money and I pay 15% with no deductions. A tax form could be two paragraphs with a flat tax if we wanted it to be. The revenue is no faster than payroll deductions which is bi-weekly in most cases. And there would most CERTAINLY be investigation into the compliance of revenue due under a NST. The Fed’s are not going to work on an honor system. You think much more of the gov’t than I do. There not that trusting. The black market in relation to state sales tax is nominal because the tax is nominal. If we apply a comparable degree of taxation to sales as we do to income, people would go to the same extent to avoid taxation as they do know with income tax. It would just be easier to avoid…until the gov’t starts to audit your grocery bill to track compliance.

BM:

A Flat tax is still filing paperwork, there are deductions, and the rest of the IRC that still plays a part. Making it a flat tax, only changes the rates, it doesn’t change the rest of the IRS complexities.

Payroll taxes don’t account for all the taxes, and that doesn’t come until next year when the forms are filed. Groceries shouldn’t be taxed period. You can’t compare the IRS and IRC with collecting sales tax. It is done a transaction at a time. A flat tax is still on income. A NST lets the taxpayer choose how to spend their money.

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bradmaster 2 years ago

lw

bm: continued

The NST would be the same mechanism as State Sales Taxes, and there is no paperwork, and no need for invasion of privacy, of giving up your right of self incrimination, and it doesn’t need to be signed, much less under penalty of perjury. The black market is always a problem, an that applies to state sales taxes. The black market has its own enforcement.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ myesoteric

As I mentioned...I have not read piketty's most recent work...but this was an interesting, yet short critique. But I have not yet read it.

http://www.cato.org/blog/piketty-problems-top-1-sh...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

The description of what is included in his income data comes from his 2006 work, he just applied it to additional data.


bradmaster 2 years ago

Lw:

The fact that the population has gone from 200-300 plus million is exactly why you must work off of %’s when looking at revenue. If you add a 100 million people GDP in raw data looks like we just got a whole lot richer. When you look at GDP in relation to the population you have perspective as productivity is divided across the population, as well as fiscal liability for the additional 100 million people.. You have that one totally backwards. That’s like saying that because you received a promotion that doubled your income that you are doing twice as well. That is only true if all other things remain constant. If your expenses went up 4 fold, than the raise doesn’t mean you are better off. So we look at all things in proportion. Obviously when we add 100 million people to the population, the GDP increase must be measured in relation to increased liability in SS, medicare etc.

Bm:

What I have been saying is that percentage doesn’t tell the real story.

The GDP has outlived its usefulness.

Adding over one hundred million people took about thirty years, and during that time many changes occurred. So unlike your example it is not adding a multiplier to a constant. There are many variables that were changed during those thirty years. And you need to look at the details, and not the percentages to figure out the current situation.

We have been at war since 1991, and that caused a lot of spending by the government on the war. The Tax Reform of 1986 was a major change in income tax. Credit card interest, fees and charges increased over time. M&A along with the globalization of large companies have increased. The financial industry went out of control as they lost a lot of money and became insolvent. The government didn’t bail out their victims, and they lost their homes, their jobs, and many found themselves on unemployment, welfare and food stamps.

The FRB kept the interest rates unreasonably low to spur the sub prime bubble, and then after the economic meltdown, they spent hundreds of billions of dollars on the same bundled real estate investments that caused the collapse.

Do you really think that percentages tell that story?

Lw:

“The federal government seems to prefer it for their government employees, and they always get the fixed benefit”

The Federal gov’t is the only place where Defined Benefits work…because only the Federal Gov’t can’t create net new currency out of thin air. When Pan Am was going under, they couldn’t just mint more money. And even the Federal gov’t doesn’t operate exclusively off of DB plans. They also utilize defined contribution plans like the Thrift Savings plan to ease the actuarial liability.

Bm:

The primary pension is the DB, the Thrift is just an additional bonus, as is SS.

-----


bradmaster 2 years ago

Lw:

The fact that billionaires are increasing is a GOOD thing. We want to make more wealthy people. The Piketty/Saez reference it a study done on the widening income Gap which is greatly flawed because it doesn’t adequately take into account the changes in the tax code. It is often the source of an amplified suggestion of a widening income gap. To simplify it more…If I made 2 million dollars in 1979 and reported it thru a C-Corp and kept the money in the company, when my personal return was filed, I didn’t make that two million. When the tax code changed, many people now report that income via pass thru entities like an LLC on a K1. Now all off a sudden that income is personal and not corporate. So it appears that my income jumped up…when in fact it was just reported differently. That has been a strong trend since the early 80’s. It is not a jump in income as much as it is a shift from corporate to personal income. For a better understanding…I outlined it below…

Bm:

These billionaires are wealthy because of the IRC and that is not a good thing. Many of these billionaires are wealthy because they hold millions of shares of stock, and they don’t pay taxes until they sell, and then it is at a low capital gains tax. Your example of Sub chapter S and Limited Liability Corporations don’t account for wealth of the billionaires. They are not declaring any income that they can hide, defer, get reduced taxes, or put into a form that is not taxable, thank you IRC. Many wealthy people live on corporate wealth. as they are asset poor, while the company is asset rich.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

So then Piketty is still incredibly flawed...failing to discount the fact that things like muni interest was not reported until 1987. Ignoring transfer payments etc.


bradmaster 2 years ago

Lw

Credit Cards were just one deduction…along with depreciation etc. They were eliminated to increase the declaration of income.

Bm:

Credit card deductions, and sales tax, along with medical expenses were the only real deductions that most wage earner had to declare.

Lw

When rates are higher wealthy people shelter and declare less income, because they can control when the realize income far more than the average citizen. The 1980’s where some of the best work ever done in incenting capital formation. It pulled substantial amounts of revenue from shelters that were no longer available and turned it into reportable income…at a lower rate. And once again…the treasury collected essentially the same percentage of productivity. The prior system was less productive because an electrical supply company should be spending their time on electrical supplies…not maneuvering thru a complex tax system. The less resources you devote to tax compliance, and the more towards growing your business… the more productive you are. Both reforms of the 80’s eliminated complexity. Although we still have a long way to go with that one.

Bm:

I agree, and that is why taxes should be simplified like the NST, and that tax could be 10 or 12% if you don’t let corporations pass taxes to the consumer.

--------

“The Land Investment by doctors and lawyers is not simply personal income. These professional hold real estate in its most favorable tax form”

I am not talking about investment income. I am talking about depreciating the value of a commercial building which is no longer permitted since the early 80’s. When you buy a building, you capitalize it. Back then you could depreciate your office by holding it via real estate partnerships. In today’s dollars, an Attorney making 500k could easily get their taxable income down to 50k.

Bm: 50k how?

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My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, as I mentioned in my remarks in your hub, transfer payments account for only 3% of national AGI; it makes e difference in the bigger picture. Where the bottom 50% accounts for 11% of AGI compared to the top 1%'s 18.7% without considering transfer payments, the figures change to 14% and 18.1%, respectively ... no big whoop in my opinion.

So what if muni interest wasn't reported until 1987, assuming it is even significant, it just means the divergence between high and low wage earners was a tiny bit bigger; it doesn't have any noticeable effect on the larger trend. To do so, what Piketty missed would have to be very large.


bradmaster 2 years ago

LandmarkWealth 28 hours ago from Melville NY Level 1 Commenter

Lw:

You can disagree...but the evidence is quite factual.

Taxes are constitutional whether we like the current system or not....because it is clearly enumerated in the constitution.

Bm:

When it comes to the law, and the constitution there is nothing factual, only judicial notice comes close to factual.

The first amendment has limits, you can’t yell fire that doesn’t exist in a crowded theater. You can’t say untrue things about people, and be protected by it.

Most of the constitution is pretty light on enumeration, that is why the first ten amendments enumerated some of them.

The constitution is merely a guideline, and it takes the SC to say when the line is crossed. The Income Tax is a Codified Law, and it as any law can be reviewed by the Supreme Court. Unfortunately, it seems in matters of US revenue the court has not decided properly.

For example, the SC found that based on the Commerce Clause, just a couple of lines, that a person having a ten acre produce garden was having an effect on Interstate Commerce. Does that sound like a good decision? This case was in the 1940s.

Lw:

Other examples of fact...In regard to the deductions taken away, the passive activity losses that are no longer available are not opinion... they are fact. The outline of the changes under 26 USC 469 can be found here...

http://www.law.cornell.edu/uscode/text/26/469

It is a matter of fact, that tax revenue extracted from economic productivity aka...GDP was as consistent in 80's, 90's and 2000's after tax reform as it was in the 70', 60's and any other decade since the end of WW2. The revenue is broken down from 1934-2013 here...

http://www.taxpolicycenter.org/taxfacts/displayafa...

Bm:

What does this have to do with the average wage earner no longer allowed these deductions?

--------------------

Lw:

In regard to pension plans, it is a matter of fact that the PBGC is now on the hook for nearly 4000 currently defunct pension plans. And with the actuarial challenges the country has due to demographic changes in the US...defined benefit plans will no longer exist outside of the Federal Gov't in 30 years.

Bm:

So why do we allow DB for the government, when it will cost the taxpayers more that DC?

-----

If you want to debate the impact of VAT tax vs sales tax or income tax, that is clearly conjecture...since each nation may respond differently. However, as the tax policy center clearly notes...in nations where the NST was attempted...tax evasion was clearly a bigger problem, as they cited below...

http://www.taxpolicycenter.org/briefing-book/impro...

Bm:

I never mentioned a VAT tax, only a NST which is not a Value Added Tax.

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"Evasion is higher under a retail sales tax than under a VAT for several reasons. First, retailing is the weakest enforcement link in the entire production chain. Second, if a retailer evades the tax, the full tax on the sale is lost under a retail sales tax, but only the tax on value added at the retail level is lost under a VAT. Third, there is no paper trail with a sales tax."

As far as enforcement goes...you are free to believe that somehow this will eliminate the myriad of IRS bureaucracy. We're free to believe what we wish. I for the life of me can't imagine why the gov't would simply work off of an honor system and assume we will all report our consumption without creating an audit process to verify the validity of taxes owed. You are free to believe that if you like. But I don't imagine a Fed gov't that would ever fail to develop an agency to verify taxes due.

Bm:

Of course the government wouldn’t want a NST, but technically this is a country of the people. I think that most people would rather pay a NST then continue to watch Income Tax change every year. Keep records, make decisions on tax implications, and all the rest of the work in paying income taxes. First of all, paying taxes should be equally paid by all. Unfortunately, the SC only believes in equal protection, if you are gay and want to get married.

It is not the honor system any more than the 1040. The income tax breeds more creative tax filings, then simply paying a tax on a purchase. We do it everyday in those states that have a sales tax.

The NST doesn’t care if you are single, married, a corporation, a partnership. It only cares that you purchased an item that is taxable.

Less government spending is better than having to raise taxes. If the federal government keeps stepping on things that should have been left for the states under tenth amendment, there will be no need for the states.

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bradmaster 2 years ago

lw

Just to clear up the constitution issue of unconstitutionality.

My point is how it is applied.

The SC didn't say that the death penalty wasn't constitutional. It said that as the method used to impose the death penalty was unconstitutional.

So when the Income Tax mandates that a person give up their right to be protected against self incrimination, the court should have decided that application was not constitutional.

Every amendment has a limitation, as they are not absolute, and only the SC can make that decision.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Saying that "Non-Wage income from C-corps didn't have to be paid out to shareholders at all. Dividends are not a requirement ...". @Landmark is a non-player in Piketty's scheme of things. From what you say there, I get the impression none of these "perks" were ever reported as income when received from a C corp and were still never reported when converted to an S or LLC. Consequently, how do they enter into the equation either before or after the change? Under the scenario you presented there, the reported AGI wouldn't have changed very much with the change in form.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster, see Garner v. United States, 424 U.S. 648 (1976), it is one of many cases brought to the Supreme Court by people asserting various loopholes in the 16th dealing with self-incrimination ... none, to my knowledge, have even come close to winning. Give it up, they got you by the balls, lol.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ bradmaster

“The Income Tax is a Codified Law, and it as any law can be reviewed by the Supreme Court. Unfortunately, it seems in matters of US revenue the court has not decided properly”

It is not just law. It is a constitutional amendment. And yes the constitution is open to a great deal of interpretation. That is why we have a judicial review option of legislation…which has been done…declaring it constitutional. Good or bad decision…if the courts says it is constitutional, then it is. The court can strike laws down. And then the congress and president or even the states themselves can alter the very constitution…which they did with the 16th amendment.

“A Flat tax is still filing paperwork, there are deductions, and the rest of the IRC that still plays a part. Making it a flat tax, only changes the rates, it doesn’t change the rest of the IRS complexities.”

No matter what there will be paperwork unless you believe that the gov’t will work off of an honor system. A flat tax can be less complex if we eliminate AMT, itemized deductions etc. If the rate is 20%...you make 100k…you pay $20k…pure and simple.

Payroll taxes are collected from employee’s at the same time income tax is paid. That is irrelevant because it is not an income tax anyway and is treated as funding for social insurance.

When an employer collects income taxes they typically file a quarterly return and send the IRS and the state the money due at the end of the quarter. With the NST it would be no different. Do you think that the company you bought a product from is going to send the sales tax revenue collected to the treasury daily ??? Obviously that would be an administrative nightmare. They collect X amount in sales tax and then send it to the gov’t at the end of the quarter same as they do now, or they would have to hire even more people for tax compliance to make sure the money was sent to the treasury by the end of the business day. This money has to be accounted for. There still has to be paperwork…someone has to verify the info. What do you think is going to happen…is the Gov’t going to set up a daily drop box and the treasury sends an official to collect the funds daily. A mechanism for tax compliance will be necessary no matter what we choose to tax.

“Many of these billionaires are wealthy because they hold millions of shares of stock, and they don’t pay taxes until they sell, and then it is at a low capital gains tax. Your example of Sub chapter S and Limited Liability Corporations don’t account for wealth of the billionaires.”

I fail to see you point here. If I hold my money in an asset, why does it matter if it is in stock or another capital asset. If I bought stock in a company I am a participant in creating the market that we use for capital formation, without which no company could expand. The more people buy stock, over the long run is a good thing. Would you rather they put the money under their mattress where it can’t be lent via an increase in excess bank reserves, or invested in capital expenditures ??? By what market mechanism do you wish to raise capital ???

It is however true that many wealthy investors do go to great pains to hide money in tax shelters. I know, because I help them do it for a living. And I can tell you not only from experience, but also pretty empirical data, that when rates are lower people declare more income. We saw that in the early 2000’s when the rules for qualified dividends were passed. Muni income dropped and taxable dividend income shifted higher. This is expressly the reason for a simplified flat tax system…so there is incentive to declare income and realize capital gains. This is also why it is that the tax revenue never changes as a share of GDP. It’s also sometimes referred to as the Laffer Curve. A tax rate of 0% generates “0” revenue. A rate of 100% also generates “0”revenue…because nobody works for free. The trick is to determine what is the optimal max rate at which people will comply with the code and declare income, without the incentive to seek out shelters or going off shore etc. That optimal rate is of course open to opinion. I personally say it is 15-20%, since that is all we ever actually collect from economic activity anyway.

The examples of S-corps/LLC’s are a reference to income shifting, and how misleading Piketty has been in his analysis. It does nothing to change the wealth of rich people. That is entirely the point. Their wealth was always there in a similar proportion.

“Credit card deductions, and sales tax, along with medical expenses were the only real deductions that most wage earner had to declare.”

The standard deduction went up, as did itemized deductions on IRA contributions and the ability to combine them with qualified plans and a host of other things. They still had mortgage interest and property taxes etc. Credit interest is one of the most foolish deductions. It only incents consumer debt.

The example of a Dr or other professional reducing their income is a hypothetical dollar amount. But prior to the 1980’s tax reforms investors “wealthy professionals” could put their liquid assets in real estate partnerships that bought property that was underwater and was declaring losses on paper. There were no real limits here. So unlike today where the maximum loss on a capital investment is 3k annually against ordinary income, they could collect passive activity losses that would pass onto the personal return that were massive. These were basically money losing schemes on paper to bring down your taxable income, while investing in distressed property in many cases at bargain prices. These deductions were tossed out in exchange for a lower rate and less unproductive deductions. This was a step towards tax simplification and encouraging people to declare more income. This was just one example of such money losing paper games that were being played.

“So why do we allow DB for the government, when it will cost the taxpayers more that DC? “

Great question…why do we allow the gov’t to waste enormous of money routinely on countless things. Because who is going to put a stop to it ??? Since when does the gov’t do anything in a cost effective way ??? The only people setting up DB plan are small business owners with few to no employees who will close the plan and roll the lump sum out because the contribution limits are so high and the tax break is great. The DB is never actually paid out as a lifetime income in that scenario.

“I never mentioned a VAT tax, only a NST which is not a Value Added Tax.”

No I did. And I am pointing out that if you plan to tax consumption…the VAT tax is a better historical mechanism bases on data collected from around the world for the reasons illustrated.

“The income tax breeds more creative tax filings, then simply paying a tax on a purchase”

Not under a flat tax with not deductions. There is no longer room for creativity…and we don’t need a constitutional amendment to implement it.

“Less government spending is better than having to raise taxes”

I generally agree…but not always. Sometimes more gov’t spending is quite necessary in order to create deficits and expand the monetary base. As I said earlier, gov’t surpluses and deficits should be driven by private sector demand/consumption.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Yea! Someone on the Right finally agrees with me via "The constitution is merely a guideline, and it takes the SC to say when the line is crossed. ", although I might use a little more weighty a term than "guideline" given that the Constitution is law. What the SC determines in Judicial Reviews is if Congress "exceeded" the law.

Only the Preamble doesn't exactly have the force of law but it is used by the SC as a test to see if things are constitutional or not because it clearly states the intent of the Constitution and the Mission of Government.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Your view, @LandmarkWealth is "... If you are starting in Q1…then push harder and stop waiting for the gov’t to give you something, as many people seem to think it should. That expectation is the biggest obstacle to wealth mobility in my view."

However, in my view, it is the obstacles placed in front of those in especially Q1 and Q2 by those in Q5 and/or a social Darwinist philosophy that say allows unequal funding of school districts in a state and schools withing districts to happen, where state and local officials insure white schools have better teachers than black schools, that created the biggest hurdle.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ my esoteric

I think you missed the point and so does Piketty. If I can pay for perks out of a C-corp just like an S-corp for the purposes of subsidizing my lifestyle, than the benefit is a reason to draw less salary, bonus or dividend for cash flow which means less income on the personal level. But now that I am drawing a small salary for the difference, I can keep retained profits in the C-corp and get taxed at the corporate rate, which made more sense at the time. Then sell the company and get taxed only at cap gains rates some time down the line. Or maybe draw it as a bonus when I am ready to call it quits. It is a form of tax deferral keeping the money in the C-corp to avoid double taxation at a lower rate for many years. As simple Example…let’s assume I can support my lifestyle after perks are covered with 100k in income.

Company A..is an S-Corp

Salary declared is 100k (Reported as Personal Income)

K1 profit is 800k (Reported as Personal Income)

Company B is a C-Corp

Salary 100k (Reported as Personal Income)

Retained Profit 800k (Reported as Corporate Income and does not show in Piketty data)

Now the tax laws change in the 80’s and I have to be a fool to keep the C-corp status and use the retained earnings strategy. Consequently pass thru entities went up nearly 40% in one year immediately following the legislation. Hardly a coincidence. And of course my income on paper just went up 800k, even though I was making the money all the while.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

No argument from me on the education front. The lowest income schools typically get more money per student in finding anyway. But it hows the money is spent and accountability. I think every parent should get a voucher worth precisely the same dollar value. Let each school compete for that funding, and let parents and kids have the choice to send their kids wherever they wish. I am married to a public school teacher who teaches in a very low income district. She calls the public school system legalized segregation.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@myesoteric

I am tired and done for tonight. I will leave you with this. The above example of pass thru changes via the tax law is a very basic example. The attached piece is from the journal of accounting research a few years back and looks at some more complex techniques that companies that retained the C-corp status used at the time to shift income from corporate to personal for favorable treatment after the 80's. Frankly, from what I read of Piketty...it's a bit over his head. He looks at macro data and not the real detail behind much of these macro changes. I don't expect you to read all of it...because it's incredibly boring to most people...except me. But you're smart enough to get the key points in the first couple of pages.

http://www.ntu.edu.sg/home/kebin/research/papers/t...


bradmaster 2 years ago

guys

Seeing how I am apparently out of the loop.

I will leave you with this.

The Income Tax System, and the government intervention into economics is part of the root cause of the decline of the US, economically. And thanks to the two party system, and its divergent goals, they really messed up the spending part, and that necessitated increased avenues of taxes. Every time a dollar hits the streets, doesn't mean that it has to be taxed, by the federal government, the state government, and the local governments. Like it should be done in the corporate world, the governments should balance the revenue to the spending. To do otherwise is chaos, and irresponsible. There is nothing in the constitution that supports having the government spend more than it receives.

The problem with economic is that it is not a real science. If you ask the top economists about the economy and how it should work, you get opposing theories. You only have to look at the economy over the last one hundred years, to see that no one really had a good idea. The dot com, and the sub prime bubbles were deviant mechanisms that unlocked the financial safe guards of prudent investing, and made them nothing more than modified Ponzi Schemes. The SS system is one of the governments home grown Ponzi.

You can rumble through all the data, and you can evaluate them, but the real result is how we got here today. I would find it hard to believe that we got here with good economic modeling by congress.

The government is feeding fish to the people, and making it hard for people to fish for themselves.

I will wait for the next hub.

Thanks for the forum

bradmaster

The Bill of Rights could have easily been enumerated in the constitution without making amendments. The other seventeen amendments wouldn't have been necessary if the constitution had been made clear. But the fact is that the founders didn't think slavery, woman's rights, and making the federal government taking away some may of the functions they thought should be the domain of the states.

Over the years, the Supreme Court with its 5-4 decisions has watered down the constitution. For example, the Commerce Clause was there only to prevent the states from taxing interstate commerce without apportionment. Yet, the Supreme Court interpreted it, to give power to the federal government based on the slightest suggestion of federal domain.

The example I gave about the farmer who had set aside ten acres for personal use, was decided by the Supreme Court to be controlled by the commerce clause because he wouldn't be buying produce from the interstate market. Another case, held that a phone in a hotel, allowed it to be a federal matter because the phones are tied across the states.

These were pretty far reaching decisions to bring control to the feds on matters that really were strictly state matters.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

You’re not out of the loop as I responded to you, and you’re welcome to continue to participate.

“The Income Tax System, and the government intervention into economics is part of the root cause of the decline of the US, economically”

No argument there…I am just simply saying taxing consumption is a less practical transition towards simplification.

“governments should balance the revenue to the spending”

This is actually not necessarily the case. If spending and revenue were balanced to the penny in perpetuity…how do we introduce new currency into the economy ??? When we’re talking about corporations, they are not in the business of minting new currency and are legally forbidden to do so, so that statement would be more accurate.

“The problem with economic is that it is not a real science. If you ask the top economists about the economy and how it should work, you get opposing theories”

Then if that is the interpretation of science…there is no such thing as science. People in the fields such as chemistry, biology, anthropology etc…disagree all the time. In fact in the field of economics…there are many areas of consensus. You can look at economies around the world over a 1000 years or more and find asset bubbles and economic crisis. This doesn’t mean that it is not a science because poor decisions are made. All science is imprecise in various areas and is a work in progress. Science has shown us that smoking cigarettes is detrimental to your health. Because people still make the foolish mistake of doing so doesn’t mean it is not then scientific.

“The Bill of Rights could have easily been enumerated in the constitution without making amendments”

Yes they could have been but weren’t because the constitution was not written and ratified by any one person. While Madison may have been a key author…many of the Jeffersonian Republicans felt the Federalist didn’t go far enough in protecting personal freedoms. So they later added the amendments and gave us the power to continue to do so. I personally feel the Kelo decision in New London as well as the recent ACA decision were terrible interpretations. But because I feel that way still doesn’t change the fact that they are constitutional as determined by the process we have in place.


bradmaster 2 years ago

LW

“The Income Tax System, and the government intervention into economics is part of the root cause of the decline of the US, economically”

No argument there…I am just simply saying taxing consumption is a less practical transition towards simplification.

bm:

What could be simpler than NST. You buy something, you pay the tax, end of story.

----

“governments should balance the revenue to the spending”

This is actually not necessarily the case. If spending and revenue were balanced to the penny in perpetuity…how do we introduce new currency into the economy ??? When we’re talking about corporations, they are not in the business of minting new currency and are legally forbidden to do so, so that statement would be more accurate.

bm:

What I said was that the government shouldn't spend more than they get in revenue.

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“The problem with economic is that it is not a real science. If you ask the top economists about the economy and how it should work, you get opposing theories”

Then if that is the interpretation of science…there is no such thing as science. People in the fields such as chemistry, biology, anthropology etc…disagree all the time. In fact in the field of economics…there are many areas of consensus. You can look at economies around the world over a 1000 years or more and find asset bubbles and economic crisis. This doesn’t mean that it is not a science because poor decisions are made. All science is imprecise in various areas and is a work in progress. Science has shown us that smoking cigarettes is detrimental to your health. Because people still make the foolish mistake of doing so doesn’t mean it is not then scientific.

bm:

My point is that economists cannot agree because economics is not precise. Economics is about propensities, and that is not anything more than a trend. There are too many uncontrolled variables to make then solving a chemistry equation.

Where were the economists during the dot com, and the sub prime?

They couldn't agree on a plan before the bubble, during the bubbles, and after the bubbles burst.

-----

“The Bill of Rights could have easily been enumerated in the constitution without making amendments”

Yes they could have been but weren’t because the constitution was not written and ratified by any one person. While Madison may have been a key author…many of the Jeffersonian Republicans felt the Federalist didn’t go far enough in protecting personal freedoms. So they later added the amendments and gave us the power to continue to do so. I personally feel the Kelo decision i n New London as well as the recent ACA decision were terrible interpretations. But because I feel that way still doesn’t change the fact that they are constitutional as determined by the process we have in place.

bm:

I gave the example of the commerce clause.

The seventeen additional amendments after the Bill of Rights aren't really helpful. As I have mentioned before, the constitution really didn't even consider all men equal, much less women. The 15th and 19th amendments were needed for that. It is interesting that the 14th Amendment that gets a lot of mileage today for equal protection, didn't include women in the 15th amendment. It took from the end of the Civil War to 1920 to get women into the voting booths. And during that time, the 14th amendment was resting.

The constitution is a very terse document, and that leads to many interpretations. Sometimes good interpretations, but more times bad ones.

The 16th amendment like the commerce clause was not correctly interpreted by the SC. There was nothing in the constitution that suggested that the central government should grow out of control. The logic of the SCOTUS in these matters is questionable to say the least.

SCOTUS decisions are the law of the land, so why do they allow a simple majority of the nine justices to make such an decision. The purpose of the SC is to pick the cases that need to be reviewed. They get thousands of cases, but pick a few. And that is because their decisions become the final one.

There are ways to get directly to the SC, but in most cases it goes up the federal judicial ladder. No court including the SC actually can't resolve social issues, although their decisions are still the law. Roe v Wade never resolved the issue of the right to life. They just put in a three step process defining the increasing interest of the state. Every presidential election since 1974, the right to life issue is brought to the foreground.

The constitution is useless in these matters. They are great with platitudes, and intentions but they are ambiguous because of their lack of details. They can tell you specifically what age you can vote, or how old a person has to become a congressmen or president, but they don't tell you when a sperm and an egg become a person.

Finally, as I have mentioned before there are limits imposed on the constitution and its amendments in the manner in which they are applied. In the case of the 16th amendment it is applied by the law that is found in the USC. It is also the application of Article 1 Section 8. But neither the Article, nor the amendment is without limits, any more so than is the first amendment, or any of the other amendments.

When was the last year or decade when you think that the country was moving forward?

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ bradmaster

“What could be simpler than NST. You buy something, you pay the tax, end of story.”

Setting up a new agency to track the receipts of the funds. Passing a constitutional amendment to first repeal the income tax, which won’t happen unless you first implement the NST because congress would want a guaranteed revenue source in replacement in advance. And then if the NST is passed they may not repeal the 16th amendment and you’re stuck with 2 taxes. Plus as the tax policy center studies of NST implementation has shown globally, it is more susceptible to black market activity. It is much easier to implement the flat tax. It requires less votes and no amendment, and the result in terms of revenue and simplification would be no different, and harder to circumvent.

“What I said was that the government shouldn't spend more than they get in revenue”

I understand what you said…but in order to increase the money supply the gov’t by definition has to spend more than they get in revenue. The way in which we create new currency and circulate it through the economy as part of the monetary base is via gov’t deficits. The gov’t spends X and takes back Y. If X is more than Y the monetary base increased. If Y is more than X than the monetary base is contracted. Unless you are arguing for a fixed money supply, you can’t have a balanced budget in perpetuity.

“My point is that economists cannot agree because economics is not precise. Economics is about propensities, and that is not anything more than a trend. There are too many uncontrolled variables to make then solving a chemistry equation.”

There is a lot more uncontrolled variables in the natural sciences. My father is in need of a bone marrow transplant as we speak. The Dr’s as Sloane Kettering, Moffit Cancer Institute, and John Hopkins all disagree on the course of action, or for that matter what type of lymphocyte disorder he even has…because it is all based on the interpretation of the weight of the evidence. All science is imprecise. Have a radiology report done by two different radiologists and you’ll get a different answer, because it’s all interpretation. There are trends in weather patterns that have climatologist and meteorologist in total disagreement. Theoretical physicist and Astrophysicist disagree on so many things I couldn’t even begin to list them all.

Again, you’re only listing your opinion on the validity of decisions rendered. But the definition of whether or not a legislative action is or is not constitutional is if the court deems it to be. It doesn’t matter whether you or I agree, or if the decision remains controversial. That is how our process works as defined by our founders. Just because a decision is controversial doesn’t mean that it overturns its constitutionality. And in the case of the 16th amendment, this is not just a law. It is in fact a constitutional change. If it could be ratified, the entire 1st amendment could be repealed or altered, and it would be constitutional. The court only determines whether or not a law is consistent with the constitution. It does not make the law or write the constitution. If our elected officials or the states via a constitutional convention had the necessary votes, they could alter anything in the constitution, presuming it did not contradict another aspect of the constitution, in which case the court would again rule. And under any such changes to the document the court would have to interpret any future legislation based on those changes…not the original document. For example, if the states organized a constitutional convention they could re-write the entire document. And whatever came of it would be constitutional…because that’s what the new document would say. Disagree with interpretation all you like…but that doesn’t change constitutionality. Our founders wanted judicial oversight…and that’s why we have it. The legislative branch writes the law, and can along with the president or the states change the very constitution itself. The judicial branch interprets whatever law based on the current documents or any changes made to it.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@LandmarkWealth, for comment beginning with "I think you missed the point and so does Piketty ..." I do like concrete numbers.

I am not positive about an S-Corp, but am sure about an LLC, there are many more deductions available to a C-Corp than the others that would tend to drive retained earnings below that of net profit for and S or LLC with identical operations. That would mean the difference in tax rates would have to more than offset the deduction advantages of a C-Corp.

First, let me say that when Piketty looks at national income (which includes profits, etc) rather than simply national AGI, the divergence gets even worse.

But, you raise an interesting point. Since Piketty makes a clear distinction between income from wages and capital incomes, it would seem my characterization of his measure of wages as being AGI must be wrong, since it includes capital income. To be consistent, he has to subtract in capital income from AGI and add it to his capital income totals. I will have to research that further.

In any case, as I said, it doesn't make in difference for when you consider national income, which includes both, you get an even worse picture of inequality.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster, I concur, you are not out of the loop, but there are two different threads going on at the moment. One deals with what you initially brought up and the three of us are participating in and the other is an on-going, over several different hubs, discussion on wage and capital income inequality @LandmarkWealth and I have been having; specifically over whether economist Thomas Piketty's choice of income tax records as one of his measures of inequality was appropriate or not.

If income tax records aren't a good source , then inequality can't really be measured empirically, only anecdotally, for there are no other data sources comprehensive enough to draw firm conclusions from.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, I found a couple of more numbers for you to chew on.

- 1970 (low point) to 1985, the share of labor income for the top 10% rose from about 34% to about 38%. Then from 1985 to 1990, over your transition period, it jumped from 38% to 43.5%. But from 1990 to 2010, it kept increasing from 43.5% to the current, what looks like 47%.

- more precisely, over the same time frames for the top 1%, the rates went from 8% to 9%, then jumped to 13% from 1895 to 1990, and is now 18%

- for the top .1%, they are 2% to 2.9%, then to 4.9%, and finally 7.5% today, and this is just labor, so you can imagine what is happening at the bottom end.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

S-corps and LLC’s are essentially taxed the same in every way. You can even be an LLC and elect to be taxed as an S-Corp. In the case of the C-corp, the point is that no matter what deductions you have, many show substantial profits. As such pre 1986 it made more sense to retain earnings for private entities. Post 1986, there was a concerted and quite successful effort to transition from corporate to personal income. New entities organized as pass thru entities much more often. Existing entities either changed status or used methods cited in the Accounting Research paper I cited to transition from corporate to personal. And the tax incentives were more than enough to do so.

Looking at aggregate income including corporate profits as a measure is about as misleading as could be. That pulls in publicly traded companies as well. So if I owned Microsoft in the 80’s or Apple in the early 2000’s…these companies paid out nothing in dividend income for a long…long time. If I owned stock in these entities, I made a fortune and realized no reportable income unless I actually sell it. In fact I made a fortune on almost every stock thru the 80’s and 90’s. And even then I have no reportable income if I have a capital loss carry forward from years prior. (Creating capital losses on paper to offset a gains is an art form I have personally have perfected…which is totally legal for my clients) And if I sell it in a tax shelter like an IRA...still no reporting. It's as though it never existed. On paper, companies like Microsoft and Apple retained all the profit. Yet, individual investors…pension funds…education endowments…charitable organizations are all shareholders benefiting from this wealth increase, and on paper…it’s just corporate profit. To use such a method is ridiculous. I am much better off having owned Apple who retained all their earning during that time than General Electric who paid out a steady cash flow and the price went nowhere.

You have to segregate closely held private companies from public entities in such an analysis. And as the accounting research showed…when we’re talking about closely held C-corps…the data necessary isn’t collected. It’s almost as ridiculous as instituting an 80% tax and believing you’ll actually collect on it.

Not to mention failing to account for the now 4 trillion dollar municipal market, which he couldn’t possibly have accurate data for, since there was absolutely no income reported to the IRS pre 1987. And there would be no way to determine from total debt issuance how much was held by an education endowment versus an individual or even a money market. The IRS keeps no such records. Perhaps he wants to start at looking at who bought each new issue for the last century, and then track them all down to see who they sold them to with accrued interest. Of course those records are only held typically 10 years, and only six years by law…if underwriters and selling syndicates didn’t close shop or merge.

Then there is the impact on the weighting of income due to the importation of unskilled low income labor which just arrived in the country in huge numbers. The second they become a legal citizen they widen the disparity.

Plus his total exclusion of the impact from transfer payments, as if the money didn’t exist.

Lastly, his very work has recently been subject to serious critique because of all of the data flaws found. I won’t go as far as calling it intentional unless that can be proven.

http://www.businessinsider.com/the-ft-accusation-a...

I would suggest that the statement that we can’t measure income inequality accurately via tax records to be 100% true. Perhaps if we had a simpler tax system…then this would not be an insurmountable tax. Even then a relevant comparison to past decades would still be impossible…because we didn’t record so many things in the past…and we can’t alter past history of complexity. If Piketty attempted this in good faith, then I applaud his efforts. But no…it can’t be done with just tax records. But pretending it can be done with even a small degree of accuracy is a good way to stir up a political hornet’s nest…if that is the goal.

I can tell you that at least once a month I speak to an economist speaking at an FPA meeting. And I have had the benefit of working with many over the years. Piketty’s work is just not taken seriously behind the scenes. His work is not held in the esteem of people like Robert Shiller or Eugene Fama. Economist due disagree quite a bit. But he is regarded as someone with a political agenda. If you lean left politically, as I believe you do…there are far better serious economist with more reasonable ideas.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Here's a response about your FT article that commented on the FT-Piketty feud.

http://www.nytimes.com/2014/05/31/upshot/everythin...

Also, Paul Krugman weighed in with this:

http://www.nybooks.com/articles/archives/2014/may/...

The UPSHOT article did point out that research by Piketty using other, less specific methods support is outcome, but so do independent research of others not connected with Piketty as well as simple observation of the world around us.


bradmaster 2 years ago

lw:

“What could be simpler than NST. You buy something, you pay the tax, end of story.”

Setting up a new agency to track the receipts of the funds. Passing a constitutional amendment to first repeal the income tax, which won’t happen unless you first implement the NST because congress would want a guaranteed revenue source in replacement in advance. And then if the NST is passed they may not repeal the 16th amendment and you’re stuck with 2 taxes. Plus as the tax policy center studies of NST implementation has shown globally, it is more susceptible to black market activity. It is much easier to implement the flat tax. It requires less votes and no amendment, and the result in terms of revenue and simplification would be no different, and harder to circumvent.

bm:

You don 't have to repeal the 16th amendment, you could just write a law changing the taxes from income to consumption. The 16th amendment doesn't mandate, it just clarifies.

-----

“What I said was that the government shouldn't spend more than they get in revenue”

I understand what you said…but in order to increase the money supply the gov’t by definition has to spend more than they get in revenue. The way in which we create new currency and circulate it through the economy as part of the monetary base is via gov’t deficits. The gov’t spends X and takes back Y. If X is more than Y the monetary base increased. If Y is more than X than the monetary base is contracted. Unless you are arguing for a fixed money supply, you can’t have a balanced budget in perpetuity.

bm:

Reducing spending to below the ever increasing budgets is better than expanding the monetary base. Increasing spending too date has been for the sole purpose of the federal government taking more of the states province and making it their own. Balancing a budget doesn't always mean that you reduce spending, it means you shouldn't keep borrowing from the money printing press.

------

“My point is that economists cannot agree because economics is not precise. Economics is about propensities, and that is not anything more than a trend. There are too many uncontrolled variables to make then solving a chemistry equation.”

There is a lot more uncontrolled variables in the natural sciences. My father is in need of a bone marrow transplant as we speak. The Dr’s as Sloane Kettering, Moffit Cancer Institute, and John Hopkins all disagree on the course of action, or for that matter what type of lymphocyte disorder he even has…because it is all based on the interpretation of the weight of the evidence. All science is imprecise. Have a radiology report done by two different radiologists and you’ll get a different answer, because it’s all interpretation. There are trends in weather patterns that have climatologist and meteorologist in total disagreement. Theoretical physicist and Astrophysicist disagree on so many things I couldn’t even begin to list them all.

Again, you’re only listing your opinion on the validity of decisions rendered. But the definition of whether or not a legislative action is or is not constitutional is if the court deems it to be. It doesn’t matter whether you or I agree, or if the decision remains controversial. That is how our process works as defined by our founders. Just because a decision is controversial doesn’t mean that it overturns its constitutionality. And in the case of the 16th amendment, this is not just a law. It is in fact a constitutional change. If it could be ratified, the entire 1st amendment could be repealed or altered, and it would be constitutional. The court only determines whether or not a law is consistent with the constitution. It does not make the law or write the constitution. If our elected officials or the states via a constitutional convention had the necessary votes, they could alter anything in the constitution, presuming it did not contradict another aspect of the constitution, in which case the court would again rule. And under any such changes to the document the court would have to interpret any future legislation based on those changes…not the original document. For example, if the states organized a constitutional convention they could re-write the entire document. And whatever came of it would be constitutional…because that’s what the new document would say. Disagree with interpretation all you like…but that doesn’t change constitutionality. Our founders wanted judicial oversight…and that’s why we have it. The legislative branch writes the law, and can along with the president or the states change the very constitution itself. The judicial branch interprets whatever law based on the current documents or any changes made to it.

bm:

I believe that you missed my point. I said repeatedly, that I was referring to the application, and I used the 1st Amendment example, and the commerce clause.

The USC is the law, not the amendment. The laws can be held to be an unconstitutional implementation of the amendment. When constitutional rights are being restricted, the courts use a rational basis concept to make their decision. The real power to tax is in Article I, and the 16th just removed the necessity that was in the constitution for apportionment. It was a poor choice, but as you say, we have to live with it.

-----

Thanks to both of you for keeping me in the loop.


bradmaster 2 years ago

Lw and My Esoteric

On a completely different idea.

What if married people created LLCs?

or even an LLP

Key Features

The LLP is a flexible form of business.

It is designed primarily for specific professional services.

The partners will decide the structure of the organization and the distribution of profits and losses. A formal, written partnership agreement is advisable.

An LLP does not pay income tax. However an LLP must pay an annual tax of $800.

The items of income, deductions, and credits "flow down" from the partnership to each partner through the Schedule K-1. Each partner is responsible for paying taxes on their distributive share.

The LLP allows each partner to actively participate in management affairs.

The LLP provides limited liability protection to each partner.

A LLP remains in effect based on partners agreeing to a termination date.

Filing Guidelines

Every LLP that engages in a trade or business in California or earns income from California sources and every LLP that registers with the California Secretary of State is required to file California Form 565.

The LLP provides each partner with a Schedule K-1 that states the partner’s distributive share of the LLP's items of income, deductions, and credits.

The return due date is the 15th day of the 4th month after the close of the taxable year.

An LLP pays an annual tax of $800.

Estimated Tax

No estimated tax requirements.

The LLP may be required to withhold taxes if the partnership distributes California source taxable income to a nonresident partner. For more information about partnership withholding, see FTB 1017.

--- Have fun with this one.

bradmaster


bradmaster 2 years ago

lw:

I forgot to add this.

Economists are more like lawyers, and doctors, in that the latter two practice their craft.

These would be pseudo sciences compared to say rocket scientists. A rocket scientist can predict with a high level of accuracy that a rocket they send to Mars, will actually get there.

There are of course, theoretical scientists, and experimental scientists, and applied scientist. As you go from theory, to applied your accuracy and real knowledge are much better.

This is done by using scientific processes, that don't really involve a lot of human variables. Economists, lawyers, and doctors have a high degree of the human factor.

My point is that you can't dump all science into the same bucket.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

You are correct that LLP's can be used in some creative ways. I have even used them and other forms of pass thru's inside of an irrevocable trust's in order to circumvent the estate tax and still maintain control of the asset. I literally discover each year a new way to avoid taxes with accountant's and attorneys that I never dreamed up until I am confronted with a new situation. And these days most of my clients are middle to slightly upper middle income. A lot of wasted effort that could be avoided with a simple flat tax system. Of course....myself, the CPA's and attorney's would be less valuable.

Yes, the sciences can be different...but they are still a science. And even the rocket scientist and engineer disagree at times about methods.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ myesoteric

I already read Piketty's response. And the article correctly points out that the data for such research is largely unavailable for more than a couple of decades. Which brings me back to the point that it is an insurmountable task. Now if we simply the tax code...perhaps we can at least do it going forward. From Piketty to Krugman...LOL. Come on now. If you're a guest economist on the Daily Show...I stop taking you seriously.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Not familiar with Daily Show, but do know that while Krugman is one of your hated "liberal" economists, he is also well regarded in the community, just not so much by non-economists.

In any case, I am now convinced "simplifying the tax code", unless that means making the first $50K to $100K deductible then taxing remainder at say 40%, its just going to make an already bad problem worse.

You still have two problems with your arguments, one has no bearing on Piketty's findings and the other only goes to make his findings worse.

First you say above "I made a fortune and realized no reportable income unless I actually sell it. In fact I made a fortune on almost every stock thru the 80’s and 90’s. And even then I have no reportable income if I have a capital loss carry forward from years prior. (Creating capital losses on paper to offset a gains is an art form I have personally have perfected" --- first, I have to say congratulations, but second, I have to say "so what" as it relates to this years distribution of either labor income or income from capital. If money wasn't reportable, it wasn't reportable and it didn't get counted in Pikitty's data for that year. But what did get counted led to the results he found. (more in a minute).

Next you said, (actually you said it first) "As such pre 1986 it made more sense to retain earnings for private entities. Post 1986, there was a concerted and quite successful effort to transition from corporate to personal income. New entities organized as pass thru entities much more often. Existing entities either changed status or used methods cited in the Accounting Research paper I cited to transition from corporate to personal. And the tax incentives were more than enough to do so." -- to which Piketty agrees it has a transitory effect of perturbing the data. But, as I pointed out a comment or two ago, all it does is raise the baseline some, the basic trend doesn't change. For the most part the slope is the same, its just that the intercept of the y-axis got somewhat higher. If Piketty was looking at the very short term, say 5 or 10 years, then your point is well taken, but since the relevant period for this discussion is 1950 to 2010, it is just a blip.

Now back to the first point. What do you think the effect would be if all of that income you speak of had been reported? Who earned? The 1% and higher is it? So wouldn't that just make the inequality just that much greater? If you don't think so, why not.

Let's say for year X, total labor income was $1 T. and:

- The bottom 50% of wage earners earned $0.2 T

- The middle 40% earned $0.3 T

- The next 9% earned $0.3 T and

- The top 1% earned $0.2 T (those are a rough approximation of Pikitty's results.

Further, let's assume you have $1 T in hidden, non-reported income (not capital gains but tax shelters and the other things you mentioned). But poof next year is identical to this year except the non-reportable labor income must be reported by the top 1% who earned. So now we have total labor income of $2 T. Then the shares break down as follows.

- Bottom 50% share is 10%

- Middle 40% share is 15%

- Next 9% share is 15%, and

- Top 1% share is 60%!! Inequality grew substantially when your hidden income became visible. The only case where inequality wouldn't is if the distribution of the hidden income was 20/30/30/20, which we both know it is not.

So, what is wrong with my math?


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Very interesting idea @Bradmaster. To be of value, the LLC/P would have to be able to deduct all of the household expenses, if I understand where you were going with that, so that the pass-through taxable income in the K-1 would be minimal. There would be interesting trying to convince a court that a household is, in fact in business selling labor for a service.

@Landmark, here is another link from a conservative who reviewed Piketty.

http://www.forbes.com/sites/pascalemmanuelgobry/20...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I would have to look again, but I do believe you are wrong when you say "... The lowest income schools typically get more money per student in finding anyway. .."; while there are exceptions, e.g., Washington D.C., I think I remember statistics showing the opposite to be true on a district by district basis.

I have no doubt public schools are segregated. But it isn't the schools who do the segregating, it is the people who want to remain segregated in this country, generally by race, but sometimes by religion and always by wealth. Public schools are built in communities and it is the communities which are segregated. I suspect private schools would be even more so as many would only accept children of one color, especially in the South, and probably of only one religion.

We already have a polarized society, and your competition idea would polarize it even further, I am afraid by segregating Jews into that religious school and blacks into that Baptist school and whites into that Evangelical school, all getting indoctrinated into believing in a certain way.


bradmaster 2 years ago

Lw

I agree with your LLP and creative taxpaying.

My point on the science is not disagreement, as much as economics is a weak science. So weak, I have a problem calling it science.

Looking at numbers, and data points, and analyzing them with statistical analysis, creates a lot of data. That data is only useful if you can use it successfully.

From 2007 till the meltdown of the economy in late 2008, the economists used by the government did one of two things.

1. They told the congress and the president that the economy was heading for a crash.

2. They didn't have a clue, and were caught up in their economics theory.

The facts that we know is that neither the congress nor the president successfully stopped the meltdown, or even slow it down. If they knew about the impending economic disaster, they probably did everything to delay it from happening until after the elections.

Also, after decades of allowing the development of super conglomerate global company, these giants were too big too fail. Yet, it was the policies of the federal government that created them and let them puff up. Freddie and Fannie were main contributors to the Real Estate bubble, but the Financial Industry were out of control. And I mean they were going bankrupt because the bubble had burst.

The government didn't learn from the dot com bubble, which was an extreme deviation from prudent and safe investing. There was major investment in startup companies as if they were blue chip. They weren't most of them didn't have a product in production, many of them merely had a concept, and they had one thing in common with the subsequent real estate bubble. They both were selling the sizzle. Invest in the stock today because the price is rising so fast. Get on board now. That same theme was part of the real estate bubble. Buy that house now because the prices are going through the roof. This motivated sellers to make a quick buck. The real estate companies, the escrow companies, the banks, and the Federal Reserve Board were all helping the bubble.

Then the bubble started to burst, and the bad loan were bundled with the good ones and put on the stock market.

Where were the economists, that couldn't see that both of the schemes were Ponzi like?

The dot com was what I called the fast track 25 year old MBAs that concocted the dot com as a fast way to make the money and not have to go up the ladder. These people were in and out of the dot com bubble, and spending and enjoying their fortune way before the economists, and the stock markets figured it out.

My opinion is that you don't have to go through all the economic theories, politics, government actions to make the conclusion that they were all wrong. This is based on the result. So no matter how you slice it, no one helped when it counted. It is not like they didn't have warnings, they had a lot of them, especially from the beginning of 2007.

The Flat Tax is just the skinny version of the current income tax system, and they can keep raising the tax. With the consumption tax, if they keep raising it, the people will restrict their spending. Restricting their income is not as easy.

As far as the black market is concerned, it is no different then people cheating on their 1040.

When the taxes are reasonable, then more people are willing to pay them. As you know, most of the big ticket items today are bought through the corporations and other entities, so they don't care about the price or the sales tax. It is not coming out of their personal bank account.

You probably know all of these work around schemes, as does the IRS. But, they are borderline legal under the current income tax system.

The president of the US is no different than top executives in the private sector that also play at the top golf courses on the company tab. They stay at the five star hotels, fly around the world in the company jet. They don't have to spend their own money. So, that allows them to invest, save, and do whatever they want with their own money.

As you said, stock market wealth is not taxable until it is sold. So when we talk about wealth, it is important to know where the person's wealth is coming from.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@myesoteric

Krugman is actually a highly controversial economist and his increased leanings toward modern money theory make him more and more outside the mainstream of even Keynesians. Although he will not admit to being an MMT guy. His generally regarded as a political economist. Serious economist typically won’t ever endorse an actual candidate outright. Especially if they are doing academic research. The minute you endorse anyone... you demonstrate bias. Jim Manzi is not a Conservative Economist…because he is not an Economist at all.

Considering that people making 50k are already paying next to nothing in Federal taxes…I personally can’t see giving them more of a break. If you want fair…fair is we all pay the same percentage. Nothing could be more fair than we all play by exactly the same rules as far as I can see. Not to mention even when the wealth pay more in aggregate or in %’s, it’s not like the money ever actually gets to the poor anyway via the gov’t in any substantial way.

If the trend is a longer term trend and the short term is not the issue, than clearly his point about higher tax rates are irrelevant since we had extremely high marginal rates back in the 70’s and marginal rates remained very high until the 1980’s. Piketty and other have consistently made the point that this trend accelerated since the 80’s tax rate changes, and simply ignore the fact that the transfer of corporate to personal reporting is via the same people. Because if he accurately evaluated it…there is nothing perturbing about it. If John Doe made 500k registered as a C-Corp and was taxed at the corporate rate via retained earnings, he is now still making 500k via a pass thru or some other accounting mechanism. John Doe has not made MORE money…he has simply filed his tax return differently because the tax law changed. The only thing perturbing is that some people don’t like John Doe to make too much money, even though he may have made it without hurting anyone.

When discussing the appreciation of stock…it is highly relevant if you are trying to incorporate corporate profits as “national income”. Because if MSFT, which is a public company retained earnings then the income is reported in national income data. But the portion of wealth and income created from that appreciation of stock price does not show necessarily in the data, because it may not be realized…or it may be realized as a charity…or in a tax shelter. So you’re saying Piketty counts the corporate profit as national income…but not necessarily the benefit to the masses who are shareholders and beneficiaries of things like pension funds...endowments etc. This is why it is relevant to separate out closely held private C-Corps, where the only beneficiary is the individual owner/owners…from public companies when measuring corporate profits as national income. When public companies make a lot of money…huge masses of people benefit from their stock appreciation and it is not always reportable as taxble income. When a private C-Corps make lots of money…there is no direct benefit to anyone other than the shareholder. (There are indirect benefits such as a company growing and more people working) But there is not a direct impact on income to anyone other than the shareholders.

You example of company X is frankly INCREDIBLY flawed…because the top 1% are contributing a small percentage of their income into qualified tax plans. They could not shelter anywhere near that kind of a % of the national income. The tax law doesn’t permit it !!! It doesn’t matter if you make 10 million a year…or 100k per year…the contribution limit is the same in dollars…not percentages. The only exception is a non-qualified plan…which are rarely used because they are subject to corporate liability. Those in the 25-28% brackets hold more than 30% of their worth in tax shelters. The top 1% are nowhere near that figure. Closer to 6%. So if all of that pre AGI income is reported…the % increase would impact the middle income by the most. So we have hidden only 6% of the income of the top 1%...and 30% of the income of the other 99%.

There are a couple of other exceptions with regard to qualified plans. For self-employed individuals with few employees they may add in a defined benefit plan as well. Contributions there can be significant. But that just reinforces my point. I have had countless clients like this who are in the 350k-500k income plus income range. If they are old enough and we establish a DB plan…I can wipe out around 220k income with the DB plan and another 50k plus in the 401k/profit sharing plan. I did this in 2013 for a client age 60 with a substantial income. But this is the irony...of all of this. We got his AGI so low he actually qualified for the highest Obamacare subsidies !!! So many of these low income people are actually quite wealthy…and you’re counting them as the bottom quintile, when in fact they’re in the top 1%. According to Piketty’s income distribution…His AGI is closer to 30k…so he is getting run over by the rich guy. If we actually reported all that income...we just moved him from the bottom quintile to the top 1%. There are an awful lot of rich people who look poor on a tax return. We now have to move all of those people to the other side of the see saw and see how much they really weigh before we call it lopsided.

These cases are not the majority…but they do happen often enough not to call them rare. And they show how ridiculous the methods are of quantifying income.

So if you’re an employee in the top 1% you can’t shelter a very high percentage of money…so most of it is reported as opposed to the middle income earner who is sheltering a higher national average. And if you’re the employer of a small business, you can shelter so much that Piketty thinks you’re poor and is counting you as poor.

In terms of school funding…you need to look at it per student. I would argue the money is irrelevant anyway. They all get way too much and spend it wastefully regardless of the neighborhood. They need to be forced to compete for the dollars and give parents choices rather than having to move or pay separate for private school. Private schools couldn’t turn anyone away based on race, religion etc…if you do what I said. I am speaking of a hybrid approach. It would be the same schools we have now…just not getting anything guaranteed. If you want to have access to the Federal voucher dollars you have to take all. If you want to remain a parochial school…then you opt out of Federal funding and can’t get a voucher. The kid from the Bronx could take the bus a few miles further to Westchester and get his education wherever he wants. If you dangle the money…they’ll compete for it. Quality only improves with consumer choice and accountability. There is no reason I should pay 11k in taxes and not be able to direct that money to the school around the corner and instead be forced to attend the one across the street. There both already there…and I should be permitted to pick no different than I pick a grocery store to shop at.

http://www.heritage.org/research/reports/2011/04/t...


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

Economics is a more precise than medicine in many cases. But I would hesitate to say that the man that invented my prescriptions that only partially work it seems (Chemist) is barely a scientist. Feel free to disagree. Data is very often used successfully. Especially when the political bias is taken out.

“1. They told the congress and the president that the economy was heading for a crash.”

“2. They didn't have a clue, and were caught up in their economics theory.”

This is patently false. Many economist were warning about the subprime market and the impact long before the housing crash as far back as 2004…and many solutions were proposed. We were talking to all of our clients about it at Fidelity at the time, and started to scream about it as soon as the yield curve began to invert. But affordable housing is a very highly political area. Politicians rarely make sound economic decisions that are based on economics. As you correctly cited…Freddie and Fannie played a major role…along with countless other political decisions. Fannie and Freddie are gov’t sponsored enterprises where politically appointed individuals made all the money. This was not so much an issue of economist failing. This was bad political policy which distorted markets and caused terrible incentives in the private sector. No serious economist was telling congress to subsidize this massive market into a bubble. And frankly the average American wouldn’t know any of this because they don’t listen to economic reports unless something terrible happens. Be honest…did you read the durable goods report this morning ??? I doubt it. I am not picking on you. Most people don’t I did because I get paid to read it.

The dot.com bubble did have very different origins. But I fail to see how economist in general are at fault because investors became irrational. There weren’t too many academic economists encouraging people to buy securities with no earnings. Perhaps some bad advisors trying to make a quick commission. In fact it was also the opposite. CNBC routinely had people on at that time warning people about the .com bubble. Countless white papers where circulated about it. People just didn’t want to listen. Such is the way of financial markets. Foolish irrational decisions are met with bad results. Markets must have consequences. I could say the same thing about the Biotech bubble in the 80’s and LTRO. Investors think they are invincible when the market goes up, and they panic when they should buy. This is why the average investor is totally unqualified to manage their own money, even though many try. They are way too emotional. Although I understand why that it is the case.

“The Flat Tax is just the skinny version of the current income tax system, and they can keep raising the tax. With the consumption tax, if they keep raising it, the people will restrict their spending. Restricting their income is not as easy.”

When income taxes go up people also restrict their spending. It is no different. People spend less when they have less. It doesn’t matter if it as the point of consumption or the point of net earnings. Cheating on a 1040 is much harder to do because most employers will not pay in cash. I can buy almost anything in cash…and as it is I can usually negotiate a slightly lower price when I do. The VAT tax is also harder to avoid based on all the evidence from the nations that have tried it.

‘As you said, stock market wealth is not taxable until it is sold. So when we talk about wealth, it is important to know where the person's wealth is coming from.”

I didn’t say it is not taxed until it is sold. I said it sometimes not taxed until sold. That is more often true of Pension funds, 401k’s and endowments. Outside of tax shelters they are still taxed on dividends if they pay out cash flow. They are also at times taxed on transfer via the estate tax. Sometimes they get taxes without being sold for wealthy people in stock incentive plans.


bradmaster 2 years ago

lw

Economics is a more precise than medicine in many cases. But I would hesitate to say that the man that invented my prescriptions that only partially work (Chemist)are barely scientist. Feel free to disagree. Data is very often used successfully. Especially when the political bias is taken out.

bm:

I stand by my comment about scientists.

“1. They told the congress and the president that the economy was heading for a crash.

“2. They didn't have a clue, and were caught up in their economics theory.”

This is patently false. Many economist were warning about the subprime market and the impact long before the housing crash as far back as 2004…and many solutions were proposed. We were talking to all of our clients about it at Fidelity at the time, and started to scream about it as soon as the yield curve began to invert. But affordable housing is a very highly political area. Politicians rarely make sound economic decisions that are based on economics. As you correctly cited…Freddie and Fannie played a major role…along with countless other political decisions. Fannie and Freddie are gov’t sponsored enterprises where politically appointed individuals made all the money. This was not so much an issue of economist failing. This was bad political policy which distorted markets and caused terrible incentives in the private sector. No serious economist was telling congress to subsidize this massive market into a bubble. And frankly the average American wouldn’t know any of this because they don’t listen to economic reports unless something terrible happens. Be honest…did you read the durable goods report this morning ??? I doubt it. I am not picking on you. Most people don’t I did because I get paid to read it.

bm:

It is the government economists that I was referring to in my comment. I do agree otherwise with your comment.

I personally think that the stock market, commodity market, money market, and especially the oil market are compromised by Speculators. It is a ridiculous concept. A creaky sound is heard, then the flock rushes in the other direction. There are too many influential holders, that can make the markets move the way that they want it. Investors, have their own equivalent of the Cray machine, not really but substantial computer power. There are also investment entrepreneurs that have sophisticated programs that can get an edge on the market. It is based on the field that you like Statistic. I did actually look at many reports when I was investing in the Money Market.

-------

The dot.com bubble did have very different origins. But I fail to see how economist in general are at fault because investors became irrational. There weren’t too many academic economists encouraging people to buy securities with no earnings. Perhaps some bad advisors trying to make a quick commission. In fact it was also the opposite. CNBC routinely had people on at that time warning people about the .com bubble. Countless white papers where circulated about it. People just didn’t want to listen. Such is the way of financial markets. Foolish irrational decisions are met with bad results. Markets must have consequences. I could say the same thing about the Biotech bubble in the 80’s and LTRO. Investors think they are invincible when the market goes up, and they panic when they should buy. This is why the average investor is totally unqualified to manage their own money, even though many try. They are way too emotional. Although I understand why that it is the case.

bm:

I agree, but again I was referring to the economists that influence the government.

----

“The Flat Tax is just the skinny version of the current income tax system, and they can keep raising the tax. With the consumption tax, if they keep raising it, the people will restrict their spending. Restricting their income is not as easy.”

When income taxes go up people also restrict their spending. It is no different.

bm:

It is different because taxes take their discretion away by not getting the money to spend. So there is no way to know what they would have spent that money on.

In consumption taxes, it is the simple Adam Smith economics, of supply and demand, well with taxes included.

-----

People spend less when they have less. It doesn’t matter if it as the point of consumption or the point of net earnings. Cheating on a 1040 is much harder to do because most employers will not pay in cash. I can buy almost anything in cash…and as it is I can usually negotiate a slightly lower price when I do. The VAT tax is also harder to avoid based on all the evidence from the nations that have tried it.

bm:

I am talking about the taxes of the upper middle class and above. It is not the purchase in cash that is being cheated. It is pushing the envelope of legal deductions, and these deductions fill the Internal Revenue Code. Wage earners below the upper middle class don't have the ability to use these tax gimmicks.

The VAT is a value added tax, how ironic are those words. When are tax values. A NST tax is better than the current system, the flat tax or the VAT. But as you stated, why would the government want to use it.

The NST is the fairest of these taxes. The problem with the VAT is that it doesn't replace the income tax. These two double team the people.

--------

‘As you said, stock market wealth is not taxable until it is sold. So when we talk about wealth, it is important to know where the person's wealth is coming from.”

I didn’t say it is not taxed until it is sold. I said it sometimes not taxed until sold. That is more often true of Pension funds, 401k’s and endowments. Outside of tax shelters they are still taxed on dividends if they pay out cash flow. They are also at times taxed on transfer via the estate tax. Sometimes they get taxes without being sold for wealthy people in stock incentive plans.

bm:

Do you really want to argue that point.

Tech stocks don't pay dividends. And taxing dividends is chump change. On estate tax, the person that had the wealth wasn't tax, the person died. It is not a tax shelter to just hold shares of stock. There are so many ways to not pay taxes found in the IRC. Founders of IPOs can hold their wealth in a family trust, but how many people can do it.

-------

So, it is a fact that none of the economists were able to do anything about the economic meltdown, before, during or after. TARP really was cosmetic, to give the people an illusion that the government had a plan.

And maybe it has to do with Politics trump Economics.

In a simple society, Adam Smith had the answer. But when you add the government and taxes the answer is convoluted. The real problem is that the government doesn't really have the goal to optimize the economy, they just want to optimize the revenue.

Thanks

bradmaster


bradmaster 2 years ago

My Esoteric

Glad that you liked it. I am sure there are some clever people out there that could make a good argument for it.

I live and work in S Cal, and California Taxes are ridiculous.

And what did all those taxes get California, I have no idea, maybe you have the answers.

The IRS lets the California Franchise Board be the bad cop, and they do a good job at it.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

Keep in mind the gov’t economist are not always saying publicly what they are thinking. Bernanke knew we were in trouble. But as someone charged with being the Fed Chairman…you don’t want to create a panic by saying the wrong things.

“I personally think that the stock market, commodity market, money market, and especially the oil market are compromised by Speculators”

All markets are speculators. We choose to buy a car when we think it might be a better deal. We do the same thing when we shop for a new TV or a house. In all markets…the price is set by the intersection of supply and demand. This works wonderfully when not impacted by coercion. And all demand has some speculation . I can promise you that the most inefficient and manipulated market in the world is the fixed income markets. If any place is manipulated…that’s it. And even that market is not terrible. Mostly inefficient. The more efficient a market is, the more volatility it will have. Home sales are a slow process…so we don’t mark to market our house every day. Although I would like to see the plus tick rule come back the stock exchanges. That was bad policy to remove it, and was just a gift to hedge funds.

“It is different because taxes take their discretion away by not getting the money to spend. So there is no way to know what they would have spent that money on.”

It really doesn’t matter what they would have spent it on. That would not change the revenue. If the money is made it is taxed. If it is spent on anything it will translate into income, which will translate into more tax revenue. The key is velocity.

“It is pushing the envelope of legal deductions, and these deductions fill the Internal Revenue Code.”

Precisely the reason for a flat tax…so there are no deductions. 20% is 20% which is still 20%.

“The NST is the fairest of these taxes. The problem with the VAT is that it doesn't replace the income tax. These two double team the people.”

I was talking about a VAT in replacement of an income…not both. But you’re correct…we would probably get both. Which is why I want to flatten the current system rather than the insurmountable tax of a constitutional amendment. It’s just too difficult politically.

“And taxing dividends is chump change”

Actually dividends are a substantial source of income for the wealthy these days. Especially due to lower rates. Many of them live off of them. That also increased in the early part of the last decade when the rules for qualified dividends changed. Most people with money are after higher dividend paying securities. Both stocks and bonds. Estate taxes are levied on the wealthy. They apply to stocks and any other part of your taxable estate. And it can be as much as ½ your net worth without careful planning. A family trust must file its own tax ID and pay taxes under that ID. Typically that type of trust is not to avoid cap gains tax or dividend income, but rather to reduce the estate tax. If you’re given IPO stock that doesn’t pay dividends…you still get taxed on the IPO as income when it was given to you. That’s assuming it was a stock grant. If it was an option…than you had to put up the money yourself.

TARP was actually fairly successful…it just set a bad precedent. Whether or not that translates into a future moral hazard is yet to be determined. Don’t assume that politicians were doing what their consultants where telling them. It’s likely they weren’t. TARP could have been structured differently. In fact Bernanke originally proposed a reverse auction…and it was shot down.

“The real problem is that the government doesn't really have the goal to optimize the economy, they just want to optimize the revenue.”

Little argument there. Gov’t wants to really control the revenue and dictate outcomes to gain votes. If you don’t give people things…they have no reason to vote for you.


bradmaster 2 years ago

Keep in mind the gov’t economist are not always saying publicly what they are thinking. Bernanke knew we were in trouble. But as someone charged with being the Fed Chairman…you don’t want to create a panic by saying the wrong things.

bm:

The problem is the Federal Reserve Board was a major contributor to the problem. They kept interest rates unnecessarily low. Had they raised the interest rates, the bubble would have burst earlier. This was because so many of the loans were not fixed rate.

The bottom line was that nothing was done to stop the meltdown, basically because there was no real plan to do so. Negotiations with the financial companies as to which one would take the biggest loser's debt is not a plan.

---

“I personally think that the stock market, commodity market, money market, and especially the oil market are compromised by Speculators”

All markets are speculators.

bm:

These are not the same kind of speculators, these are professionals.

===

In all markets…the price is set by the intersection of supply and demand.

bm:

These speculators affect markets, and not individual purchases.

They set the new prices, based on their speculation.

Your examples are not on point, sorry.

The bulk of private investors thanks to computers, and online investing are more sheep than investor. Brokers in the stock market used to really research companies for example, but today broker less investing allows the online investor to make mistakes by watching trends. Trends are waves that have already broke, and if you wait till you see them, it is too late.

-----

“It is different because taxes take their discretion away by not getting the money to spend. So there is no way to know what they would have spent that money on.”

It really doesn’t matter what they would have spent it on. That would not change the revenue. If the money is made it is taxed. If it is spent on anything it will translate into income, which will translate into more tax revenue. The key is velocity.

bm:

I have to disagree, as there is a big difference in taking the taxes out before the worker can spend it, and having that money and being able to spend it. Revenue is the goal of the government, not the worker. The money that the government takes in income tax doesn't reach the same markets, as the money not taxed in a consumption tax. In the former, the worker has no bargaining power, while in the latter the bargaining power comes from not consuming if the tax on consumption goes to high.

------

“It is pushing the envelope of legal deductions, and these deductions fill the Internal Revenue Code.”

Precisely the reason for a flat tax…so there are no deductions. 20% is 20% which is still 20%.

bm:

But it won't always stay twenty percent. In 1986. the took away the worker deduction, and lowered the taxes. But the lower taxes were not set, but the deductions are gone forever.

-------

“The NST is the fairest of these taxes. The problem with the VAT is that it doesn't replace the income tax. These two double team the people.”

I was talking about a VAT in replacement of an income…not both. But you’re correct…we would probably get both. Which is why I want to flatten the current system rather than the insurmountable tax of a constitutional amendment. It’s just too difficult politically.

bm:

I agree on the politics problem.

===

“And taxing dividends is chump change”

Actually dividends are a substantial source of income for the wealthy these days.

bm:

Then they are not really that wealthy, or living that large. Apple, and Microsoft don't pay dividends.

===

Especially due to lower rates. Many of them live off of them. That also increased in the early part of the last decade when the rules for qualified dividends changed. Most people with money are after higher dividend paying securities. Both stocks and bonds.

bm:

You don't become a billionaire on dividend living, and you still have the bulk of your investments in the shares.

---

Estate taxes are levied on the wealthy. They apply to stocks and any other part of your taxable estate. And it can be as much as ½ your net worth without careful planning.

bm:

Your dead, and the smart people put their wealth into their business, as a corporation never dies, although some see corporations as being human. Estate taxes were made to prevent the wealth from passing on to the family, and thus breaking up the wealth, to redistribute the wealth. But all that does is give very expensive Tax Attorneys their own wealth. The prestigious tax attorneys, and CPA firms accumulate a huge wealth, and they are smart enough not to give freely to the government.

------

Family trust must file its own tax ID and pay taxes under that ID. Typically that type of trust is not to avoid cap gains tax or dividend income, but rather to reduce the estate tax. If you’re given IPO stock that doesn’t pay dividends…you still get taxed on the IPO as income when it was given to you. That’s assuming it was a stock grant. If it was an option…than you had to put up the money yourself.

bm:

If it didn't accomplish a real break in taxes, it wouldn't exist.

----

TARP was actually fairly successful…it just set a bad precedent. Whether or not that translates into a future moral hazard is yet to be determined. Don’t assume that politicians were doing what their consultants where telling them. It’s likely they weren’t. TARP could have been structured differently. In fact Bernanke originally proposed a reverse auction…and it was shot down.

bm:

I don't see it, give me some examples where the 700 billion dollars helped the country?

------

“The real problem is that the government doesn't really have the goal to optimize the economy, they just want to optimize the revenue.”

Little argument there. Gov’t wants to really control the revenue and dictate outcomes to gain votes. If you don’t give people things…they have no reason to vote for you.

bm:

I agree.

---------

On a different issue, tell me what is wrong with privatizing SS.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

“The problem is the Federal Reserve Board was a major contributor to the problem.”

That is true to a large extent. But the Fed is often influenced by the foolish fiscal policy of congress. So sometimes they make decisions they don’t want to make because the other end is even more foolish.

“These are not the same kind of speculators, these are professionals.”

People that advertise to buy gold jewelery and scrap are professionals. So are contractors that buy a home and fix it up to re-sell. Speculation exists in any and all investments. There is nothing wrong with that. For every buyer…there must be a speculating seller.

“The bulk of private investors thanks to computers, and online investing are more sheep than investor. Brokers in the stock market used to really research companies for example, but today broker less investing allows the online investor to make mistakes by watching trends. Trends are waves that have already broke, and if you wait till you see them, it is too late.”

Now that is way….way….way…off. There are no more brokers like that…and never were.. Brokers weren’t researching a damn thing in those days. They listened to the firm’s morning squak announcement about what was hot. They weren’t even permitted to recommend anything that was not on the firms buy list. When I started in the industry, it was the tail end of that era. The minimum was 500 calls daily to prospects. (Not a lot of time for research). Once you had a book…you just oversaw other people making 500 calls to make sure you got a piece of their leads. It was all sales…NEVER research. Today, if you want to make it in the investment guidance business…you need to be a comprehensive advisor. That means, tax planning…estate planning…investment planning…insurance planning…Income Planning. Most people have to pursue their CFP…which I completed years ago. It’s a 2 year program completed with a 2 day 10 hour exam….and a 50% failure rate. The brokers of years ago where nothing more that what we used to call stock jockeys. They couldn’t pass the fist CFP course if you gave them the answers. That’s why they all went away.

“I have to disagree, as there is a big difference in taking the taxes out before the worker can spend it, and having that money and being able to spend it. “

You can disagree all you want….but if you’re effective rate was 40% and I dropped it to 15%...you would spend more money. The more money people have, the more they spend. The result is the same. If I lowered the burden…than you have more to spend. There really isn’t in any evidence to support much of a difference…and the NST has been tried around the world.

“But it won't always stay twenty percent. In 1986. the took away the worker deduction, and lowered the taxes. But the lower taxes were not set, but the deductions are gone forever.”

And why would the sales tax stay the same. Why couldn’t the NST go from 15% to 40%. Please don’t tell me because people would consume less…because raising income taxes does the same thing…and they have gone up as well. Many other deductions where also added back as I pointed out earlier.

“Then they are not really that wealthy, or living that large. Apple, and Microsoft don't pay dividends”

Rich people looking for income don’t buy Apple and Microsoft. Maybe only in a qualified account. They buy REIT’s and MLP’s for 6% dividends. There are countless dividend paying companies. It’s not hard to find a 4%-6% yield in equities.

“You don't become a billionaire on dividend living, and you still have the bulk of your investments in the shares”

Tell that to Warren Buffet…his entire life has been about investing in value oriented companies that pay out a cash flow. But becoming a billionaire is irrelevant. We’re talking about collecting revenue from billionaires. And they do in fact pay quite a bit of taxes on dividend cash flow.

“Your dead, and the smart people put their wealth into their business, as a corporation never dies, although some see corporations as being human. Estate taxes were made to prevent the wealth from passing on to the family, and thus breaking up the wealth, to redistribute the wealth”

Equity in business is part of your taxable estate and still subject to estate tax. You can gift a certain percentage while alive…and you can sell it to family while alive which is still subject to tax. I would suggest you read an IRS 706 form to understand the calculation. The maximum amount of money you can transition without the levy of an estate tax or gift tax is about 10 million in today’s dollars. That’s not a lot for a billionaire.

“If the family trust If it didn't accomplish a real break in taxes, it wouldn't exist”

There are breaks…mainly the estate tax for multiple generations. But it doesn’t avoid income taxes. You’re assigning powers to these shelters that I wish they had.

“I don't see it, give me some examples where the 700 billion dollars helped the country”

The TARP program was repaid by the banking system with interest. In some cases the banks wanted to pay it back sooner and weren’t allowed. It prevented a run on the banking system…which would have been a disaster of biblical proportions.

I see nothing wrong with privatizing SS as long as it is a gradual phase out. There also has to be limited investment options…because people can be stupid. It should be structured with investments that are indexed based target funds to control risk allocation.


bradmaster 2 years ago

LW

It is probably my fault, but you seem to be missing most of my points.

==

“The problem is the Federal Reserve Board was a major contributor to the problem.”

That is true to a large extent. But the Fed is often influenced by the foolish fiscal policy of congress. So sometimes they make decisions they don’t want to make because the other end is even more foolish.

bm:

The purpose of the FRB is exactly the opposite listening to congress.

---

“These are not the same kind of speculators, these are professionals.”

People that advertise to buy gold jewelery and scrap are professionals. So are contractors that buy a home and fix it up to re-sell. Speculation exists in any and all investments. There is nothing wrong with that. For every buyer…there must be a speculating seller.

bm:

Again, these individuals don't change the market. But, when oil speculators run scared over a mere possibility in the future, the impact hits the gas pumps quickly, and when good news comes, the gas prices at the pumps drop very slowly over a protracted period.

You should know exactly the type of speculators that I am referring to in my comments.

-----------------------

“The bulk of private investors thanks to computers, and online investing are more sheep than investor. Brokers in the stock market used to really research companies for example, but today broker less investing allows the online investor to make mistakes by watching trends. Trends are waves that have already broke, and if you wait till you see them, it is too late.”

Now that is way….way….way…off. There are no more brokers like that…and never were.. Brokers weren’t researching a damn thing in those days. They listened to the firm’s morning squak announcement about what was hot. They weren’t even permitted to recommend anything that was not on the firms buy list. When I started in the industry, it was the tail end of that era. The minimum was 500 calls daily to prospects. (Not a lot of time for research). Once you had a book…you just oversaw other people making 500 calls to make sure you got a piece of their leads. It was all sales…NEVER research. Today, if you want to make it in the investment guidance business…you need to be a comprehensive advisor. That means, tax planning…estate planning…investment planning…insurance planning…Income Planning. Most people have to pursue their CFP…which I completed years ago. It’s a 2 year program completed with a 2 day 10 hour exam….and a 50% failure rate. The brokers of years ago where nothing more that what we used to call stock jockeys. They couldn’t pass the fist CFP course if you gave them the answers. That’s why they all went away.

bm:

This evades the point about the fact that most online traders don't get any professional help deciding on their stock investing. The stock list as you mentioned was the product of the firms research. They used fundamentals, they use industry data, and other factors. Their business success relied on how good they gave advice to their clients.

The dot com was a sheep feeding frenzy, there wasn't any intelligent investing.

-----

“I have to disagree, as there is a big difference in taking the taxes out before the worker can spend it, and having that money and being able to spend it. “

You can disagree all you want….but if you’re effective rate was 40% and I dropped it to 15%...you would spend more money. The more money people have, the more they spend. The result is the same. If I lowered the burden…than you have more to spend. There really isn’t in any evidence to support much of a difference…and the NST has been tried around the world.

bm:

Your missing my point, please reread my position.

Thanks.

----

“But it won't always stay twenty percent. In 1986. the took away the worker deduction, and lowered the taxes. But the lower taxes were not set, but the deductions are gone forever.”

And why would the sales tax stay the same. Why couldn’t the NST go from 15% to 40%. Please don’t tell me because people would consume less…because raising income taxes does the same thing…and they have gone up as well. Many other deductions where also added back as I pointed out earlier.

bm:

again your missing my point, and yes the high ticket items will see a drop in consumption, and that is a consequence of simple supply and demand.

----

“Then they are not really that wealthy, or living that large. Apple, and Microsoft don't pay dividends”

Rich people looking for income don’t buy Apple and Microsoft. Maybe only in a qualified account. They buy REIT’s and MLP’s for 6% dividends. There are countless dividend paying companies. It’s not hard to find a 4%-6% yield in equities.

bm:

Yes, that is what Bill Gates, Steve Job, Larry Ellison, and Mark Zuckerburg do to acquire their wealth.

-----

“You don't become a billionaire on dividend living, and you still have the bulk of your investments in the shares”

Tell that to Warren Buffet…his entire life has been about investing in value oriented companies that pay out a cash flow. But becoming a billionaire is irrelevant. We’re talking about collecting revenue from billionaires. And they do in fact pay quite a bit of taxes on dividend cash flow.

bm:

Even Warren Buffet, who still lives in his inexpensive house, thinks he is not paying enough taxes.

-----

“Your dead, and the smart people put their wealth into their business, as a corporation never dies, although some see corporations as being human. Estate taxes were made to prevent the wealth from passing on to the family, and thus breaking up the wealth, to redistribute the wealth”

Equity in business is part of your taxable estate and still subject to estate tax. You can gift a certain percentage while alive…and you can sell it to family while alive which is still subject to tax. I would suggest you read an IRS 706 form to understand the calculation. The maximum amount of money you can transition without the levy of an estate tax or gift tax is about 10 million in today’s dollars. That’s not a lot for a billionaire.

bm:

That is the reason that rich people pay millions to tax attorneys, and CPA firms to avoid these types of taxes. The Walton family didn't seem to get hurt by estate taxes.

---

“If the family trust If it didn't accomplish a real break in taxes, it wouldn't exist”

There are breaks…mainly the estate tax for multiple generations. But it doesn’t avoid income taxes. You’re assigning powers to these shelters that I wish they had.

bm:

Really, it gives them control of when and how they pay income taxes.

-----

“I don't see it, give me some examples where the 700 billion dollars helped the country”

The TARP program was repaid by the banking system with interest. In some cases the banks wanted to pay it back sooner and weren’t allowed. It prevented a run on the banking system…which would have been a disaster of biblical proportions.

bm:

How did TARP help the people that were victims?

-----

I see nothing wrong with privatizing SS as long as it is a gradual phase out. There also has to be limited investment options…because people can be stupid. It should be structured with investments that are indexed based target funds to control risk allocation.

bm:

I agree.

SS is an unfunded defined benefits program, but it is open ended as to the times for its end of contribution. A private DB would have a vesting time, and an end time. Neither of which is in SS.

We have time as the SSA calculated 2040, and the CBO calculated 2055 as the dates where SS becomes insolvent.

In addition, 2008 created an abrupt, and hopefully temporary impact on the contributions because of all the lost jobs. Because the SS benefits are paid out of current contributions, there would of course be no shortage of beneficiaries, while a sharp shortage of contributors.

---

The real indicators of the decline in the economy, and the middle class has to be attributed to the system. The system failed, and continues to fail, so the only solution is to change the system.

So you can look at all the data, and all the statistics, but the end result is the system failed.

Reanimating the data doesn't change the results.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

“The purpose of the FRB is exactly the opposite listening to congress”

The Fed has many purposes which include things like regulation. The two key mandates are price stability and unemployment. The Fed is supposed to react to what we see in the economy. They are supposed to be non-politically influenced, but they must respond to changes in fiscal policy that affect things like the monetary base as an example. If you have poor fiscal policy, then it’s inevitable that they will have to react with monetary policy that is more extreme.

“Again, these individuals don't change the market. But, when oil speculators run scared over a mere possibility in the future, the impact hits the gas pumps quickly, and when good news comes, the gas prices at the pumps drop very slowly over a protracted period”

All speculators affect the price of every asset. Prices are quicker to move based on how liquid and efficient a market is. In the case of Oil…it is actually determined by the spot price. The issue is way more complex than that. As an example…if you locked at X price to distribute on the retail side…even though the price may have dropped to 5% below X….you inventory was still purchased at X. So you can’t drop the price until you have replaced your inventory with new cheaper inventory…or you sell at a loss and go under. While the market for trading oil futures is fairly efficient…the distribution end takes time for prices to adjust. This is not manipulation. You have to keep in mind that without this market there wouldn’t be anyone shorting contracts…and there would be less of a counterbalance…and even more volatility. Without these markets…we’d have no capital formation…and we’d be in the dark ages.

“This evades the point about the fact that most online traders don't get any professional help deciding on their stock investing. The stock list as you mentioned was the product of the firms research. They used fundamentals, they use industry data, and other factors. Their business success relied on how good they gave advice to their clients.”

Online traders have as much advice as they want. They choose to do it on their own. Trade at Schwab and they’ll give you full access to the firm research and ratings for free. All you have to do is read it. In the old days, the stock picks where based on companies taking a position and front running it very often. The system was more corrupt by several orders of magnitude in relation to today. Most firms have transitioned away from commissions to fee based management…myself included. When my clients accounts go down…I get a pay cut…when they go up I get a raise. I have a vested interest in their success. Years ago…I only had a vested interest in them trading something or I didn’t get a commission. Today…the whole industry is moving slowly towards a Fiduciary role. It’s the best thing that ever happened to clients that actually want advice.

“Your missing my point, please reread my position”

I re-read it…it’s not relative or supported by any of the academic research on the topic.. An increase in purchasing power is still an increase in purchasing power.

“again your missing my point, and yes the high ticket items will see a drop in consumption, and that is a consequence of simple supply and demand.”

And when there are substantial tax increases…there are drops in consumption…sure. Purchasing power is purchasing power. Also a function of supply and demand. Taxes go up…I have less net revenue…I by less. If NST taxes go up…it eats up more of my take home pay for the item I desire…and I buy less.

“Yes, that is what Bill Gates, Steve Job, Larry Ellison, and Mark Zuckerburg do to acquire their wealth.”

Yes they acquire wealth….employ millions of people, create the very technology we use in great availability to the masses. Nothing gets produced unless people like this invest the capital to create something. And they have done an excellent job of doing this. Facebook didn’t exist until Zuckerberg created it…where exactly did he go wrong. Would all the people that work there and all the companies who advertise and expand thru Facebook be better off if he had not done so. Not to mention the enormous amounts of charitable donations they make. Anything they do with their wealth short of turning it into cash and hiding in the mattress is a positive in one way or another. Savings equals investment…which translates into eventual income. Spending equals income...which translates into savings. It’s all about velocity. Super rich generally don’t like sitting on cash because it’s a loss after inflation. So they always want money working…which benefits all of us directly or indirectly.

“Even Warren Buffet, who still lives in his inexpensive house, thinks he is not paying enough taxes”

Warren Buffet lives in an inexpensive house…which is one of his many real estate holdings. Buffet’s claims about taxes are also misleading. Number 1… He can always send more to the treasury. Number 2… If he doesn’t like the lower tax rate on dividends…he can pay out the same income as salary instead…and pay the higher rate voluntarily. He chooses not to for obvious reasons. If you add in his corporate tax rate…since his company is registered as a C-corp….plus his rate on dividends…he is pay 35% more than he is telling us about. He is talking only about the personal income. Most people are not majority owners in publicly held C-corps. So you would not count that tax rate as a personal tax. In his case it is…because his business is investing for the C-corp. So he isn’t paying 15%. He’s paying 15% plus another 35%. He is just being politically correct…otherwise he’d distribute his income differently.

“That is the reason that rich people pay millions to tax attorneys, and CPA firms to avoid these types of taxes. The Walton family didn't seem to get hurt by estate taxes.”

Not sure about their estate plan. But unless they dies in 2010…they did not avoid it entirely. If they structured a family trust years earlier…or gifted shares….they may have avoided estate tax…but ten had a bigger income tax burden. People hire planners like me, CPA’s and attorneys to greatly mitigate the liability. Rarely can you avoid it legally completely. But you’re talking about these strategies in simplistic terms as though it is a total tax avoidance strategy. Many of these approaches aren’t always even about taxes. Sometimes it’s about legal protection…or even maintaining control of an asset.

“How did TARP help the people that were victims”

They still have a solvent system in which there wasn’t a total run on the banking system. As far as victims…in many cases…thanks to the GSE’s, the HUD secretary and the CRA program, the banks were the victims. That is a much more detailed response than I have time for.

“A private DB would have a vesting time, and an end time. Neither of which is in SS”

Except it can’t be a DB plan…it would have to be a private defined contribution plans. The demographics in the US and most developed nations make DB plans a fiscal time bomb. People are living way to long for an actuary to keep up with changes. DB plans are just asking for failure. They only work for insurance companies who can issue an equal amount of life insurance to counterbalance the liability. More people die and they pay less annuity payments. If people live longer, they pay less death benefit’s. One balance’s the other. But the treasury isn’t going to start selling life insurance to hedge out the risk.

“The real indicators of the decline in the economy, and the middle class has to be attributed to the system. The system failed, and continues to fail, so the only solution is to change the system”

There are many changes that need to be made. But it’s not the economic system…Its the political players manipulating the system.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster, you said "Freddie and Fannie were main contributors to the Real Estate bubble, " - Actually, they weren't. see http://hubpages.com/politics/Fannie-Mae-and-Freddi... to find out why they ended up being a smallish fish in a much bigger pond ... a pond created, however, for the reason you were discussing in the comment I pulled this from.


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My Esoteric 2 years ago from Keystone Heights, FL Author

With http://hubpages.com/politics/Alan-Greenspan-Was-He... I get into why I think Greenspan was one of the principal reasons the 2008 recession was as bad as it was. (BTW, Pres Bush actually did see the light at the end and instituted TARP, and a couple of other initiatives and to the great dismay of his fellow conservatives, which began the process of turning a certain depression into a major recession. Had he not done that, Obama would have been handed a depression with much more than 10 million jobs lost.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, didn't say Manzi was an economist, he is just a conservative who follows economics and economists closely and writes about it. I am not an economist either, not in the Pikitty, Klugman, and Keynes are or were. But, I am an professional cost and economic analyst with a background in economics so it easy to follow what these guys talk about. If they wander into higher calculus like eigenvalues and eigenvectors, that is where I start running into problems, the same problems I ran into getting my math degree, which is why I minored in statistics, lol.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

On the contrary...just prior to 2007...70% of all below grade investment & low grade loans where on the books of some gov't agency. And little has changed since then. The commission to investigate them was joke. Congress pulling together a commission to investigate the actions of an agency which they appointed all of the leaders to. Fortunately...there is enough video tape of them obstructing the entire process to reform these agencies. Not that anyone in congress would do anything about it anyway. The alarms where sounded in 2004 by the regulators...

http://www.youtube.com/watch?v=Yga7TlsA-1A

And of course my esteemed Gov Andrew Cuomo who got the ball rolling as HUD secretary.

http://www.youtube.com/watch?v=9TWOPDN5Va0

Independent research done by the NBER did find that the CRA act led to riskier lending practices. Not that I need to read a paper for that one. You only need to ask a loan compliance officer.

http://www.nber.org/papers/w18609


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, how can "If you want fair…fair is we all pay the same percentage." be true if paying the same rate forces at least 1/2 the population into substandard living? No, there is nothing fare about that.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, "Nothing could be more fair than we all play by exactly the same rules as far as I can see." would be nice if it were true, but it isn't. For every rule where the less well off have a small advantage over the well-off, I can show you 10 rules where the well-off has substantial advantage over the rest of us; one example are those tax shelters they pay your to find for them or getting a capital gains tax rate for managing a hedge fund.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, keep in mind, Piketty has three sets of numbers 1) Income from Labor, 2) Income from Capital Assets, and 3) the combination of the two. Each has its own distribution pattern. Labor looks something like 12/23/40/25, for 1%/9%/40%/50%, respectively. Capital, on the other hand is split 35/35/25/5. That is why your statement "he has simply filed his tax return differently because the tax law changed." actually does make a difference unless we are consider the distribution which combines both labor and capital.

With no change in the tax structure, Piketty thinks there is a reasonable chance we may end back at something close to 17/28/35/20 & 50/40/5/5.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Nobody is forced into a substandard living because they’re paying a 15% flat tax. The only thing that forces them into a substandard of living is a lack of marketable skills. That is they’re responsibility, to improve their skill set. The only valid argument for it not being their responsibility is the fact that most low income people are trapped in a substandard public education system that wastes enormous amounts of money, and graduates kids totally unprepared for reality who are often barely literate. But what can we expect from a centrally planned system that doesn’t provide parents the choice of going elsewhere.

I do in fact find shelters. It’s certainly a lot harder than it was for people in my position 35 years ago. But this is exactly why the flat tax makes sense. Because if rates go up substantially and we can find shelters…capital investment comes to a slow crawl…and everybody suffers. If you want rich people to pay more…give them incentives to declare and invest more. If you try to squeeze more revenue…you’ll never get. We never have…and we never will.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, referring to "You example of company X is frankly INCREDIBLY flawed…because the top 1% are contributing a small percentage of their income into qualified tax plans. They could not shelter anywhere near that kind of a % of the national income. The tax law doesn't permit it !!! It doesn't matter if you make 10 million a year…or 100k per year…the contribution limit is the same in dollars…not percentages." - I understand all of that and realize my hidden $1 T was ridiculous, but it was that big to make my point clear.

The fact that the hidden income can't, in reality, be that big doesn't make the math wrong, does it?


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, the problem of trying to treat public organizations like they are businesses is they aren't businesses, they're public services. What motivates for-profit companies doesn't work for non-profits and public organizations; it never has and it never will.

When people understand this and start agitating for public agencies to do their job right, like hire professional managers, make real use of ombudsman and inspector generals, and actually hold managers, including political appointees accountable, and get politics out of the operations of the agencies, the list goes on; then the executive agencies and departments might start working more effectively and deliver the services more effectively and at lower cost.

When I was working as a civil servant in the AF, and was intimately involved in OSD's 1991 effort to mimic private industry in providing logistics services to the Army, Air Force, and Navy. Donald Shycoff was the OSD Under Secretary who headed up the effort and he tried extremely hard to make it work; the Sec Def gave him a lot of power to strongarm the Services into complying. It ultimately failed. You might find this interesting:

https://www.cbo.gov/sites/default/files/cbofiles/f...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, where is the "Quality only improves with consumer choice and accountability" with the oligarch telephone companies, cable companies, electrical companies, energy production and distribution companies, financial institutions, health care industry? In all of these cases, and many more, consumers have a choice like they do with political candidates ... the lesser of evils. Why would privatizing education, even if one of those competitors is a public institution subject to the foibles of local and state interference be any better. Let private control get into it, then secondary education will go the way of higher education, priced out of the reach of 90% of Americans.


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster, I basically agree with LW on his response regarding economists and the 2008 recession, so I won't add to that response.

In answer to your "It is the government economists that I was referring to ..." comment, keep in mind, the gov't economist in place at the time, those who where listened to at any rate, all believed in the Classical school of economics. These would be Greenspan, Paulson, et al. They actually thought, until the very end, that the economy was working the way it should and that market forces would ultimately control the raging bubble, which only belatedly they admitted existed.

Like you, they don't care about pre-depression history, but had they, they would have seen it repeating itself as it did 21 times before; 2008 was no different, in its general nature, than each one of those financial recessions and depressions which occurred prior to 1933. The pattern was identical in each case, little or no financial regulations, speculation in some asset (most often real estate), a bubble forming, the bubble bursting, recession or depression depending on how big the bubble got, then human misery for the next 4 to 10 years until the next euphoria that ended in another recession or depression. That is exactly what happened between 2000 and 2014.

The ONLY times that cycle has been broken is when government actively intervened to break it with appropriate regulations to control the elements that lead to rampant speculation. Unfortunately, the Right side of our political spectrum believe those controls are bad for America and repetitive recessions and depressions are better because, as one politician put it in opposing TARP, "they are good for cleansing America's soul", or something close to that.


bradmaster 2 years ago

My Esoteric

I just lost my comment.

The bottom line is that how ever you rationalize it the result speaks for itself. So whatever theory, or practice is prevailing in congress and the government the results are pathetic.

TARP didn't accomplish much for the people, but rewarded the financial industry for their failure and their part in the economic meltdown. Their victims died silently.

Fannie and Freddie hardly got notice for their part in the meltdown, and neither did the FRB.

Had the FRB raised interest rates, the bubble would have burst at that moment because most of the RE loans were creative non fixed rates.

As long as you pick a party, then the country will continue to fail. I am outside of the party system, but living in CA, I know how bad it is when the left is in control.

California, high taxes, 23% state tax, vehicle tax, gasoline tax etc, and real estate prices, and of course road congestion. Low end on accomplishments like education, keeping up with the natural resources for over 38 million people.

The weather is great in S Cal, but the political climate is dreary.

This is due to the four decades of democrat control. And we have the most illegal aliens in the country. The state should really be made into four or maybe six states, as their is little in the way of a statewide common denominator.

Thanks

bradmaster


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster,

While the those that managed the financial industry ripped off America and got rewarded for it is extremely unfortunate, unless you think extreme human suffering is OK, then Joe Sixpack made out very well because of TARP and the follow up Stimulus program. 98 economists out of 100, of both stripes, now agree that without those two programs, a depression "was a certainty". The only argument left is whether it would have been worse than the Great Depression or not.

Now, it is possible you may feel it would have been better for American citizens to suffer as much or more than they did from 1929 - 1937 rather than not let the financial assholes off the hook, but, I would hope not. Nevertheless, Justice isn't done playing out. Not only has more than what was invested with TARP been recovered but major institutions have started paying out billions, somewhere around $30 so far, I think, in fines as have a few major players to include jail time for some. The Justice Department, as well as many State Attorneys General are still burning the midnight oil to bring more to pay for their crimes including criminal penalties.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ myesoteric

“The fact that the hidden income can't, in reality, be that big doesn't make the math wrong, does it?”

Yes…it does…because there is a much smaller amount of money finding qualified tax shelters for the wealthy than there are for middle income earners. If you pushed all of that money out in one shot to the current account owners…it would not go to billionaires by a long shot. Most of the qualified dollars would go to the middle and upper middle income earners. Qualified plans are not a major source of funding for these multi millionaires and billionaires. If you have two people…One is making 120k and the other 10 Million…and they both max their 401k plans. They will both put in precisely the same amount of money annually. Assuming they both have the same investments…in 10 years they both have exactly the same amount of money. Now do we have more people making 10 million a year maxing retirement plans…or more people making figures closer to 120k ??? Obviously the latter…because there aren’t all that many people making 10 million a year across the country. It’s a small fraction of the country. There are oodles of people in the 120k range who contribute to 401ks.

“What motivates for-profit companies doesn't work for non-profits and public organizations; it never has and it never will.”

I agree…that’s why our schools should be privately run…with gov’t funded tax payer dollars…which are controlled and directed by the taxpayer…not dictated to by a congressman. You can apply all the same standards of non-discrimination and basic aptitude requirements around curriculum. Just let people choose. Stop choosing for them and locking them into a circle of poverty.

“where is the "Quality only improves with consumer choice and accountability" with the oligarch telephone companies, cable companies, electrical companies, energy production and distribution companies, financial institutions, health care industry?”

The health industry has lost choice as the gov’t has crowded out the industry, destroyed competition and price discovery. The largest health insurer in the world is the US gov’t. There is nothing market based about it anymore. Electrical/utilities are all gov’t controlled business that are not permitted to operate in a free market. In regard to financial institutions…I can buy a stock for $5 dollars today…which before the gov’t regulations were lifted in 1975…it would have cost me hundreds of dollars for a few shares of stock. On an inflation adjusted basis over 40 years…the trade is almost free. That’s a huge improvement. In regard to phone companies…When was the last time you paid extra to make a long distance out of state call ??? I am old enough to remember when those calls had to be made only on the weekend during certain hours. My cable bill is nominally higher considering I now get over 500 channels, internet access, video recording so I don’t need a VCR, & telephone with voicemail. Why does the cable company give me all these services ??? So I don’t switch to Direct TV.

Education would not be priced out if it was paid for via a voucher system. Each kid has the same economic value. I expect accountability from adults. But I see no reason to punish young children for choices they didn’t make. This would be equal opportunity…not forces equal results.

“The pattern was identical in each case, little or no financial regulations, speculation in some asset (most often real estate)”

That is completely untrue…There was not only sizeable regulation…there was enormous incentive via the gov’t to take unnecessary risk. Gov’t regulation completed distorted the market. CRA itself was a regulation. And as the NBER paper demonstrated….immediately following a CRA audit…risky loans increased by 15%. None of this was a problem until the gov’t pushed for affordable housing with gov’t incentives. 2008’s events where simply the culmination of decades of social engineering in the housing sector.


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster, I to am almost a CA native, having arrived there at age 4. So the stages are, So Cal 1951 - 1965, Central CA 1965 - 1971, North CA 1975 - 1988. I lived through the Reagan years as governor and saw the beginning of the end of the economic good times for America.

But it was during the Republican administration in the mid-2000s when the legislature was not so heavily weighted toward the Ds, that the state jumped on the high risk investment bandwagon for their pension system which basically bankrupted CA.

When I left CA, it was near the top in education, now I see it is getting just a C- rating, the highest, MD, is a B+; that is a shame.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

TARP was a success in that it stabilized the banking system. Even banks in great shape, which most where actually fine...still where at risk of a run on the system because of public uncertainty. It not popular...and it was administered rather poorly in many ways. But an overall success.

The stimulus on the other hand was a disaster. Literally 3% of the entire program was for "Shovel Ready" work. The rest went to things like reinforcing local municipal budgets that had way too much fat in them. My wife's district got a big chunk of money. The administration handed out 20% raises to themselves, then a year later when the money wasn't there anymore they layed off a bunch of young teachers. They did literally nothing to actually address the budget problems. Then of of course we had the benefit of seeing various Federal agencies get 15-30% budget increases...and then watched the General Services Administration make videos mocking the taxpayer while they went on extravagant trips to Vegas. How many of them will get a cell next to Dennis Kozlowski ??? I won't hold my breath. I couldn't have spent that money in less productive ways if I sat down and planned to screw it up.

"I lived through the Reagan years as governor and saw the beginning of the end of the economic good times for America."

Yes...those days of 21% interest rates....and 12% inflation where the glory days. So wonderful...we had to create a misery index.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@LandmarkWealth. Why would you think "Nobody is forced into a substandard living because they’re paying a 15% flat tax."; it is so easy to construct a real life scenario where that is the case.

Right now I have 27 hubbers (2-Cs, 8-Ms, 9-Ls, and 4-Os; only 23 identified their political leaning) who have taken my "What does it take to Survive" survey they have come up with a range of $31K to $38K. The lower number is when asked just for an overall annual number and the higher number when I ask them to estimate 12 different categories of expenditures (food, fuel, medical care, etc) plus an Other, for anything I missed. So let's assume for argument's sake the real number is that a family of 3 needs $35K to put three meals on the table a day ($29/day for 3), put fuel in their car, if they have one, ($39/wk), pay for clothes ($452/yr), pay rent ($688/mo), and so on.

So, tax on $35K is $5,250. Since they are already at the bare minimum, they will have to go below the minimum to pay the tax. How is not being forced into substandard living?


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

“Why would you think "Nobody is forced into a substandard living because they’re paying a 15% flat tax."; it is so easy to construct a real life scenario where that is the case.”

Because nothing in the flat tax is preventing them from making more money. They can develop more skills, and command more in the market. If you’re making 35k….it’s because that’s what you have accepted. If you don’t like it, then make more money. Making money is actually quite easy when you remove the road block in your mind that someone else is preventing you from doing it. People make 35k…because they are offering the rest of us few skills that we need. Now on the other hand…if they pay nothing in taxes for the beneft they receive…they’ll continue to vote for anyone who will provide them with unsustainable entitlements which will be paid for by the productivity of others. We have a whole army of elected officials who want you to believe that you can’t do this…and you can’t do that...and it’s the other guys fault. Yet there are stories all around us of successful people coming from nothing.


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LandmarkWealth 2 years ago from Melville NY

“Why would you think "Nobody is forced into a substandard living because they’re paying a 15% flat tax."; it is so easy to construct a real life scenario where that is the case.”

Because nothing in the flat tax is preventing them from making more money. They can develop more skills, and command more in the market. If you’re making 35k….it’s because that’s what you have accepted. If you don’t like it, then make more money. Making money is actually quite easy when you remove the road block in your mind that someone else is preventing you from doing it. People make 35k…because they are offering the rest of us few skills that we need. Now on the other hand…if they pay nothing in taxes for the beneft they receive…they’ll continue to vote for anyone who will provide them with unsustainable entitlements which will be paid for by the productivity of others. We have a whole army of elected officials who want you to believe that you can’t do this…and you can’t do that...and it’s the other guys fault. Yet there are stories all around us of successful people coming from nothing.


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LandmarkWealth 2 years ago from Melville NY

Not sure why it didn't post the first time...The comment was delayed for some reason.

“Why would you think "Nobody is forced into a substandard living because they’re paying a 15% flat tax."; it is so easy to construct a real life scenario where that is the case.”

Because nothing in the flat tax is preventing them from making more money. They can develop more skills, and command more in the market. If you’re making 35k….it’s because that’s what you have accepted. If you don’t like it, then make more money. Making money is actually quite easy when you remove the road block in your mind that someone else is preventing you from doing it. People make 35k…because they are offering the rest of us few skills that we need. Now on the other hand…if they pay nothing in taxes for the beneft they receive…they’ll continue to vote for anyone who will provide them with unsustainable entitlements which will be paid for by the productivity of others. We have a whole army of elected officials who want you to believe that you can’t do this…and you can’t do that...and it’s the other guys fault. Yet there are stories all around us of successful people coming from nothing.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, if not for the Stimulus, America would have been in a depression, that is no longer in dispute by serious economists, right or left. The TARP by itself wasn't enough and the stimulus, which turned out to be 1/2 of what was needed based on 4th Qtr 2008 data which wasn't available in time to affect policy, wasn't enough by itself either. It took the two together to move the needle far enough in terms of the actual economy and the psychology of the economy to stop the free-fall.

Your anecdotes of poor or wasteful use of $ have zero impact on whether the stimulus worked or not, in aggregate they weren't even a blip; it just makes for hyperbole and distraction from the real points and issues.

And what does something like this even meant "Then of of course we had the benefit of seeing various Federal agencies get 15-30% budget increases..." without identifying what agencies you are talking about?

As to the high interest rates, that was during the time Reagan was President; and I don't blame him, Carter, Ford, Nixon or the Fed for that debacle, I blame the Arabs.

No. I blame Reagan's election as the CA governor as ushering the beginning of the reemergence of conservatism in America where his decision to turn mental patients out of state hospitals and on to the streets as the first salvo of America turning its backs on citizens who can't protect themselves. It also began the slow process of deregulating the financial industry as well as the blind deregulation of all American industries, the worst, besides the financial industry, is the health care industry. What a mess he created (not as Governor, but has President now)


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ my esoteric.

“Why would you think "Nobody is forced into a substandard living because they’re paying a 15% flat tax."; it is so easy to construct a real life scenario where that is the case.”

Because nothing in the flat tax is preventing them from making more money. They can develop more skills, and command more in the market. If you’re making 35k….it’s because that’s what you have accepted. If you don’t like it, then make more money. Making money is actually quite easy when you remove the road block in your mind that someone else is preventing you from doing it. People make 35k…because they are offering the rest of us few skills that we need. Now on the other hand…if they pay nothing in taxes for the beneft they receive…they’ll continue to vote for anyone who will provide them with unsustainable entitlements which will be paid for by the productivity of others. We have a whole army of elected officials who want you to believe that you can’t do this…and you can’t do that...and it’s the other guys fault. Yet there are stories all around us of successful people coming from nothing.

The stimulus was spread over two years. In 2010 the EPA received about a 35% increase.

“if not for the Stimulus, America would have been in a depression, that is no longer in dispute by serious economists, right or left”

It is in dispute by a number of economist…and that statement is purely conjecture. In fact…many economist insist we are in a Depression right now. Among them is Paul Krugman. Of course he wants more stimulus. Cato institute published a full page add in the NY Times with the names of 200 economist from academia who opposed the stimulus bill. Among them were Nobel Prize winners like James Buchanan.

Some believe it failed because it was too small and others think it should have never happened. He is a paper by John Cogan who points out how little was spent effectively. Another economist who doesn’t believe it was a big success.

http://web.stanford.edu/~johntayl/Cogan%20Taylor%2...

“Your anecdotes of poor or wasteful use of $ have zero impact on whether the stimulus worked or not, in aggregate they weren't even a blip”

I don’t need anecdotes…I can just read the bill. It has been correctly noted that only 3% of the bill went to any form of direct job creating infrastructure (Shovel Ready).

High rates took place at the very beginning of the Reagan Adm in order to quell the inflation disaster of the glory days. They peaked in May of 1981…with a prime rate of around 21%...about 5 months into his administration. And they steadily declined from there…along with unemployment…and inflation. How terrible !!!

Deregulating the health care industry and the financial industry…LOL. Ask a Dr or hospital administrator how “deregulated they are. The gov’t turning into the largest health insurer in the nation and dictating Dr’s pay via Medicare reimbursement is apparently deregulating the market. For that matter…spend a weak working for a financial firm filling out boat loads of regulatory paperwork…and then answering to auditors telling you to issue loans to people who clearly can’t pay them back…because CRA said you have to. Reagan unfortunately did make the mistake of increasing the authority of affordable housing agencies…and then Clinton’s HUD put it on steroids. It’s amazing that you can call a market in which a gov’t sponsored enterprises dominate loan issuance deregulated.


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LandmarkWealth 2 years ago from Melville NY

By the way...I am well aware of the Booth School of Business survey of economist in 2012 who polled how successful the stimulus was. You might note that the survey was a sample of only 40 people in the field. Hardly a wide ranging poll.


bradmaster 2 years ago

My Esoteric

While the those that managed the financial industry ripped off America and got rewarded for it is extremely unfortunate, unless you think extreme human suffering is OK, then Joe Sixpack made out very well because of TARP and the follow up Stimulus program. 98 economists out of 100, of both stripes, now agree that without those two programs, a depression "was a certainty". The only argument left is whether it would have been worse than the Great Depression or not.

bm:

Where were these economists when they could have navigated the country away from the iceberg.

I don't understand your comment, the people suffered, and the financial industry prospered. They are now even bigger than too big to fail. I still don't see any specifics on how TARP and the Stimulus did anything for the victims, or the people. 1.5 Trillion dollars was not well spent.

-----

Now, it is possible you may feel it would have been better for American citizens to suffer as much or more than they did from 1929 - 1937 rather than not let the financial assholes off the hook, but, I would hope not. Nevertheless, Justice isn't done playing out. Not only has more than what was invested with TARP been recovered but major institutions have started paying out billions, somewhere around $30 so far, I think, in fines as have a few major players to include jail time for some. The Justice Department, as well as many State Attorneys General are still burning the midnight oil to bring more to pay for their crimes including criminal penalties.

bM:

Those fines didn't find their way to the victims that lost their jobs, their homes and their dreams.

When TARP saved the financial industry, and made them flush with money, they didn't even lend money between banks, much less the people. The FRB but hundred of billions into the bundled bad loans because they say the economy wasn't doing well, and this was in addition to TARP.

I still haven't heard specifics that benefited the people. I don't see any changes in the financial industry that will prevent another meltdown in the future.

---

Thanks

bradmaster

----


bradmaster 2 years ago

My Esoteric

@Bradmaster, I to am almost a CA native, having arrived there at age 4. So the stages are, So Cal 1951 - 1965, Central CA 1965 - 1971, North CA 1975 - 1988. I lived through the Reagan years as governor and saw the beginning of the end of the economic good times for America.

But it was during the Republican administration in the mid-2000s when the legislature was not so heavily weighted toward the Ds, that the state jumped on the high risk investment bandwagon for their pension system which basically bankrupted CA.

bm:

I am talking about the California State politicians, not the federal.

The California State Workers unfunded pension plans are a real liability for the CA taxpayers.

-------

When I left CA, it was near the top in education, now I see it is getting just a C- rating, the highest, MD, is a B+; that is a shame.

bm:

you can see from your diverse locations in CA, how the state doesn't function well because the counties in CA are so diverse from each other.

Thanks

bradmaster


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

But then that can be said of virtually any state in the Union, save for Rhode Island maybe. Would you propose subdividing those down as well, say North Virginia from South Virginia or West Maryland from East Maryland? In each case, those two entities in each state are about as diverse as San Francisco is from Orange County.

It seems to me this country was built on a heterogeneous population rather than a homogeneous one, wouldn't you agree? The reason people want to divide things up into smaller and smaller entities is guarantee political power for a specific group of people. I just don't think our country, or California, simply ought to be another Europe; that's not who we are.


bradmaster 2 years ago

My Esoteric

No other states even comes close to the 38 million people in California.

There is also little in common between the half of the population of NY which is upstate NY, and that on NYC and Long Island.

If we break CA in to N and S, it would still be 19 million people each.

This is a macro not a micro shift. I am not the only one advocating for splitting up CA.

The building up of this country doesn't have a happy ending, as at some point the building isn't so solid.

----


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

BM - "Where were these economists when they could have navigated the country away from the iceberg."

ME - They haven't been in charge since Reagan took office except for a brief period during Clinton's administration.

BM - "I still haven't heard specifics that benefited the people."

ME - I will repeat myself "unless you think extreme human suffering is OK, then Joe Sixpack made out very well because of TARP and the follow up Stimulus program. 98 economists out of 100, of both stripes, now agree that without those two programs, a depression "was a certainty". Now I am presuming you understand a depression makes the 2008 recession look like a walk in the park.

BM - "When TARP saved the financial industry, and made them flush with money, ..."

ME - TARP did not make them flush with money, not for long anyway. Uncle Sam got every dime of that back with interest. But, what it did do was stop you from become a pauper.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

- Alan S. Blinder, a Princeton professor and former vice chairman of the Fed

- Mark Zandi, chief economist at Moody’s Analytics,

- Nobel laureate Paul Krugman (obviously)

-IMF's Strauss-Kahn

- U.S. Chamber president Tom Donohue,

- American Enterprise Institute's John H. Malkin:

- David Nowakowski, director of credit strategy at Roubini Global Economics

- America's top economic forecasters -- Macroeconomic Advisers, Moody's Economy.com, IHS Global Insight, JPMorgan Chase, Goldman Sachs, and the Congressional Budget Office -- agree that it [stimulus] increased GDP at least 2 percentage points,

- Notes on the Booth School "Their “Economic Experts Panel” involves 40 of the leading economists across the US who have agreed to respond on the economic policy question du jour. The panel involves a geographically and ideologically diverse array of leading economists working across different fields. The main thing that unites them is that they are outstanding economists who care about public policy. " ME - as a statistician, I buy their methodology as being legitimate. And, as I understand it, Booth leans Right.

'nuff said.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Come on @Landmark, "Because nothing in the flat tax is preventing them from making more money. ..." is totally non-sequitur.

The $35K is a baseline, a constant, not a variable. It is what the hypothesis regarding the fairness of the tax plan is measured against. Your hypothesis is that a flat tax is fair in all circumstances; so I tested that hypothesis.

I made two assumptions. The first is, if the outcome of a tax plan is such as to place a person below the poverty line, then by definition, it is not fair. Now, you can disagree or not with that assumption and debate its merits, that is my test. My other assumption, and it is completely arbitrary, (although I use data supplied by real people) is that the poverty line is $35K; earn more than that, and your very basic needs are met, earn below that and they are not. It is no more complicated than that.

Common sense says that a raw flat tax Will drive some people into poverty, that is the simple math of it.

But I will even go your way. Let's say my guy finds a better job; OK, I will move on to the next guy. Now he finds a better job, and I move again. Pretty soon, nobody is making $35K anymore, are they. That would mean, if I am not mistaken, the effective national minimum wage is now higher than $35,000/yr!!

And if you say no, it isn't, then I am going to grab that guy who is still making $35K and use him as my test case. Which, if I do, and subtract 15% from his income, he is below the poverty line.

Now, let's go down another line. Let's say all workers in America did find better jobs that paid higher than $35K. What would happen to prices and other wages? They would go up as well, wouldn't they? Wouldn't that then drive the poverty line up as well? It's a Catch-22 in my book.

Also, from the message in that same paragraph, it would appear there are a limitless number of high paying jobs that everybody can get if only they would put their mind to it. That is hardly reality. It is also hardly a reality to believe that the Only barriers in front of people are the ones they place their themselves.

I can guaran-damn-tee you that if you were black and poor, but smarter than the white guy trying to get a scholarship for Harvard, you wouldn't get it. Test after test after test of people applying for the same jobs at the same exact places with the same exact interviewers have shown for decades that it makes a big difference what sex and color you are. And if anything, it is getting worse now, not better.

For example, in 2003 at the Chicago Business School, a survey was run where resumes were sent out. This was the result.

"The authors find that applicants with white-sounding names are 50 percent more likely to get called for an initial interview than applicants with African-American-sounding names. Applicants with white names need to send about 10 resumes to get one callback, whereas applicants with African-American names need to send about 15 resumes to achieve the same result."

Seems to me it is really hard to overcome your skin color. The playing field is not level, my friend, that is a given in life. So why does society want to make it even harder by saying a tax law is fair when it isn't?

So long as people don't care enough to ensure there is no discrimination in hiring, I don't have any problem taxing the rich at higher rate than the poor; life is simply unfair.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Come on @Landmark, "Because nothing in the flat tax is preventing them from making more money. ..." is totally non-sequitur.

The $35K is a baseline, a constant, not a variable. It is what the hypothesis regarding the fairness of the tax plan is measured against. Your hypothesis is that a flat tax is fair in all circumstances; so I tested that hypothesis.

I made two assumptions. The first is, if the outcome of a tax plan is such as to place a person below the poverty line, then by definition, it is not fair. Now, you can disagree or not with that assumption and debate its merits, that is my test. My other assumption, and it is completely arbitrary, (although I use data supplied by real people) is that the poverty line is $35K; earn more than that, and your very basic needs are met, earn below that and they are not. It is no more complicated than that.

Common sense says that a raw flat tax Will drive some people into poverty, that is the simple math of it.

But I will even go your way. Let's say my guy finds a better job; OK, I will move on to the next guy. Now he finds a better job, and I move again. Pretty soon, nobody is making $35K anymore, are they. That would mean, if I am not mistaken, the effective national minimum wage is now higher than $35,000/yr!!

And if you say no, it isn't, then I am going to grab that guy who is still making $35K and use him as my test case. Which, if I do, and subtract 15% from his income, he is below the poverty line.

Now, let's go down another line. Let's say all workers in America did find better jobs that paid higher than $35K. What would happen to prices and other wages? They would go up as well, wouldn't they? Wouldn't that then drive the poverty line up as well? It's a Catch-22 in my book.

Also, from the message in that same paragraph, it would appear there are a limitless number of high paying jobs that everybody can get if only they would put their mind to it. That is hardly reality. It is also hardly a reality to believe that the Only barriers in front of people are the ones they place their themselves.

I can guaran-damn-tee you that if you were black and poor, but smarter than the white guy trying to get a scholarship for Harvard, you wouldn't get it. Test after test after test of people applying for the same jobs at the same exact places with the same exact interviewers have shown for decades that it makes a big difference what sex and color you are. And if anything, it is getting worse now, not better.

For example, in 2003 at the Chicago Business School, a survey was run where resumes were sent out. This was the result.

"The authors find that applicants with white-sounding names are 50 percent more likely to get called for an initial interview than applicants with African-American-sounding names. Applicants with white names need to send about 10 resumes to get one callback, whereas applicants with African-American names need to send about 15 resumes to achieve the same result."

Seems to me it is really hard to overcome your skin color. The playing field is not level, my friend, that is a given in life. So why does society want to make it even harder by saying a tax law is fair when it isn't?

So long as people don't care enough to ensure there is no discrimination in hiring, I don't have any problem taxing the rich at higher rate than the poor; life is simply unfair.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

“They haven't been in charge since Reagan took office except for a brief period during Clinton's administration.”

Because the Reagan Adm didn’t have economist on the council for economic advisors ??? Actually a young Krugman worked on the council for Reagan.

“98 economists out of 100, of both stripes, now agree that without those two programs, a depression "was a certainty".

Hardly true in relation to the stimulus as I already cited the 200 who were listed in the NY times who opposed the stimulus bill. There is no wide ranging survey of any large sample that supports this assertion.

“Your hypothesis is that a flat tax is fair in all circumstances; so I tested that hypothesis.”

And I responded to your test. The person making 35k is playing by the same rules as the person making 350k…and has the same opportunity to better themselves. The tax code is not making them poor. Poor is what you earn…and the flat tax doesn’t prevent you from earning more.

“I made two assumptions. The first is, if the outcome of a tax plan is such as to place a person below the poverty line, then by definition, it is not fair.”

Once again…their ability to generate revenue in the form of compensation places them below the poverty line, not the income tax. Proof of this would be the countless people already exempt from the income tax who are below the poverty level. Clearly, eliminating them from the income tax didn’t not improve their poverty status. All it has done is keep them poor as they are entitled to enough social services that there is little reason to push to the next level when you’re dependent on gov’t.

A 35k poverty line is totally arbitrary, because it would be geographically different by wide margins. A family of 4 on Long Island that makes 100k is just getting by. Take that salary to Alabama, and the outcome will be very different.

“Now, let's go down another line. Let's say all workers in America did find better jobs that paid higher than $35K. What would happen to prices and other wages? They would go up as well, wouldn't they?

Wrong…inflation is a function of the supply/velocity increasing without regard for productivity. If people are making more money…devaluation of purchasing power is not necessary if they are producing more. Which is the key point about marketable skills. As long as productivity outpaces or at least keeps up…there is no loss of purchasing power. Actually, if productivity increases enough…you gain purchasing power. If you add more to the economy in exchange for the increased wages…then inflation is a non issue. When we pay people to do nothing…we lose purchasing power.

The effective minimum wage is also irrelevant for the same reason. The purpose of the minimum wage from a legislative standpoint is useless, because it doesn’t address corresponding productivity. If the market dictated that the minimum wage is 35k or any other number…that doesn’t mean it has to be a “poor” standard of living. If the bottom rung was highly productive and offered a great deal of economic value…they would be compensated in ways that would adequately provide for their lifestyle. Unfortunately, we have a lot of unskilled workers who offer little to no economic value that anyone wants or needs which can easily be replaced.

“Also, from the message in that same paragraph, it would appear there are a limitless number of high paying jobs that everybody can get if only they would put their mind to it. That is hardly reality.”

It is only reality, because it is inevitable that there will be lazy people, some foolish people, and people who are simply content. There is nothing preventing the individual from accomplishing greater economic mobility other than themselves, otherwise we would never have success stories of people who started at the bottom, of which I am one. How many of them face bigger obstacles than Stephen Hawking who can’t lift a fork to feed himself ???

“I can guaran-damn-tee you that if you were black and poor, but smarter than the white guy trying to get a scholarship for Harvard, you wouldn't get it. “

You could…then perhaps you could explain why I and several colleagues where repeatedly passed up promotions for lesser experienced and less qualified people, and actually told it was due to the need for diversity. Why is it that when the American Journal of Education did a study about education and success…that blacks originating from other countries didn’t have the same problem as blacks in the US. Are they not Black enough ??? Or perhaps they just didn’t get the message that the white man was keeping them down…because they haven’t spent the last 60 years on LBJ’s Great Society plantation of entitlement addiction.

http://talk.collegeconfidential.com/african-americ...


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LandmarkWealth 2 years ago from Melville NY

Economist's opposed to Obama's stimulus...and this is a list of those active at the academic level at the time. This is doesn't cover men like Thomas Sowell...who I generally would be less inclined to mention because he tends to be as political as a Paul Krugman.

BURTON ABRAMS, Univ. of Delaware

DOUGLAS ADIE, Ohio University

LEE ADKINS, Oklahoma State University

WILLIAM ALBRECHT, Univ. of Iowa

RYAN AMACHER, Univ. of Texas at Arlington

J.J. ARIAS, Georgia College & State University

HOWARD BAETJER, JR., Towson University

CHARLES BAIRD, California State University, East Bay

STACIE BECK, Univ. of Delaware

DON BELLANTE, Univ. of South Florida

JAMES BENNETT, George Mason University

BRUCE BENSON, Florida State University

SANJAI BHAGAT, Univ. of Colorado at Boulder

MARK BILS, Univ. of Rochester

ALBERTO BISIN, New York University

WALTER BLOCK, Loyola University New Orleans

CECIL BOHANON, Ball State University

MICHELE BOLDRIN, Washington University in St. Louis

DONALD BOOTH, Chapman University

MICHAEL BORDO, Rutgers University

SAMUEL BOSTAPH, Univ. of Dallas

DONALD BOUDREAUX, George Mason University

SCOTT BRADFORD, Brigham Young University

GENEVIEVE BRIAND, Eastern Washington University

IVAN BRICK, Rutgers University

GEORGE BROWER, Moravian College

PHILLIP BRYSON, Brigham Young University

JAMES BUCHANAN, Nobel laureate

RICHARD BURDEKIN, Claremont McKenna College

RICHARD BURKHAUSER, Cornell University

EDWIN T. BURTON, Univ. of Virginia

JIM BUTKIEWICZ, Univ. of Delaware

HENRY BUTLER, Northwestern University

WILLIAM BUTOS, Trinity College

PETER CALCAGNO, College of Charleston

BRYAN CAPLAN, George Mason University

ART CARDEN, Rhodes College

JAMES CARDON, Brigham Young University

DUSTIN CHAMBERS, Salisbury University

EMILY CHAMLEE-WRIGHT, Beloit College

V.V. CHARI, Univ. of Minnesota

BARRY CHISWICK, Univ. of Illinois at Chicago

LAWRENCE CIMA, John Carroll University

J.R. CLARK, Univ. of Tennessee at Chattanooga

GIAN LUCA CLEMENTI, New York University

R. MORRIS COATS, Nicholls State University

JOHN COCHRAN, Metropolitan State College at Denver

JOHN COCHRANE, Univ. of Chicago

JOHN COGAN, Hoover Institution, Stanford University

LLOYD COHEN, George Mason University

JOHN COLEMAN, Duke University

BOYD COLLIER, Tarleton State University

ROBERT COLLINGE, Univ. of Texas at San Antonio

PETER COLWELL, Univ. of Illinois at Urbana-Champaign

MICHAEL CONNOLLY, Univ. of Miami

LEE COPPOCK, Univ. of Virginia

MARIO CRUCINI, Vanderbilt University

CHRISTOPHER CULP, Univ. of Chicago

KIRBY CUNDIFF, Northeastern State University

ANTONY DAVIES, Duquesne University

JOHN DAWSON, Appalachian State University

A. EDWARD DAY, Univ. of Texas at Dallas

CLARENCE DEITSCH, Ball State University

ALLAN DESERPA, Arizona State University

WILLIAM DEWALD, Ohio State University

ARTHUR DIAMOND, JR., Univ. of Nebraska at Omaha

JOHN DOBRA, Univ. of Nevada, Reno

JAMES DORN, Towson University

CHRISTOPHER DOUGLAS, Univ. of Michigan, Flint

FLOYD DUNCAN, Virginia Military Institute

FRANCIS EGAN, Trinity College

JOHN EGGER, Towson University

KENNETH ELZINGA, Univ. of Virginia

PAUL EVANS, Ohio State University

FRANK FALERO, California State University, Bakersfield

EUGENE FAMA, Univ. of Chicago

W. KEN FARR, Georgia College & State University

DANIEL FEENBERG, National Bureau

of Economic Research

HARTMUT FISCHER, Univ. of San Francisco

ERIC FISHER, California State Polytechnic University

FRED FOLDVARY, Santa Clara University

MURRAY FRANK, Univ. of Minnesota

PETER FRANK, Wingate University

TIMOTHY FUERST, Bowling Green State University

B. DELWORTH GARDNER, Brigham Young University

JOHN GAREN, Univ. of Kentucky

RICK GEDDES, Cornell University

AARON GELLMAN, Northwestern University

WILLIAM GERDES, Clarke College

JOSEPH GIACALONE, St. John’s University

MICHAEL GIBBS, Univ. of Chicago

OTIS GILLEY, Louisiana Tech University

STEPHAN GOHMANN, Univ. of Louisville

RODOLFO GONZALEZ, San Jose State University

RICHARD GORDON, Penn State University

PETER GORDON, Univ. of Southern California

ERNIE GOSS, Creighton University

PAUL GREGORY, Univ. of Houston

EARL GRINOLS, Baylor University

DANIEL GROPPER, Auburn University

R.W. HAFER, Southern Illinois University, Edwardsville

ARTHUR HALL, Univ. of Kansas

STEVE HANKE, Johns Hopkins University

STEPHEN HAPPEL, Arizona State University

RICHARD HART, Miami University

THOMAS HAZLETT, George Mason University

FRANK HEFNER, College of Charleston

SCOTT HEIN, Texas Tech University

RONALD HEINER, George Mason University

DAVID HENDERSON, Hoover Institution,

Stanford University

ROBERT HERREN, North Dakota State University

GAILEN HITE, Columbia University

STEVEN HORWITZ, St. Lawrence University

DANIEL HOUSER, George Mason University

JOHN HOWE, Univ. of Missouri, Columbia

JEFFREY HUMMEL, San Jose State University

BRUCE HUTCHINSON, Univ. of Tennessee at Chattanooga

BRIAN JACOBSEN, Wisconsin Lutheran College

SHERRY JARRELL, Wake Forest University

JASON JOHNSTON, Univ. of Pennsylvania

BOYAN JOVANOVIC, New York University

JONATHAN KARPOFF, Univ. of Washington

BARRY KEATING, Univ. of Notre Dame

NAVEEN KHANNA, Michigan State University

NICHOLAS KIEFER, Cornell University

DANIEL KLEIN, George Mason University

PAUL KOCH, Univ. of Kansas

NARAYANA KOCHERLAKOTA, Univ. of Minnesota

MAREK KOLAR, Delta College

ROGER KOPPL, Fairleigh Dickinson University

KISHORE KULKARNI, Metropolitan

State College of Denver

DEEPAK LAL, UCLA

GEORGE LANGELETT, South Dakota State University

JAMES LARRIVIERE, Spring Hill College

ROBERT LAWSON, Auburn University

JOHN LEVENDIS, Loyola University New Orleans

DAVID LEVINE, Washington University in St. Louis

PETER LEWIN, Univ. of Texas at Dallas

W. CRIS LEWIS, Utah State University

DEAN LILLARD, Cornell University

ZHENG LIU, Emory University

ALAN LOCKARD, Binghampton University

EDWARD LOPEZ, San Jose State University

JOHN R. LOTT, Jr., Univ. of Maryland

JOHN LUNN, Hope College

GLENN MACDONALD, Washington

University in St. Louis

HENRY MANNE, George Mason University

MICHAEL MARLOW, California

Polytechnic State University

DERYL MARTIN, Tennessee Tech University

DALE MATCHECK, Northwood University

JOHN MATSUSAKA, Univ. of Southern California

THOMAS MAYOR, Univ. of Houston

DEIRDRE MCCLOSKEY, University of Illinois at Chicago

JOHN MCDERMOTT, Univ. of South Carolina

JOSEPH MCGARRITY, Univ. of Central Arkansas


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Let's not leave out...these guys as well...

ROGER MEINERS, Univ. of Texas at Arlington

ALLAN MELTZER, Carnegie Mellon University

JOHN MERRIFIELD, Univ. of Texas at San Antonio

JAMES MILLER III, George Mason University

JEFFREY MIRON, Harvard University

THOMAS MOELLER, Texas Christian University

JOHN MOORHOUSE, Wake Forest University

ANDREA MORO, Vanderbilt University

ANDREW MORRISS, Univ. of Illinois at Urbana-Champaign

MICHAEL MUNGER, Duke University

KEVIN MURPHY, Univ. of Southern California

DAVID MUSTARD, Univ. of Georgia

RICHARD MUTH, Emory University

CHARLES NELSON, Univ. of Washington

WILLIAM NISKANEN, Cato Institute

SETH NORTON, Wheaton College

LEE OHANIAN, UCLA

LYDIA ORTEGA, San Jose State University

EVAN OSBORNE, Wright State University

RANDALL PARKER, East Carolina University

ALLEN PARKMAN, Univ. of New Mexico

DONALD PARSONS, George Washington University

SAM PELTZMAN, Univ. of Chicago

TIMOTHY PERRI, Appalachian State University

MARK PERRY, Univ. of Michigan, Flint

CHRISTOPHER PHELAN, Univ. of Minnesota

GORDON PHILLIPS, Univ. of Maryland

MICHAEL PIPPENGER, Univ. of Alaska, Fairbanks

TOMASZ PISKORSKI, Columbia University

BRENNAN PLATT, Brigham Young University

JOSEPH POMYKALA, Towson University

WILLIAM POOLE, Univ. of Delaware

BARRY POULSON, Univ. of Colorado at Boulder

BENJAMIN POWELL, Suffolk University

EDWARD PRESCOTT, Nobel laureate

GARY QUINLIVAN, Saint Vincent College

REZA RAMAZANI, Saint Michael’s College

ADRIANO RAMPINI, Duke University

ERIC RASMUSEN, Indiana University

MARIO RIZZO, New York University

NANCY ROBERTS, Arizona State University

RICHARD ROLL, UCLA

ROBERT ROSSANA, Wayne State University

JAMES ROUMASSET, Univ. of Hawaii at Manoa

JOHN ROWE, Univ. of South Florida

CHARLES ROWLEY, George Mason University

JUAN RUBIO-RAMIREZ, Duke University

ROY RUFFIN, Univ. of Houston

KEVIN SALYER, Univ. of California, Davis

THOMAS SAVING, Texas A&M University

PAVEL SAVOR, Univ. of Pennsylvania

RONALD SCHMIDT, Univ. of Rochester

CARLOS SEIGLIE, Rutgers University

ALAN SHAPIRO, Univ. of Southern California

WILLIAM SHUGHART II, Univ. of Mississippi

CHARLES SKIPTON, Univ. of Tampa

JAMES SMITH, Western Carolina University

VERNON SMITH, Nobel laureate

LAWRENCE SOUTHWICK, JR., Univ. at Buffalo

DEAN STANSEL, Florida Gulf Coast University

HOUSTON STOKES, Univ. of Illinois at Chicago

BRIAN STROW, Western Kentucky University

SHIRLEY SVORNY, California State University, Northridge

JOHN TATOM, Indiana State University

WADE THOMAS, State University New York at Oneonta

HENRY THOMPSON, Auburn University

ALEX TOKAREV, The King’s College

EDWARD TOWER, Duke University

LEO TROY, Rutgers University

WILLIAM TRUMBULL, West Virginia University

DAVID TUERCK, Suffolk University

CHARLOTTE TWIGHT, Boise State University

KAMAL UPADHYAYA, Univ. of New Haven

CHARLES UPTON, Kent State University

T. NORMAN VAN COTT, Ball State University

RICHARD VEDDER, Ohio University

RICHARD WAGNER, George Mason University

DOUGLAS M.WALKER, College of Charleston

DOUGLAS O.WALKER, Regent University

MARC WEIDENMIER, Claremont McKenna College

CHRISTOPHER WESTLEY, Jacksonville State University

ROBERT WHAPLES, Wake Forest University

LAWRENCE WHITE, Univ. of Missouri at St. Louis

WALTER WILLIAMS, George Mason University

DOUG WILLS, Univ. of Washington Tacoma

DENNIS WILSON, Western Kentucky University

GARY WOLFRAM, Hillsdale College

HUIZHONG ZHOU, Western Michigan University


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LandmarkWealth 2 years ago from Melville NY

Ohh...I am sorry. The list is so long that I almost forgot Nobel Prize winners Eugene Fama & Thomas Sargent. And then there is Greg Mankiw...who is the chair of the Harvard economics department. Not to mention very well known economists such as Robert Barro, Gary Becker, Alberto Alesina, Harald Uhlig & Luigi Zingales. But I guess recent recipients of the Nobel Prize in Economics doesn't constitute a serious economist. Then again maybe it doesn't. They gave Obama a Nobel Peace prize...and that vote happened before he was ever sworn into office.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Opps...There is also Glenn Hubbard...Dean of Columbia Business school, & Bob Mundell...another Nobel Prize winner. That's like 6 of them. I lost count. But Joe Biden said all economist agree...so it must be true.


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, I spent about 30 minutes briefly going over the Cogan, Taylor study. Obviously, I going to need much more time to do a thorough job of it. But, I can see that if it had come across my desk at the AF Cost Analysis Center, it would be going back with quite a few questions that would need answering. Its not that their analysis is flawed, I just got the initial impression it is incomplete.

BTW, do you know if they, or anyone else did a similar study with four or six more quarters worth of data points? This one stops at 2010 Q2 and the investment 1/3 of the ARRA was just kicking into high gear.

Also, do you know why they don't count Medicaid spending as equivalent to State purchases? They say accounting methods count it as an increase to personal income, which I presume is true, but it doesn't make practical sense. The money goes to buy medical supplies, equipment, and services just the same as the State might buy staplers or maintain a school.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I am not sure the answer to the Medicaid question. I would have to look into that further.

I know there were a few analysis that looked at things from various different angles. Tim Conley and Bill Dupor did a study on the impact of jobs saved in the public sector and the cost to the private sector. Full disclosure…I never read it, so I have no idea how many quarters where included in the analysis. One was from 2012…so it may examine a longer duration. They had two publications I am aware of…

2011

http://web.econ.ohio-state.edu/dupor/arra10_may11....

2012

http://www.stern.nyu.edu/cons/groups/content/docum...


bradmaster 2 years ago

My Esoteric

Your topic was out of whack wealth.

The new richest people list is out

......Thanks to a buoyant stock market,

the richest people in the U.S. just keep getting richer.

That has made it harder than ever to join the ranks of the 400 wealthiest Americans.

The price of entry to The Forbes 400 this year is $1.55 billion, the highest it’s been since Forbes started tracking American wealth in 1982. Last year it took $1.3 billion to score a spot. Because the bar is so high, 113 U.S. billionaires didn’t make the cut.

Bill Gates is at 81 billion dollars, not too long ago he was around 40 billion dollars.

Apparently there is a way for these billionaires to not be weighted down by the tax system. Unfortunately, the tax system does drastically affect the middle class, and many of them are sinking within and below the class.

All together the 400 wealthiest Americans are worth a staggering $2.29 trillion, up $270 billion from a year ago.

The average net worth of list members is $5.7 billion, $700 million more than last year and a record high. An impressive 303 of the 400 saw the value of their fortunes rise compared to a year ago. Only 36 people from last year’s list had lower net worths this year. Twenty-seven people fell off the list; another six people died, including businessman and Tampa Bay Buccaneers owner Malcolm Glazer.

You guys can keep on focusing on economists, and economics, but apparently Bill Gates and the billionaires club know more about economics than your entire list, most of which are probably not rich themselves.

---

I look at the country and the economy and conclude that is where the economics tainted with politics bring us more often than not.

Thanks

bradmaster


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LandmarkWealth 2 years ago from Melville NY

"Bill Gates and the billionaires club know more about economics than your entire list, most of which are probably not rich themselves"

No...they know more about innovation and wealth creation. Bill Gates & Steve Jobs didn't grow up poor. But he didn't grow up rich either. They made themselves very wealthy with extraordinary innovation that improved life for all of us. Too many people seem to be losing sight of the fact that both wealth and currency are unlimited. Because men like this created billions for themselves and all the charities they donate to, doesn't mean that others lost billions. Wealth creation is not a zero sum game. I personally couldn't care less what Bill Gates, my next door neighbor...or either of you have. It has no bearing on what I have, will have or will accomplish.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, I started looking into Cogan & Taylor a little more deeply but stopped when I found there data is simply not usable at that point in time. They said, for example, total Capital Investment for FY09 was $.09 B and FY10 Q1 and Q2, it was $1.2 B. I am sure that was correct when they looked at the BEA data in 2010. But it has been updated since and those figures are now $4.1 B and $7.3 B, respectively.

Also, there study focused only on gov't consumption and expenditures at the federal, state, and local level, looking for a change in GDP, among other things. There are a few problems with that approach, especially when they did it. First, the portion of ARRA that went to energy, infrastructure (and science) itself was 19%, another 16% sent to State and local governments, which C&T considered, and finally 9% went to Education (which was also considered) and Training (which may not have been; it certainly wasn't in terms of increased productivity down the road from a better trained labor force). That means C&T only considered 44% of the ARRA program.

Further, the part they considered would naturally have the most delayed effect on the economy of the various avenues ARRA took and that was compounded by the fact that the money being put into investment programs didn't really start to take off until at the point they ended their study, so they never included that part anyway; much of that money was finally spent by 2011 Q1 or Q2 which means the first fruits of that wouldn't appear, if there were a multiplier effect, until 2011 (from previous expenditures) and 2012.

Where you would see the most immediate impact is in the tax rebates which were limited to those who would put them immediately back into the economy, and not to you and me who might save it or pay down debt, a waste of rebate money relative recession relief. A full 41% of ARRA went to this type of stimulus which was expected to keep what was left of the economy continue to move along instead of collapsing further. Almost 50% of this money, as well as the State transfers was received by 2010 Q2, so they might have seen some results had they looked.


bradmaster 2 years ago

LW

I have to disagree with you about both Gates, and Jobs.

Gates bought CPM and changed it to MS DOS. It was not the best DOS, but the one that was the best DOS couldn't be bothered with Gates.

IBM DOS was far superior to anything DOS developed by MS.

Microsoft has sold crap after crap .....

It is like TCP[IP for the Internet, developed in the 1970s with that vintage hardware.

MS Windows did become the standard, but that doesn't make it good.

Apple DOS wan't much better than MS Dos.

Apple actually copied the Xerox operating system for their windows version.

Neither of these billionaires made our lives better, they just kept changing it.

Intel and AMD made it better because they keep giving us more for our money, and their stuff has to work. Software can limp by, and you just wait for the next version. Right now we are waiting for Windows 9.

Now, Larry Ellison of Oracle really did produce a great product with Oracle. Bill Gates would be third in my view. Would you want a plane or a car built by Microsoft. Rebooting the car wouldn't be too bad, but rebooting a plane in the air, well!

Google is probably the real innovator of the billionaires.

Has Mark Zuckerberg Facebook improved your life, or has it provided yet another way to invade your privacy?

Dr. Salk and his vaccine for Polio, made lives better, but he didn't become a billionaire. I don't know anyone that has cured a major disease, or created a vaccine that prevents a major disease. The major innovations in medicine are in the surgical arena, but they don't cure disease.

-----

I also have to disagree with your last point.

It does matter how the billionaires using the same tax system can increase their wealth at will. There is a flaw in the system that allows them to prosper independent of the economy, the tax system, the political system, and the conditions in the world. If you don't know the root cause of their success, then you can't succeed like them. You can never achieve it as a wage earner.

Both Gates and Buffet made their money in the US, yet they donate billions to Africa?

In this case, it really does matter where the twenty five billion dollars cam from? as it wasn't spent back into the country.

---

it really is a zero sum game on a yearly basis. Every year the sum changes, but it is not unlimited. At some point the system collapses.

--

Thanks

bradmaster


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LandmarkWealth 2 years ago from Melville NY

@ myesoteric

Political…as opposed to sources like Piketty who cherry picked data from tax returns, counting children as tax units…etc. You’re making assumptions about things like a better trained labor force, as if gov’t is in any way an effective means to provide this. Yet, if you want to be a welder you’ll get far more paid training working for an energy company in North Dakota because they’re in need of the labor. Not a lot of successful people have come out of gov’t job training programs. In fact let’s see what the 2012 report direct from the Dept of Labor said about the govt’s green job training program funded by the stimulus. Just like the gov’t to train people for a field with little to no demand. Meanwhile they could be getting paid 100k to drive a water truck for an energy company in the Florida Panhandle. Dept of Labor report on job training…

http://www.oig.dol.gov/public/reports/oa/2013/18-1...

That also assumes that because money was diverted to an agency of some sort for infrastructure, that the agency then spent the money on some “shovel ready” project…which often didn’t happen for years. And when there was a “shovel ready’ jobs project…how was it spent. There is more than enough evidence of incredibly wasteful spending that did nothing to promote long term employment. George Mason University also released a study on whether the stimulus did anything to help the unemployed. According to economist Garret Jones…

“We found that less than half of the workers came from the unemployment line, and instead were hired away from other firms and businesses. One might think that this would still create a job opening, but during a recession it’s not really the case. It’s often one less person the employer has to fire. Stimulus funds went to markets with highly educated workers, and we found no evidence that funds were successfully targeted at areas of the economy with high unemployment. In order for ARRA to be effective, economist Lawrence Summers said it needed to be targeted, temporary, and timely. One lesson we learned is that targeting needed to be improved in order to be nearly as effective as people thought it was”

http://mercatus.org/sites/default/files/publicatio...

If you’re analysis of the spending delays is accurate, then the spending was then pointless since the according the data from the NBER…the recession already ended and the economy was back to expansion by June of 2009. Since the Bill was only signed 4 months earlier…it’s not particularly realistic to expect that money that was yet to be dispersed to hire anyone…or helped to create jobs. And since the recovery was already underway before any real money was dispersed…this is a pitiful result…as it’s been one of the most anemic recoveries in decades.

The larger point I was making is that I have now cited multiple studies (including the one above) from well know economists at top universities including various Nobel Prize winners in the field who dispute the claim that the stimulus was even a minor success. Some say it was too small or not well targeted. Others suggest it should have never happened to begin with. Now I don’t deny that there can be political influence in academia, or anywhere for that matter. However, this 99% of economist agree with what the Obama administration did is utter nonsense. Biden said it…so the media jumped all over it…and you and others bought it hook line and sinker because they cited one small selective study. This is why Biden and others in the administration used the new phrase created or “saved” jobs, a totally new unquantifiable measurement in economics invented by the Obama administration which serves as nothing more than a counterfactual argument which could never be proven.


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LandmarkWealth 2 years ago from Melville NY

@ bradmaster

If the microsoft system is crap then invent something better. Build it into a multinational conglomerate and make billions. Apparently this is not so easy is it. Creating wealth is not a one man show. Anyone who has ever run even a small business knows it’s not easy. Now amplify that 1000 fold. Even if you took an existing idea and bettered it, that itself is creativity. Apple has had major problems since the death of Steve Jobs. We forget he was run out of the company in the 90’s and the company collapsed. When he returned…they blew away the competition within a few years. That is not a coincidence. These men weren’t born with a silver spoon in a billionaire family. So why can they do it and you and others can’t ??? Because it isn’t easy. And along the way they hired thousands upon thousands of employees into jobs that didn’t exist before. Not to mention all the people along the supply chain outside the company. I am not trying to compare Oracle to Apple. That is irrelevant. What matters is they are all bringing something to the market that people want. If they didn’t they wouldn’t buy it. There is no gov’t mandate that you need an I-phone.

“as Mark Zuckerberg Facebook improved your life, or has it provided yet another way to invade your privacy?”

My privacy isn’t invaded…because I don’t have to have a facebook account. And yes…it has improved my life. I can share pictures of my kids with my whole social network and not have to open my wallet every time I run into someone. I have easily connected with friends long forgotten. And I can advertise my business there where my financial articles that I publish for other websites can be circulated for free.

“The major innovations in medicine are in the surgical arena, but they don't cure disease.”

You might want to read about the new drug released last year for patients with Hodgkins disease by Seattle Genetics. It was a major breakthrough. The first new treatment for this in over 35 years. Not every invention that makes our lives better saves lives. That is not the point. It’s about adding value. That’s how the free market works. Mark Zuckerberg created a website that you are free to participate on…or not. Why do you care if someone pays to advertise their business there and he makes oodles of money. It’s frankly not your business what he makes…nor is it mine.

Rich people most certainly use the tax system to their advantage. So do poor and middle class people. Have you reported every dollar you ever made ??? I won’t require you to answer that publicly. Nevertheless…making money outside of gov’t or gov’t influenced markets is a function of demand. The tax system ‘loopholes” are simply how much of what you earned you keep.

“Both Gates and Buffet made their money in the US, yet they donate billions to Africa?”

So what…that is their prerogative. I might spend it here on charity…but I do what I want with my money. What about all the foreign money that comes into the US as capital investment. Is that somehow immoral ??? Have you ever heard of Toyota, Nissan, Honda. They are hiring Americans to manufacture, sell and repair their Japanese cars right here in the US. Toyota sells more cars made by American workers in the US then in Japan.

“it really is a zero sum game on a yearly basis. Every year the sum changes, but it is not unlimited. At some point the system collapses”

That is not in the least bit true. Wealth is unlimited. What are the limits of creativity and innovation ??? When are we done creating new products and services that the public will want to acquire or consume ??? There is no such point or limitation. As long as we can innovate…we can grow the pie. And everyday somebody is coming up with a new idea. Just look around you and compare what is available to you to even 30 years ago. It’s extraordinary. My kids have never seen a telephone booth…or for that matter a phone with a cord attached to it. They wouldn’t even know what it was. People create these things…and then they make money. All of this concern about what rich people have is really little more than envy stirred up by the political class that benefits from pitting sides against each other for votes and empty promises. Yes…I do advocate for a simplified tax system where the rules are the same for everyone. But not because I want to take from someone that which they earned freely in the market. We would all be a lot better off if people stopped worrying about how much others have and cleaned up their own backyard.

--


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

"Creating wealth is not a one man show.", - Of course it is, Romney said so, lol.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I don't remember any such comment. But I do remember the president trying to give credit for one's success to everyone other than the person who is actually successful. But what can I expect from a man who's first job actually being in charge and responsible for anything was the day he was sworn into office.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LW - "Political…as opposed to sources like Piketty who cherry picked data from tax returns, counting children as tax units…etc." - If Piketty is cherry picking, then I suspect most everybody else who is using the same data from Kuznets on, is cherry picking as well. Do you know some one who has used the income tax in a different way?


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

You know guys, one day I am compile all of this back and forth into a book, I bet it would sell millions.

But first, now that I just finished my 2013 taxes, I going to finish my final edit on my Recession book.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Yes...the paper by Burkhauser which I linked to and will do so again...

http://www.nber.org/papers/w19110

CATO institute, and the US treasury study on mobility. Piketty's work is widely critiqued not just on the basis of some data points being arbitrarily added to. Just his whole perception of what is or isn't compensation for labor.


bradmaste 2 years ago

My Esoteric

Well we are half way there for the book.

About 56,000 words

152 pages

The sad part is that only three of us even care to comment.

That must be a problem in itself.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@BradMaster, you say "Microsoft has sold crap after crap ..", which is true, but it was very cheap crap (at the time, not so cheap today) and the public ate it up; what does that say about us? According to Classical economics (Neoclassical really)

"People, act independently and on the basis of full and relevant information, have rational preferences between outcomes that can be identified and associated with values that maximize utility." (http://www.econlib.org/library/Enc1/NeoclassicalEc...

This is what the Right thinks drives the market place. Well, your Microsoft example just proved centuries of Classical economic thinking wrong.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I am listening to a lecture series on Capitalism, at the moment the Professor started on Adam Smith. But the comment "“as Mark Zuckerberg Facebook improved your life, or has it provided yet another way to invade your privacy?” fits in nicely with the two just completed lectures on Voltaire and Rousseau who basically argued the same question 300 years ago. Voltaire would take the "improved your life" position while Rousseau would stick with "invaded your privacy".

I find that interesting.

(Yes, it is a shame nobody else has jumped in, btw; there have been 85 views in the last 7 days, I don't think they have all been ours.)


bradmaster from S Cal 2 years ago

My Esoteric,

1. People have rational preferences among outcomes.

bm:

I think those people have been replaced by the people of today, which are more sheep than people. The current state of sales and marketing has been very lucrative in making people part with their money. Take the iPhone, everyone has to have it, first of all to have it.

===

2. Individuals maximize utility and firms maximize profits.

bm:

The latter is true, and the drug companies are good examples of that principle. Individuals are more swayed by marketing and sales techniques. Social media is a good example because the costs to the user are indirect, and not pecuniary. They are exposed to all sorts of marketing and advertisement as their admission to its free use.

===

3. People act independently on the basis of full and relevant information.

bm:

People act like sheep and sheep herders. The majority are sheep manipulated by the herders. The Stock Market, especially during the dot com bubble is a perfect example of the herd going after the carrot.

===

This is what the Right thinks drives the market place. Well, your Microsoft example just proved centuries of Classical economic thinking wrong.

bm:

I am not sure how you meant that statement.

If you meant that people buy cheap as opposed to buying a better product, then I agree.

The indirect costs of the Microsoft products of folly are probably equal to the revenue going to Microsoft. As an operating system that is the most popular, it compromises all the software programs that are built on top of it.

BTW

None of the NeoClassical factored in the government's meddling in pure supply and demand as creating an artificial lowering of demand, as it raises the price of a product. Business makes a lot of stupid mistakes trying to minimize their tax liabilities.

==

Thanks

bradmaster


bradmaster 2 years ago

My Esoteric

The benefit versus the burden.

Unfortunately, like fire, technology has a benefit and it has a burden.

The same fire that can heat your home, and cook your food, can also burn down your house.

Today, and since the marketing of the low cost personal computer, personal privacy has been eroded by technology. I just read that Albertsons supermarket has put the credit card information at risk for millions of its customers. Not too long ago, Target customer credit information had been compromised.

Today, customers are voluntarily giving away their privacy, not only to the government, but to private businesses. Costco requires that they take a copy of your driver's license as part of their membership application. You need to present your card to make any purchases even when paying cash. At the end of the year, Costco knows everything that you purchased from them. In and of itself that might not seem intrusive, but nothing kept on a business or even government computer is safe from hacking.

All these business loyalty programs do the same thing in collecting information about you. If it was simply about loyalty, then sell good products at the best competitive prices.

I think Voltaire might change his tune if he could see the technology of today, and how it make direct mailing so primitive.

There are so many advertising lures, traps, and deceptions that are used today on TV, Radio, and the Internet that many people get snared in them.

The problem is that until some one is adversely affected by the burden, they ignore the possible traps. Take identity theft, people ignore it, except for the ones that have had it happen to them. People stealing your identity can do things that you would have a hard time doing, and maybe also impossible in certain cases.

I blame the government for a lot of that risk, because they misused the SS ID for the National ID. The benefit is that it is very easy and simple to use the SS ID to get things done, but the burden that it is even easier for that ID to be used by the bad guys.

New credit cards have embedded RF chips in it, that allow you to not even take the card out of your person to get it scanned. The burden is that hackers can also scan the cards.

With the smart phones, unless you take out the battery, they are never really off. They can be tracked by anyone with the technology that can take advantage of it. It is not restricted to voluntary, beneficial use.

These are just a few examples of how much burden there is in today's products.

Thanks

bradmaster


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LandmarkWealth 2 years ago from Melville NY

People weigh price and value and make decisions accordingly in a free market. But we all have different perceptions of value. What one person calls crap...another person finds value in. Some people wouldn't be caught dead in Walmart because it's beneath them...and other people that have money still shop there. This is how the market is supposed to work. We each weigh the cost and benefits. If the masses sometimes follow each other without properly researching the true value, that is also irrelevant. There are many times I purchased something that I didn't really research based on what I heard. But that is it itself a value decision. The time it took to research something wasn't worth my time...because the importance of the purchase was not prominent in my life.

I agree there is too much invasion of privacy. But nowhere near enough to say that advancements in technology are more negative than positive. We wouldn't even be communicating at the moment if not for the incredible advancements.

"There are so many advertising lures, traps, and deceptions that are used today on TV, Radio, and the Internet that many people get snared in them."

This also works in reverse...the internet is also a source to research information and it's validity to protect yourself from false claims that have always existed. In 1890 I could have sold you a tonic that would have cured your headache, cough and made your hair grow back. And then skipped town before you knew it was BS. Today...you'd look at the bottle and then google it on your I-phone.


bradmaster from Orange County CA 2 years ago

LW

I guess you agree with the points I made about the smart phones and tracking.

Or did you miss that one?

Thanks

bm


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LandmarkWealth 2 years ago from Melville NY

@ bradmaster

I agree that I am not crazy about some of the things that we need to be increasingly aware of that could invade our privacy. I am also not happy that many people are killed in car accidents. That does not mean I think the technological advancement of the automobile is a net negative. I am not looking to return to the horse and buggy. I think the automobile…just like the I-phone has far more positives than negatives.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

"" I just read that Albertsons supermarket has put the credit card information at risk for millions of its customers. Not too long ago, Target customer credit information had been compromised."

And here again short-term think and corporate Greed put out privacy necessarily at risk. The solution to that type of hacking attack has been around for a long time and is successfully used in Europe. But it isn't here, and corporations put the blame of the consumer, because they say consumers wouldn't like the inconvenience that goes along with a microchip-pin based credit cards. What they didn't like was the short-term cost to their bottom line without thinking about the long-term savings from reductions in fraud losses. The new cards aren't full-proof, but is a big step in the right direction.


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Bradmaster, you said "If you meant that people buy cheap as opposed to buying a better product, then I agree." -- Yes, that is exactly what I meant. In other words, the tenets of Classical Economics are only generally right, they are very mushy.

You also said "None of the NeoClassical factored in the government's meddling ..." -- No, they didn't because they don't believe the government has a right or a need to "meddle". Keynes proved, of course, that it does have a need in order keep the economy from breaching the threshold of instability that sends Classical economics into chaotic behaviour. That is what I am talking about when I talk about the basically sanguine times of the 50s, 60, and yes, even the 70s (the problems we had were driven by external events which required the Fed to use drastic measures to prevent the American economy from crumbling into a depression), 80s, and 90s. The 2000s was simply the build up to the 2008 Great Recession, a classic Classical economic theory recession.


bradmaster from Orange County CA 2 years ago

LW

I agree that I am not crazy about some of the things that we need to be increasingly aware of that could invade our privacy. I am also not happy that many people are killed in car accidents.

bm:

This is not a logical comparison because the death from cars is not primarily caused by the car itself, or the government. While the invasion of privacy, the hacking of computer devices, including cell phones is done by an outsider using the technology for bad purposes. These outsiders include the government. The NSA and the Patriot Act, along with a host of other government agencies, foreign and domestic threaten not only the average law abiding citizen, but could jeopardize our national defense.

--

That does not mean I think the technological advancement of the automobile is a net negative. I am not looking to return to the horse and buggy. I think the automobile…just like the I-phone has far more

positives than negatives.

bm:

That is not the trend. You think that Facebook, Twitter and other social media is good? What they have done is taken the human social element and replaced it with virtual contact. Do you think that a cell phone that is turned off, shouldn't be able to spy on you, by hackers, or the government. As long as the battery is in a smart phone it is like the proverbial gun, it is always loaded.

People are distracted by smart phones, they text when they drive, when they are crossing the street, and other places that cause distractions, or are dangerous. In California, a couple of years ago, a light rail passenger train collided with a freight train. The reason was that the engineer of the light rail train was texting, and he didn't see the signal to stop.

The trend is clearly headed toward the negative.

Also, these technological devices run on electricity, and the government has not improved the electrical grid in thirty years. There doesn't seem to be any congressional, or voter thought on it, either.

The list of technological negatives is increasing everyday.

-----


bradmaster from Orange County CA 2 years ago

My Esoteric

@Bradmaster, you said "If you meant that people buy cheap as opposed to buying a better product, then I agree." -- Yes, that is exactly what I meant. In other words, the tenets of Classical Economics are only generally right, they are very mushy.

bm:

Nothing was more accurate than Adam Smith's economics, but you have to take the government control out of it. That is because it provides an artificial supply and demand. It is the government that makes economics mushy Businesses for example spend a lot of time, money and energy trying to work around taxes. They make their business decisions on tax implications most of the time, rather than on sound business criteria.

-----

You also said "None of the NeoClassical factored in the government's meddling ..." -- No, they didn't because they don't believe the government has a right or a need to "meddle". Keynes proved, of course, that it does have a need in order keep the economy from breaching the threshold of instability that sends Classical economics into chaotic behaviour. That is what I am talking about when I talk about the basically sanguine times of the 50s, 60, and yes, even the 70s (the problems we had were driven by external events which required the Fed to use drastic measures to prevent the American economy from crumbling into a depression), 80s, and 90s.

bm:

What were those external events?

Consider also that the taxation in the 50-70s was nothing like it is today, the government was not as big as it is today..

---

The 2000s was simply the build up to the 2008 Great Recession, a classic Classical economic theory recession.

bm:

The dot com, and the sub prime bubble were the precursors for 2008. The government did little to nothing to avert the 2008 Depression. It is semantics to call a Depression a Recession just based on a loose definition..

The congress spent 2007 and 2008 concentrating on the presidential election, and the reelection of party incumbents instead of trying to avert the economic meltdown. Maybe they hoped it wouldn't happen until after the election. Like the immigration policy put off by Obama until after this years election. Or it is more likely they didn't have a clue on what to do with all of the economic information that was available since 2004.

The fact is that congress and the president looked like deer in the headlights when the economy imploded on them.

The other variable was that we were in expensive wars since 1991, and it continues today.

So once again politics trumps economics. The oil and vinegar congresses in the last one hundred years, before that is ancient, is the main reason why economic theory keeps changing with the changing guard.

My point is that if you want to fix the economy, you first have to fix the government. The people are no longer in the equation, by xxx, for xxx, and of xxxx.

---

Thanks

bm


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LandmarkWealth 2 years ago from Melville NY

@ bradmaster

“That is not the trend. You think that Facebook, Twitter and other social media is good?”

They have also permitted people to network for personal and business purposed for free. There is some free advertising you can do by creating a facebook page for your company. Nobody is forced to use these services. If they didn’t think it was a good thing they wouldn’t use it. I know people that don’t have a facebook account…but I do. Do you wish to ban me from using it ???

“Do you think that a cell phone that is turned off, shouldn't be able to spy on you, by hackers, or the government. As long as the battery is in a smart phone it is like the proverbial gun, it is always loaded.”

So take the battery out or don’t buy a cell phone. If it is so bad…then why do you have one. You’re not required to own it. Or are there greater benefits to it than detractors…so you acquired one.

“People are distracted by smart phones, they text when they drive, when they are crossing the street, and other places that cause distractions, or are dangerous.”

Yet for years truck drivers could drive 18 wheelers while talking on a CB radio. People do things irresponsibly sometimes…that is just a fact of life. People eat and put on lipstick when they are driving also. But I am not interested in regulating every activity.

“Also, these technological devices run on electricity, and the government has not improved the electrical grid in thirty years”

So let’s improve the grid…not ban technological advancements.


bradmaster from Orange County CA 2 years ago

LW

“That is not the trend. You think that Facebook, Twitter and other social media is good?”

They have also permitted people to network for personal and business purposed for free. There is some free advertising you can do by creating a facebook page for your company. Nobody is forced to use these services. If they didn’t think it was a good thing they wouldn’t use it. I know people that don’t have a facebook account…but I do. Do you wish to ban me from using it ???

bm:

I didn't say anything about banning anyone from using social media. My point is that it comes with risks. I find it unnecessary to use social media. I don't even like it when friends tag my photos. It is not private and it can be hacked. Not everyone regards their personal privacy, but they should do it.

Job applicants were losing jobs because of what they posted on their Facebook acct. Employers were demanding access to their Facebook account. Information gleaned from Facebook accounts can be used by the hackers and the government.

My problem with Facebook is I don't believe you can get all your friends in the same room.

------

“Do you think that a cell phone that is turned off, shouldn't be able to spy on you, by hackers, or the government. As long as the battery is in a smart phone it is like the proverbial gun, it is always loaded.”

So take the battery out or don’t buy a cell phone. If it is so bad…then why do you have one. You’re not required to own it. Or are there greater benefits to it than detractors…so you acquired one.

bm:

I don't understand your reasoning, it seems agitated. My point is that the safeguards are lagging behind the technology. The cell phone never turned off is not a feature of the phone, it is a an invasion of privacy. That is not why you have a phone, any phone. It is no different than wire tapping a home based phone.

--------

“People are distracted by smart phones, they text when they drive, when they are crossing the street, and other places that cause distractions, or are dangerous.”

Yet for years truck drivers could drive 18 wheelers while talking on a CB radio. People do things irresponsibly sometimes…that is just a fact of life. People eat and put on lipstick when they are driving also. But I am not interested in regulating every activity.

bm:

What about if you or your family was in that light rail, are you interested then?

“Also, these technological devices run on electricity, and the government has not improved the electrical grid in thirty years”

So let’s improve the grid…not ban technological advancements.

LW

Really?


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

“Job applicants were losing jobs because of what they posted on their Facebook acct”

People lost their jobs for public actions or statements long before facebook or the internet existed. If people use technology foolishly…then there should be consequences. Facebook posts are the same thing as yelling from a rooftop. If your dumb enough to say something that could get you fired…than you deserve it. The point is that there is more good than bad that has come from this technology.

“I don't understand your reasoning, it seems agitated. My point is that the safeguards are lagging behind the technology. The cell phone never turned off is not a feature of the phone, it is a an invasion of privacy. That is not why you have a phone, any phone. It is no different than wire tapping a home based phone”

I am not agitated at all. I just find it perplexing why you would complain about a technology that you seem to be arguing offers more negatives than positives…and then still continue to acquire and utilize it. If you’re so unhappy with the safeguards…don’t by the product. You have every right as a consumer not to purchase it. If you’re saying there are flaws…I agree. But the argument that these things haven’t overall bettered our lives makes no sense if you’re continuing to use them. You don’t have to have a cell phone. You can wait until you get home and check your answering machine like we did for a couple of decades.

“What about if you or your family was in that light rail, are you interested then?”

I am interested in anything that happens to my family. But I am not naïve enough to assume that no matter what product is available…that there won’t be people who use it irresponsibly. That is not a reason to impede progress, or deny it’s greater benefit. How many lives have been saved by an ambulance arriving sooner because someone had a cell phone to call 911 immediately instead of having to find a pay phone…especially in less densely populated areas. You’re really looking at this technology one dimensionally.


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, I see your list of names comes from the Cato Institute, an organization that has about much credibility to those in the middle or Left as Klugman does to the Right.

For example, that article with the names starts out be stating, as if it were true,

"More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s [Correct, Hoover didn't, but he didn't use stimulus, however they are quite wrong about FDR]. More government spending did not solve Japan’s “lost decade” in the 1990s [its much more complex than this simplistic statement makes it seem]. ... To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production [now that is a very true statement]. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth." [Its been proven time and again that tax cuts don't stimulate the economy, but what they do do is increase wage inequality.]


bradmaster from OC CA 2 years ago

My Esoteric

If WWII didn't come about in 1941, and lets say it didn't happen. then how would FDR have gotten the country out of the depression?

To do that you would have to go back before 1939, because that is when Germany started what would be WWII. FDR was supply war supplies to England before we got into the war. So, my point is discount any war activity, and in that case how would FDR have gotten us out of the depression?

Thanks,

bradmaster


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LandmarkWealth 2 years ago from Melville NY

@ myesoteric

The list of economists put out by Cato was a list of economists from academia who are not necessarily affiliated with Cato. Cato was simply pointing out how far reality VP Biden and the medias claim of “consensus” was. Among them were several noble prize winners such as last year’s winner Eugene Fama. Who publishes the list is of little relevance. There are economists from various respected universities such as Harvard, George Mason etc. You can’t on one hand cite Mark Zandi…and then on the other hand discount the chair of Harvard’s economics dept. Not of you’re trying to claim a consensus of leading economists.

“Its been proven time and again that tax cuts don't stimulate the economy, but what they do do is increase wage inequality’

No such proof exists. Since we now know that Piketty’s wage inequality is premised on linking tax reductions of the 80’s to increased wage inequality by simply not counting enormous amounts of income placed in tax shelters and counting income that was suddenly forced to be reported on tax returns in conjunction with tax reductions. Meanwhile studies like the one done by Burkhauser as well as the US Treasury’s work in mobility shows how incredibility misleading wage inequality statistics are. So to suggest this is proven implies that this is consensus. No such consensus exists.

@ bradmaster...

We need not go back to 1939. We need only look at 1920/21. The economy went through the largest contraction in US history. There was no stimulus...and it was over in 18 months.


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My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark

Others smarter than me have shown tax cuts have no proven impact on economic growth, this is before I heard of Piketty, as well as my own research, http://myesoteric.hubpages.com/hub/Tax-Cuts-Spur-G... Bottom line, 2 tax cuts followed by periods of growth vs 3 tax increases followed by periods of growth. The remaining 4 tax cuts were followed by periods of lower growth. And that is just one indicator.

And yes, because all that hidden income is missing, the results totally "understate" the problem. Based on your issues with his data (which I, as a professional cost and economic analyst, don't have a problem with so long as I know what is missing) income inequality is much greater than that presented by Piketty making his estimates the "minimum" possible inequality.


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LandmarkWealth 2 years ago from Melville NY

And yet Nobel Prize winners in economics like Bob Mundell have taken precisely the opposite position on tax cuts. So there is no proof that tax cuts don’t boost economic growth. The argument for tax reduction is not one that presumes that you need to progressively cut taxes indefinitely. That’s just the way it is politically portrayed. It is an argument on behalf of an optimal point of taxation at which capital investment is not discouraged and income deferral is not incented. What point that would be is what is open to debate. Most of the discussion about tax reduction and corresponding proposals are not so much about lowering effective rates…as much as simplifying the tax code. But when tax reform packages like the one in 1986 was passed…the media and political opponents spent all their time focused the marginal rate cuts for high earners, and not the large shelters that were thrown out and/or limited to arrive at the same liability. If you are an advocate of supply side theory…you are not going to ask for a tax cut if the marginal rate was 1%. You are arguing for the point of taxation which produces optimal revenue.

I am obviously repeating myself in an exercise in apparent futility. The shelters that were removed or limited were done so in a way that disproportionately affected the highest earners. The new required reporting on things like tax free earnings on tax return also disproportionately affected high earners. New tax shelters were substantially increased in ways that disproportionately affected middle income earners. The high end earners had to put MORE on their tax return…and the middle income earners had to report LESS on their return. You have it precisely backwards. It should be noted that I am not opposed to most of these changes. But to portray income that was always there…and now suddenly counted as an increase in disparity is misleading at best.


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LandmarkWealth 2 years ago from Melville NY

Here is an article from Fortune magazine Nov 1986...preparing people for the "Demolished" tax shelters. Let's bring back all of these and then see what an impact it will have on national income disparity when we analyze tax returns. Something tells me that the middle income bus driver wouldn't benefit from them very much. And of course we could tax away his 401k plan as well to re-create the 1970's.

http://archive.fortune.com/magazines/fortune/fortu...


bradmaster from orange county ca 2 years ago

My Esoteric

After over 60,000 words in the comments, the issues discussed in them are muddled.

The question of this hub

The American Dream: Why is the American Middle Class So Damn Poor?

Simplistically, my answer is because of the government.

Since 1913, the government has applied progressive, or unequal tax classes based on Income.

This is a constant in our country since then. During the last one hundred years, we saw the rise of the wealthy, and initially the rise of the middle class. The rise of the wealthy continues, but the middle class is in decline.

One of the reasons is because over the last fifty years, the US has lost it source of income for the middle class. The manufacturing jobs that were plentiful in the 1950s and 60s have been on the wane since then. The 1970s was a pivotal blow to the US auto workers, because the government didn't protect the American gas guzzler from the political issue of oil. This was exacerbated by the fact that the US domestic oil supply was less than the actual use. This required the US to rely on importing oil.

As the US workforce transitioned from a world manufacturing power to a service industry, many of the middle class no longer had their jobs, which then was their career.

The US Government did nothing to re-establish their manufacturing prowess, especially in the aftermath of the artificially created oil crisis. The US government has never been proactive, but in this case they weren't even reactive.

It wasn't until after the 2008 economic meltdown, where by the way, oil prices were also a factor, did congress even consider the issue.

Reliance on foreign oil also produced an International hot zone in the Middle East. We were forced to condone much of the chaos of the Middle East so we could keep getting oil.

Back to the middle class which have seen even their service jobs disappear through having them filled outside the country, and lost through continued Mergers and Acquisitions that created super monopolies.

Even the high tech jobs have been farmed out to foreign countries, and foreign workers. The only booming industry is defense, as we have been engaged in "police actions" around the world for the past several decades. The defense industry is a fairly narrow industry because of the specialties involved in it, and the security clearances required to work in much of the industry.

So because of the attrition created by the loss of manufacturing, and the reduction in forces from M&A the middle class is shrinking. As the middle class was the tax base below the wealthy, the shrinkage has cause the government to raise taxes. In addition, the loss of these wage earners adversely affect the revenue to the government for FICA. So the high rate of unemployment since 2008 severely reduces the FICA contributions but the benefits paid is still high. The temporary cut by congress to SS contributions to 4.2% added to that reduction in FICA.

So, the government has contributed in several ways to the shrinkage in the middle class. The lower middle class has been sucked in to the lower class.

The key contributors in the decline of the US economy in the last two decades was caused by the creations of an artificial industry in the financial sector. The dot com, and the sub prime schemes were artificially created, and allowed by the government.

The dot com made a mockery of the stock market, and only the creators of that scheme made the big money and became the wealthy. Everyone else that failed to get on the train before it left the station created the wealth for the creators.

The sub prime was a creation of the government, the financial industry, real estate, and escrow companies. The Federal Reserve Board artificially kept the interest rates down on these very creative loans.

The result of this artificially created scheme was the loss of homes for millions of people, and contributed to the very high unemployment rate for the country.

You can see how in the weave of all of these negative events was the hand of the government being there when they shouldn't be, and not there when they were needed.

The Supreme Court refused to hear the states argument against same sex marriages. This allowed the ruling of the lower courts which said that the ban on same sex marriages was unconstitutional.

While these claims of unconstitutional didn't have a basis in fact, they were tied in some way to the 14th amendment, and the unequal protection clause.

Yet, the SCOTUS continually refuses to seem progressive income tax as unconstitutional under the 14th or actually any of the constitution.

The facts to support the unconstitutionality of progressive income tax is clearer in it, than it is in the ban on same sex marriage.

While the 16th amendment cannot be held unconstitutional, the application of the Internal Revenue Code can be help to be unconstitutional. In the same way that the application of the death penalty was applied to be unconstitutional under the 8th amendment.

While the top ten percent of the taxpayers pay ninety percent of the income tax revenue, it is a drop in the bucket for what they still come away with is far more.

So progressive tax impacts the wealthy less than the middle class, and the middle class that has fallen to the lower class requires more money from the government for handouts. This downward spiral only doesn't affect the wealthy, only the middle class.

FICA is a government mandated TAX, that could be better used by the wage earner. A 12.2% tax free pension plan contributed to the wage earners private account would be a more secure investment than the current SS. It would have no greater risks than the IRAs and 401Ks of today. The contribution to SS is a lifetime and that is well over forty years. Wouldn't that lifetime contribution create a larger and better managed pension than under SS?

People can then retire at any age that they could afford to do so. Taxes would be paid from their benefits which could be considered more like capital gains than wages.

The fact is that the US government is not structured to replace the private sector, although over time they have crossed the line and encroached on the private sector.

The US government doesn't work off a balance sheet, or have investors that they have to answer to, and they cannot go bankrupt by definition. So encroaching on private industry using government protocols and procedures is like trying to mix oil and water.

Free enterprise was the icon for American capitalism, and its foundation was not the huge corporations, but the small to medium businesses. Most of them have been eliminated by the rise of the super monopoly that has gravitated to global in its stature.

One thing that could have been done was to prevent the large corporations from influencing congress through its sizable contributions to them through their party. But, once again the useless SCOTUS decided that path was unconstitutional.

When you take all of these situations and parse through them, you will see the US government as a constant instead of a variable.

That is my conclusion on this hub's question.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

You're on the right track on a number of points. But small business is still a very significant part of the US economy. Literally 99% of all small business according to the SBA employee fewer than 500 people and they still account for about 1/2 of all American workers.

The decline in manufacturing is also a bit overstated. US manufacturing output has been fairly consistent. But advancements in technology have eliminated many of the menial labor jobs and replaced them with high tech jobs that unfortunately many Americans aren’t equipped for. The menial labor job will always go to the place where they can find cheap labor, and in a global economy nothing can prevent that. This is the structural component of our unemployment problems in the labor market. As I mention earlier…companies like Microsoft shouldn’t have to import software engineers from overseas. But they do because our labor force has not kept up with changing times. I am sure the people who built and repaired the back end of the horse and buggy weren’t too happy with the invention of the automobile. And I guess the Manhattan bicycle messengers that all disappeared after the creation of fax machines and email weren’t happy about them either. But each new creation has created new opportunities in other fields many times over. We as a nation need to do a better job of keeping our skill sets current and not complaining about what once was…and adapt to what is happening now. This will happen in time as each generation develops the necessary skills. My 3 year old son can work an I-pad better than I can. He is already more equipped in many ways for the changing world than I am.

The ultimate answer to why middle class people feel poor is inflation. The value of a dollar does not stretch as far as it once did on a relative basis. This is due to incredibly unproductive excessive gov’t spending on entitlements that now dominate a huge portion of the Federal budget and destroy price discovery in various ways. I have posted this for myesoteric before. But I do not believe I have posted this for you. Economist John Williams documents quite thoroughly how the BLS has systematically altered the methods by which we calculate CPI. What was once a measurement of maintaining a constant standard of living is no longer designed to do anything of the sort. This is a means to reduce the actuarial liability of these entitlement programs…because nobody in the congress has the spine to act on altering them in any way that would get them voted out of office…the BLS adjusted the methods to suppress future benefit increases. It’s quite a vicious cycle. People only like it when politicians promise things…not when they take them away…even if it makes sense. So now that the explosion in entitlement spending which was a fraction of the budget in the 1940’s is now a huge liability and growing, we have slowly eroded the purchasing power of our currency and transferred a huge portion of our society into gov’t dependency. As a result…our wonderful leaders in DC have decided to just alter the methodology of how we calculate inflation in such a way to suppress increases to future benefits they have addicted people to. Of course they will tell you that the current methodology is more precise and a more practical approach. So presuming this is true…then the current methodology applied to the 70’s and very early 80’s means that all of those high prices we experienced back then never actually happened. What foolish people we are…we actually thought prices went up substantially back then.

The BLS at the guidance of our elected officials has done countless things to mislead on economic data for what appears to be raw political purposes. The link to the inflation data is below. If you read thru the work of Mr. Williams, you’ll find he is also using the prior methodology for unemployment data and various other BLS reporting. Many people don’t know that the BLS in 1994 decided that anyone who is a discouraged worker for more than a year is simply not counted in any gov’t data anymore. Not U3…U6…not anywhere. They simply don’t exist on paper.

http://www.shadowstats.com/article/no-438-public-c...


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, let's take nobel laureate in finance Fama as an example. First he comes from the Booth School in Chicago, one not known for their less than conservative views on economic theory. Next, most conservative economists don't separate crises out from other economic activity. that is why their theories fall apart when measured against history; they seem to find some other excuse for what actually took place other than the weaknesses in their economic theories.

In an article I found, http://delong.typepad.com/sdj/2013/10/the-thought-... ,

Fama says "Government bailouts and stimulus plans seem attractive when there are idle resources - unemployment. " I am not entirely clear what he means by this, but I presume it means bailouts and stimuli are only useful under a certain set of economic conditions. If that is correct, I don't disagree; but it would seem the effects of the 2008 Great Recession (at that time, the prelude to a depression) weren't extreme enough for him to consider using "bailouts and stimuli".

Fama brings up the auto bailout as an example saying that the fear of millions of jobs being lost was foolish because GM and Chrysler would simple file Chap 11 and continue to operate under court supervision. He failed to mention, however, they would still be losing money hand over fist, laying people off as fast as they can and slowing down production below demand levels in order to stabilize their balance sheet. He also didn't mention all of the ancillary businesses that supply the car makers that would also cut payroll, file Chap 11, or worse, file Chap 7. All of this while the country is sinking into a depression.

His rational is that bailouts and stimuli raise the national debt which means, because of the "global" identity PI = PS + CS + GS, either personal + corporate savings (PS + CS) decrease or personal consumption decreases (in order to keep PS level). Unstated is this outcome is only because Fama wants to hold private investment (PI) constant.

The problem is, PI is not constant, it was already declining because of the approaching depression. Therefore using Fama's global identity (all he had to do was add a factor private US foreign investing - foreign investing in the US to make it a national identity, but he chose not to do that) with PI declining then some combination of PS, CS, and government savings, GS (the negative of that is the national debt), must also decline.

So what do we know. We know that consumption has decreased from upwards of 8 million people ultimately getting laid off, the tip of the iceberg if nothing had been done as Fama implies. But, instead of driving savings up, it goes down as well because people don't have the money to make the trade savings for consumption. Instead they draw down savings to pay the bills. (And that is the flaw in Fama's analysis, there was not a trade-space between personal consumption and personal savings.)

Likewise we know GS will decrease as well (meaning the national debt will increase) because of the automatic social support costs resulting from the impending depression plus the lost tax revenue from a negative GDP. That alone accounted for roughly 3/4s of Obama's artificially infamous $4 trillion debt.

That leaves CS to increase, and increase it did; it is still at historic highs, I think.

Now, let's turn to the actual effect of the bailout and stimulus. First start with the bailout. If as Conservatives wanted, and the gov't let GM and Chrysler and all of the support companies fail, going out of business entirely or into Chap 11, then the immediate result would be a further decline in PI, isn't that correct? Investment certainly wouldn't increase until GM and Chrysler got out of bankruptcy, or nearly so. In that scenario, it follows PS and GS (more debt) would also decline along with personal consumption, virtually guaranteeing a depression.

Instead, the gov't chose to increase debt, which was going to happen, under either scenario, and prevent even more devastation to society as well as back away from a potential depression. So, let's look at Fama's formula. If GS decreases via the introduction of money into the economy by funding GM and Chrysler's survival. That would mean

- 1. additional PI by those to companies rather than a continued decline.

- 2. Since PI goes up and GS goes down then either PS or CS or both must increase as well.

- 3. Since the automakers are probably spending their savings to recover, that would mean PS grow even more, don't you see, for PI would increase again since the money would again be spent on private investment.

- 4. Consumer spending would increase because people would draw down there savings to fill the holes in their stomachs.

- 5. That in turn would drive up CS and GS via increased profits and tax revenue

- 6. The process would repeat itself until an equilibrium is approached.

- 7. The prerequisite for this to work, however, is a crashing economy, industry not willing to invest, and high unemployment. All three were present in December 2008. Fama is wrong, he is letting is ideology control his common sense.


bradmaster from orange county ca 2 years ago

My Esoteric

Thanks to your comment, I think that I like FAMA.

The government took a beating on GM.

The problem with GM is the burden rate for labor based on the heavy union influence.

Letting GM go bankrupt would allow the company to start reorganized with an acceptable labor rate. The government by saving GM rewarded the incompetent senior management for their failure. The same way that they did for AIG.

In my opinion, the real problem with GM is they were building vehicles based on the sub prime bubble. They produced gas guzzlers, but it was tolerable until the oil prices went through the roof.

GM dropped their EV car, and I don't believe there was a good reason for that decision. Had the government enacted some legislation to raise the MPG of vehicles all the way back to the 1980s, the American Car Manufacturers might have been able to weather the economic meltdown of 2008. If GM had energy efficient vehicles, instead of gas guzzlers, the cars would have been a hedge on the $5 a gallon gasoline.

For more than the last twenty years, the US government engaged in police actions consumed enormous amounts of oil. In addition, president Bush topped the US oil reserve tanks. These expenditures increase the government spending, and raise the price of oil, as well as increase the US dependence on foreign oil.

When the equity loans of the sub prime bubble burst, there was a shortage of this type of money in the hands of the consumers. When the bubble was up, the equity money was spent on goodies, like big vehicles, and other products that are expensive.

TARP and the Stimulus didn't put that money back in the hands of the consumer when the bubble burst.

Thanks

bradmaster


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@ myesoteric

First off…regardless of whether you agree with Fama, Mundell, Friedman or any of the other countless economist on the issue of fiscal stimulus and/or TARP is not the point. The point was that this “consensus” is a political fabrication which did not, and still does not exist.

In regard to the impact of an example like the layoffs that would have occurred at GM…which they did anyway after they received TARP aid. They will hire and fire workers based on demand. If they have people who want to buy cars…they’ll hire even while in bankruptcy. If they don’t have people who want cars…they’ll lay people off even if they get TARP money…which they did. Bankruptcy is healthy. Look at K-mart…Friendly’s restaurants and various other companies that have come out of bankruptcy, and in many cases healthier. The real risk is to the stockholders who may realize a permanent loss, which is inherent in investing. GM was losing money as far back as 2004…years before TARP and continued to lose money after TARP. If the risk of losses and layoff’s were a valid argument…then we should bailout any company that posts negative earnings. GM filed for bankruptcy anyway and didn’t turn a profit until the end of 2010. And what good has it done. Their EPS has been in steady decline since then at the expense of the taxpayer. All TARP did in regard to the automakers is delay the inevitable pain…because their business model is broken…and they’re getting killed by foreign automakers. Many of them who would be hiring new workers here in the US to serve the demand that GM wouldn’t meet. Meanwhile…thanks to TARP…they have little incentive to fix their legacy problems. Automakers are different than the banking system which creates the M2 supply. There is no such thing as a run on auto makers that is synonymous with a run on a banking system. If you are worried about a depression…there is little reason to worry…because it is already happening as we speak according to Krugman.

“If as Conservatives wanted, and the gov't let GM and Chrysler and all of the support companies fail, going out of business entirely or into Chap 11, then the immediate result would be a further decline in PI, isn't that correct? “

No…private investment would be redirected to other areas of value. If I assume that GM is failing…then I have to assume that a competitor will gain market share, and I direct my investment there. Investment is driven based on absolute value, whereas consumption tends to be more based on relative value.

“So what do we know. We know that consumption has decreased from upwards of 8 million people ultimately getting laid off, the tip of the iceberg if nothing had been done as Fama implies”

Actually...consumer spending…which is consumption is at an all time high…and well above levels of 2007. Presuming that 8 million people who left the labor force would have been higher is a counterfactual. I could assume that GM’s bankruptcy would have resolved many of their legacy costs which may have permitted them to commit capital to greater research and development to improve their products…or possibly allow them to make their cars at more competitive prices in relation to foreign automakers which would have led to investing in new plants and hiring more people over the long run in response to the greater demand resulting from more competitive prices.

“Instead, the gov't chose to increase debt, which was going to happen, under either scenario”

That is correct…when there is a contraction…gov’t debt will increase as consumption declines. But this addition to MB should NOT be directed by the gov’t. This only creates malinvestment. GM is a classic example. The gov’t bailed out the company…and they filed Chapter 11 anyway. Yet somehow this Chapter 11 filing was not the end of day’s scenario you propose.

“The prerequisite for this to work, however, is a crashing economy, industry not willing to invest, and high unemployment”

I have news for you…that is exactly what you have NOW…after TARP and fiscal stimulus. Except for the fact that the economy isn’t crashing. Instead it is lumbering along in an anemic pattern that took all of the fears of an immediate depression and spread them over the last 6 years so we can feel the pain longer. The labor force is smaller than it’s been in 40 years. Capital investment is still weak. The NFIB latest survey shows a “mediocre” improvement, and as their chief economist said “Capital spending reports continue to remain mediocre, spending plans are weak, and inventories are too large with more owners reporting sales trends deteriorating than improving,”

http://www.bizjournals.com/bizjournals/washingtonb...

This is quite the recovery for our most important drivers of job creation…but of course “it could have been worse”

I will once again point to 1920-21. Why was no fiscal stimulus necessary in response to a far more severe contraction ??? The money supply collapsed, business failure was through the roof…and any economic metric that could be measured was more severe than 2008 or 1929. Yet…we are not in the quick 18 month later roaring recovery experienced then. Markets realigned and recovered on their own quite quickly…with very little interference. Instead we have such an anemic recovery…that 500k people actually left the labor force this year…shrinking it to the lowest levels since the late 70’s. Counterfactual arguments of…”it could have been worse” can’t be proven. Which is again why we mysteriously began measuring unquantifiable data like “jobs saved” during the last 6 years and touting that as a success.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

@bradmaster

You are correct about GM and AIG. AIG was not part of the traditional banking system. Their insurance division was separately capitalized as legally required, and at no point was any policy holder ever in danger of not receiving the benefits guaranteed. And yes…they should have let GM just go bankrupt…because they did eventually anyway. They filed chapter 11. The difference was the gov’t simply manipulated the bankruptcy process to make sure that the creditors who were first on the list were no longer first on the list. The UAW, a big political donor received preferential treatment that is not normally given in the bankruptcy process. GM bondholders who were unsecured creditors were simply shafted at pennies on the dollar, and the UAW received protections on their legacy costs…which is what got them into trouble to begin with. They exited bankruptcy with still major unfunded pension obligations which negates much of the benefit of the bankruptcy. The process offered unprecedented protections on 100 billion of UAW benefits, while the creditors who financed the companies operation where crushed. Now GM is back to a problem with unfunded liabilities that are not sustainable…they cost that taxpayer billions…and earnings are declining while competitors like Toyota are seeing increased earnings. Their business model is terrible, and in my opinion they make mostly inferior products. Frankly outside of Ford trucks…I couldn’t think of an American made care I would ever buy. On the other hand I love my Toyota minivan made right here in the USA by a company that has a business plan that actually makes sense.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

They may have, @Landmark, in theory, but in practice, there is zero empirical evidence over the long-term that supports their theory, instead it supports the opposite view. You will need to point me to some statistics that show sustained growth after the tax cuts of 1954, 1965, 1986, and 2001. (There was growth after the tax cuts of 1963 and 1981 and after the tax increases of 1991, 1993, and apparently 2012.) The horizon I used was the previous 5-years compared to the next 5-years.

As to the change in reporting of income and the steady increase of income disparity, let me approach it this way using your current definition of what changed - "The new required reporting on things like tax free earnings on tax return also disproportionately affected high earners. New tax shelters were substantially increased in ways that disproportionately affected middle income earners. The high end earners had to put MORE on their tax return…and the middle income earners had to report LESS on their return. " (Its not that your definition has changed, but you have added more detail to it which helped clarify some things. We also have to assume the tax sheltered income, in either case, does not generate realizable income until sometime in the future. This assumption breaks down, of course, if the tax sheltered income is in 100% tax-free instruments, like muni's held by a material number of people using tax shelters. I would argue that if this were the case, these tax-free instruments wouldn't be tax-free for long. Even so, it matters not for the rich in this analysis.

Let's say the rate of income growth for the middle 40% was established by the relationship Xt+1 = 2 * Xt, where X is the income reported in Piketty's tax data. Then let Y't+1 + Yt+1 = 3 * Yt where Y is the income reported in the same tax records and Y' is your hidden income which is ignored because it produces no current disposable income. Let's further assume that at t(0), Xt0 = Yt0, consequently, if Xt0 = Yt0 =$1,000 you get the following table:

t Xt=1 Yt+1

0 $2,000 $3,000

1 $4,000 $9,000

2 $8,000 $27,000

3 $16,000 $81,000

and so on.

Under this scenario, income inequality will grow at an increasing rate ((3/2)^t, it looks like). But, at t = a = 4, things change and, keeping things simple, Y"t = Yt + Y't (the rich's hidden income appear on the tax records), X"t = Xt - X't (the middle class' recorded income decreases because of new tax shelters), and we acknowledge that Y't much greater than X't. Let's also assume that at t = 4, Y't = $10,000, and X't = .1 * Xt, What will our table look like now?

t X't=1 Xt Yt+1

3 $16,000 ($16,000) $81,000

4 $28,800 ($32,000) $273,000

5 $51,840 ($64,000) $819,000

6 $93,312 ($128,000) $2,475,000

and so on.

Further, I would argue that 100% of the "middle" class could afford to put 10% of their income in tax-sheltered retirement investments which is all that is available to them.

Now, my numbers are admittedly exaggerated to highlight what is going on. But so long as the ratio of the increase in growth of the top 10% to the increase in the next 40% is greater than the percent of income that becomes "non-reported" and not available for use in the year, then the income disparity must grow; it has to.

So, once again, even using your paradigm it appears the income inequality portrayed by Piketty is valid.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

@Landmark, you said "The government took a beating on GM." and my response, for the reasons given previously, the government would have taken an even bigger beating for doing nothing as conservative economist suggest was the better course in the short-term.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

There was sustained growth after the tax cuts in the early 20’s as well. How do you defined sustained growth. If the fact that the US economy started 2014 in contraction…is that sustained growth after the 2012 tax increases ??? The 1986 act saw sustained growth with a very modest contraction which is perfectly consistent with the normal business cycle. You seem to forget that there were also tax cuts during the 90’s under the Clinton administration. Namely the cut to capital gains…and substantial growth followed. Tax reform is not restricted to marginal rates. All factors need to be considered such as deductions, excise taxes…taxes on capital investment.

“in either case, does not generate realizable income until sometime in the future.”

How is that relevant. It is still compensation. So is employer provided healthcare for that matter. If my employer pays $500 a month towards the premium, that is $500 a month less that I have to take from my net take home to buy it myself that would not go towards disposable income on another item.

You are focused on disposable income. That is not in any way relevant to whether or not people are being compensated for their labor in a less meaningful way than in years past. If the disposable income is all that is relevant, than why do labor unions negotiate for benefits like profit sharing contributions, healthcare coverage & pension funds. These are all forms of compensation. Labor negotiates either individually or collectively for HOW they choose to be compensated. The UAW whom we discussed earlier could approach all the US automakers and simply request that they stop paying a penny towards any of their benefits and simply pay the equivalent compensation in taxable wages. I bet every company would jump at that chance. But they don’t because benefits are part of compensation. If society at large has embraced receiving more compensation thru things like medical coverage or profit sharing…then so be it. That is between the employer and his employee’s. But that doesn’t mean that they have compensated less…it only means they have come to terms they both accept.

Muni’s are not held in tax shelters. They are tax free investment. So if I have 500k a year in tax free muni income…it would not have appeared on my tax return until 1987. Under the Piketty approach….my income went up by 500k…even though I always had the 500k. I am just now reporting it. So the question is who buys this 4 trillion dollar marketplace. Almost exclusively those who would otherwise be in a high tax bracket. There is no economic benefit for a person in a low bracket to purchase a muni instrument.

“Further, I would argue that 100% of the "middle" class could afford to put 10% of their income in tax-sheltered retirement investments which is all that is available to them”

All the data suggests otherwise. The average contribution is a median of around 7%. (Of course the dollar amount caps of $17500 annually mean the high end earner can’t contribute anywhere near 7%) But that does not include the employer matches and sometimes profit sharing. Since all qualified plans must be benefits tested under ERISA....when employee’s don’t save enough in the plan…it reduces the allowable contribution of the employer and the corresponding benefit of tax sheltering income. So let’s look at how it actually works when a “top 1%) employer creates such a tax shelter.

So if I make 1 million and my employee makes 100k…we each get a 3% increase in wages for the year.

I cannot contribute anymore to my plan…because unless I am a fool…I am already maxed out at the $17,500 annual limit. My reportable income has gone up by 3% for the tax year. Furthermore if I have a matching program like a standard 10% profit sharing…I also will see no further benefit…as I am maxed out.

My employee can only afford to make the national average 7% of a contribution because things are a bit tight. With his 3% raise he chooses to defer ½ of it. He then has reportable income that has gone up by 1.5%. Plus he gets an additional 0.3% (10% of the 3% raise) increase as he still qualifies for the profit sharing.

So my employees compensation actually went up by 3.3%. But on paper he is reporting an increase of only 1.5%...the amount he opted not to defer. I am reporting 3% more. My wage growth on paper is double his on a percentage basis…but the reality is far from the truth.

And of course as the employer…if I take this benefit away…then I lose what little take benefit I get on my $1 million in income.

The gov't continues to take a beating on GM. It's far from over. They are down to 11 cents a share in earnings and will have their hands out again within a few short years. Hopefully they'll be forced to go to the capital markets this time and be held accountable, or go thru bankruptcy AGAIN in a fair proceeding.

.


tamarawilhite profile image

tamarawilhite 2 years ago from Fort Worth, Texas

Illegal immigration certainly swells the ranks of those competing for entry level jobs, depressing wages for low skill workers and filling positions that would go to those who'd otherwise start on the career ladder.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

From what I have read, that really isn't the case. There is very little competition between undocumenteds and low-skill workers Most companies who hire lots of low wage workers like Walmart and McDonalds require I-9s and are careful about who they hire. Those companies who try to skirt the law have jobs American workers generally don't want anyway.

In addition, so long as there are 8 million officially unemployed looking for 4 million job openings, wages are already depressed as far as they will go.

Further, very few, if any, of those entry level jobs where there is competition are on a career ladder to anywhere; they are all dead-end. If you know of some that do go somewhere, I would be interested in hearing about them.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

I tend to somewhat agree with myesoteric on this one. The competition with US workers probably hurts somewhat in the shadow economy of landscapers and other manual labor jobs that don’t report much income and don’t document very much. But ultimately, while we need to get a handle on who is coming into this country for a whole host of other reasons…we need a reasonable amount of immigration. If not, we could turn into Japan. An aging population means the best way to offset that is by allowing immigration. Either that or we need to start having a lot more babies. Ideally we should have a balance of skilled and unskilled labor immigrating to match up appropriately with the demand. Unfortunately, there is just no real sensible system in place at the moment and nobody really has control over the process.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

I think we are probably at that point now, @Landmark ... needing to up our birth rate, that is. Population growth plus productivity growth equals, in the long-term, economic growth. Today, in America, population growth is what, about 0.7% while productivity has been growing at roughly 2.4%, measured for the good years between 1990 and 2007. When you add those together, in the long-run, we can't expect much better than 3.1% sustained growth, if that. Productivity growth from 2007 - 2013 was just 1.5%, so that means, if it holds, overall growth may be limited to 2.2% per year, on average.

Moral of the story is that we 1) need more babies now, and a lot of them in order to see economic growth a generation from now or 2) a lot of immigrants coming into the U.S. to see new growth now.

This was just putting numbers to what @Landmark said.


bradmasterOCcal profile image

bradmasterOCcal 2 years ago from Orange County California

My Esoteric

We can't take care of the people we have already.

We don't educate the people that we already have, and that includes millions of illegal aliens.

The public unions for the states and the local governments are high drain items on their budgets.

California has over thirty eight million people, and it is already on its way to becoming a socialist country. It has an education system that can't seem to develop even adequate performance results for k--12, and adding more people to it won't improve it.

This will be the breeding ground of the low paid workers, and the boost to the democrat registered voters. But, it won't improve productivity


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

All that means is we aren't doing it right.

As to CA going socialist, name me the industries which the CA gov't has nationalized and started planning the production and distribution of their products for the good of CA citizens ... THAT is socialism.

State help to citizens is not socialism.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Bradmaster....the statement

"We can't take care of the people we have already" is exactly the problem.

We shouldn't need to take care of people. They should be taking care of themselves with the opportunity they have here. We do need population growth over time because the aging demographics are a recipe for economic disaster. The exact problem Japan has currently. That means more babies...or more immigration...or a combination of both. However, some of your points are valid. Just adding people is not enough. They need to be economically productive and not a drain on society. We don't need people who want to come across the border and jump on Medicaid by having a baby the second they cross into the US. We need productive members of society. Unfortunately we have way too many entitlement minded people among our own citizens already as well as some that are trying to come here. That's what I meant about controlling and monitoring who is coming here...and what skills they offer in comparison to what is needed. The issue of population growth and productive behavior are not necessarily one on the same. My great grandfather came here with no money as a teenager, no Medicaid and never took a nickel of gov’t aid. He did well for himself with hard work and dedication.

In my experience, even though we have to control our borders for a whole host of reasons...when I compare the willingness to work hard of a Mexican immigrant to a US teenager…most of the time it’s the US teenager who is a lazy sack of you know what. It usually takes a generation or two in the US before the sense of entitlement sinks in, and then the work ethic and willingness to sacrifice dies. The problem is not limiting the number of people. We need exactly the opposite. We need to add people and stop giving away the store in social entitlements. Adding people won’t do us any good either if it’s not an innovative and hard working population.


bradmasterOCcal profile image

bradmasterOCcal 2 years ago from Orange County California

My Esoteric

You wrote

All that means is we aren't doing it right.

bmOC

Is that ALL?

So, how about fixing it before we bring in more people.

It is like the couples that can't take care of themselves, and then they rely on the state to feed and take care of their many children.

----------------------

You wrote

As to CA going socialist, name me the industries which the CA gov't has nationalized and started planning the production and distribution of their products for the good of CA citizens ... THAT is socialism.

bmOC

You are confusing nationalism with socialism.

California has become the socialist state by overtaxing anyone that is making a living to feed those that have to rely on the state providing their livelihood.

You neglected to comment on the large public unions that are putting a huge liability on the taxpayers with their pensions and benefits. The claim is that is why California has trouble balancing their budget.

A rose by any other name smells the same, and so does the welfare state of California.

------------------------

You wrote

State help to citizens is not socialism.

bmOC

It is when that is the goal of the state to keep the democrats controlling the state as they have for several decades. So whatever you want to label a welfare state other than socialism, it doesn't change the results.

California's biggest industry is welfare for all the low paid workers that they have fed for generations. Now Calfironia is losing its industry to other states like Washington. Georgia, Texas, Arizona, South Carolina and more.

They even lost their power in the movie industry even though they started it. Movies are too expensive and restrictive to be made in California, so they have moved to Canada, Eastern Europe, and states in the US that cater to the movie makers.

California has therefore created the citizens that need their help. Things have changed for the worst since you lived here.

California has not kept up with providing the basic resources for their citizens. Water for example is always critical, and finally we have some rain here, but it is a semi arid place. The population of CA has gone from 20 million people to over 38 million people in just a few decades, but the resources for the state haven't increased measurably.

CAlifornia is an example of a liberal, democrat run government, and I surely don't want that to be a national goal.

-------


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LM - " "We can't take care of the people we have already" is exactly the problem. We shouldn't need to take care of people. They should be taking care of themselves with the opportunity they have here."

ME - This is true ONLY in a perfect world where all people have good will toward others, greed doesn't exist, and all men were angels. Unfortunately, that is NOT the world we live in.

- There are millions of children with crappy parents who "don't" take proper care of them

- There are millions of children with crappy parents who "CAN'T" take proper care of them

- There are millions of seniors with crappy children who "don't" take proper care of them

- There are millions of seniors with crappy children who "CAN'T" take proper care of them

- There are millions of seniors with no children who "CAN'T" take proper care of themselves

- There are tens of thousands of disabled vets with no one willing to take care of them who "CAN'T" take proper care of themselves

- There are millions of disabled people with no one willing to take care of them who "CAN'T" take proper care of themselves

- There are hundreds of thousands of business people with no morales willing legally and/or illegally cheat the unsuspecting out of their life savings, jobs, or other means of support rendering them "UNABLE" to take proper care of themselves or their families.

- There are hundreds of thousands of business people with no morales willing underpay powerless employees who have no options in order to overpay themselves or their stockholders rendering them "UNABLE" to take proper care of themselves or their families.

And these are just a few of the reasons it is an imperfect world full of people you apparently think can be "... taking care of themselves with the opportunity they have here."


bradmasterOCcal profile image

bradmasterOCcal 2 years ago from Orange County California

The government doesn't take care of them either.

The government may need to help them, but not be their guardian. This is especially true when they created millions of them by enabling them through their social programs.

Is the government helping these people that you listed, or are they committing there temporary conditions into permanent ones.

Thanks


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Myesoteric…I am not talking about unattended children. However, as I have pointed out many times…those truly in need (Children, disabled etc) are much better cared for by charity. And prior to the gov’t involving itself in such matters…charities did a much better job than gov’t does today. Gov’t encourages people in our imperfect world to become more dependent on gov’t. In the last 60 years of our LBJ Great Society…the rate of decline in poverty has gone nowhere. Prior to this massive entitlement state poverty was declining at a relatively fast pace in the 50’s and early 60’s.

There are also hundreds of thousands of employees willing to cheat their employers out of money and steal from them. What does that have to do with anything ??? Nobody is saying that we shouldn't prosecute people for committing crimes. And nobody is “underpaid”. We’re all paid what were worth. And our worth is only that which someone is willing to pay you. Value is a matter of perception to an individual. But in economic terms…your perception is meaningless. You’re worth only what the market will offer. If you’re making $10 per hour and figure out a way to make your employer millions of more dollars with a new idea…he will pay you more for this enormous increase in value you’re offering. And if not…then take your multi-million dollar idea to his competition. If it is really that good…you’ll be rewarded well. If it’s a worthless idea…than your perception of your value is not accurate. If this wasn’t the case than I could simply stand on the corner and sell hotdogs for $200 each…and I would have to get the $200…because that is my perception of value.

This does not mean we should be paying for every Americans flu shot who supposedly can’t afford it. Most of them can afford it and just don’t prioritize well…because we make it so they don’t have to. And there is more than enough charitable aid around to help those truly in need. When the gov’t subsidizes something…charities stop providing it. Example…prior to the creation of Medicare…gov’t took an indirect role. They offered hospitals and other charities low interest gov’t loans to treat the truly indigent, and they determined who was actually unable to pay. So those who could afford care paid for it, and those who couldn’t were covered under this program. Hospitals and Dr’s charged the least amount of money. Then came Medicare…and they started charging the most money they could. Price discovery was annihilated and people who could easily pay for an office visit don’t have to anymore. Ofcourse this caused a surge in the rate of healthcare costs, and eventually Medicare simply stopped paying the Dr to offset the increase…so the Dr’s office became like a fast food restaurant. And even those who can afford to pay the Dr will never vote to give up a freebee once they have it. Gov’t to the rescue !!! Gov't doesn't lift people from poverty...it keeps them in it. It's provides just enough to keep you dependent and voting for more dependency. If gov't spent more time on just essential services like making sure the water was turned on in California...then maybe they could focus resources more effectively...and it wouldn't take LITERALLY three years to widen a turning lane here on Long Island.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LW - "those truly in need (Children, disabled etc) are much better cared for by charity."

ME - when has charity ever done an adequate, nondiscriminatory job? It fails during the good times is absolutely useless during crises. Charities help only those they feel like helping or, if they are the rare charity which doesn't discriminate in who it helps, those that their very limited funds allow them to help.

You only have to go back 81 years to find what charity has done for Americans the previous 150 years of this nations existence. The shame of letting our citizens needlessly wallow in unbelievable human misery during crises ranks right up there with the genocide of Native Americans and slavery.

To believe that any rational being wants to go back to the way it was in 1929 simply does not computer for me. And going back to the 1929s us exactly the outcome if America once again adopts your belief that "those truly in need (Children, disabled etc) are much better cared for by charity."


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

In 1947, the poverty rate was around 41%.

- It fell to around 22% by 1955 "and stayed in the 20 - 22% range until 1961 -62"

- With the advent of Kennedy's New Frontier and Johnson's Great Society, the poverty rate dropped rapidly to about 12% by 1968 and 11% by 1973.

The rate remained there until 1980, when it began rising again. (From here on out, the Right has been dismantling the Great Society program)

- It settled between 13% and 15.1% from 1983 - 1993

- After this it fell back to 11.3% by 2000.

- During the period 2000 - 2006, it rose to 12.3%

- The Great Recession jacked that up to 15.1% by 2010.

- At the end of 2013, it was down to 14.5%.

The moral of this story is modern Democratic efforts to reduce poverty rates worked and modern Republican efforts to oppose this when they could during the Reagan and second Bush administrations, also worked (poverty rose)


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LW - "There are also hundreds of thousands of employees willing to cheat their employers out of money and steal from them. What does that have to do with anything ???"

ME - As I stated, the difference is the employees are powerless relative to the employers. While employers can and do put systems in place to prevent employee theft; the employees have no such remedies available to them, especially now that the government (mainly the Supreme Court) is against unionization again, like they were prior to 1933. This makes all the difference in the world if one is truly concerned about equal opportunity in society.

LW - " 1) We’re all paid what were worth. 2) And our worth is only that which someone is willing to pay you. "

ME - The Left thinks statement 1 rarely happens and that statement 2 is internally inconsistent because the two phrases are independent of one another. The Right, of course, believes statement 2 the gospel.

The implication of statement 2 is that everyone in 1700 was paid what they were worth and that no one, not even you @Landmark, have any worth at all. What ever training, experience, intrinsic characteristics (like charisma), and the like are of no particular value because the employer will pay a penny for a full day's work, if times are tough enough, or a million dollars an hour if he/she is the last one available and the product can be sold for a profit. (but you can believe the employer will be screaming to high heaven, paying off whoever he has to in order to make such employee brinkmanship illegal (and in our employer-oriented society, will probably be successful).

Do you see the problem? Under your paradigm, the concept of "value" is obsolete, it has no meaning because all "value" means is "what people can get away with in a Darwinistic society."


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

Also, your concept of employee "value" only works with there is a competitive labor market; which is not where we are at today and only have been at a few rare times in our history.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

When hasn’t charity done a better job then gov’t. Have you ever heard of Catholic Charities ??? They operate a few hospitals in case you haven’t heard. And you don’t need to be Catholic to receive care. Have you ever heard of St Jude’s children’s hospital ??? I guess treating kids for cancer and not charging parents a dime is not a non-discriminatory job in your book. When has gov’t ever lifted anyone from poverty ??? It’s done a wonderful job for the Black and Native American community. Multiple generations of gov’t dependency. Gov’t programs limit charitable funding. The larger the size of the gov’t, the less funding charities will get. And charities won’t collect funds for a something that gov’t has decided to provide. That is a classic case of crowding out. Go back to 1929…No I want to go back to prior to 1929…when gov’t allowed markets to function for better or worse…and economic contractions weren’t dragged out into anemic recoveries that lasted nearly a decade if not more in which a slow creep is defined as success.

Double check your facts…This is a chart of the poverty rate based on US census data. I am not looking at the total number of people…since population growth would alter that. However…I see a rate of decline that ceased to decline once the Great Society was implemented between the mid 60’s and mid 70’s. Since then we have stagnation in the trend line…and massive unfunded entitlement programs that are fiscally unsustainable. From 1950-1965 the number of people who fell below the poverty level had declined by a factor of 30%.

http://sweeneyr.faculty.mjc.edu/US%20Poverty%20rat...

The moral of the story is that gov’t has gotten much bigger since the 50’s and 60’s. Defense spending was 9% percent of GDP in 1963…and today is about 4%. Mandatory spending which is dominated by entitlements (22% for Social Security, 15% for Income Security, 23% on healthcare…of total Federal spending) has ballooned from about 6% of GDP to 15% of GDP. And the trend line had not moved in 60 years. Between the mid-Sixties and the mid-Seventies, the dollar value of public housing quintupled and the amount spent on food stamps rose more than tenfold. From 1965 to 1969, government-provided benefits increased by a factor of 8; by 1974 these benefits went up by an incredible 20 times higher than they had been in 1965. The real moral of the story is significantly more entitlement spending was implemented from the mid 60’s to the mid 70’s….and since then…no decline in poverty during the same period. The only thing that moves the trend line nominally now is economic contraction or expansion over the business cycle. But the same demographics are remaining in a constant state of gov’t dependency.

The poverty rate among blacks was plummeting prior to the Great Society. In 1960 Blacks were about a 55% poverty rate. From 1940-1960…the black poverty rate was basically cut in half. Since then there is little change except for the 90’s when the household survey cut 10k people from the monthly survey targeted towards inner cities. Another nice BLS trick of not counting people.

It doesn’t compute for you because you still think that Uncle Sam is going to help some poor minority out of the ghetto. The only thing Uncle Sam is really going to do is condemn them to poorly run public schools where they graduate without the ability to read, and dump them on enough entitlement programs with just enough basic subsistence that they will stay there for multiple generations.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Labor markets are always competitive. You create your own competition based on the skill set you offer. Offer something highly skilled and in demand...and you'll be handsomely rewarded. If not...you won't. It's not an employers job to pay you more money when you offer little value. If I can find dozens of people quite easily to do whatever you offer...than you're offering me little/nothing...and you'll be paid little. If you don't like it...improve your skill set and make yourself invaluable.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

“As I stated, the difference is the employees are powerless relative to the employers.”

Tell that to General Motors. The employees took that company right down. They did the same to Hostess. Every employee holds as many cards as anyone else. They dictate their compensation by what they offer. Unionization is not about equal opportunity…it’s about forced equal results.

I don’t worry about an employer offering me a penny when times are tough…because then I will simply leave and create my own opportunity. The difference between the left and the right in economic terms…is that the left is waiting for an opportunity…and the right correctly recognized that you must create your own opportunities…not wait for them to be created for you.

Don’t get me wrong. If you want to be a bus driver or secretary…that is fine and quite noble. But by accepting that role in life…you are also accepting the fact that you have chosen a field that offers a skill set commonly found. Which means when times are tough…you are at risk of being the odd man out. If you are concerned with that…then make something more of yourself. The neurosurgeon isn’t as worried when times are tough…because he chose to break his but in school to produce the grades required to become a neurosurgeon. And it’s not his fault that the bus driver accepted his mediocrity. If people are happy in their role…that’s all that matters. But don’t blame society because you chose a more easily attainable path and found yourself to be economically expendable. We each have choices and need to live with them. It’s called accountability. And that is what dictates our value. So in reality…the concept of our own economic value is controlled by each of us.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

For GM, the employees were organized which is rare today, and because of an anti-employee political environment, is getting rarer. But let's see what GM did, oh yes, Private Industry who knows how to do it better than government was going bankrupt. GM, as well as Hostess did themselves in through piss-poor management. The employee unions didn't make the management decisions that ruined those companies.

That is why I have to laugh anytime people say the gov't is so inept. I only have to look at GM and Chrysler and the fact that 80% of businesses fail and compare that to the fact our government the Right thinks is so terrible hasn't failed once yet.

@Landmark, please give me the logic behind "Every employee holds as many cards as anyone else.". On the face of it, it must be wrong simply because an employee can't involuntarily fire him or herself "at Will". How is that "holding as many cards"?

[I had a long, rambling continuation, but I saved it off to repair and make it coherent.]


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

GM was done in by the power of the labor union extorting unsustainable benefits that weren’t based on productivity, and the labor protections that allowed them to produce crap craftsmanship and not get fired due to union protection. Which is why I buy Toyota. Hostess employees simply refused to show up for work and would rather go out of business than actually show up.

Our gov’t can’t fail fiscally because they have a fiat monetary system. That means bankruptcy is not technically possible. And you can’t fail when you have a monopoly and competition is not legally permitted. They fail in terms of actually providing what they promise daily. When it takes 3 years to widen a turning lane…I have no say in the matter. They get to stand there and do nothing all day whether I want them to or not. Give me the chance to tell them they’re fired…and they’ll be gone instantly.

“please give me the logic behind "Every employee holds as many cards as anyone else.". On the face of it, it must be wrong simply because an employee can't involuntarily fire him or herself "at Will". How is that "holding as many cards “

I already explained how they are holding the cards. If you are my boss, it is my job to make myself so invaluable to the organization that you can’t possibly function without me. If I fail to do that and become expendable…that is my fault for not adding greater value. If my employer is too foolish to see the value I add, then when I leave he will suffer for my not being there. And his competition will benefit. If he doesn’t suffer as expected…then I am not all that valuable…am I ??? So I failed and making myself invaluable. I determine my skill set…not my employer. If I can’t find anyone who recognizes my value as an employee…than I need to become the employer and start my own enterprise. Or perhaps I don’t really have very much to offer, and I am imagining my value in my mind, which is the case with many Americans who have no idea how their compensation should be valued.

And don’t waste your breath telling me that it can’t be done. My great grandfather showed up in the US and spoke no English…and had less than $20 dollars in his pocket. In less than 10 years he was operating two separate business without a nickel of gov’t aid. It is about how far you are willing to push yourself. If you choose the easily attainable path that requires less skills…you’ll be expendable. Either accept that…or do something about. I had nothing but disadvantages as a kid and built a successful business as well. I was the unhappy employee who felt he was not properly valued. I left and did something about it. As the employee we all have unlimited choices. All you have to do is develop a skill set that people have to have and are willing to pay very well for. If you fail to do that…it is only your fault.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LW - "GM was done in by the power of the labor union extorting unsustainable ... get fired due to union protection. "

ME - If that were true, why did Ford do OK? Why have most other unionized businesses gone the same route? Or was it because management made bad decisions when the competition labor and management was equal. (For Hostess, was it because Hostess cried wolf once too often or otherwise lied to them so much, that the Baker's Union, the one who refused to take more pay cuts, simply said no. Again, management put Hostess in that position.)

If a organization has set itself up such that the loss of a singly employee will cause them great harm, then once again, management screwed up. Management should NEVER allow "... it is my job to make myself so invaluable to the organization that you can’t possibly function without me..." to be possible. And, in any case, you presume all people are built exactly the same way and have exactly the same talents, experience, and intelligence. In the real world, maybe 1 in 100 are even ABLE to do what you require of an employee.

The "Don't tell me it can't be done" logic doesn't work because of the above. Now, if you are suggesting that say 80% of the people are your grandfather, PBO, Collin Powell (with affirmative action help), and the very small percentage who made from the bottom to the top, you are again not living in the real world. Because 1, 2 , 3% of people have all that it takes to make it to get from the bottom to the top, doesn't mean most of the population can do the same thing. When you show me data that more than 50% of the population does what your grandfather did, then I may take your claim seriously and call mine into question.

LW - "All you have to do is develop the skills ..." is never as easy to do as it is to say and becomes less so the lower down the economic scale you go. Just because you did, doesn't mean your neighbor has the ABILITY to, simply because you are smarter or wired differently. Some people have an easy time doing math well, most people are not and it has nothing to do with education; they just aren't wired to understand it; the same way I am not wired to play the piano no matter how much I want to (I took a year of it in college and failed even though I practiced a lot.)

LM - "As the employee we all have unlimited choices." is simply a utopian view.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

But this is what throws a wrench into your whole premise ... opportunity, which you said was unlimited. At the end of 2012 (2013 is only a little better) and after adjusting for differences between the CES and CPS databases:

- There were about 141 million jobs out there and there were about 141 million employed people

- Given things are always in turmoil, roughly 4 million jobs were open

Now, for your world to work, i.e, unlimited unemployment (note: these numbers include the self-employed) then those unemployed and "not in labor force" must be near zero. Instead, in 2012, it was 22 million people.

How do you fit those 22 million people into your model when there are no jobs for them? Also, given there are no excess jobs and net quit/fire turmoil is low, where do you suggest the tens of millions in part-time and minimum wage jobs go to "better themselves", regardless of how talented they are. Do tell me what one or two people can do, tell me what 10,000,000 people can do.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Ford didn’t have quite as bad of a legacy cost. But the UAW has done enormous damage to them as well. And outside of a few trucks…Ford still makes garbage as well. All three of the US manufacturers have been getting their clocks cleaned by foreign auto makers who are somehow able to use US workers in Detroit south and produce very good products that are more commonly bought by US consumers, and without the interference of the UAW.

“Hostess lied one too many times” What specifically did they lie about ??? When your boss tells you to show up for work…you show up. Why ??? Because you aren’t the boss. If you want to be the boss…then get out there and do it…otherwise do what you’re told. Instead they followed the bakers union right off the cliff. Hostess products still get produced by someone else and they’re all out of a job. Brilliant union leadership. The company wouldn’t be in such a difficult position to manage the direction of the company if they weren’t constantly dealing with such an inflexible labor force. If a light bulb goes out in my wife’s classroom…it’s against union rules to change it. So she has to wait for one of the custodians who is a certified electrician to change it. Yes…an actual certified electrician to unscrew a light bulb. That usually only takes about 3-4 weeks…just to change a light bulb. Imagine operating a business and meeting deadlines that way. Lucky for them…they live off of my property taxes and I can’t do anything about it.

I don’t presume all people are built the same way. Some people are stupid, lazy or simply content with less. And that is fine. But if you are one of them…don’t blame the people who choose to push themselves further to excel for your failings. You chose your path, I chose mine and so did they. I fully recognize that it is impractical for all employees to be key employees. However, all employees have the opportunity to become key employees…hence the ball is in their court to decide what they will make of themselves. Most of them won’t because they don’t have the drive. But that is nobody’s fault but their own.

“Because 1, 2 , 3% of people have all that it takes to make it to get from the bottom to the top, doesn't mean most of the population can do the same thing.”

That is the liberal mind at its purest. It’s always focused on what can’t be done. Almost everyone is defeated without trying. Everyone has what it takes…unless they are disabled. And even then…sometimes the disabled make it to the top. The head of one of the largest hospital networks in the Maryland area is a paraplegic. Just because more than 50% don’t do it…doesn’t mean it can’t be done. And it won’t happen for those people as long as they are conditioned to believe they can’t and need something for free.

However, it is interesting that the rate of entrepreneurial activity is about 40% higher for immigrants just arriving in the US than for our own citizens according to the Kaufman Index. Perhaps because they know what it is like to live in a place where opportunity really doesn’t exist. Why is it that nearly every convenience store is owned by somebody born in India, nearly every Diner in NY by somebody born in Greece. And Americans are overwhelmed by 22 year old kids living at home with mommy and daddy. Because when you don’t have the safety net…you figure it out…because you have to. Sounds like you’re not interested in the “Pursuit of Happiness”…but rather everybody is “guaranteed success”, and when they can’t get it on their own…make the other guy give it to them.

How you’re wired is irrelevant. I am not wired to work in the field of quantum mechanics…so I don’t. Everybody has some type of skill. Whatever that skill is…it is incumbent on myself and all of us to discover and cultivate it. And make sure that we do it to the best of our ability. If you don’t, you deserve to fall behind. If you’re great at almost anything…the money will eventually come. Believe me…I’d prefer to have spent the last 20 years playing shortstop for the Yankees. But I am not Derek Jeter, so I did something else. I don’t whine and cry about how much money he made because he is better than I ever was at playing baseball. He earned it…so good for him. I accepting that my love for baseball didn’t mean I was one of the few with that particular talent. So I found a different path that worked for me. But I guess I should have gotten a job that allows me to take 3 hour lunch breaks and work at a snail’s pace all day with some union protection instead of pushing myself as hard as I could to achieve success.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

There are countless problems with your analysis. Part of the reason there are less jobs has to do with unionization and other gov’t interference. People with minimal skills get prices out of the market because of labor restrictions on wages that would allow them to take lower paying jobs and develop skills. I took my first job in the brokerage industry (which was exempt from minimum wage standards) at $150 per MONTH in the 1990’s, which wasn’t much money back then either. You had to pay for your own study materials…so it actually cost me a little money to be there. And that was a 12 hour day. So I supported myself by bartending on the weekends. But due to the lack of labor restrictions, they had nothing to risk by hiring me…and I developed invaluable skills and training. Labor unions overpay for less work and have less money to hire more people. That also keeps potential workers out of the market by diverting resources to unproductive spending.

Putting all that aside…if you can’t find a job…then make one yourself. Cut lawns…clean windows…whatever you have to do. If you offer your services to enough people…someone will hire you. Compete with he employers…stop…waiting for one to give you an opportunity. I could start a dozen business tomorrow with virtually no startup capital if I had the time. And if you’re unemployed…you have nothing but time.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Everybody is out of work...but I can't find a person to shovel snow in my driveway (not even a teenage looking to make a buck)...or someone to do decent finished trim work wound a window.


bradmasterOCcal profile image

bradmasterOCcal 2 years ago from Orange County California

starve or let the government feed you.

Most of the country is working under a mandated At Will Employment Contract. so the above is their choice.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

For most of the country that is working privately that is the case. The rest are either gov't employees who can never get fired...or they're living off of those who are working on social assistance. And too many of them aren't interested in ever working.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

It amazes me @LM how you relegated corporate management down to a bunch of powerless children when faced with the big, bad, self-destructive whose existence is based primarily on inhuman past deeds those powerless children visited on the men, women, and children who worked for them.

GM, a multibillion corporation, is beat-up by an organization a tenth its size whose purpose is to stop said corporation from abusing its employees as it and almost all others did in the past. Somehow, that doesn't pass the smell test. There was no gun to the employer's head when they agreed to the contracts they signed with employees, they went in to that with their eyes wide open.

It is the union which level the playing field. It is very unfortunate some large unions took on the repugnant characteristics of the large employers they are defending the employees against.

I am surprised you let management off the hook, you don't give the same solace to workaday Americans when management screws them. Instead, you say "they have all the cards" or was it "same cards".

Why do foreign manufactures, mainly Japaneses and German, do so well over here with American non-union workers? It is because they treat their employees in such a manner a union isn't necessary. Instead of employees being the enemy of America as US corporations and Right-wing politicians do, they see them as part of the solution to a profitable company. Guess what, it works as you just pointed out.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LM - "I don’t presume all people are built the same way. Some people are stupid, lazy or simply content with less."

ME - Your 2nd sentence contradicts your first.

Also, for your theory to work, "Some" must equal upwards of 60 million Americans. That is an approximation of the number that are unemployed, not in the labor force, or employed but stuck in dead-end or part-time jobs.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LM - "Everyone has what it takes…unless they are disabled."

ME - It is that sentiment which separated Social Darwinists from everybody else because everyone else knows that statement is false on the face of it.

Since you made an all inclusive assertion, then one case where it isn't true makes the assertion false; simple logical reasoning.

Well, as I said in example earlier, I do NOT have what it takes to be a piano player, even a bad one; I am simply not constructed to do the things needed to play the piano well. Further, I am not disabled either. Since your statement is not true for me, it is a false statement.

Of course, you can't admit your assertion is false, because you don't have a way of incorporating exceptions into your paradigm. All you can do is keep stating it as a fact that it isn't.

Also, it isn't "Leftist" to think people have limits, either physical or environmental. What it is, is being realistic.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

The "40%" assertion doesn't surprise me. It doesn't surprise me because those are the people that have that extra something which let them leave home (very hard for most people to do) and strike out on their own. I bet their rate of failure is probably less than the 80% that is common in business.

But, what you want everyone to believe is that except for the disabled (which of course doesn't hold true there either) is that 100% of Americans have the same genetic code these few people have which allow them to do what they do. It would be nice, but it isn't true.

LM - "Because when you don’t have the safety net…you figure it out…because you have to"

ME - Why then, back before the safety net, were poverty levels so high if everybody "figured it out"? Defining poverty as "without sufficient income or wealth to ensure basic safety and health, certainly without access to comfortable clothes, hot water, fresh and tasty foods, etc" estimates range from 20% to 30% in the mid to late 1800s and early 1900s. Prior to that it had to be much worse.

Using today's standards (which assume hot water, some fresh food and some clothing), however, poverty rates in America have been estimated to range from 67% in 1896 down to 51% in 1935. I don't understand how this is "figuring it out"? It doesn't look like anything was figured out, most to many Americans simply lived in misery before there was a safety net. Finding this OK is part of being a Social Darwinist.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LM - "Part of the reason there are less jobs has to do with unionization and other gov’t interference. "

ME - Really LM? The reason is unions? Unions who "may" represent 12 to 13% of the employed and is getting smaller every year. Are they the "mouse that roared" and won? I don't think so. Since you didn't define "other gov't interference" I can't speak to that.

I had to skip down some, my responses were too long for the stuff I by-passed.

LM - "Putting all that aside…if you can’t find a job…then make one yourself. Cut lawns…clean windows…whatever you have to do. If you offer your services to enough people…someone will hire you. "

ME - So your saying there are 22 million families out there willing to hire someone to cut their lawns and clean their windows? Or if one unemployed takes four of those jobs, then 88 million families.

I am sorry LM but your utopian worldview simply does not fit with the real world, it just doesn't work except under specific and rare circumstances, e.g. saturated employment (unemployment below the "natural" level) and a growing economy. If memory serves, we had that situation in the 1990s, which is why no one was complaining and the poverty rate declined. That climate died in 2001 and has never returned.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

Yes…the poor GM employees were trying to stop abuse from the company by having the UAW negotiate benefits in which employees are paid longer in retirement than they actually worked for the company. And when it becomes abundantly apparent how fiscally unsustainable such an approach is…they have a work slowdown or threaten strike. There is a gun to the company’s head when they can’t hire non-union employees. Either they cave to unreasonable demands or shut down.

Why are the US Toyota and Honda employees operating outside of the UAW in Detroit South not in need of this so called leveling of the playing field ??? They are doing quite fine. Why are energy companies paying people 6 figure incomes to drive a water truck without a union to level the playing field ??? The reason is that private sector labor unions are only valuable in an emerging market. Developed markets already have labor laws in place and legions of bloodthirsty attorneys willing to file a lawsuit. All the unions do is suppress productive behavior and force companies to ship labor overseas.

Japanese and German manufacturers are not doing well in comparison to the US. Germany benefits only because the rest of Europe has become so incredibly unproductive, that they are the tallest midget in the EU. Take a look at what their restrictive labor laws thanks to organized labor have done to youth unemployment across Europe. And Japan is an economic disaster in every sense of the word. They have had 20 years of economic stagnation.

I am not letting companies off the hook. Companies make bad decisions and lose quality people to the competition all the time. And when a business operates in a free market, the business is punished for bad decisions. When I started at Fidelity they were the largest mutual fund company in the world and a great place to work. New management came in and wrecked the place. Since then they have had their clock cleaned by their peers…no longer at the top of their industry and employees like myself left with clients who followed and the revenue they produced. Thankfully I wasn’t part of some union that would have linked my union pension and vested benefits to a failing industry that would have trapped me there out of fear of losing too much by quitting.

The statement "I don’t presume all people are built the same way. Some people are stupid, lazy or simply content with less." Is not in any way contradicting. Read it again. I am stating that all people are not the same. Some are lazy...others are not. Meaning despite what you conclude…I recognize we are different. And we should as such be compensated differently based on the merits of what we choose offer.

My theory works fine. I don’t presume full employment is ever achievable in a practical sense…because some people will always be unwilling to make something of themselves. There will always be people looking to leach off the system. The problem is your ideas encourage this. And not surprisingly...since the welfare state expanded from 1965-1975 at an extremely rapid pace…the rate of decline in poverty is much slower…not faster. And we still don’t have full employment. No matter what, some people will be at the bottom. But when the gov’t coddles them…they stay at the bottom for multiple generations.

“It is that sentiment which separated Social Darwinists from everybody else because everyone else knows that statement is false on the face of it”

Prove that it is false. Please find me the person who has absolutely no talent at doing anything of any economic value…and is totally incapable of being self-sustaining at any skill known to mankind. As I said, you don’t have to be able to play the piano. But you can do something else when you can’t play the piano. Everyone is wired for something that can support them. I have known people with down syndrome who can hold a job and have their own apartment. The next time you’re in Albuquerque, New Mexico…stop by Tim’s place. He has down syndrome and owns and operates his own restaurant. I guess he didn’t get the message that he isn’t capable of doing this and the “Social Darwinist” are wrong.

http://www.timsplace.com/

But we are supposed to believe in what can’t be done by perfectly healthy people.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

“Why then, back before the safety net, were poverty levels so high if everybody "figured it out"?”

Poverty rates prior to a developed market is not much of a comparison. But poverty rates where declining at a faster pace prior to the social safety nets…and have completely stagnated since the implementation of the Great Society…which was the beginning of social dependency in the US. Comparing 1935 and the middle of the depression doesn’t tell us very much. During the turn of the century we were importing massive numbers of people who were coming to the US importing poverty. Coincidently they were coming from places of top down central planning by the gov’t, and desperate to get out to flee to a place where they had economic freedom, not safety nets. The fact is that the poverty rates was plummeting…particularly among black Americans in the 40’s and 50’s and early 60’s without some massive social entitlement. And then came the Great Society. The people who were supposed to be targeted for help have since been locked in a cycle of gov’t dependency…a fact that the social engineers conveniently ignore. Because they can’t accept the fact that they have failed miserably. Instead they choose to cite conditions that existed at a time of the horse and buggy prior to the industrial revolution.

Yes…unions are the mouse that roared and won in the case of manufacturing…an industry that the unions destroyed and pushed all the jobs overseas. And coincidently…the areas which are non-unionized are doing quite well and prospering. Fortunately many of the new advances in the energy sector are creating new efficiencies which will circumvent the impact of labor costs and bring back a good deal of manufacturing to the US. But ultimately…the job growth is happening outside the unionized labor world more and more. Why…because people that live in heavily unionized states can’t afford to live there anymore. So they pack up and move south. Yes…that’s right…the middle income people can’t afford to build a home in NY suburbs because the cost of labor is too high and drives up the cost of everything…so they move. I guess they didn’t get the message that the higher labor cost were helping them. Foolish…that they think the fact that their money stretches much further in Texas or South Carolina as a reason to move. People are not moving to Northeast states from the right to work states. It’s exactly the opposite. People vote for what works with their feet.

“ME - So your saying there are 22 million families out there willing to hire someone to cut their lawns and clean their windows? Or if one unemployed takes four of those jobs, then 88 million families”

No…I am saying that some will cut lawns and clean windows. Some will babysit as a nanny for less money than daycare offers. Some will invent an entirely new service or product that we have yet to hear of to date. Productivity and innovation is infinite. The ability to create and produce products and services is only limited by your mind. And the more people believe they can’t do anything and can fall back on the gov’t…the more they will. I blow out my sprinklers every year before the frost. If somebody is willing to do it cheap enough…I’d pay for it. If they offer me a cheap enough price…they can plow the snow and clean my gutters as well. But they don’t…so I do it myself.

Your memory doesn’t serve you correct. The 1990’s was also a period of welfare reform in which people where booted off of social entitlements and did in fact figure it out. The only utopian worldview is one in which the gov’t is going to lift people from poverty. Yet the record of the Great Society is as clear as a bell. The people in the demographics which were supposed to be lifted from poverty have been locked in a cycle of 3 generations of poverty. Another conveniently overlooked fact by the political left. When exactly is the Great Society supposed to have worked to lift Blacks and Native Americans out of poverty. I guess 50 years of social entitlements isn't enough time. Yet the people who show up from India are thriving economically in the US. I guess it's the same thing as the young down syndrome man who owns a restaurant. They didn't get the message when they came here from India that they can't possibly do this well on their own.


LandmarkWealth profile image

LandmarkWealth 2 years ago from Melville NY

And even FDR of all people recognized there was no place for organized labor in the public sector. If we had listened perhaps we wouldn't need a certified electrician to change a light bulb in a classroom...and my property taxes wouldn't be over $1,000 a month.

http://www.presidency.ucsb.edu/ws/index.php?pid=15...

I am not for making private sector unions illegal. I just want it to be illegal to force workers to join them. There is no place for unions in the public sector.


My Esoteric profile image

My Esoteric 2 years ago from Keystone Heights, FL Author

LW - "Poverty rates prior to a developed market is not much of a comparison. But poverty rates where declining at a faster pace prior to the social safety nets…"

ME - Being a numbers man, you know there are analytical ways researchers use to line up (close enough for practical use) information from disparate time periods such that they can be reliably be compared so long as the differences are known. That is what I presented, the results of some research I easily found on line.

As to "falling at a faster", you need to provide more detail such as the initial baseline, the environment that drove your start point. etc.

As to "and have completely stagnated since the implementation of the Great Society…", does that mean your expectation is that poverty levels get to zero percent? If not, what is your idea of a normal level of poverty in a capitalist society with an economy steadily growing at a 2.5 - 3% rate? And, how far is that from what the poverty levels were during Clinton's time?


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My Esoteric 2 years ago from Keystone Heights, FL Author

BM - "I just want it to be illegal to force workers to join them.[Unions]"

ME - I doubt very many people disagree with you. But, on the flip-side, it should be just as illegal for corporations to interfere with people who want to start or join a union; THAT is the much bigger problem.

I am certain there are cases where union leaders have wanted mandatory membership but that rarely gets very far. What does have some traction is the Union's desire to be recompensed from non-union employees who benefit from the effort unions put in to secure reasonable pay/benefits and safe working conditions where the two work side by side.

I still don't understand your desire to make gov't employees 2nd class citizens by denying the right to organize simply because who their employer is. The right to strike isn't an issue because that, if I remember correctly, has never been part of a union/gov't contract for as long as I can remember. The FAA strike doesn't work because 1) it was illegal and 2) you don't have to be part of a union to strike.

Gov't managers can be just as big an asshole to their employees as their private counterparts can be. But gov't workers are subject to an additional pressure the private side is not ... political oppression. Don't think that is never applied, even at the lower grades, it is; it has been on me once or twice.


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My Esoteric 2 years ago from Keystone Heights, FL Author

Maybe I can use your example with Tim, @LM, to get my point across or at least see where you are really coming from.

First not to disparage Tim, but Down's Syndrome is bad in any of its variations and I am sure he is proud of his achievement. But, did he do it on his own like you did with your business or I did in starting mine? Or, did he have help from various people, organizations, and governmental organizations? If he had help, did he have a little help or a lot of help?

Now that wasn't where I was going with this, but in rereading your story, the above came to mind. What I wanted to pose is this:

Let's assume there are 100 Tim's, each with exactly the same kind of Downs Syndrome that Tim has. Let's assume also that Tim has a 120 IQ; I realize he doesn't but pretend anyway. Finally, let's also assume that Tim has the variants of the COMT, DAT1, DRD2, and DRD4 genes which are known to improve ones chances of excelling in school, handling stress, and improved memory. Other variants of the D* genes are known to be involved with psychological disorders.

OK, assume that none of the other Tims have his particular combination of gene variants (but not they don't have the variants leading to psychosis either). What I am setting up, of course, is that Tim's friends are just regular people hampered by Downs Syndrome.

It seems to me your position is, based on the anecdotes you put forward, that your Tim is a stand-in for everyone of those other Tims; they can do exactly what your Tim did simply by trying hard. Is that your position?

What I am suggesting here as I have been all along is that your Tim was predisposed to his success where normal people aren't so fortunate and aren't able to follow in his footsteps no matter how hard they try.

The same analysis applies to your belief that everyone can simply start their own business like you and I did. I must beg to differ; only certain people are built to go it alone and there aren't that many of us. The rest must work for others, IF, there is job available for them to fill. Since there are 21 million out of work and let's say 20% have what it takes to try to be entrepreneurs (of which 80% will fail) that leaves 16 million people to fill 4 million jobs. What are you going to do with the other 12 million people?


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LandmarkWealth 2 years ago from Melville NY

No it is not my expectation for poverty to ever go to zero. And the counterfactual can certainly be argued that we already achieved about as low level of poverty as was plausible, and that is why the numbers have stopped falling. But if that is the case…then we already achieved the max benefit before the Great Society…making such an entitlement expansion and utter waste of time and money.

“I doubt very many people disagree with you. But, on the flip-side, it should be just as illegal for corporations to interfere with people who want to start or join a union; THAT is the much bigger problem.

Unions disagree with it. You cannot be hired in my wife’s school unless you join the union. And it does get far. You will be hard pressed to find any union labor force in which any of the workers are not union members. Yet 3/4th of the country supports right to work laws. Because nobody will oppose the union. Unions routinely oppose secret ballots to single out and intimidate anyone who doesn’t join. Her uncle, a roofer, was sent to the hospital ten years ago for crossing a picket line. He spent a month there after union thugs finished him off with a baseball bats and pipes.

Companies have a right to tell workers if you unionize, we will not hire you and/or fire you…because it’s THEIR business. Workers have just as much a right to say we’ll walk off the job as a threat to negotiate…because it’s their choice. But nobody has a right to tell people they can’t cross the picket line or get hired unless they join the union. And they shouldn’t be intimidated into doing so. Yet states like Illinois still make it legal for union membership to be a condition of employment rather than a choice. Only about ½ the states permit right to work laws where I can’t be forced into joining.

“What does have some traction is the Union's desire to be recompensed from non-union employees who benefit from the effort unions put in to secure reasonable pay/benefits and safe working conditions where the two work side by side”

That is totally illogical. Non Union employees who work in right to work states often have just as a good working conditions and benefits. So the notion that such conditions would only have existed with the union presence doesn’t hold water. Otherwise every worker who wasn’t part of an organized labor force would be destitute.

“I still don't understand your desire to make gov't employees 2nd class citizens by denying the right to organize simply because who their employer is. The right to strike isn't an issue because that, if I remember correctly, has never been part of a union/gov't contract for as long as I can remember. The FAA strike doesn't work because 1) it was illegal and 2) you don't have to be part of a union to strike”

The right to strike has been an issue. We had a sanitation strike in NYC as well as a transit stike. In 1971 the NYPD also went on strike in violation of the law for 5 days. The larger issue is, as a civil servant…you are not negotiating your contract with your employer. You’re negotiating it with your fellow co-workers. This has led to civil service employees now being compensated more on a national average than the private sector citizens who pay for them. It doesn’t take an economist to calculate why it is not sustainable for the employees to be paid more than the employer.

http://www.cbo.gov/publication/42921

“Gov't managers can be just as big an asshole to their employees as their private counterparts can be. But gov't workers are subject to an additional pressure the private side is not ... political oppression”

Pressure is not knowing if your job will be there tomorrow. And that is what drives accountability. If you work in the public sector…it is nearly impossible to get fired. No matter what they say or do to you…your job and your pay grade isn’t going to change. Unless you’re risking your life in combat, any other pressure on the rank and file is child’s play.

Tim’s example may be extreme. And most people with down syndrome are not going to operate their own business. But if he can…than there is no reason why a perfectly healthy person can’t do something productive.

Nobody is predisposed to success. It is about commitment and nothing more. Some of us may be more inclined to be successful as the employer and others as the employee. But you can be extremely successful by taking either path. Some of us are simply lazy…and nothing more. And that’s why the gov’t should leave caring for the truly unfortunate to charity. Because gov’t cannot adequately assess who is gaming the system. It is way too bureaucratic to do so. Since 2003 disability claims have jumped by 30%, with a 45% increase by people who were in the labor force prior. Are we supposed the believe ½ the labor force has suddenly fallen and can’t get up ???

According to the most recent JOLTS survey…there are 4.7 million job openings currently unfilled in the US. Even at the worst possible point in the most recent recession there were still over 2 million unfilled openings. I have never once in my entire life opened the help wanted ads and seen the entire section blank. Those numbers are typically fairly consistent. The reason is part of our labor force is completely unskilled and offer little value, so we have to import people from other countries. Or they are too lazy to even accept what is out there. But why should they when they can get it for free.


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LandmarkWealth 2 years ago from Melville NY

Job openings themselves are not finite. The more productive the population is at adding economic value…the more job opening will be created. We do precisely the opposite when we make people dependent on the gov’t. And like it or not…gov’t expansion into entitlements has increased the number of people who are dependent on the system, not decreased it. They are not getting lifted out of poverty…they are staying there.


2besure profile image

2besure 20 months ago from Charlotte, North Carolina

How can I say this without writing a book? Decades ago, many of the middle class were hard-working men and woman, who though did not have college degrees, but could get high-paying factory jobs paying $20 and more. These same people would not be able to purchase a home today! With the abandonment of the American worker, for low-paid overseas worker, so was this country abandoned. When are they going to stop giving tax breaks to companies who move overseas? The trickle-down theory has long been disproving, but Republicans continue to tout its benefits. Powerful corporations are getting greedier and CEO'sa receive millions upon million, even when their company tanks. How do you reversed this is half the government is in the pocket of these corporations?


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My Esoteric 20 months ago from Keystone Heights, FL Author

@Landmark, to your last post. As population grows, so will the 'number' of people on welfare; so a raw number is only meaningful in a steady-state population. Therefore, one must look at poverty rates as a measure of those on welfare.

I found an interesting article at http://www.heritage.org/research/reports/2014/09/t...

which gives poverty rates from 1947 (~32%) to 2013 (~15%); in 2014 it is 14.5%. I believed I, we used this chart as a reference before. It shows a steep decline from 1948 (~ 35%) to 1964 (~19%), when the War on Poverty began, continuing to 1968, where it flattened out some at ~12%. It reached an all time low point of ~11% in 1972.

From there it increased to ~15% as it went through two recessions in 1981 and 1993 before reaching almost 11% again in 2000. At that point it was on a steady climb through the 2000s, maxing out at ~15% in 2010 after the 2008 recession.

Through this period, spending, in 2002$ increased from less than $10B in 1947, to ~40B in 1964 to ~$350B in 1981, after which it decreased slightly before rising to ~390B by 1989. From there, it climbed steadily to ~$950B in 2011 with a pause from 2005 to 2007. Finally, spending dropped in 2012 only to increase in 2013.

So what does this tell us? From 1947 - 1964, three things we know were going on which would account for the huge drop, 1) an improving economy as it adjusted from a wartime status to a normal one, 2) a 4-fold increase in spending on poverty and 3) there was a massive amount of "low hanging fruit" available. From 1964 to 1972 the economy was in a boom and spending on poverty increased another 4-fold.

From 1972 - 1981, the economy was in trouble and spending on poverty doubled, in my view, keeping the poverty rate constant. From 1981 - 1993, spending was relatively flat, but the economy busted, then boomed, and then busted again. Consequently, poverty rates soared 36% going from 11% to 15% and retreating very little during the boom period between recessions. From 1993 on, it more or less repeats.

It seems to me there is a positive correlation between spending and poverty rates, after accounting for some other variables. I will try to do this, but I am betting that if I include dummy variables for "low-hanging-fruit" and the status of the economy, I will come up with a nice regression.

Not mentioned, by the way, is the growing separation between the official poverty level, which the study is based on, and the "effective" poverty level. Today, the official level is about $18K for a family of three while a Hub I am doing a survey in reports the "effective" rate is around $32K.

Sorry for all of the numbers.


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My Esoteric 20 months ago from Keystone Heights, FL Author

@2besure, so I wrote the book instead, lol. You are quite right. A factoid for you. One primary reason for the huge salaries of highly placed corporate employees is the lowering and flattening of the tax structure with Reagan. Prior to Reagan, it wasn't worthwhile to pay high salaries because of 1) the high tax rate and 2) the availability of tax shelters. Reagan reversed the dynamic by making it better to pay gargantuan salaries (relative to normal folk) as he simultaneously restricted the shelters. The question is, has the amount of money gained in higher pay more than offset the amount lost to disappearing tax shelters. My guess is yes, big time.


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LandmarkWealth 20 months ago from Melville NY

myesoteric

You may want to re-read the article you posted. The changes in the poverty rate from the mid 60’s spending began to date are nominal at best. And this chart is a representation of the % of population…not raw numbers. As you correctly stated…spending on poverty programs began to expand dramatically in the mid 60’s into the mid 70’s. The decline and increase within this relatively constant trend line has not moved with any significance as % of the population since the large expansion of entitlements within the mid 60’s into the 70’s. The Great Society was enacted in the mid 60’s and the programs rolled out and expanded into the mid 70’s. We have seen many periods of economic expansion and contraction since the Great Society to current day, and none have changed the overall trend line with any significance. So population growth is not relevant here, because we are looking at the rate in proportion to the population.

So, the question is, why did poverty rates decline far more rapidly before the massive expansion in entitlements, and barely move since the policies of the Great Society where enacted ? I answered that rhetorical question above earlier in the comments. Because the entitlement state encourages more people on entitlements, along with unsustainable fiscal problems…as our friends in Europe have come to know so well. It leads only to major structural problems. And what we have today…which is often multi-generational poverty. Economic expansion can lift a percentage of those out of poverty, presuming they are looking to be productive economically. But there are far too many people who are now conditioned to expect to live off of the gov’t. So no matter how well the economy does, they will not participate…because they are already convinced that they can’t…and in many cases don’t want to. Why would you work for that which I would give you for free ? So we took an entire block of our population between the mid 60’s and 70’s and addicted them to gov’t programs across multiple generations. And this is somehow seen as success. The only change in the trend line is that the rapid decline in poverty stopped once the gov’t rolled out its entitlement state over that 10 year period between the mid 60’s and 70’s. This was the beginning of not temporary relief efforts…but programs placing people on a constant state of gov’t dependence. Yet another example of the gov’t breaking something that was working well.


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LandmarkWealth 20 months ago from Melville NY

@2besure

So are you saying middle class people don’t own homes anymore ??? People can’t afford homes in place like NY and California thanks to the suffocating taxes of gov’t. That is not the case when you move to Tennesse or Georgia. Companies do not get tax breaks to go overseas. No such breaks exist. That is a made up piece of political propaganda. In fact it is precisely the opposite. Companies are punished with double taxation when they go overseas and try to repatriate their profits. Companies often go overseas because the cost of labor is inflated in the US for various jobs. Also they go overseas because the regulatory environment can be suffocating in the US. In many cases companies come to the US as well. When you buy a foreign car in the US…it is made by a US worker. The economy is global now. Technology has shrunk the world. And the US worker needs to compete with workers around the world. Nothing will change that. If people want jobs here in the US, they need to be more competitive. Unfortunately, we have a lot of structural employment in the US. Many US workers are simply unqualified. And sometime US companies are importing foreign workers to the US to fill jobs that Americans don’t know how to do.

“The trickle-down theory has long been disproving, but Republicans continue to tout its benefits”

Please cite the economic consensus where this has been disproven. No such disproving exists. There are legions of economists who disagree with your statement. When people say this it often makes me think they don’t know what it means. The so called “trickle down” theory is based on the Laffer Curve. All this says is that there is a maximum amount of taxation that the gov’t can impose on one’s income. A tax rate of “0%” creates “0” revenue feedback. A tax rate of “100%” creates “0” revenue…because people don’t work for free. So somewhere in between there is an optimal level of taxation that the gov’t can impose without impairing economic incentive. That point of taxation is obviously open for debate. I have consistently held that since the actual tax revenues collected as a share of GDP have not changed since the end of WW2 (roughly 15%-20%), then we should eliminate the complexity and wasted resources…and utilize a flat tax somewhere in that range. Any attempt to collect more revenue is futile. We have had marginal rates between 92% and 28%...and the revenue never changes as a share of productivity.

So the answer to increased revenue is increased economic activity. Ideally, we want the monetary base to move in lock step with increases on economic activity. So then the question is how do you get GDP to expand by increasing activity and therefore revenues simultaneously? That requires capital investment. Capital investment happens when those with capital find it opportunistic to invest their capital. They need to be encouraged to take risk. If you think that increasing taxes is an incentive to make investments, I would love to hear why…and when has this happened. Taxes can be raised at times depending on where you are starting from. Currently, I am more concerned with the ridiculous degree of complexity built into the tax system. Gov’t can use fiscal policy to increase the monetary base via gov’t deficits. They can either use fiscal stimulus plans...aka “shovel ready” projects to increase demand. That is a great idea in theory. But in reality…these “shovel ready” jobs never come to fruition. Because gov’t does almost nothing effectively or altruistically. The other way is to lower taxes and increase the base while allowing these new dollars to be directed by private investment, which is demand driven. The last few years are an excellent example of this. The monetary base expanded at an unprecedented pace. And what happened. All this base money piled up as bank reserves and went nowhere. We definitely got asset price inflation. But in terms of job creation…we went no place. The labor force participation rate is at a 40 plus year low. And a huge percent of the jobs actually created were minimum wage workers. I don’t happen to blame tax increases in this instance. But more so the challenging regulatory environment, and a general anti-business climate.

Personally, I don’t like tinkering with the tax system that much. I would prefer to see a flat tax that doesn’t change. We need to just accept that there will be periods of expansion and contraction as part of the normal business cycle. Each expansion will create more spending and more revenue feedback. Each contraction will create less private spending and more new stimulus dollars into the monetary base. But unfortunately we have too many politicians that feel the need to meddle in the business cycle, insert gov’t and screw things up in the name of fixing short term problems.

If you’re concerned with gov’t in the hands of corporations, why do you cite Republicans? The Obama campaign racked in the corporate money from Wall Street in percentages that put Republicans to shame in 2008 when he ran for President. Gov’t is and always has been in the hands of the people in the US. Corporations are collections of people. They respond to the consumer. Neither party has problems raising money. For every political view that exists, there are armies of people and groups willing to give money to spread that view. Nobody is being stifled. People are too often apathetic to what their gov’t is doing, or led around like sheep because of their unwillingness to think independently. But they are not silenced.


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My Esoteric 20 months ago from Keystone Heights, FL Author

I just did some regression analysis on an expanded set of data the Heritage Foundation tried to make their case with. Its not great, multiple R2=.77, but it is a positive relationship. I added a population variable, and dummy variables for war, recession, lag 1, lag 2, lead 1, and lead 2 periods on recession. The dependent variable was poverty level. The significant variables which fell out are:

1. Funding for poverty

2. Population (negative, i.e., higher pop, lower poverty rate)

3. The fact that a war is going on

4. The period before a recession starts.

All variables were significant at an alpha of 2%


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My Esoteric 20 months ago from Keystone Heights, FL Author

In case you are interested, the correlation equation is:

% Poverty = (1/((.0015*[Public Assistance Spending]^.3 - .00015*[US Population]^.75 + .000833*[1 if War year, else 0] + .000716*[1 if Recession previous year, elso 0])^.476)

This says that if Public Assistance spending increases, rate of Poverty goes down (the direct relationship I mentioned earlier applied to the transformed equation); as Population increases, the Poverty rate increases; if the country is on a major war (Vietnam) footing, then Poverty decreases; and if there was a recession the previous year, Poverty decreases.

Even though this is a draft analysis, there other variables to consider (like tax rates and which Party controls Congress), and the correlation coefficients could be better, I am now more convinced than ever that spending on public assistance will reduce, to some degree, the poverty level in this country.


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LandmarkWealth 20 months ago from Melville NY

My Esoteric,

The rate of poverty was plummeting long before there was any major change in the entitlement structure. I don't doubt that factors such as War and economic expansion/ contraction play a role. But the fact it the trend line is basically the same since the mid 70's. So entitlements that once made up a fraction of the budget, now consume nearly 2/3rds of budget...and no improvement worth noting in the last 40 years. More spending...same results.


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My Esoteric 20 months ago from Keystone Heights, FL Author

LW - Relative to the discussion about Piketty and the growing wealth inequality; I did some rough calculations based on the paper you linked to at http://www.ntu.edu.sg/home/kebin/research/papers/t...

Using estimates of 2.5 million C-Corps and the papers conclusion that $131K (FY 2000$?) per C-Corps was transferred from corporate to personal earning, we get between $300B and $400B of increased personal income due to the tax change policy. Assuming the population in 1986 and the mean income in FY03$ I get total income of ~$4,440B. So, what we are talking about is a max of 7% of total personal income consisting of this newly transferred wealth. Further, this is a one-time good deal in terms of impact on wealth inequality.

So, using this as a reason to refute Piketty doesn't really work. Worse, if you start counting at 1988; the inequality continues to grow.

Bottom 5th- fell from 3.8% of total income in 1988 to 3.2% in 2013

Next 5th - fell from 9.6% to 8.4%

Next 5th - fell from 16% to 14.4%

Next 5th - fell from 24.2% to 23%

Top 5th - increased from 46.3% to 51%

Top 5% - increased from 18.3% to 22.2% in 2013.

During that same period, the economy grew 85% over the 25 year period or 2.5% per year. Now, if there was no income inequality, what other explanation do you have 4/5ths of the working population declining in their share of total income while 1/5 sees a substantial increase. How is that not income inequality?

If income were distributed absolutely evenly, then the shares would remain roughly the same; clearly they are not.

If, as many in your camp say, the lower 1/5 are lazy bums with no incentive and contribute nothing to economic growth and should lose a share, then why is the same thing true for the next three-fifths. I have a hard time believing they didn't contribute to growth either.

Why did the top 1/5 grow at 1%/yr while the next 1/5 down grew at .4%, and the next two levels didn't really grow at all in 25 years while the lowest 1/5th actually lost ground!! Oh yes, the top 5% grew at 1.4%/yr.

Based on 1966 - 1986, this the way it should have looked given the 3.6% annual growth in GDP:

Top 5% -- 1.8%

Top 1/5 -- 1.8%

4/5th -- 1.6%

3/5th -- 1.2%

2/5th -- 0.8%

bottom 1/5th -- 0.6%

The difference between those two time periods is mind-boggling.


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My Esoteric 20 months ago from Keystone Heights, FL Author

As to the Poverty issue. The problem with your comment is that I took into account the big drop from 1948 on, and the War and lagged Recession "were" significant variables. To me, they both make sense because during war, many more people get employed at generally higher wages and the year after a recession is over, poverty should decrease.

You are working from your gut, trying to rationalize your preconceived notion, while I am working from empirical evidence and letting the answer fall where it may.

For example, when you say "......and no improvement worth noting in the last 40 years. More spending...same results."; yet even though you see poverty rate remaining at "what would appear" to be a constant level and raw spending (that's another variable to be tested, spending per capita) climbing through the roof on a graph would seem to support your conclusion. the actual numbers contradict it.


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LandmarkWealth 20 months ago from Melville NY

I don’t discount Piketty based exclusively on the transfer of income in one form. There are multiple variables. I will give you a quick review. And the aggregate of all his flaws is the problem.

He evaluates total income from a tax return…taxable or tax free. But makes no mention of the muni market going totally un-reported prior to 1987…which disproportionately reflects as income for higher earners. There would be no evidence of this 4 trillion dollar market prior to 1987.

He pulls income from a tax return which does not have qualified plan contributions which are options to defer by the employee…plus employer matches. That can’t be found on the return, and shelters a higher percentage of relative income from mid income workers.

He doesn’t account for changes in the tax code that incent executives to realize more ordinary income.

He doesn’t account for the limits on passive activity losses that were not in existence until the 1980’s and heavily surpressed income on an individual return prior to the changes.

He counts tax units…not households. My 7 & 4 year had to file a tax return this year because she made just enough interest to cross the threshold in which they have to file. They live in the same house with me. They are 2 poor low income tax units now. My wife and I filing jointly are 1 rich unit…sleeping in the next room.

He doesn’t evaluate the impact of fringe benefits as income…such as health care plans which developed into a typical employee benefit. (Although under the new unaffordable care act that will now be taxable income).

He doesn’t include the impact of transfer payments.

He pays no serious attention to mobility and how many of the top earners are actually different people from one year to the next, which treasury data says is significant.

He doesn’t adequately account for the difference between the top 1%’s income as ordinary income vs capital gains. Capital gains are highly variable and are linked heavily to stock market performance.

He doesn’t even touch on the heavy degree of imported poverty via immigration.

There are many other flaws…which we have already talked about. Considering the total of them…his data is very misleading. I commend his attempt to try and measure what is probably not measurable. However, he should have done a better job explaining all the missing pieces…and why it isn’t measurable…rather than reaching a conclusion…which seems highly politically motivated.


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LandmarkWealth 20 months ago from Melville NY

I am not working from my gut...I am using the very chart you cited. The poverty rate as a share of population has consistently been in the range of 12-15% since the mid 70's. I don't consider that to be a significant deviation from year to year.

Today, total entitlements are about 2.1 trillion out of 3.6 trillion in spending. About 1.2 trillion of that is related to programs that were legislated in the mid 1960’s and rolled out thru the 1970’s and did not exist prior.

So approximately 1/3 of the total Federal budget are programs that didn’t exist when the poverty rate dropped from 34% in 1950 after WW2 had already ended, to a rate of about 18% when the Great Society War on Poverty began. Since then…the rate has dropped from 18% to a range of 12-15% and stayed in that band. That’s after an massive expansion in new entitlements. What’s worse is…these programs didn’t spring into action in one year. They were progressively rolled out and expanded over a decade. So measuring their success should really begin from 1970/1975 at the earliest when comparing to today.

More simply put…the rate of decline was much faster prior to the Great Society.

The declines in the mid 1980’s and again in the mid to late 1990’s correlate to significant economic expansions. That should be no surprise. That means more people working. Job creation means less poverty.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Here is a much better regression result. The Mult R2 was 95% and the Adjusted Rx was 89%, meaning about that percent of the variations in the data set, 1935 - 2014, is explained by the variables listed below. They ar:

1. Raw Public Assistance Spending

2. Per Capita Public Assistance Spending

3. War

4. Constant $ Floor for the highest tax bracket

5. Two period (year) lag for recession (meaning there was something in the economy two years before a recession that is correlated to a change in poverty rate)

6. Unemployment Rate

* An Increase in variables 1, 2, 4, and 5 (meaning there was a recession 2 years later) indicates an Decrease in Poverty Level

* An Increase in variables 3 (meaning the country was at war) and 6 indicates an Increase in the Poverty level.

Further exploration will include looking at the lead and lag for war and unemployment.

I'll be cranking out a hub on this for those interested in the details of the regression.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Actually, "trickle-down" works very well ... but only for the rich. For everybody else, it has been an unmitigated disaster, which is why every country which tried it ended up trashing it.

1. Since "trickle down", the lower fifth STOPPED participating in economic growth (like they did in the prior 30-years), in fact, they have lost ground. The 4th and 3rd fifths have gone exactly nowhere in the last 30 years. The 2nd fifth has grown only a little bit in that time period while the top 20% say YES, Trickle Down Works, just look at us and if the rest of you haven't benefitted, it is Clearly your own fault for you stopped doing whatever you were doing in the 60s after to participate in American economy.


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My Esoteric 20 months ago from Keystone Heights, FL Author

@Landmark, that is the problem, you are just looking at the chart and not the numbers behind it. Heritage put that chart for one reason ... "because it makes it Look Like what they are saying is true without doing the real statistical work that is needed. Pictures may say a thousand words, but that doesn't mean those words represent reality.

Keep in mind, I look at the same chart and easily come to a different conclusion ONCE I have factored in other historic and economic events which occurred during that same time period.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

“Actually, "trickle-down" works very well ... but only for the rich. For everybody else, it has been an unmitigated disaster, which is why every country which tried it ended up trashing it.”

You mean like Europe. In case you haven’t noticed…their obsession with a welfare entitlement state has put them in such a calamity, that the rest of the world won’t lend them money anymore. The exception being some of the Nordic nations that began reversing their welfare state model some time ago. In 1970, Sweden was the fourth richest country in the world. But by 1993, it has fallen to 17th. Then came various reforms, including cuts in public spending. Public spending as a share of GDP had reached 67% by 1993, but now it's down to less than 50%. Sweden has cut the marginal tax rate by 27% since 1983, and it has cut the corporate tax rate to 22% (which is much lower than in the United States). They turned over operation of their schools to private entities, and eliminated defined benefit plans for defined contribution plans. They also not surprisingly, are in much better shape than the welfare state of the rest of Europe. Trickle down has worked quite well there. And the welfare state collapsed European productivity and growth.

In terms of the US, the lower quintile that stopped participating is trapped in institutionalized gov’t dependence. It sounds like you’re the one not reading the number behind the numbers. The Federal budget is dominated by entitlement spending. This was not the case 50 years ago. It was but a fraction of the total Federal Budget. Literally 1/3rd of Federal spending is attributable to programs that didn’t exist before Johnson’s “War on Poverty”. So if there is a problem…that would be that we are spending dramatically more money on programs that have not changed the result.

In 1950 the total for entitlements was just shy of 6% of Federal Spending. By 1960 it was down to about 5.5% of Federal spending. By 1970 is was nearly 11% of total spending. Fast forward to 2010 and they total a whopping 38% of Federal spending. If there is a trend…it’s that gov’t is perpetually spending more and more on these programs…and getting less and less of a result. This is not a picture…but rather budget data…easily accessed.

http://www.usgovernmentspending.com/year_spending_...


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

Keep in mind...I am eliminating social security and Federal pensions from the category of entitlement spending in the data I am citing. Presumably because in order to collect a Federal pension...one would have to first provide their labor, which would not constitute welfare. And in the case of social security...a person should have theoretically paid in an adequate amount of contributions to account for the benefit...even though we know that is not necessarily the case. If I included those components, entitlements have grown from about 15% in 1940 to 20% in 1960...to 38% by 1980...to about 50% today. More and more gov't dependence.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

If you consider Social Security and Medicare as "entitlement spending", then your right that it is large, but dominating ... no. If you don't consider it welfare, then the remainder is down in the federal budget weeds.

SS and Medicare as welfare:

- SS/Medicare - $1.5T

- less contributions - $1.1T

-- Remaining SS/Medicare welfare - $0.4T (very debatable)

Other "welfare" programs:

- Medicaid - $0.5T

- Veterans - $0.1T (very debatable)

- General & Federal Retirement - $0.1T (very debatable)

- Unemployment - $0.04T (debatable)

- REAL Public Assistance - $0.36T

TRUE Public Assistance - $0.86T (most directed at children via Medicaid and STEM)

Debatable Public Assistance - $0.9T

Very Debatable Public Assistance - $1.5T

Defense and Foreign Relations - $0.7T

All Discretionary - $1.2T

Now please explain how the federal budget is 'dominated' by "entitlement spending" [on deserving adults]?

That is looking behind the numbers.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

So, I would conclude your problem with the exploding entitlements is Medicaid, which mainly helps first children and second their mothers, is this correct?

Or is it the $.1T in STEM, again oriented toward children and their mothers?

Or is it the $0.06T in EITC which encourages Americans to work?

Or is it the ... well the rest are too small to count?


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

According to my model, if we regressed back to the 1950 funding (in 2012$) then poverty would be around ... 47%! And frankly, that makes since to me.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

Entitlements are defined as mandatory spending. That includes Federal Pensions, Social Security, Medicaid/Medicare. A benefit that someone is “entitled” to receive. As I said, I don’t consider pensions to be welfare because the benefit is commensurate with labor provided…hopefully. Social Security should work the same way…but doesn’t always. But for the sake of argument we will exclude it. Medicaid is welfare, and Medicare pays out more to the average recipients than they ever pay in…aka…welfare.

Subtracting tax revenue from SS payments is pointless. The revenue is part of the total gross tax revenue of Federal receipts. It is itemized on a pay stub…but in terms of the treasury, the revenue is all merged together. It has not been a separate and distinct fund since the LBJ administration. Now… Federal tax revenue is the same percentage of GDP as it has been since the end if WW2. The total of all collective revenue streams has been in the 15-20% range depending on economic expansion or contraction. So the revenue side has not changed. The gov’t is taking in the same share of economic activity in tax revenue as it was in the 40’s/50’s/60’s/70’s/80’s regardless of how you choose to itemize it. The spending had changed markedly. Medicare/Medicaid did not even exist until the “War on Poverty. They are collectively 927 billion dollars. Income Security programs…which is basically a negative tax rate for the bottom quintile…is another 300 billion. That alone is 1/3rd of all Federal spending. So to suggest that we are spending less on the impoverished is frankly ridiculous. Medicaid alone at 8% of Federal spending (Federal Gov’t pays 60% of Medicaid, States pay 40%) takes up a higher % of the total Federal budget than all the welfare programs combined did in 1950.

So, now that we know quite clearly that gov’t is spending a hell of a lot more on those whom are supposedly “in need”…why does the number of people “in need” in proportion to the population not change even in remote proportion to the increases in spending ??? I think we already know that one.

Whether I have a problem with a specific group, and who receives what benefit is not relevant. We are discussing the efficacy of these programs, of which there is little. But for the record…I have a big problem with many of these programs. I don’t want to pay people to work unless they work for me. You shouldn’t need to be incentivized to want to work. The earned income program alone says quite a bit about the institutionalized gov’t dependence we have created. Medicare/Medicaid have done nothing but distort the economics of the health care system, driven up prices and are completely riddled with fraud. Not to mention, they don’t even fully account for their true cost. A private insurer must report all expenses over and above commissions as operating expenses. That includes salaries, benefits etc. We don’t do that for the proportionate amount of time legislators and their staff spend on these programs. Bottom line…I don’t care to pay for people who don’t attempt to contribute, and in some cases aren’t even Americans. Even if you want to…that is your prerogative. You’re entitled to your opinion. But to suggest we spend less on the poor is not even remotely accurate.

We know that gov’t has to run deficits from time to time to increase the monetary base. I want that spending to be productive…not distributed in ways that create gov’t dependence and destroy competition. Bottom line is your models are flawed. You’re presuming that all of those receiving benefits would not be able to sustain themselves had they not been receiving something for free. Yet this has never been shown to be accurate. As the old saying goes…give a man a fish and you fed him for the day. Teach him to fish and he eats for life.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

Taking the 'net' spending on entitlements is definitely not pointless when one is doing marginal analysis, which is what is happening here. We are looking at just one part of the budget, not the whole budget, and discussing its impact. That, by definition, is marginal analysis and all factors must be considered, not just expenditures, but offsetting receipts as well.


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LandmarkWealth 20 months ago from Melville NY

It isn't pointless in the sense that we are analyzing changes in the budgets of past versus present. On the income side, the gov't is receiving revenue feedback consistent with what it has always received. We simply label the revenue source something different. However, the spending side has changed substantially. Many of your comments seem to imply that the gov't at times spends less on public assistance (which never actually happened when we look at all programs collectively) due to a decline in tax revenue. When in fact the gov't is taking in not just record aggregate tax receipts...but approximately the same share of GDP it always takes into the treasury. In 1950 we called it income tax revenue. In 2015 we call it Medicare tax revenue. It's the same amount of revenue either way. Revenue is revenue. It can be allocated anywhere the gov’t chooses to allocate it. Meaning if Medicare was abolished tomorrow, the tax revenue would stay the same. Congress would just shift the tax burden to the income tax or some other source. Either way they will get their 15-20% of GDP.

Also, it’s not as though there is any relationship between the amount of Medicare tax I pay, and the benefit I receive. Such a relationship does exist with Social Security, so there is a valid reason to exclude it from the discussion. But Medicare taxes apply to 100% of your income regardless of how much you make…and benefits are not limited to contributions paid. That is the definition of welfare. All that has happened is we have shifted our fiscal spending habits to be not only a much larger share of GDP, but also directionally making social entitlements a substantially larger percentage of aggregate spending.

Now the composition of spending today is much less weighted towards things like national defense than it was in the 40's/50's/60's and early 70's....and much more towards social assistance. So, common sense would seem to indicate that we should see a much faster decline in the rate of poverty as a result of this spending shift. But we have not seen any such precipitous decline. In fact the decline begins to level out as this spending shift takes place. So it leads me to again question just how effective such spending really is. The only rationale argument I can see is that perhaps as a developed market economy…we have seen the maximum feasible amount of poverty eliminated, and it would not get any better no matter what the policy would be. I personally don’t believe that. I think that the spending is just directionally much less productive and slows economic activity, thereby forcing aggregate spending to be a larger share of GDP by suppressing GDP. It would be nice if there really was such a thing as shovel ready jobs and needed infrastructure spending. But I wouldn’t hold my breath waiting for that any time soon. We are more worried about making sure people sneaking across the border to have babies get their hospital bill paid rather than spending money on a new high speed rail system.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

Sorry LandMark, you cannot get around the fact that the point of the Medicare Tax is to offset the cost of Medicare and the point of the Social Security tax is to offset the cost of Social Security. Absent those programs, you would not have the associated tax. That is the point of marginal analysis.

You simply cannot talk about the total cost of a program without considering any offsetting costs. If I presented an analysis as you suggest to my Pentagon bosses, I would have been laughed out of the room.

The people who wanted to argue your way were contractors trying to get DoD to pay them money. We went round-and-round with Boeing over a leasing program they wanted on just this very issue; Boeing took your side, I took my side ... I won.

Also, trying to conflat public assistance spending with share of GDP is itself pointless because GDP, for the most part, doesn't drive public assistance spending and vice-verses; they both march to a different drummer.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

LM, you say "Bottom line is your models are flawed. You’re presuming that all of those receiving benefits would not be able to sustain themselves had they not been receiving something for free. Yet this has never been shown to be accurate. As the old saying goes…give a man a fish and you fed him for the day. Teach him to fish and he eats for life."

The kind of variables you describe are accounted for in the timespan of the my data set. A good portion of it (1935-1964) is when gov't spent very little on public assistance and people were forced to sustain themselves at the lowest possible subsistence level or die.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

OK, I finished my model building and you can find it at http://hubpages.com/politics/American-Dream-Povert...

I didn't use your name in vain, Landmark, lol.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

“Sorry Landmark, you cannot get around the fact that the point of the Medicare Tax is to offset the cost of Medicare and the point of the Social Security tax is to offset the cost of Social Security.”

You can get around it when the tax doesn’t directly fund those programs and is comingled with the general tax revenue. The gov’t tax revenue is “X”…”X” today is the same share of GDP as it was in the prior decades since WW2. How the gov’t chooses to spend “X” amount of revenue is all that has changed. Not to mention, as I mentioned earlier, in the case of Medicare, the benefit received had no relationship with the tax revenue contributed. The tax you pay doesn’t necessarily come remotely close to covering the cost of benefits received.

“If I presented an analysis as you suggest to my Pentagon bosses, I would have been laughed out of the room.”

I rest my case…If I ran a budgetary analysis in the private sector the way the Pentagon or any gov’t agency runs its analysis I wouldn’t be in business very long.

“Also, trying to conflat public assistance spending with share of GDP is itself pointless because GDP, for the most part, doesn't drive public assistance spending and vice-verses; they both march to a different drummer.”

I am comparing total spending as a share of GDP. The total amount of spending as a share of GDP has not changed that much. It is the composition that has changed. That is highly relevant. Each dollar of revenue has been redirected to social assistance programs in dramatic fashion, and there is virtually no change in social outcome since this shift began. GDP does in fact drive public assistance. GDP expansion drives inflation, and inflation drives the amount of aggregate social spending, as well as the aggregate amount of spending on all items.

It is frankly ridiculous to compare the amount of social spending or any amount of spending on any program in aggregate dollars without accounting for the share of GDP. Otherwise you are pretending that inflation doesn’t exist. Otherwise we could argue that the gov’t spends more money on the military today that it did in 1942 during the height of WW2. But we know thanks to the reality of inflation and measuring expenditures as a share of the size of the economy that this is far from the truth. I shouldn’t have to explain that to you. So when you compare social assistance to increases from 1947-1964 increasing by 300%, the only way that would be remotely relevant is if the purchasing power of the dollars was stagnate during this period. If your example was to be taken even remotely serious, than a worker who was making an average national wage of about 12k in 1980 was up to about 32k in 2000. There wage nearly tripled over that period. So they are doing great…right. A dollar spent on social assistance doesn't provide the same amount of assistance 17 years later. That's why the aggregate amounts increased. Not because of an increase in the amount of public assistance provided.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

Bottom line is there is X amount of wealth creation each year. The gov’t taxes and spends “Y” in proportion to that wealth pie. That is why we tax a percentage of income and not a fixed dollar amount. Because adjusting for inflation does matter. The proportionate amount on the revenue side has been fairly consistent for nearly a century. The amount of spending as a share of that wealth pie has been increasing, and shifting dramatically more and more towards entitlements since the mid 60’s. And the results are pathetic. The only legit argument would be the impact of immigration and the importation of poverty. But even that is not the best argument, because a significant number of them are more entrepreneurial and successful than many natural born citizens.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

Your argument for linking economic cycles to the rate of poverty is relevant. Which is entirely my point. The decline of poverty in the 40's and 50's was about economic activity...not social spending. Social spending in real dollars was not increasing and in fact decreasing at certain points. Which means poverty can be addressed without gov't entitlements. You have to grow your way out of poverty, not enable more of it.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

Lastly, you can take this with a grain of salt...because I am not blaming you directly. But if you are going to cite a body for financial analysis, I wouldn't use the Pentagon as an example. This is an agency that can't account for 8.5 trillion dollars in less than 2 decades. They're hardly a model of competency. Your bosses over there make the boys at Enron and Arthur Andersen look like role models


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

So, relative to the "Pentagon", are you saying the CBO and GAO do not know what they are doing in their analyses which are accomplished by untrained analysts?


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

To your poverty-cycle comment. Why then does public assistance spending have such a very low p-value (meaning highly significant) and is not collinear with any of the other independent variables?

Any statistician will tell you the amount of spending is highly correlated with poverty rate. Show me contrary statistics, not observations from a a 2-dimensional graph.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

If you can’t account for 8.5 trillion dollars over a period of less than two decades…you are by definition incompetent. If you did that in a private entity, they would put you in jail.

I did show the statistics. They are easily attainable here http://www.usgovernmentspending.com/

By LAW, spending on social programs such as Medicaid, Medicare & Social Security which dominate Federal expenditures are directly linked to the CPI-U. The adjustments are not optional, they are non-discretionary spending items. While I personally think there are huge flaws in the way CPI is now calculated, that is still what drives the adjustment. In order to have inflation, you must have an increase in the velocity of money. Which means that GDP must expand. Otherwise we have deflation. So spending on mandatory programs is invariably linked to GDP. These types of social entitlements also increase as a share of GDP when a new program is created that did not exist prior. Most of that happened in the mid 60’s. But there have been other additions like Part D of Medicare in the early 2000’s.

No matter how you slice it, the vast majority of social spending is a mandatory adjustment that is invariably linked to economic activity. Unless you know of an extended period in which GDP expanded without any inflation or deflation. So to reflect an increase in any form of gov’t spending at the Federal, State or Local level without adjusting for its proportionate share of GDP is amateurish. That is expressly why in 2010, following the economic crash of 2008/2009 Social Security DID NOT give a 2010 increase to recipients. Because prices were falling in the trailing data. Deflation means no increase. GDP growth means and increase. They are linked by operation of Law. Trying to measure the increase in poverty spending by a factor of 300% without adjusting for economic growth and price changes presumes that a dollar had the same purchasing power 17 years later. I know you’re smarter than that.


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LandmarkWealth 20 months ago from Melville NY

The correlation of total spending with the poverty rate is a function of economic activity. If there are more people working, there are less people applying for things like food stamps, unemployment benefits and Medicaid. No argument there. But giving people food stamps doesn’t get them a job.

I can’t help but get a kick out of how you refer to sources with references like “any statistician will tell you” Keith Hall, a former senior research fellow with George Mason and Commissioner of the BLS, who you seem to think is a competent group seems to disagree with your assertion. He would then qualify as an expert based on such standards.

http://mercatus.org/expert_commentary/more-governm...

For the record, I think the totality of most of these Federal Agencies is more corrupt than incompetent. But definitely a combination of the two. That would largely depend on who and where in the chain of command you’re forced to deal with. I spent 4 hours in the social security office last week to assist an elderly relative. It would be hard for me to call the local employees corrupt. These barely literate people aren’t smart enough to be more than incompetent.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

The correlation of total spending with the poverty rate is a function of economic activity. If there are more people working, there are less people applying for things like food stamps, unemployment benefits and Medicaid. No argument there. But giving people food stamps doesn’t get them a job.

I can’t help but get a kick out of how you refer to sources with references like “any statistician will tell you” Keith Hall, a former senior research fellow with George Mason and Commissioner of the BLS, who you seem to think is a competent group seems to disagree with your assertion. He would then qualify as an expert based on such standards.

http://mercatus.org/expert_commentary/more-governm...

For the record, I think the totality of most of these Federal Agencies is more corrupt than incompetent. But definitely a combination of the two. That would largely depend on who and where in the chain of command you’re forced to deal with. I spent 4 hours in the social security office last week to assist an elderly relative. It would be hard for me to call the local employees corrupt. These barely literate people aren’t smart enough to be more than incompetent.


My Esoteric profile image

My Esoteric 20 months ago from Keystone Heights, FL Author

http://www.usgovernmentspending.com/ simply provides some of the data but provides little information.

Keith Hall did not comment on my statement "Why then does public assistance spending have such a very low p-value (meaning highly significant) and is not collinear with any of the other independent variables?" and I really doubt that he would disagree with it, either. He might take exception with my methodology or data, but since he simply made declaratory statements in the piece you offered and is only looking at the five years after the recession, I have to doubt his objectiveness, credentials or not.

Also, given he was analyzing the economy for President Bush from 2005 - 2008, I am not impressed with his abilities. "From 2005 to 2008, Hall served as chief economist for the White House Council of Economic Advisers, where he analyzed a broad range of fiscal, regulatory, and macroeconomic policies and directed a team that monitored the state of the economy and developed economic forecasts. " Greenspan, Bernanke, and Paulson changed their minds about their analysis after 2008; Keith, on the other hand, apparently has not.


LandmarkWealth profile image

LandmarkWealth 20 months ago from Melville NY

Information comes from data. And the data demonstrates that welfare spending actually declined in real dollars during many of the periods you claim that it rose. This is because you have chosen to use constant dollar analysis and simply ignore inflation, and it’s inherit impact on all aspects of fiscal policy. The answer to your question “Why then does public assistance spending have such a very low p-value (meaning highly significant) and is not collinear with any of the other independent variables?"

Public assistance spending has is often politically driven. It always increases in constant dollars, but as a share of the economy is dependent numerous variables such as who holds office and the state of the economic environment. The question is whether such spending is collinear with the actual poverty rates. We already know from the data that massive expansions of social spending has had no direct correlation to outcomes. If it did, than poverty would be plummeting as we speak…but it isn’t. All you have is a counterfactual contending that things would be worse. Yet, as the data has already demonstrated, poverty rates have fallen dramatically during periods in which social spending was a much smaller portion of gov’t spending in real dollars than today. This took place over decades, not short periods of analysis. Which is precisely the opposite outcome that you’re are suggesting should have occurred.

Hall’s analysis is not alone. And we now have 7 years after the recession, with still the same results. More social spending…no improvement in the poverty rates which are now near multi decade highs if you accept census data and info from the BLS. Many of the welfare reform features of the late 1990’s have been nullified. And in fact poverty is getting worse with a record number of people on food stamps, and the lowest labor force participation rate in the last 40 years. There are numerous studies chock full of data that contradict your assumptions.

http://www.scribd.com/doc/88767476/The-American-We...

A recent working paper in 2014 from the NBER found that 60% of recent job creation came from the expiration of unemployment benefits. Miraculously, people who lost benefits somehow immediately found a way to work. http://www.nber.org/papers/w20884. So much for the counterfactual suggesting without benefits “they’d be worse off”.


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LandmarkWealth 20 months ago from Melville NY

Regarding the Bush 43 administration, you may recall that his economic team and numerous members of congress warned repeatedly of the coming crisis developing in the housing sector which was the lynchpin as far back as 2001, and every reform attempt was blocked. Thankfully we have the congressional video readily available from the early hearings to prevent you from rewriting history. As well as the actual written budget proposals which came directly from the Whitehouse proposing such reforms from 2001-2008. Greenspan, Bernanke, and Paulson have not made any public statements that I am aware of suggesting that they changed their minds and more gov’t welfare spending is now needed, or suggesting it affects beneficial changes in the poverty rate. Some examples of warnings and proposed reforms which were ignored by the social engineers are as follows…

2001

• April: The Administration's FY02 budget declares that the size of Fannie Mae and Freddie Mac is "a potential problem," because "financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity." (2002 Budget Analytic Perspectives, pg. 142)

2002

• May: The Office of Management and Budget (OMB) calls for the disclosure and corporate governance principles contained in the President's 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

2003

• February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market.

• September: Then-Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements.

• September: Then-House Financial Services Committee Ranking Member Barney Frank (D-MA) strongly disagrees with the Administration's assessment, saying "these two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis … The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." (Stephen Labaton, "New Agency Proposed To Oversee Freddie Mac And Fannie Mae," The New York Times, 9/11/03)

• October: Senator Thomas Carper (D-DE) refuses to acknowledge any necessity for GSE reforms, saying "if it ain't broke, don't fix it." (Sen. Carper, Hearing of Senate Committee on Banking, Housing, and Urban Affairs, 10/16/03)

• November: Then-Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any "legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk." To reduce the potential for systemic instability, the regulator would have "broad authority to set both risk-based and minimum capital standards" and "receivership powers necessary to wind down the affairs of a troubled GSE." (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

2004

• February: The President's FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital and calls for creation of a new, world-class regulator: "The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore … should be replaced with a new strengthened regulator." (2005 Budget Analytic Perspectives, pg. 83)

• February: Then-CEA Chairman Mankiw cautions Congress to "not take [the financial market's] strength for granted." Again, the call from the Administration was to reduce this risk by "ensuring that the housing GSEs are overseen by an effective regulator." (N. Gregory Mankiw, Op-Ed, "Keeping Fannie And Freddie's House In Order," Financial Times, 2/24/04)

• April: Rep. Frank ignores the warnings, accusing the Administration of creating an "artificial issue." At a speech to the Mortgage Bankers Association conference, Rep. Frank said "people tend to pay their mortgages. I don't think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren't there." ("Frank: GSE Failure A Phony Issue," American Banker, 4/21/04)

• June: Then-Treasury Deputy Secretary Samuel Bodman spotlights the risk posed by the GSEs and calls for reform, saying "We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System." (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

2005

• April: Then-Secretary Snow repeats his call for GSE reform, saying "Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America … Half-measures will only exacerbate the risks to our financial system." (Secretary John W. Snow, "Testimony Before The U.S. House Financial Services Committee," 4/13/05)

• July: Then-Minority Leader Harry Reid rejects legislation reforming GSEs, "while I favor improving oversight by our federal housing regulators to ensure safety and soundness, we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process." ("Dems Rip New Fannie Mae Regulatory Measure," United Press International, 7/28/05)


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LandmarkWealth 20 months ago from Melville NY

You asked for specific data. Here is some. An example of how terribly flawed your analysis is around the supposed correlation. You point out that between 1947-1964 the rate of welfare spending increased by 300%. While this is true in relation to a percentage of total Federal spending, you seem to have left out the fact that this happened almost entirely between 1962-1964. In 1962, welfare spending doubled in one year. But for the period between 1947-1961, the changes were statistically insignificant. In fact spending as a share of the Federal budget was in decline during the 40’s.

1940 was 6% of Federal Spending

1945 was 0.8% of Federal Spending

1949 was 3.2% of Federal Spending

1950 was 3.5% of Federal Spending

1955 was 2.8% of Federal Spending

1957 was 2.6% of Federal Spending

1961 was 3.1% of Federal Spending.

So since there was no change for 15 of the 17 cited years, how do you explain the precipitous drop in poverty rates during this period ??? Where is this correlation ??? From 1947-1961 the poverty rate declined from 34% to 19%.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Landmark, given your background, this statement of yours makes me wonder. "... This is because you have chosen to use constant dollar analysis and simply ignore inflation, ..." You have it absolutely backwards Landmark.

Just one of many examples of the same definition of Constant Dollar.

Constant dollars is an adjusted value of currency used to compare dollar values from one time period to another. Due to inflation, the purchasing power of the dollar changes over time, so in order to compare dollar values from one year to another, they need to be converted from nominal (current) dollar values to constant dollar values, also known as real dollars, where all values are expressed in terms of a common reference year. (The principle, of course, can be applied to any currency worldwide, not only dollars.) The process of converting from nominal to real values is known as inflation adjustment.

Just like every one of my economic and cost analysis teachers taught me.


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My Esoteric 20 months ago from Keystone Heights, FL Author

LW says "... increased by 300%. While this is true in relation to a percentage of total Federal spending, ...". You need to reread what I wrote, LW. I was speaking of raw spending (in constant dollars) and not % of federal spending. The latter metric has no real value in this analysis. Nevertheless, the 1947 value is $15.6K (2012$) and 1962 was $50K (2012$), you can take it from here.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Using your figures from your last post and assuming the percentage changes were the same between years, the increase would be over 600% (which implies the percentage increases between listed years were smaller than the ones listed.)

To answer your question however, here is a quote from the hub.

"It occurs to me that prior to 1947, America was coming off of a war-footing. Before the end of WW II, Americans were 1) fully-employed and 2) drawing two incomes, if you were married. That accounts for the drop in the poverty rate from the beginning of WW II to its end in 1945. Then you get the sharp spike from 1945 to 1947 as incomes dropped when women were forced out of work and the soldiers returned home to few jobs. From 1947 on, the economy made the switch from war to peacetime with ever increasing number of jobs available for the men who were once at war. Also going on was an ever increasing amount of federal spending devoted to public assistance"

There are LOTS of variables which determine Poverty Rate, with federal spending being just one of them. The purpose of multiple regression analysis, as you know, is to ferret out those relationships and determine which ones are significant; public assistance spending was and is one of those.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Greenspan - "I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms," said Greenspan."

Bernanke - " It did so because, unlike the earlier decline in equity prices, it interacted with critical vulnerabilities in the financial system and in government regulation that allowed what were initially moderate aggregate losses to subprime mortgage holders to cascade through the financial system. In the private sector, key vulnerabilities included high levels of leverage, excessive dependence on unstable short-term funding, deficiencies in risk measurement and management, and the use of exotic financial instruments that redistributed risk in nontransparent ways."

Paulson, along with being the architect of TARP and convincing Bush 43 (according to Bush) the country was headed to a massive depression says . You probably understand what Paulson's economic philosophy, so this should surprise you

http://www.bloomberg.com/bw/articles/2013-09-12/ha...


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My Esoteric 20 months ago from Keystone Heights, FL Author

LW says "Public assistance spending has is often politically driven. It always increases in constant dollars," Not true, see the periodic downturns on Chart 1 in my hub

http://hubpages.com/politics/American-Dream-Povert...

LW says "We already know from the data that massive expansions of social spending has had no direct correlation to outcomes." Again, not true, public assistance spending IS one of the significant factors. And again. spending as % of total spending is not relevant to this kind of analysis because I am relating the level of PA spending to Poverty Rate, I am not relating the % of total spending to Poverty Rate (although I should give it try to see if it sticks).

LW says "No matter how you slice it, the vast majority of social spending is a mandatory adjustment that is invariably linked to economic activity." - Again, not true, at least in the short-term. The only assistance directly tied to economic activity is unemployment insurance. The rest depend on the political mood, not economic activity.


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LandmarkWealth 20 months ago from Melville NY

That is a typo. I was trying to say you’re not using constant dollar, as in not adjusting for inflation by correctly reflecting the proportionate share of GDP which is highly relevant. Spending on Social Welfare excluding Social Security in 1947 was 1.2% of GDP. By 1964 it was 2% of GDP. The entire period between 1947-1964, the total spending on welfare programs (Less Social Security) was between 1-2% of GDP. Adjusting for proportionality based on the size of the economy and population, there was no significant change in spending until the Great Society. Even today, those programs that are traditionally classified as welfare are still between 2-3% of GDP. GDP drives revenue into the treasury. Whether measured as a share of GDP or simply a share of total allocated spending, there was no major change in welfare spending until the Johnson/Kennedy administration.

The only way you can derive the conclusion that you’re coming to is to work off a per capita basis. So if you were to compare a per capita proportionate amount of welfare spending annually against the annual CPI, then you’ll find a big increase relative to CPI. However, as I have explained in the past, official current and historical CPI statistics are not the methodology which was used at the time these budgets were drafted. So while you can go on the BLS site and find that CPI rose about 40% during the period of 1947-1964, the inflation data used at the time was quite different. This data has been restated, as much economic data is. And in doing so, it is not in accordance with the inflation estimates of the day which dictated the budget at that time. So in order to obtain a semi-realistic picture, you can only measure spending on anything as a share of the economy and/or the total budget. Because that was based on ACTUAL tax revenue realized and entering the treasury at the time. Under neither of these methodologies will you find this significant increase.

Just to give you an idea of how impractical these CPI measures are that you’re adjusting against…According to the US census Bureau…the median home price (in unadjusted actual dollars) in 1940 was $2,938. By 1960 it was $11,900. However, if I go to the BLS’s website and use their inflation calculator which is based on restated historical CPI…an item purchased in 1940 for $2,938 would only cost $6,211 by 1960. That is about ½ the actual price change that was truly experienced by a potential home buyer. Something tells me that if I approached a seller in 1960 and said I wanted to buy his home for $6,211 when it was listed for $11,900, he probably wouldn’t have cared to listen to my arguments about adjusted CPI-U. That is precisely why economists so often measure most everything as a share of GDP. Bottom line…adjusting against CPI is a waste of time to come up with a constant dollar value. Looking at how much of actual Federal Spending was directed to what cause in the budget tells you how the gov’t was redirecting resources. Their resources are “X” each year. They either direct more of those resources, or they direct less.

You are absolutely correct, there a many variables which dictate poverty rate. The only one that is consistent is the rate of economic growth. More people working means less poverty. No argument at all in that regard.

The quotes you cited have literally nothing to do with any of the three changing their minds on gov’t spending in relation to poverty. However, I don’t disagree with many of their statements. When Greenspan said

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms," said Greenspan."

I agree. You can’t make the assumption that such self-interest would work in a marketplace that is influenced so heavily by exogenous gov’t forces that are not fostering competition, but rather dictating outcomes with heavy handed policies of social engineering. I would not expect any private entity in any industry to function properly when the gov’t moves beyond regulation and becomes a market participant. Every area of the economy in which the gov’t has become a participant has turned disastrous. Housing and Health Care are two classic examples of gov’t intervention distorting prices and demand.

“Again, not true, at least in the short-term. The only assistance directly tied to economic activity is unemployment insurance. The rest depend on the political mood, not economic activity”

You are dead wrong…Medicare and Medicaid are dictated by CPI-U. That’s how they get increases allocated. Every year the increase is based on that figure. CPI-U is dictated by the velocity of money…aka economic activity.

When you include Medicare/Medicaid they are always increasing in aggregate dollars and adjusted dollars. Your charts in the hub linked to above seem to exclude items like Medicaid/Medicare as public assistance. Since they pay more in benefits than the average beneficiary contributes. If you’re going to chart true increases in public assistance you need to include those items. After all, if we presume that these programs don’t distort prices higher (which they do), than for every dollar of social assistance paid towards something like a doctor’s visit for the needy, that is less money they would theoretically have for food or some other necessary item without these programs. Excluding them creates the illusion that assistance has declined in many years, when in fact it has been sharply increased and simply called something else. Because you have given someone $1 less in food stamps but $3 more in free health care…doesn’t constitute less public assistance. It’s called retitling aid to a different line item in the budget.


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LandmarkWealth 20 months ago from Melville NY

I am curious to know...since you are so convinced that spending on social programs has a direct correlation to reducing poverty...how many years does this take. We are now 7 years past the last recession. We are supposedly in a recovery. Most of the welfare reform of the 90's has been gutted, and we have record numbers of households on food stamps. So how many more years of increased welfare and entitlement spending is deemed necessary before we see a result. During this 7 year period, traditional welfare programs have gone up about 18% and Medicaid by itself is an additional 37% increase in that time. When can we expect to see this sharp decline in the poverty rate ??? Obviously 7 years isn't enough. Perhaps 10-15-20 years ???


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My Esoteric 20 months ago from Keystone Heights, FL Author

Try five and a quarter years past the 2008 recession, not seven. It was "officially" over in the Summer of 2009. Then, because of economic momentum, its effective on the economy continues, as you know, beyond the official end; just like a recession actually starts before the official start date.

Since employment loss didn't stop until the beginning of 2010. It was at that point where things truly began to improve. April 2015 is only 5.25 years from Jan 1, 2010.

It is a given both unemployment payments (directly) and food stamps (indirectly) must increase as a result of more than 10 million being forced out of work because the economy crashed in Bush's administration; why would you expect otherwise and why do you use that as a reason to say public assistance spending doesn't help. Your logic simply fails.

I would assume you would agree that IF neither unemployment nor food stamps had not increased, then poverty would have ... a lot. If you don't, your logic would be interesting to understand.

But, in fact, because of the Conservative's failed economic philosophy, PA spending (which includes Medicaid) increased 21% between 2008 and 2009. BUT THEN, it decreased 1.12% from 2009 through 2014. Yes you have that right, it decreased. How does this Decrease jive with your narrative?

Then there is the Poverty Rate itself. The fact is the PR increased 22% during the Bush administration! It has increased only 0.7% percent during Obama's term. Hmmmm 22% vs 0.7% increase, how does That work into your story. Oh, BTW, since 2010, PR has Decreased 4.6%! Oh yeah, between 2011 and 2012, the PR decreased 0.7%; so, it looks like we only had to wait, what ... two years?


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My Esoteric 20 months ago from Keystone Heights, FL Author

Typo, OK I buy that, but my data is in 2012 constant dollars.

% of GDP, again, so what does that prove? Suppose a huge natural disaster such as massive snow storms from Nov through April each year from 1947 to 1962; yes, I know this is impossible, but this is also a thought experiment. What would the impact on GDP be in this scenario? Obviously, GDP would be devastated. Yet this would mean PA spending, as a percent of GDP, would skyrocket; even though the actual spending did not change. The bottom line is when the independent variable (GDP) is not or is weakly correlated to the dependent variable (PA spending), then trying to do analysis by dividing the dependent variable by the independent variable produces erroneous results. That is cost and economic analysis 101.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Yes, using PA spending (in constant $) per capita is the right way to do the analysis.

Keep in mind, however, the government back then might or might not have used inflation to plan outyear appropriations. But, what matters is how much was spent in a given year in current dollars. So long as the CPI information used to account for inflation is consistently used for all years being converted, then the translation to constant dollars IS meaningful. The calculator I used is the BLS publishes whose tables go back to 1913. It makes no sense for BLS to change their methodology for producing the deflators midstream and then publish it. Consequently, there is no problem in using their calculator to convert current year $ to constant dollars for it gives usable results.

You can't using housing costs to shoot down the BLS CPI, it is not part of the market basket.

I find this statement "...adjusting against CPI is a waste of time to come up with a constant dollar value. ..." very humorous. If this were true, then every bit of time series analysis by any corporate, think-tank, or gov't analytical organization was a huge waste of time and treasure. Personally, I used the BLS (and other) CPI throughout my entire cost and economic analysis career, except when I was analyzing things like fuel; then I used a fuel specific index. I know when the GAO reviewed some of my work, they also used the same indices.

I also know when I was getting my BS degree in accounting and Masters in operations research, not one professor told us the CPI was a waste of time, in fact they insisted we use it. Somehow, I think you are way off-base in your denying that is the proper methodology.

Medicaid is included, but only those parts of Medicare which might be considered public assistance.

I haven't checked, but I suspect the ACA subsidies (your free healthcare) are being included as PA spending.


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My Esoteric 20 months ago from Keystone Heights, FL Author

To your 60% NBER comment. I will need to find a free version of the whole report to look behind the headline and what caveats are associated with such an astounding result.


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My Esoteric 20 months ago from Keystone Heights, FL Author

LW says "Hall’s analysis is not alone. And we now have 7 years after the recession, with still the same results. More social spending…no improvement in the poverty rates which are now near multi decade highs if you accept census data and info from the BLS." - Poverty Rates:

2008 - 13.3 Spending (2012B$) - $772

2009 - 14.3 Spending - $934

1 - 2010 - 15.1 Spending - $935

2 -2011 - 15.1 Spending - $946

3 - 2012 - 15 Spending - $950

4 - 2013 - 15 Spending - $958

5 - 2014 - 14.4 Spending - $945

Now, I assume you understand that the concepts of momentum and inertia apply to economic systems as well, explain where you came up with 7 years,


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My Esoteric 20 months ago from Keystone Heights, FL Author

Your timeline focuses entirely on GSEs as if they caused the recession ... they didn't. See http://hubpages.com/politics/Fannie-Mae-and-Freddi... and http://fcic.law.stanford.edu/report

There is no question they had a part to play, but shadow banks made them look like small potatoes.


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LandmarkWealth 20 months ago from Melville NY

I never said that I wouldn’t expect unemployment payments and food stamps to increase in a recession. Since these are existing policies, they ae mandated to increase. I am questioning how many people they lifted out of poverty. My logic doesn’t fail, as it is supported by a recent paper by the NBER linked to earlier. 60% of recent job creation was a direct result of ending extended unemployment benefits. Meaning when the free money stopped, they were forced to work. All they needed was incentive. If the benefits continued, they would simply keep collecting them. So no…as the NBER research suggests…cutting these benefits doesn’t mean that poverty would increase. It means people would be forced to be self-sufficient. Your argument is a counterfactual.

Which Conservative economic policy failed? Was it the CRA mandating low income lending, the GSE’s cooking their books and leveraging the housing market by pushing for low income lending. No…wait…that all came from the political left…who exercised majority control in D.C. from 2006-2010. Not that it matters because these policies of social engineering were started by the Left all the way back in the 70’s. And ofcourse, whenever Conservatives fought such policies and attempted to institute reforms, they were blocked at every turn. Nice try at rewriting history. But…as Warner Wolf used to say…Let’s go to the video tape.

https://www.youtube.com/watch?v=BzCG80Wz4mg

What was it that Andrew Cuomo said when he was HUD secretary….let’s have a listen….

https://www.youtube.com/watch?v=PEoqKYCMDmc

“Then there is the Poverty Rate itself. The fact is the PR increased 22% during the Bush administration! It has increased only 0.7% percent during Obama's term. Hmmmm 22% vs 0.7% increase, how does that work into your story”

It works perfectly with my story…the Bush Admin dramatically increased entitlement spending during his tenure. He passed a massive expansion to Medicare. Welfare spending went up by 70% during his administration from 2001-2008. And medical welfare spending (Medicaid etc) went up by about 65%. His Adm was one of the biggest entitlement expansion in history. So it doesn’t surprise me that poverty went up as more people were dumped on the gov’t dole. Hmmm….how does that work in your story….huge welfare increases…more poverty.

From the US Census

“Despite the decline in the national poverty rate, the 2013 regional poverty rates were not statistically different”

Not to mention a record number of people on food stamps, and the lowest labor participation in 40 years. I guess of you consider more people dependent on gov’t and out of work for an extended period a success…than you have what you want.

http://www.census.gov/hhes/www/poverty/about/overv...

“% of GDP, again, so what does that prove?”

It proves a lot. Congress drafts spending budgets based on a share of GDP. Because if you spend too high a percentage of GDP, you destroy your currency. GDP dictates revenue to the treasury. So budget estimates are based on this. This tells the gov’t how much it can spend. Then it will allocate resources accordingly based on projected revenue. More importantly is simply looking at a proportionate percentage of total spending. Which gives us basically the same result of proportionality when looking at actual dollars spent, and what percentages were allocated towards what resource.

“So long as the CPI information used to account for inflation is consistently used for all years being converted, then the translation to constant dollars IS meaningful.”

But it’s not. What we estimate inflation to be today is not what their estimates where in their time. So they would increase spending in accordance with their perception of inflation at the time. Not based on how we interpret inflation today in a historical context. Even today that is not a constant. We change historical GDP and inflation routinely.

April 22nd 2013

"We are carrying these major changes all the way back in time - which for us means to 1929 - so we are essentially rewriting economic history. The changes will affect everything from the measured GDP of different US states to the stability of the inflation measure targeted by the Federal Reserve. They will force economists to revisit policy debates about everything from corporate profits to the causes of economic growth.”

Brent Moulton,manager of the national accounts at the Bureau of Economic Analysis

What is humorous to me is that you’re quoting a methodology used by an agency among other Federal agencies that can’t project their way out of a paper bag, let along account for (as in can’t find) trillions of dollars.

Not one professors told you it was a waste of time. Yet not one professor is ever accountable for their projections. Yet when you talk to economists like Bill Gross, who is also one of the most successful fixed income managers on the planet…he is quick to tell you how far off the CPI is from reality. I tend to agree with people who are actually held to a standard of results.


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LandmarkWealth 20 months ago from Melville NY

“Now, I assume you understand that the concepts of momentum and inertia apply to economic systems as well, explain where you came up with 7 years”

For those of us who were paying attention, the crisis began in 2007. Most people who don’t watch economic data didn’t know there was a problem until the end of 2008. In reality the mortgage market began showing heavy losses in 2006. But there was not a true ripple effect until mid-2007. So I have half of 2007, all of 2008, 2009, 2010, 2011, 2012, 2013, 2014. In reality it’s more than 7 years since the crisis began. And all that time, the Bush Adm was blowing up poverty spending.

I didn’t say the GSE entirely caused the problem. But they played the largest role. You may recall the markets completely collapsed the day they went in to conservatorship. Are you really going to cite in your hub the “Financial Crisis Inquiry Report”. Congress holds an investigation that exonerates the GSE’s…who they just happen to control. What a surprise. Meanwhile, while the commission allowed some conservative appointee’s, they were authorized no staffers for research while the Democrat appointee’s had 80 of them. Conservatives were not informed of witnesses, interview times, or allowed to examine or cross-examine them. GOP members of the commission received a 900-page draft report only eight days before it went to the printer. And a 43,000 word dissent was cut down to 9,000 words by Democrats, so people read what they wanted them to read. I can’t think of one economist I have worked with that don’t think the GSE’s were the biggest factor. Even today, when you go to a bank and apply for a loan, 100% of the allowable lending limits is dictated by the FHA. Banks have no control over this. That’s why you can’t get much of a difference in credit from one bank to another. Because they all follow the same lending standards set by the Gov’t. There is nothing free market about it.


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My Esoteric 20 months ago from Keystone Heights, FL Author

LW says "... I am questioning how many people they lifted out of poverty...."; methinks you have this backwards. During economic downturns unemployment insurance and things like food stamps are designed to keep people from falling into poverty, not get them out of it. The perspective makes a huge difference when doing analysis. If it were has you say, to lift people out of poverty, then your arguments have some validity. But it isn't, which makes your arguments misplaced.

It isn't "Which Conservative economic policy failed? ", it is that the economic philosophy Conservatives thinks work, does not. It always has and always will have an outcome like 2008. The only time in American history when there was an extended period of relative economic stability was after WW II and before Bush 43, when Keynesian-based economics had its heyday. That is a simple fact in terms of frequency and severity of downturns before and after WW II. 2008 was just a precursor to what would come if America kept going down the Conservative economic path.


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My Esoteric 20 months ago from Keystone Heights, FL Author

Your last sentence in the last comment just caught my eye. There has been no time in American history where a 'free-market" in most areas of interest was dominant. It wasn't until after WW II did gov't try regulate those things which prevented a free-market from developing.

Through 1900, American business was basically controlled by a set of oligarchs. Teddy Roosevelt attempted to break their hold on the American market, but was only partially successful. Even until the Great Depression, while somewhat more diverse, the economic power in America was concentrated in a few hands.

It was after WW II as well as with the explosion in technology did concentration become much more diluted. Today, unfortunately, thanks to the efforts of Conservatives, we are back to the oligarch stage where more than 80% of business activity is controlled by less than 20% of businesses.


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LandmarkWealth 20 months ago from Melville NY

And I am saying that placing people on entitlements perpetuates gov't dependency that locks them into a cycle of poverty. Just look at Black Americans. They are among the poorest and most dependent on social assistance for multiple generations. And yet blacks who come to the US from other nations become some of the most educated and economically successful people in the country. In fact Blacks who immigrate from the poorest continent of Africa develop a higher overall education level than even white's who are born in the US. Why...perhaps they haven't yet been conditioned to be addicted to social assistance. If it was racism, those same blacks coming from outside the US wouldn't be able to do so well here in the US.

Yet, the mid 2000's...2002-2006 were a significant economic upswing...poverty spending went up substantially the entirety of the Bush 43 adm, and we had an increase in poverty. Your formula just broke down.

And I hate to break the news to you, but the two most conservative administrations fiscally speaking in the last 50 years were Reagan & Clinton. And they were the two most successful administrations in that time. Unless of course you enjoyed the malaise of the Carter years. Bush 43 was not even remotely a fiscally conservative administration with the exception of some small tax relief. In fact, they were one of the most profligate spending administrations on social spending in US history. Nevertheless, that had little to do with the social engineering of the housing market that triggered the collapse. It did however add on to a major entitlement bubble that is about to explode demographically in another 5-7 years.

I can't help but laugh at the insistence on the success of social spending. Meanwhile the entire continent of Europe, with the exception of some of the Nordic nations that have reversed policies in recent years is in an utter catastrophe for pursuing exactly that approach. They have massive productivity problems, ridiculously high persistent youth unemployment, and unsustainable structural problems that are so bad...nobody will lend them money. Greece is welfare central...and a 3 year treasury is about 26%.

It was those true conservative policies that ended the largest economic contraction in American history in 18 months. And it was the welfare state of the 30's that gave us a near two decade depression after the 2nd largest economic contraction.


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LandmarkWealth 20 months ago from Melville NY

Free market by my definition does not mean ZERO gov't. It means gov't serves as a market regulator, maintaining a competitive market. But not acting as a market participant, which distorts markets. Where does the gov't serve as a participant ??? Health Care...the largest provider....huge price distortion. Education....cost skyrocket...huge price distortion and skyrocketing prices. Housing....well...enough said.

Where does the gov't not participate ?...Place like technology....which is incredibly cheap in adjusted dollars...and advancing rapidly.


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LandmarkWealth 20 months ago from Melville NY

"80% of business activity is controlled by less than 20% of businesses"

Please cite a source for this. From what I see...the largest engine of growth in the US is the small business community. And it has been for some time.


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My Esoteric 19 months ago from Keystone Heights, FL Author

I'm sorry, I was wrong. I was wrong in that I was too conservative in my estimate. In fact 80% of business activity (as measured by gross sales) is controlled by 0.007% of total firms (those who employ 5,000+ per firm). If you want to calculate it yourself, go to

http://www.census.gov/econ/smallbus.html

Where do you get your assertion?

If you were thinking of employment payroll, it is 50/50, if you break it out firms with 500+ employees and firms with less than 500 employees.


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My Esoteric 19 months ago from Keystone Heights, FL Author

OK, did some work with your hypothesis that GDP is somehow involved ... it isn't. GDP and GDP per capita; neither ended up being significant.

Next I tried the ratio of PA spending to GDP (and GDP per capita), the one you think is important. Both were significant to some degree, but not as much as per capita PA spending is.

It even was a possibility that I could add one to the current model; ratio of per capita PA spending and per capita GDP. It did improve the model but unfortunately the results were counter-intuitive. It turns out, the two are highly collinear and made the addition useless.

Next I tried the ratio by itself. It gave a useful model, but not as good as per capita PA spending.

So, it is a no-go with GDP.


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LandmarkWealth 19 months ago from Melville NY

I wasn’t saying you’re data was wrong about 80% of business activity being controlled by 20%. I had just no knowledge of any such source, which is why I asked you to cite it. Job creation is 50/50 if you discount those whom are self-employed without employees. However, I wouldn’t do that, because they’re still employed even if they only created a job for themselves. With regard to the 80/20% you cited…that is not too hard for me to accept. When you consider the enhanced regulatory environment over the last several decades (Sarbanes-Oxley, Dodd-Frank) it makes it dramatically harder for small business owners to compete with large entities. The cost of compliance in such an oppressive regulatory environment is suffocating to a small business. So it does make a lot of sense. That has a lot to do with why regional banks can’t compete with the JP Morgan’s anymore.

I am still waiting for an explanation as to why the poverty rate increased during the Bush Adm when spending on poverty programs increased substantially whether measured per capita just as you would prefer to do. According to you, that doesn’t happen. All that extra spending was supposed to prevent poverty.


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LandmarkWealth 19 months ago from Melville NY

I can’t help but find this interesting as I look closer at your assumptions. The poverty rate was on an upward trajectory from the late 70’s during an extremely weak economic period. The poverty rate increased from a ballpark of 12% to 15% into the early 1980’s. Reagan is sworn into office in Jan of 1981. Not a single piece of significant legislation is implemented until 1982 (Namely Tax Reform). From 1983 on thru the end of his administration the rate of poverty declines. During that period, spending on poverty programs on a “per capita” basis was about 1/3rd the increase seen during the Bush 43 administration. Even if you take CPI data at face value, than the Reagan years saw spending increases on poverty programs no more than CPI…if not less. And yet the rate declined from 15% to near the 12% mark by the end of his term.

During the Clinton adm, after a clean sweep in the first mid-term election…his administration goes fiscally conservative and signs off on welfare reform bill with a conservative congress. Spending on traditional welfare programs saw an actual net decline on a “per capita” basis from 1993-2000. And spending on medical related welfare services is slower than the Bush 43 adm on a per capita basis… and yet the poverty rate went down during that time.

So Clinton actually cuts welfare spending, and Regan barely increases it…both on a “per capita” basis. Both grow medical related welfare services at a slower pace than the Bush 43 adm.…and both lead to a decline in poverty rates. Then comes Bush 43 who increases traditional welfare programs by better than 50% on a “per capita” basis (which is 3 times the increase seen during the Reagan years)…and the rate of poverty goes up. Please explain ???


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My Esoteric 19 months ago from Keystone Heights, FL Author

Given we both read a lot., impressions are made. I knew generally that control was concentrated (much more than I thought a year ago) in a few mega corporations. I felt safe in using Pareto's 80/20 split to be conservative.

If you add in self-employed, that brings the ratio to 43/57.

As you know, many things influence the poverty rate, and at any given time one may have more influence than others.

Here was what was going on between 2000 and 2006, inclusive (all $ used are constant):

1. Per capital PA spending increased 5%

2. Poverty rate increased 6%

3. Median family income fell 1.7%

4 Percent earning $50K or less increased 0.7% points (increasing wealth inequality)

5 Percent earning $35K or less increased 1.2% points (increasing wealth inequality)

6 Percent earning $100K or more increased 0.8% points (pointing to a shrinking middle class)

7. Percent earning between $50K and $100 Decreased by 1.6% points

8. F-T employment increased 5.7%

9. P-T employment increased 6.7%

10. P-T employment for economic reasons increased 21.9%

11. Marginally attached increased 11.3%

12. Discouraged workers increased 1.9%

13. Not in labor force increased 9.8%

14. Population increased 9.5%

What all of those numbers tell me is the number falling into poverty is increasing. Items 8, 13 and 14 are most damning, a 10% growth in population compared with a 10% growth in "Not in Labor Force", but only a 6% growth in F-T employment. (One would expect the % increase in "Not in labor force" to equal to "Not in labor force"/"Civilians available to work" time the % increase in population.)

Items 4 - 7, clearly indicate growing income disparity with each income extreme growing and the middle collapsing. This points to growing poverty. So does 2 and 3 directly.

So, from 2000 through 2006, poverty grew at 6% yet spending on poverty increased only 5%. When those two percentages grow similarly in a weakening economy, that means what money that is being spent on PA is simply maintenance spending, an attempt to keep things from getting worse. Clearly, not enough was being spent to actually lower the poverty rate.

From this, we get there was not "all that Extra spending". What increase there is is simply being driven by the requirements of a weakening economy and a shift in income distribution.

I don't use 2007 on because of the influence of the recession.

In going through this, however, I see that I need to add something in about per capita income.


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My Esoteric 19 months ago from Keystone Heights, FL Author

My model tracked what happened between 1978 and 1989 in that it increases then decreases, but the magnitude changes are more muted than I would like. (Also, it did a terrible job in the 2000 scenario). As I said earlier, I am still missing a piece of the puzzle.

From 1993 to 2000, in 2012$ spending on what the gov't classifies as "traditional" assistance, e.g., medicare is excluded, it increased from $1,633 per head to $2,005. Having said that, it did decline from 1997 to 1999.

But again, you are describing a univariate world, where in fact, it is a multivariate one. While PA spending may go the wrong direction when that is all you consider, other factors are at work changing the poverty rate as well; you have to talk about ALL of them in the same breath.


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LandmarkWealth 19 months ago from Melville NY

The data from 2000-2006 does show growth in the poverty rate. That is my point. Even per capita welfare spending was increasing, and so was poverty. Yet, the 1990’s saw shrinking per capita spending on welfare and lower poverty rates. Precisely the opposite outcome. The income inequality is a meaningless statistic because of all the changes in how income has been reported and what is now required to appear on a tax return that did not in the past. But I won’t regurgitate that info, as we have beat it to death. All I see in this data, is that broad based economic expansion drives people out of poverty and back into the labor force as it did thru the most prosperous periods of the 1980’s and mid to late 1990’s. And big spending entitlement expansions such as the Bush 43 adm gave us, did little to lift people out of poverty.

The data from 2000-2006 where you reference a 5% increase, I presume you mean annualized…because the cumulative was much more. And when you add in Medicaid it’s more than that. But, even at 5% that is well above the rate of inflation if CPI-U is to be trusted. From 2000-2002 there was a fairly severe recession in the aftermath of the tech bubble, which was greatly exasperated by the events of 9-11-01. But either way, spending on welfare went up per capita at a pace that is supposedly faster than the BLS estimates for inflation.

“an attempt to keep things from getting worse. Clearly, not enough was being spent to actually lower the poverty rate”

Another counterfactual. It tells me that we create too many incentives for people to stay dependent on the gov’t. It’s always “not enough” The stimulus wasn’t enough. The Greek Bailout “wasn’t enough”. It’s not a matter of how much you spend…but how productively you allocate it.

“I don't use 2007 on because of the influence of the recession”

Then you shouldn’t use 2000-2002 because of the influence of the tech recession and 9-11.

According to

http://www.usgovernmentspending.com/breakdown_2000...

From 1993-2000, in traditional welfare spending…(excluding Medicaid)

The Federal gov’t spent “per capita” $803 per person in 1993, and by 2000 it declined to $759 per person. That is a net decline…not an increase.

Also, using the same source…Medicaid went up from 336.5 in 1993 to 482.7 in the year 2000. When you combine the roughly 5% annualized increase in Medicaid with an inflation adjusted decline in traditional welfare programs…you have a decline in inflation adjusted dollars for the aggregate amount of spending from 1993-2000…the entire term of the Clinton Adm.

There is only one variable that consistently matters. That is economic growth. All that concerns me is what policies foster competition and incent growth. I wish our elected officials were concerned with the same thing.


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW wrote "he data from 2000-2006 does show growth in the poverty rate. That is my point. Even per capita welfare spending was increasing, and so was poverty. "

ME responds - This should not be surprising; when poverty grows, ipso facto, so does spending on poverty. Likewise, if poverty decreases, so will PA assistance spending. However, the reverse is also true, especially if it is significantly decreased, the poverty rate will increase. AND, if poverty is high, significant spending will decrease it, if properly spent.

LW writes again. "Yet, the 1990’s saw shrinking per capita spending on welfare and lower poverty rates. "

ME repeats - "From 1993 to 2000, in 2012$ spending on what the gov't classifies as "traditional" assistance, e.g., medicare is excluded, it increased from $1,633 per head in 1993 to $2,005 in 2000." That is an Increase, not a decrease as you suggest. And yes, you are correct, poverty rates did decline in the 1990s

LW wrote "The data from 2000-2006 where you reference a 5% increase, I presume you mean annualized…because the cumulative was much more."

ME responds - No, that is cumulative from 2001 - 2006 5.1% (11.7 to 12.7). The 2000 to 2007 increase would be 8.9% cumulative.

Yes, let's not rehash Piketty.

I have to disagree, the tech downturn barely registered as a recession and some economists won't give it that title. It was 8 months long, unemployment made to only 6.3%, not too far above the historic norm, and GDP "crashed" all of 0.3%; I don't even talk about it in my book. And even if you want to call it a recession, it pales in comparison to the 2008 near depression.

LW writes " There is only one variable that consistently matters. That is economic growth."

ME asks, where is your statistical analysis to back that up; one that shows all of the other variables other than GDP are not significant.

In reality, GDP didn't enter directly into the model (although it does enter indirectly through other variables. After trying many more things, including, as I mentioned before, GDP, the final set of variables that are significant at a 95% confidence level are:

1. PA spending per capita

2. The threshold for the lowest tax bracket

3 The unemployment rate

4. The presence of a major war

5. The presence of a minor war

6. The GINI index

7 The ratio of the top tax bracket floor to the lowest tax bracket threshold.

Adjusted R2 is .958 (adjusted for degrees of freedom with 80 data points.) and an F-statistic of 2.5E-48, a rather tight fitting model. I ran it against 5 pairs of dates and the changes tracked perfectly in terms of direction and was very close in magnitude, except for the 2007-2014 pair. Minimum error was 0% (2007) and maximum error was 9.4% (2000).

I will update my hub on this shortly.


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW wrote "Free market by my definition does not mean ZERO gov't. It means gov't serves as a market regulator, maintaining a competitive market. But not acting as a market participant, which distorts the market"

ME replies - Many people mistakenly conflate "free market" and "laissez faire"; they are two entirely separate ideas as your 2nd sentence suggests. Having said that, they are related. It is a fact that without your 2nd sentence, which is the essence of "laissez faire"( or classical liberalism) the free market is guaranteed to disappear.

I think your 3rd sentence is overly broad, as such, it is neither right nor wrong. In the case of price controls, I suspect we would agree about 99% of the time (there are always necessary exceptions). But we would 100% disagree if you are including government consumption such as military procurement.

The gray areas are programs like ACA. With ACA, I see it as returning to a free market as it requires competition between providers rather than the monopolies and oligopolies that existed prior to ACA and to some extent still exist today. Monopolies and oligopolies are the price distorters as was obvious with health care in the decades prior to ACA. Missing is health providers and insurers to easily work across State lines. Ironically, that is one State's Rights issue which the Right does not like and actively works against.

Gov't policy can, but not necessarily, distort the market. In the case of education, I don't see that as a market at all, at least below the college level. (Given your statement, that would include state universities as distorters and should be abolished.) In my view, education at the elementary and high school level is a national security issue and ought to be treated like one. I don't think the federal gov't is involved enough in directing national education; Lord knows the state and local governments/communities haven't figured it out yet. Education should be a collaborative effort between federal and state governments. Yes, there needs to be community input, but not community control ... it is too political which push for personal social agendas.


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LandmarkWealth 19 months ago from Melville NY

“This should not be surprising; when poverty grows, ipso facto, so does spending on poverty. Likewise, if poverty decreases, so will PA assistance spending. However, the reverse is also true, especially if it is significantly decreased, the poverty rate will increase. AND, if poverty is high, significant spending will decrease it, if properly spent.”

Except that during the early 1990’s spending not did not slow, it actually decreased in real dollars coming out of a recession and anemic growth in the early part of the decade. Meaning the decline in PA spending happened before any significant economic expansion, and yet the rate of poverty declined anyway.

“ME repeats - "From 1993 to 2000, in 2012$ spending on what the gov't classifies as "traditional" assistance, e.g., medicare is excluded, it increased from $1,633 per head in 1993 to $2,005 in 2000." That is an Increase, not a decrease as you suggest. And yes, you are correct, poverty rates did decline in the 1990s”

That is not what I wrote…please re-read. Spending on MediCAID increased. Spending on traditional welfare programs went from $803…in 1993 to $795 in 2000. Last time I checked $795 was LESS than $805. And when further adjusted for 8 years of inflation…the decline is actually larger. When you aggregate the increase in Medicaid, and the decrease in traditional welfare…you get a net decline during the 1990’s in inflation adjusted dollars.

“ME responds - No, that is cumulative from 2001 - 2006 5.1% (11.7 to 12.7). The 2000 to 2007 increase would be 8.9% cumulative.”

You’re talking about two different things. You said earlier that spending on poverty increased by 5% between 2000-2006. The aggregate amount was well above 5%, but annualized it is about 5%.

“ME asks, where is your statistical analysis to back that up; one that shows all of the other variables other than GDP are not significant.”

Poverty consistently declines during periods of prosperity. Overlay a BLS chart of economic expansion/contraction on top of a chart of fluctuations in the poverty level. You’ll note that as the economy gains, steam poverty declines. There is a lag effect, just like with employment data. But prosperity produces reductions in poverty. Expansion in the 1980’s and 1990’s are classic examples of this. Contractions/anemic growth in the 1970’s are an example of the reverse. In the case of the 1990’s, the spending declines on PA programs happened in advance of any significant uptick in economic activity. The cut’s came first…then the rapid expansion.

When most people causally reference free markets, they are talking about a laissez faire system. No place in the word does a true free market exist. That would be anarchy. But since you wish to use semantics, I will use laissez faire for future reference.

Monopolies and oligopolies are caused by gov’t regularly. The health care system long before the Unaffordable Care Act was distorted by programs like Medicare & Medicaid. The US Gov’t has been the largest individual participant in the health insurance market for many years before the ACA was ever conceived.

The State and Local gov’t can’t figure out the education system because they have been under mandate from the Federal Dept of Education for decades. Bureaucrats that have never taught a class in their life push mandates on teachers about how to run classrooms. That is how we got the disaster known as common core, along with decades of other failures since we created the Dept of Education as a heavy handed cabinet level position under Carter. Another example of more Federal Gov’t and declining quality. Along with a public school system that the gov’t has turned into legalized segregation. I also think K-12 is a national issue. I don’t know if I would call it national security. But that too can be easily resolved and made into a competitive market. Simply give every kid in the country a voucher of equal value that they and their parents can direct at the school of their choice. Then let the schools compete for those voucher dollars. But that will never happen as long as the teachers union has the political clout that it does.

State Universities do distort prices, for college. But the larger issue is the Federal Student loan system which offers massive amounts of debt to students, and creates unrealistic demand in the market place. Without it, universities would be forced to price themselves more rationally.


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LandmarkWealth 19 months ago from Melville NY

Let me make this simpler…according to http://www.usgovernmentspending.com/

The total “MEDICAID” budget, which is clearly welfare in the year 1993 was 443.1 and traditional welfare was 803.1 for a combined total of 1246.2

By the year 2000 Medicaid increased to 614.1 and traditional welfare was DECREASED to 758.9 for a combined total of 1373. So the combined increase is 126.8.

However, if you use the BLS estimates which you know I am critical of, but we’ll use them since you’re confident in them. According to the BLS, $1246.20 in the year 1993 requires $1485.09 in the year 2000. But the combined increase was only up to 1373 by the year 2000.

So in inflation adjusted dollars the 1485.09 must be subtracted from the actual expenditure of 1373…giving us a net “constant dollar” DECLINE of 112.09.


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My Esoteric 19 months ago from Keystone Heights, FL Author

We have different sources obviously; I don't need to do any adding and subtracting, just converting to constant dollars. For most of my data, I used a table in the US Statistical Abstract (until, in their infinite wisdom, the Census Bureau discontinued in 2011) titled "social welfare expenditures under public programs".

That table shows, for 1993, Total Social Welfare Expenditures Benefits, (which contains much more than what your source makes obvious as pubic assistance outlays). was $1366.7B. Remove social insurance and things like school construction, non-vendor payments from medical, etc and your left with $265B (1993$) or $421B (2012$)

Unfortunately, finding a comparable number for 2000 was much harder, but ultimately doable. I finally found a similar table, Table 538 of the 2012 US Statistical Abstract, allowed me to pick equivalent items which matched reasonably well with my previous numbers where they overlapped. That got me through 2009. (I simply found the government spending website was a too gross a level to be used consistently.)

So, for 2000 I get $428.6 (2000$) or $571B (2012$), an increase of $150B (2012$)

Translate that to per capita and you get for 1993 a rate if $7,398 per person (2012$) and $7,603 per person (2012$) in year 2000; an increase of $205 per person (2012$).

BTW, if you add up the parts under Welfare (housing, unemployment, and Family/Child, they exceed the top line Welfare number, so I used those plus vendor payments (Medical) and non-attributable (Education) in an attempt to reach equivalent results. Unfortunately, doing that led to results that sometimes were greater than the ones from the tables and sometimes less.


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My Esoteric 19 months ago from Keystone Heights, FL Author

Now, to address, briefly, the "missing parts" in your comments, namely

1. the bottom tax rate threshold

2. the unemployment rate

3. the Gini Index

4. the ratio of the top tax floor to the bottom tax threshold (little covariance with #1)

5. % change in GDP from the previous year

EVERY one of those factors proved very significant in the analysis. So, to be complete, you must address how each one of those changed between your start and ending dates (not jest PA spending) to get a complete picture of what was driving changes in Poverty Level.

That means even IF PA spending had actually decreased, other factors might have had more influence on the final poverty rate which would lead you to a false conclusion.


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW says "Bureaucrats that have never taught a class in their life push mandates on teachers about how to run classrooms."

ME replies "neither have local school boards" which tend to have political or social agendas rather than educational ones.


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW says "But that too can be easily resolved and made into a competitive market. Simply give every kid in the country a voucher of equal value that they and their parents can direct at the school of their choice. Then let the schools compete for those voucher dollars."

ME replies - I could actually go along with that, even to be used in religious schools, so long as the "core"curriculum, a curriculum set by both federal and state educators, that all schools must adhere to a prove was successfully communicated to the students.

Other classes, including religious ones in religious schools, can be added by local and state communities.

However it is constructed, it must by insured that the profit motive does not interfere with educational goals like it has with medical care. (Deregulation of the medical field was one of the worst decisions made in terms of over all care to the maximum number of people.)


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW said "Without it, universities would be forced to price themselves more rationally."

ME replies - clearly that didn't work in the time before significant lending and the only subsidies were from scholarship. The reason there is such a loan program in the first place is competition failed to provide college education to those who couldn't afford the price tag. The result, of course, is a less educated America and all of the negative consequences that brings on.


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LandmarkWealth 19 months ago from Melville NY

I would personally use much more in the way of spending as welfare. However, when we look at items like increases in Medicare and compare the rate of increase, I can’t link that to policy changes from one administration to another, because it is mandatory spending and has been since 1965. So the per capita expenditures on such items will inherently increase bases solely on demographics. Actually they’re going to explode in about 5 years. The only exception being the Bush 43 administration which added an entirely new massive entitlement to Medicare. But that is why I didn’t count the rate of change from Reagan to Bush 41 to Clinton. The changes are sown into the budget and linked to CPI-U ahead of time.

As for Governmentspending.com they outline what is included in Welfare here….

http://usgovernmentspending.blogspot.com/2009/04/w...

They are

Code Description

603 Unemployment compensation

604 Housing assistance

605 Food and nutrition assistance

609 Other income security

B22 Federal Intergovernmental - Employment Security Administration

B50 Federal Intergovernmental - Housing and Community Development

E22 Current Operations - Social Insurance Administration

E50 Current Operations - Housing and Community Development

E75 Current Operations - Public Welfare, Vendor Payments for Other Purposes

E77 Current Operations - Public Welfare Institutions

E79 Current Operations - Public Welfare - Other

F22 Construction - Social Insurance Administration

F50 Construction - Housing and Community Development

F75 Construction - Public Welfare, Vendor Payments for Other Purposes

F77 Construction - Public Welfare Institutions

F79 Construction - Public Welfare - Other

G22 Other Capital Outlay - Social Insurance Administration

G50 Other Capital Outlay - Housing and Community Development

G75 Other Capital Outlay - Public Welfare, Vendor Payments for Other Purposes

G77 Other Capital Outlay - Public Welfare Institutions

G79 Other Capital Outlay - Public Welfare - Other

J67 Assistance and Subsidies – Public Welfare, Federal Categorical Assistance Programs

J68 Assistance and Subsidies – Public Welfare, Cash Assistance Programs – Other

Y05 Unemployment Compensation - Benefit Payments

Y06 Unemployment Compensation - Extended and Special Payments

Y14 Workers Compensation - Benefit Payments

Y53 Other In Trust - Benefit Payment

There sources are outlined here…

http://usgovernmentspending.blogspot.com/2009/03/t...


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LandmarkWealth 19 months ago from Melville NY

Addressing all of those other variables such as the unemployment rate is inherently addressed by simply measuring economic prosperity. It doesn’t take a genius to figure out that as the economy gains steam and momentum that the labor market gains steam, and therefore there is more employment opportunity, and less poverty. This is inherently what I have been saying. Poverty is reduced by prosperity. If you have economic prosperity, everything falls into place. You grow your way out of poverty.

“ME replies "neither have local school boards" which tend to have political or social agendas rather than educational ones.”

Local school boards don’t really design curriculum, even though they have technical authority there. In reality they leave that to administration. The president of my local public school board lives across the street from me, and I attend all their meetings. They handle mostly budget items. And frankly even that they have little control over, as most of it is done at the state level. And at least at the local level, concerned parents would and should have more access to people making decisions. Instead parents in Utah have to listen to mandates handed down by D.C. Political appointees who are trying to standardize classrooms, and don’t seem to understand that different kids learn differently…and teachers need latitude to address that locally.

“ME replies - I could actually go along with that, even to be used in religious schools, so long as the "core"curriculum, a curriculum set by both federal and state educators, that all schools must adhere to a prove was successfully communicated to the students”

Core curriculum isn’t even necessary. Simply a minimum standard test in order to graduate. Core curriculum obviously doesn’t mean too much. We already have that. And 60% of the kids who graduate from the High School my wife teaches in can’t read. Somehow they graduate anyway.

“However it is constructed, it must by insured that the profit motive does not interfere with educational goals like it has with medical care. (Deregulation of the medical field was one of the worst decisions made in terms of overall care to the maximum number of people”

The medical field was never deregulated. It is nearly entirely controlled by the gov’t. In fact Dr’s have never been more regulated. In fact “for profit” Dr’s that have opted out of all forms of insurance including Medicare have been able to cut their cost dramatically by simply eliminating the bureaucracy and dealing directly with the patient. They negotiate prices, and patients pay what they can afford, just like it was before the gov’t jumped into the medical business. My brother in-law went opt-out in Medicare several years ago, and the cost of services went down 60% overnight, and hasn’t raised his prices yet. That was in 2009

“ME replies - clearly that didn't work in the time before significant lending and the only subsidies were from scholarship. The reason there is such a loan program in the first place is competition failed to provide college education to those who couldn't afford the price tag. The result, of course, is a less educated America and all of the negative consequences that brings on.”

Actually it worked perfectly. The cost of education in inflation adjusted dollars was much more affordable before the gov’t began guaranteeing, and eventually directly loaning all these dollars. There was a time when there was a lower enrollment rate in universities. But that was not because of the cost of education. It was because there was demand for workers in areas where a traditional college education would be a waste of time and money. Today we have the opposite. We have legions of MBA’s with mounds of debt living in their parent’s basement. And the trades unions need to recruit foreigners because we convinced young people they all need to go to college. The truth is that not every kid should go to college. Some are better off in the trades. Instead the market is totally distorted, kids are buried in debt with degree’s that are a dime a dozen…and I can’t find a decent carpenter who shows up on time. When did the gov’t being guaranteeing student loans…??? In 1965. When did the cost of education skyrocket...???...almost immediately afterwards. According to the BLS…since 1978…the cost of college tuition/fee’s has increased 1,115%.


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW says "Addressing all of those other variables such as the unemployment rate is inherently addressed by simply measuring economic prosperity."

ME responds - if that were true, then GDP, or some direct variation, would have been enough to provide a high R2 at a .05 level of significance ... it didn't. Why? Why did the others, out of many different possibilities, work, and work well?

There is no question that, as a general, heuristic rule, that "poverty is reduced by prosperity" is true. By leaving it at that, however, you are implying that when the economy is not prosperous (which historically happens on average once every 4.7 years, counting all 49 recessions since 1785) and poverty rises (or the economy collapses and poverty skyrockets), then nothing should be done; for at some point in time, from 3 months to 8 or 10 years (1815 and 1929, respectively) the economy will prosper and poverty will go down ... some. But given how frequently the economy heads south, exactly when does poverty actually have a chance to go down? (This is still true if you count just the 9 recessions since WW II, one every 7.7 years.)

Regarding education see http://nces.ed.gov/pubs95/95780.pdf and http://www.usatoday.com/story/opinion/2014/09/25/s... (consider Texas which has an oversized influence on national textbooks due to market forces) and http://www.ascd.org/ASCD/pdf/journals/ed_lead/el_1... These vary from principals/teachers having about 50% influence to, in many cases, much less. What empirical evidence do you have that your school board is the norm?

Even if you limit it to a "graduation test", a well written one defines the curriculum, so long as it is not a multiple choice test but an analytical, thought-based written exam. One question, for example, might be "compare and contrast the evidence supporting and refuting both evolution and divine creation." Another might be "provide and discuss three examples each of when America was at its moral worst and moral best."

LW says "The medical field was never deregulated. It is nearly entirely controlled by the gov’t. "

ME replies that the healthcare industry was deregulated in the 1980s see http://www.cfeps.org/health/chapters/html/ch1.htm

As to doctors, prior to the 1980s, Drs were more or less free agents. After deregulation and the profit motive destroyed healthcare, they became minions of for-profit hospitals and health organizations. As I said, the worst thing that has ever happened to the healthcare industry. This was also the period when direct-to-consumer restrictions were removed from pharmaceuticals, another bad idea (this one may have been from the Democrats, however)

Did your brother-in=law opt out of all insurance, or just Medicare? Who can afford his prices today?

As to student loan and tuition costs, this has a particularly tell chart in the middle of it https://www2.ed.gov/about/bdscomm/list/hiedfuture/...

and this one puts the rise in college tuition in the right light; show me where it has decreased. http://nces.ed.gov/fastfacts/display.asp?id=76


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My Esoteric 19 months ago from Keystone Heights, FL Author

I saved your govspending reference, that will be very handy, thanks.

As to the list you provided, I need to reconcile that with my other sources, but I can tell you I excluded many of the line items as they were not direct assistance to the public; much was for providing infrastructure.

In addition to "payment to vendors" (Medicaid) and a little in education subsidies, I used 603, 604, 605, 609, J67, J68, Y05, Y06, and maybe Y14 (I can't tell if Workers Compensation - Benefit Payments was included in my earlier data)


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LandmarkWealth 19 months ago from Melville NY

“ME responds - if that were true, then GDP, or some direct variation, would have been enough to provide a high R2 at a .05 level of significance ... it didn't. Why? Why did the others, out of many different possibilities, work, and work well?”

Because simply expanding GDP is not enough. It has to be significant growth. Those of that follow economic data closely know that we’re not technically in a recession and have not been in some time. However, the average citizen doesn’t know that. They know how they feel. And they feel lousy, because the labor market participation is the worst it’s been in 4 decades. How could that be if we’re not in a recession ??? It’s because we are in a period of anemic growth. The US was not in a perpetual recession in the 1930’s either. But we called it a depression because even when GDP was expanding, much like today…the progress was anemic. And that’s not enough to impact the labor market in any significant way…and therefore the poverty rate to any significant degree. GDP expansion today is barely enough to call it a recovery. Poverty will have a chance to go down when there is significant widespread expansion across the economy. And as the 1990’s showed…slowing PA spending happened in advance of this. Therefore increased PA spending is not a prerequisite to reducing poverty. And as the 2000’s showed…massive expansions to new entitlements did little to impact the poverty rate.

The empirical evidence is the law. If you take Federal money from programs like race to the top…you are required by law to adopt the common core standards. That applies even to private schools. The Federal gov’t taxes revenue from the local citizens, than uses the money to fund agencies like the dept of education and redirects the funds back into educational programs. Except in order to get your money back that you paid in taxes, you are obligated by law to adopt Federal standards. It was for this reason that we pulled my kids from their school which was private and moved them to a catholic school in which the diocese decided not to take such Federal money, effectively forfeiting my Federal money that I paid into. Because common core is going to destroy a whole generation of kids. I am active in the local public school for budget reasons only. But I don’t send my kids there. My wife teaches and has taught in two separate public schools outside of our local district. It’s the same story in each school. The board handles budget issues. They effectively sign off on issues of curriculum at the direction of administration, because most board members don’t know anything about things like horizontal and vertical alignment of curriculum. And that is only to the small extent that the local districts control curriculum. Most of this is set at the state capital…and increasingly at the Federal level.

My point was that central planning doesn’t work whether it comes from the Federal Gov’t or from Albany. If you want results…put the money in the hands of concerned parents…and let them direct funds to where they wish it to go. The vast majority of parents will make sure their kids get the best education possible, and the schools will be forced to compete for those voucher dollars. It is a more equitable distribution of resources…and it puts control and choice in the hands of consumers.

“Even if you limit it to a "graduation test", a well written one defines the curriculum, so long as it is not a multiple choice test but an analytical, thought-based written exam. One question, for example, might be "compare and contrast the evidence supporting and refuting both evolution and divine creation." Another might be "provide and discuss three examples each of when America was at its moral worst and moral best."”

I couldn’t disagree more. Answers to such questions are open to interpretation. Who defines the correct answer to the highest and lowest moral state of a nation ??? There is not absolute right or wrong answer. How about we start with making sure kids who graduate can read, write, add and subtract. Because we’re handing out diploma’s to kids who can’t complete these basic tasks. 80% of the kids graduating from NYC public high schools need remedial reading courses.

http://newyork.cbslocal.com/2013/03/07/officials-m...

“Did your brother-in=law opt out of all insurance, or just Medicare? Who can afford his prices today?”

He opted out of all. Actually both of my brother in-laws are Dr’s and both opted out of all coverage. And their prices are much more affordable. Almost anyone can afford to pay them, because you pay what you can afford. Services are negotiated, not unlike any business. They have more time with less patients, and actually make more money with much less overhead. And they can practice medicine without having to run it like a fast food restaurant drive thru. This is becoming a common trend in the medical field. AAPS even has a template online for Dr’s to opt out now. Some Dr’s are not opting out…but just not taking on new Medicare patients until one dies. They effectively just limit their practice’s exposure to them.

http://www.aapsonline.org/index.php/article/opt_ou...

Look at the difference in cost when you opt out of insurance. The power of the marketplace.

http://bangordailynews.com/2013/05/27/news/portlan...

The link you have above hardly describes a deregulated environment. In fact it has never been worse. Since the creation of Medicare, the cost of medicine has become completely distorted and skyrocketed. Consider that the Federal gov’t is the single largest health insurer in the nation. Medicare alone has 132,000 pages of rules. In order for a Dr to take on a new Medicare patient, they must evaluate 42 different choices with 6,100 possible combinations in order to properly classify the patients E&M code as per Medicare guidelines. It is a bureaucratic nightmare. This is an actual story from physicianspractice.com.

“A family practitioner who says the “straw that broke the camel’s back” landed in 2009. The physician, Chris Noyes, MD, recalls, "I had a patient who moved from out of state to be with his kids. He had lung cancer when he came in, and he ultimately died. We wrote off a fairly large balance," Noyes said. "Two years after he died, we got a letter from Medicare saying they had overpaid for a flu shot for him by $2 and they wanted the money back with interest and a penalty, and if I didn’t pay it all within 30 days they would prosecute me."

It is utter insanity dealing with them.

College tuition hasn’t declined at all. I never said it did. In fact I said the opposite. It has skyrocketed since the gov’t began to subsidize the cost of school loans in the mid 60’s. Do you see a trend here ??? The gov’t has subsidized housing, the cost of higher education, and the medical field. If they intervene in the production of I-pads…you’ll soon need a HELOC to buy your next I-Pad.


My Esoteric profile image

My Esoteric 19 months ago from Keystone Heights, FL Author

LM says "Because simply expanding GDP is not enough. It has to be significant growth. "

ME responds - actually, I have to retract something, assuming I didn't point it out earlier ... GPD did enter the last equation I came up with; it entered as the change from the previous period. While its significance is high (p-value= .01), it was the lowest of the seven predictive variables. "By itself", however, even though it was significant at p = .004, it failed to explain very much as a model with an R2 of only 11%. In other words, other variables are needed to explain the other 89% (one of them being PA spending).

LW says "However, the average citizen doesn’t know that. They know how they feel. And they feel lousy, because the labor market participation is the worst it’s been in 4 decades. How could that be if we’re not in a recession ??? "

ME says "easy, we aren't in a recession" You said it all with the word "perception". There are many things that influence perception when "reality" isn't one of them. In this case there are two major ones; 1) only the wealthy participate in growth and 2) a 7-year propaganda campaign by the Right who is determined to destroy President Obama. I would feel the same way as many other Americans do, if I wasn't so well versed in economics and didn't know better. (BTW, the latest average of polls on "How is Obama doing economically" finally went over to his favor.)

Saying it another way, perception of a recession does not necessarily mean there is one unless that perception is so strong that it destroys growth. Fortunately, the Right has failed in that mission.


My Esoteric profile image

My Esoteric 19 months ago from Keystone Heights, FL Author

LW says "GDP expansion today is barely enough to call it a recovery. "

ME notes that expansion under PBO is 2.2% from 2009 - 2014 in spite of the Conservatives best effort to prevent it from happening (collateral damage from trying to destroy PBO); this last year was 2.4%.

By comparison, the 10 years 1998 - 2008, growth was 2.6% per year, and that was with both sides trying to help (or at least one side not trying to hinder). Further, growth has been slowing since 1958 from 3.1% (1958 - 2014) to 2.1% (1998 - 2014) - all without Obama's help. During that period we had 30 years of Republican administrations and 24 years of Democratic ones.

So, is Obama's recovery anemic? No, not in an historical perspective; especially against the strong headwinds the GOP threw (is throwing) up.


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My Esoteric 19 months ago from Keystone Heights, FL Author

LW says "The US was not in a perpetual recession in the 1930’s either. But we called it a depression because even when GDP was expanding, much like today"

ME corrects to say 1929 - 1933 was a full-blown depression; 1937 - 1938 was a major recession, but yes, in people's minds today, the whole period was a depression. While the economy did start growing until 1937, it barely got back to 1929 levels when the bottom dropped out again. Of course employment never did come close to recovering until WW II. The economy, however, did recover and rushed pass 1929 as WW II dawned.

What I am saying is there is no comparison in the recovery between the that depression and this recession (even though the Tea Party wanted Obama to do exactly what Roosevelt did in 1937 which, of course, ended up in the 1937 recession; which, in turn, would have made the comparison valid.)


My Esoteric profile image

My Esoteric 19 months ago from Keystone Heights, FL Author

Unfortunately, LW, you haven't presented much in the way of empirical evidence and what you have, only deals with PA spending and not all of the other variables involved. You are so intent on disproving what is intuitively obvious (PA spending impacts poverty) that you are looking at is a single tree in a whole forest of influences on poverty.

I agree that central planning doesn't work in government (it works fine in business which y'all seem you want gov't to be) unless it is properly executed by including all appropriate stakeholders. Education is one of the national priorities that begs for central planning of some sort; the way it works now is atrocious with each state doing its own thing while fighting federal efforts to improve and standardize what is taught, to the detriment of our youth.


LandmarkWealth profile image

LandmarkWealth 19 months ago from Melville NY

GDP wouldn’t be a significant factor in poverty reduction during periods of anemic growth such as now, as I referenced earlier. However, strong recoveries like the early 80’s and mid 90’s tell a different story.

“7 Year propaganda campaign” ??? So are you arguing that the lowest labor force participation in 4 decades is made up propaganda ??? The fact that a dominant percentage of labor market participation is low income employment also propaganda ??? No…that is just the reality of what is happening in the labor market, because this is one of the most anti-business climates ever created by a presidential administration. Simply pointing out the realities of an incredibly weak recovery is hardly a propaganda campaign, but instead pointing to reality.

But, since you’re so well versed in economics, you already know how weak the labor market data has been…so I don’t have to tell you that. You already know that there are significant differences in U6 vs U4 data. And you already know that anyone who is out of work more than 1 year isn’t counted in either of the data sets since 1994. They simply vanished. You already know that the number of people working part-time involuntarily is more than 50% higher than when the recession began. You already know high-wage industries accounted for 40 percent of the job losses but have only seen 30 percent of the recovery’s job gains. If that is a success…than congrat’s.

http://money.cnn.com/2014/11/20/news/economy/ameri...

Perception certainly does not mean a recession. Sometimes it simply means extremely weak progress that does nothing but move the economy sideways. Polls probably will improve as financial markets do well, and 401k balances increase. Unfortunately, asset price inflation and cheap money doesn’t necessarily always mean a strong labor market improvement, as we have seen for the last 5 years. So if the Obama adm’s goals were to see significant stock price gains…with a lot of part time and/or low paying new job creation...they’re a huge success.

“ME notes that expansion under PBO is 2.2% from 2009 - 2014 in spite of the Conservatives best effort to prevent it from happening (collateral damage from trying to destroy PBO); this last year was 2.4%.”

So in other words…an incredibly weak recovery.

“So, is Obama's recovery anemic? No, not in an historical perspective; especially against the strong headwinds the GOP threw (is throwing) up.”

From a historical perspective, 1920 was far more severe…and a far faster rebound. So from a historical perspective…this is a terrible recovery. Especially when viewed from a labor market perspective.

The last time I checked…the administration got their entire stimulus bill thru, along with the ACA and every other piece of major legislation they wanted up until getting their clocks cleaned in the last mid-term elections. It’s incredible to watch them pass virtually everything they wanted and then watch the left pretend like he was somehow prevented from implementing his agenda when the results they wanted weren’t there.

“What I am saying is there is no comparison in the recovery between the that depression and this recession (even though the Tea Party wanted Obama to do exactly what Roosevelt did in 1937 which, of course, ended up in the 1937 recession; which, in turn, would have made the comparison valid.)”

Correct…1929 was way worse than 2008. Even though the Obama adm repeatedly tried to compare the two as though they were similar as an excuse for such a poor labor market recovery. Which means the recovery should have been much stronger. And correction…the tea party was more interested in policies that resembled the 1920-21 recovery…which was incredibly fast without any massive fiscal intervention.

“Unfortunately, LW, you haven't presented much in the way of empirical evidence and what you have, only deals with PA spending and not all of the other variables involved.”

Unfortunately, you’re statements have been empirically disproven by the budget data I cited repeatedly. You suggested that poverty declines only when PA spending increases as the dominant variable. And in constant dollar terms, the entire decade of the 1990’s disproves that assumption and correlation. In fact the correlation during this period was exactly the opposite of which you implied. The same is true of the 1980’s where a substantial decline took place beginning in 1983 with no increase in PA spending of any significance. You’re so intent on proving it works, that you completely ignore the two strongest economic recoveries of the last 40 years that were accomplished by doing exactly the opposite of what you suggest works. And then critique the Bush 43 adm for its results in relation to the poverty rate, when they were the biggest PA/entitlement expansion administration of the last several decades. I am not suggesting that there aren’t other variables. There are variables related to both fiscal and monetary policy that drive economic outcomes. And there is also a normal business cycle, regardless of policy. What I am saying is that all of these policy initiatives are supposed to be designed to incent growth. And growth is how we best deal with poverty. And the two strongest recent recoveries, and declines in the poverty rate came about without policies that saw big increases in inflation adjusted dollars to PA spending. And that’s assuming you use the BLS estimates on inflation. If you use their pre-1980 formula for measuring price changes, then PA spending plummeted before these recoveries.


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LandmarkWealth 19 months ago from Melville NY

"Education is one of the national priorities that begs for central planning of some sort; the way it works now is atrocious with each state doing its own thing while fighting federal efforts to improve and standardize what is taught, to the detriment of our youth."

Education is a failure because the consumer (parents) are not given choices. When they have choices...the marketplace responds. When the gov't "standardizes" things, we get results like affordable housing programs that wreak havoc on the banking system, the disaster that medicare created, and the massive trillion dollar student loan bubble. Perhaps I would be more confident if the Federal gov't could run one single solitary agency with even a small degree of efficiency and effectiveness. I for one don't want my kids to have their education run like the post office.


LandmarkWealth profile image

LandmarkWealth 19 months ago from Melville NY

In case you have any doubts about what Federal standards mean…this is an actual question in the common core curriculum that the Federal gov’t is pushing down on 2nd grade students.

“Tell how to make 10 when adding 8 + 5 ? ”

The correct answer is: “Take 2 from the 5 and add it to 8 (8 + 2 = 10). Then add 3”

http://thepunditpress.com/2014/10/10/common-core-m...

The idiocy of these Federal standards are why my wife (a public school teacher saddled with this nonsense at work) insisted on pulling our kids from public school when my kids came home with these types of questions. Now they attend Catholic school as well as the Kumon institute. In such places…8+5=13 and will never = 10. This is not isolated either…it is in every state that took race to the top money and adopted this nonsense.


My Esoteric profile image

My Esoteric 19 months ago from Keystone Heights, FL Author

Education began failing ever since 1) the 70's all members of the family needed to work and 2) the 60's when women finally had, and took advantage of, the opportunity to join the workforce in large numbers. Well before there were any significant federal education programs, huge numbers of families opted-out of helping their children through school; in order to work, they voluntarily turned the responsibility over to the school system. THAT is the root of many of the problems we face today.

Another original major factor in the overall poor quality in American education is the decision of many states, mainly, but not entirely, in the South sloughing off their responsibilities to provide quality education to their children. This was (is) especially true for minority students but, historically in those states it even impacted white middle and lower class children (not so much today.)

A third original factor is the way school districts were (and many still are) funded with property taxes. That method guaranteed poor education to the poorer counties, say San Joaquin in CA, and better education to rich ones, e.g. Beverly Hills.

But, so long as the parents stayed involved, the number of good states, vis-a-vis their education program, far outshone the bad states. In the 60s, that stopped.

Like almost all government programs, they pop up when others begin shirking their responsibilities and that is what happened with education. So, it is not because parents "aren't given choices", instead, it is because they don't take advantage of the choices they do have, which are considerable.

BTW, I wouldn't have had a college education without student loans.

When the core education curricula doesn't support national objectives, then, like it is today, the nation suffers. Now, I am aware that that argument falls on deaf ears to those who put states ahead of nation. Unfortunately, there is no way of overcoming that because they reject out of hand the fundamental principal behind the Constitution.


My Esoteric profile image

My Esoteric 19 months ago from Keystone Heights, FL Author

The old way to accomplish 474 - 195 was to:

1. notice that the 4 in 474 is smaller than the 5 in 195

2. because of this, you must take 10 from the next number and add it to the 4 to get 14.

3. Now subtract the 5 from the 14 to get 9

4. Since you took 10 from the 7 in 474, you must subtract 1 from the 7 to get 6

5. Now compare this 6 with the 9 in 195

6. Since it is smaller then you must "borrow" another 10 from the next number 4.

7. Add the 10 to the 6 to get 16

8. Subtract the 9 from the 16 to get 7

9. Now, because you borrowed 10 from the 4, you must subtract 1 from the 4 to get 3

10. Next compare the 3 with the 1 in 195

11. Since it is larger, you can subtract it directly to get 2

12. Put the three digits together to get the answer of 279

That is the EASY old way.

Now, here is the HARD common core way.

1. Notice that 474 is 74 away from 400, mark down 74

2. Notice that 200 - 195 is 5, mark that down

3. Notice the 200 is 200 away from 400, mark down the 200

4. Add the 74 + 5 + 200 to get the answer of 279

Yep, Common Core has it all wrong. I suspect that is what is behind the 10, 8, and 5 problem as well.


LandmarkWealth profile image

LandmarkWealth 19 months ago from Melville NY

Families don’t have to have two incomes in most cases. They do so because they want a lifestyle that offers more. There is nothing wrong with that. But in 1960 people didn’t have 3-4 TV’s in their house. They had one. These are personal choices to live a more affluent lifestyle.

Quality education is regional from county to county within a state. It is not specific to the south or North. That has always been the case. My parents live in Naples Florida. Their public school system is vastly better than that of NYC where 80% of the graduates can barely read. Some counties have money, others don’t. Since neither of us wants to punish kids for the lack of accomplishment of their parents, vouchers make the most sense, with schools competing for them.

“Like almost all government programs, they pop up when others begin shirking their responsibilities and that is what happened with education. So, it is not because parents "aren't given choices", instead, it is because they don't take advantage of the choices they do have, which are considerable.”

On the contrary, gov’t programs crowd out private opportunities. The US was the leader in public education, and now has fallen way behind the rest of the world. Has the Federal Gov’t taken a larger role or smaller role over that time ???

“So, it is not because parents "aren't given choices", instead, it is because they don't take advantage of the choices they do have, which are considerable.”

Tell me…what are the choices of a kid/parent who lives in the south Bronx ??? Are they simply not taking advantage of all the gov’t has offered them over these many decades ???

“BTW, I wouldn't have had a college education without student loans.”

That is a counterfactual argument. If all the kids who got student loans couldn’t get them, then demand would dry up dramatically. What happens when demand dries up ??? Prices go down with less customers, making school more affordable. Unless you find 1,100% increases in the cost of education coinciding with these subsidies an accident. Universities will not just shut down because large numbers if kids can’t get loans. They’ll simply have to link their cost to a reasonable measure of demand. There is no other rationale reason why the cost of education should have gone up that aggressively. Their input costs are nowhere near that high.

I can tell from your answer you don’t have any kids in grade school bringing home common core assignments. The 12 steps you outlined to arrive at 279 is actually a total of 3 steps. Adding in the extra unnecessary references is why parents and students are opting out of this program and its ridiculous exams in droves of 1000’s this year. And thankfully we even have math and science teachers refusing to administer them now.

http://www.longislandpress.com/2015/04/15/record-s...


JillRivas 17 months ago

If in case you are looking for a fillable 565 form; I was able to get a copy from PDFfiller. It also allowed me to fill out the form, e-sign and print. Here's the link to the form I've used: http://goo.gl/uMaK6l


My Esoteric profile image

My Esoteric 17 months ago from Keystone Heights, FL Author

LW says - "Families don’t have to have two incomes in most cases. "

ME responds by saying, "it depends on how you define families". 66% of two parent households have dual incomes. By default, single-parent households cannot, and they represent 27% of households. So I guess you could say that 61% of all households are single earners, although I am not sure what that means.

How many of those 3 and 4 TV households belong to those that can afford them? Without knowing that number, your statement regarding TVs is mere hyperbole put out there to imply something that may or may not be true.

- Of those 3 or 4 TV households who cannot afford to have purchased those new had them before they got in that condition?

- Of those 3 or 4 TV households who cannot afford to have purchased those new had them given to them by friends and relatives?

There are many more such questions about your implication that makes it meaningless.

LW says "Quality education is regional from county to county within a state. It is not specific to the south or North"

ME responds " while the first part of your statement is demonstrably true, the last part is equally demonstrably false." and to me, instead of making it harder on public school systems with vouchers, all that effort the Right spends promoting that would be better served improving the public school system.

LW says "BTW, I wouldn't have had a college education without student loans.” That is a counterfactual argument. If all the kids who got student loans couldn’t get them, then demand would dry up dramatically. "

ME says, "Common sense and history argues against your conclusion" There was a time before student loans or at least before they became material; why didn't colleges dry-up then? No, they thrived and became too expensive which, along with the national security friendly desire of progressives to have a better educated society, is what drove the student loan program in the first place.

No, I don't have any kids in grade school, too old for that, but I have grand kids that are and yes, Florida has adopted a form of Common Core math.

--"The Florida Department of Education added calculus, cursive writing and made a handful of other changes to the standards in 2014. They renamed them the Florida Standards, but the standards do not substantially differ from Common Core." from http://stateimpact.npr.org/florida/tag/common-core...

I didn't get calculus until my senior year in High School, and that was in what is called today, Advanced Placement. And no, Common Core didn't have 12-steps, it had 4. It is the OLD way that had 12. Look again.


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

“How many of those 3 and 4 TV households belong to those that can afford them?”

As per the 2005 US Dept of Energy Consumption Survey

78% of US households have air conditioning (Which I didn’t have growing up)

65% have more than 1 television

70% have more than 1 VCR (I didn’t have one as a kid)

32% have 3 or more TV’s

65% have at least 1 DVD player

29% have at least 1 Video Game system

63% have cable or Satellite TV (Which I also did not have as a kid, as NYC was not wired for cable TV at the time)

81% have a microwave (Also didn’t have)

Obviously many are luxuries that are not necessities, that we want to have. My grandparents were able to heat up food without a microwave. Striving for a higher standard of living is a good thing, and there is certainly nothing wrong with that. But prioritizing these items vs two family incomes are different than decades ago. In 1950 most families would not want to have a mother go to work so they could have two or more TV’s, radios etc. I grew up in the 70’s and 80’s and didn’t have much of what is on this list. I was a kid when Atari first came out. We couldn’t afford it, but my neighbor had one. Nobody had two. My current home has multiple I-pad’s/Ipods, Playstation & the Nintendo Wii. Most of which just sits there and is never used. Why…because it’s waste. I complain about it all the time, and my wife doesn’t listen. Americans expect more today…so they have to work more. If I cut out all this nonsense…she could stay home and we’d never have a care in the world. I instead I spend well over $1000 a month on Karate, Kumon, Soccer, Wrestling, Baseball, Ballet, & Music lessons etc. I had literally not one such expense as a youth. We played stick ball in the street for free. And today, I live in a middle class neighborhood, with a two income family that is filled with junk we don't need.

There is nothing false about the statement. My parents reside in Naples Florida today. That is one of the wealthiest counties in the nation. I would put their public education standards up against virtually any NYC public school where most students are barely literate. The result are not based on North vs South, but rather how each county is run in its state and it’s corresponding population.

“all that effort the Right spends promoting that would be better served improving the public school system”

In other words throw more money and resources to people who continue to misallocate what they have already been given. It never ceases to amaze me how opposed the political left is to the concept of choice. Yet, if I told you that a new Walbaums opened up the road from you, but you aren’t legally allowed to shop there unless you sold your home and moved closer to it…you’d be outraged. You’d say it was discriminatory. There is no better accountability to a provider of a product/service than giving the consumer a choice. But the left only likes choices when the central planners make the choice for you. A voucher system is not terribly difficult to implement and the most fair social solution. The only difficultly is arranging bus service. And they manage it with the private school students just fine.

“Common sense and history argues against your conclusion" There was a time before student loans or at least before they became material; why didn't colleges dry-up then?”

They didn’t dry up…that is exactly the point. The cost of education was dramatically more affordable before the gov’t subsidies. Instead of drying up…they kept cost low…and more affordable. Once again the gov’t created a subsidy…and the cost skyrocketed to such a point that in order to obtain the education…you need to bury yourself in a lifetime of debt. The rate of inflation since these subsidies is astronomical. And somehow making something less affordable is supposed to be a brilliant gov’t fix. The more the gov’t touches…the more prices are distorted.

http://globaleconomicanalysis.blogspot.com/2012/07...

The reason there were less people attending universities in the 40’s and 50’s had to do with the structure of our economy. We had many more jobs that were more “blue collar” in nature that were much more financially rewarding and didn’t require a college degree. Frankly, thanks to these inflated education prices…were moving more and more back in that direction. When you look at the cost benefit analysis, I’d rather be my HVAC contractor making 150k-200k a year on commercial and residential services calls who spent a few thousand in trade school than an MBA buried in debt.

You need to look again…you are graded on completing each step. Not just achieving an answer. Furthermore, each child learns differently. Not allowing teachers the flexibility to adapt to the child’s strengths and weaknesses in order for them to grasp the material is the overriding problem with Common Core. It centralizes the entire process, and allows no latitude for the teacher to operate. The premise that you will ever be able to walk out of a classroom in California, and into a classroom in New York, and the same exact material is being taught on the same day all across America is idiocy. That is the expectation of how teachers are expected to now run their classrooms. And students are falling way behind. Adding Calculus is nothing new in Florida. I attended Barron Collier HS in Naples for 6 months during the brief time I lived in Florida as a youth. They were teaching calculus back then also. And they were light years ahead of NYC public schools in curriculum. You cannot standardize a child’s learning curve. If this is the way they want to run education, than get rid of teachers altogether. There is no point in having a professional in a room if they aren’t allowed to evaluate their job and how best to do it. They can’t even grade their students final exams anymore. You fix the accountability by giving parents and students choices. And you simultaneously need to give teachers labor mobility and flexibility to respond to the needs of the community. None of the above currently exist.


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

If you just look at the average amenities that the average "Poor" family in the US has....by these standards today, I lived the life of someone living in a third world country for most of my youth.

http://www.heritage.org/research/reports/2011/07/w...

28% of families below the poverty threshold have more than 1 DVD player....give me a break !!!


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

Take a look at the below link. CPI didn’t calculate a national benchmark in the 1950’s for the cost of education. But you can obtain it by school. Below is the average all in cost of tuition by year at Penn University.

http://www.archives.upenn.edu/histy/features/tuiti...

In 1950 the total cost including room and board on the HIGH end for an undergraduate degree was about $1,460.00. At that time the national average income per family was $4,237 as per the BLS. So you could have sent your kids to Penn State for about 35% of your household income.

By 2013 the total all in cost on the LOWER end (In state tuition) is $52,304. The Median household income in the US in 2013 was $43,585.

So essentially, the average family now has to spend more than 100% of the totality of their annual income on tuition in order to attend the same school. And in the 50’s that was more like 35% of their annual household income. And somehow you equate this to mean that education is now more accessible. If you consider making something dramatically more expensive to be more accessible, than I guess you’re correct. No…education was less necessary to become economically successful than in recent decades because of the makeup of our economy. Education is not more affordable. It is more expensive…and people are willing to pile on what now amounts to a trillion dollars in student loan debt in order to obtain it. And now people have been so duped that we have an army of college graduates with their MBA living in their parent’s basement. And I still have trouble finding a good quality electrician. It’s a good thing we have gov’t programs to intervene. They have done such a wonderful job !!! Perhaps next they can socially engineer the internet somehow. This way we can all pay a few hundred dollars to send an email that takes a week to deliver.


My Esoteric profile image

My Esoteric 17 months ago from Keystone Heights, FL Author

LW says - "They didn’t dry up…that is exactly the point. The cost of education was dramatically more affordable before the gov’t subsidies."

ME wonders "Then why was it so hard for so many people to afford higher education at good schools"

Also, you made me go look. I plotted college enrollments as a percentage of population from 1950 to 2014. Then I plotted government spending on tertiary education as a percent of GDP. Guess what, when I ran a correlation between the two data sets, it came out an amazing 98%!!

As to good and bad primary and secondary schools being evenly distributed across the United States, again, in spite of your singe data point, they are not, empirical evidence is what has led me to that conclusion.

If you take the latest survey from http://wallethub.com/edu/states-with-the-best-scho... (there methodology seems sound) and assign each state an R, P, B for Red state, Purple state, or Blue state, and also another label for what part of the US the state is located in (E, S, M, W) You get the following results by averaging their respective ranks (again, this is a quite legitimate analytical technique):

Stratification Avg Rank

Blue ........................ 20

Purple..................... 18 (best)

Red......................... 31.75 (worst)

-----------------------------------------

East ........................ 15.5 (best)

South...................... 40 (worst)

Mid America .......... 19.9

West....................... 33.5 (surprised me!)

BTW - Florida ranks 21 out of 50

Show me analysis that comes to a different conclusion.


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

“ME wonders "Then why was it so hard for so many people to afford higher education at good schools"

You may want to wonder why it is even more difficult to attend higher education schools today. I am talking about the fact that gov’t programs are getting you into school, and burying you in debt via the artificial demand that they have created. Kids are graduating today with a debt burden that often makes the attendance at the university now a bad economic decision. It is becoming more rewarding to attend trade schools.

“Guess what, when I ran a correlation between the two data sets, it came out an amazing 98%!!”

Good…I am glad we agree. That’s the point. This is precisely what I have been saying. More subsidies mean more enrollment which artificially drives up cost. It is a pretty strong constant in economics that if you subsidize something…you get more of it.

So we placed incentives for the labor force to attend universities when many people shouldn’t be there to begin with. Not everyone should go to college. Now we have trade unions like the sheet metal workers importing foreign workers to do jobs that Americans don’t want because they think they shouldn’t have do with their college degree. Except we have an abundance of degree’s and not enough jobs to fill them. This is a total misallocation of resources.

So the kid that should be going to a university is saddled with debt for the rest of his life. And the kid who worked for the energy company that spray foamed my attic last year also has a massive debt burden for his degree at John Jay University, which was totally useless in the real world, since he works as a spray foam operator. How many cubic feet of spray foam will he have to spray into wall cavities and roof decks to pay off the college debt before it was worth it ??? The answer is never, because he didn’t belong there to begin with. He was suckered into believing that is what everyone has to do. This is precisely what socially engineering does. It misallocates resources and distorts prices. The people that belong in school get less of a return on their investment because of the massive inflation. And the people that should have gone get no return on their investment and are also saddled with debt that is barely manageable.

And since these subsidies were rolled out in the late 60’s and the cost skyrocketed…more Americans are attending college for a 4 year degree or more. And how has this translated into economic results for the average American with more access to education ??? Since 1970…real wages have stagnated. So what’s better economically…to be an ironworker who makes a median wage of 55k per year without the student loans who can direct that income to a mortgage…or a CPA with a median wage of 78k per year, but has student loan payments as big as a home mortgage for the next 30 years.

The problem is you seem to be confusing the concept of education with going to college. A common mistake that many people make. Going to a university is not always a smart decision. And yet every parent out there says that “when my kid grows up, they are absolutely going to college”. They’re fools. Meanwhile…only 46% of all the kids who enroll actually graduate with a degree.…because it’s too damn expensive, and many realize once they started that it wasn’t for them. But they still have to pay off the debt burden for the time they were there. And 25% of student loan borrowers are now behind in their payments as of a 2011 Harvard study. The proper thing to do is eliminate the incentives…let the cost of education find its true relative value. Some kids will go to school and other will enter the trades. Instead we brainwash people into thinking that if they don’t go to college they’re a failure. Meanwhile the plumber lives in a bigger house than me, and ½ his income is cash.

There is no empirical evidence in evaluating states. Because states have wide ranging results from county to county with vastly differing policies. The university of Montana put out research on this awhile back. Texas had the highest quality teachers, Florida was number two. When ranking education efficiency (The cost per student per percent of reading above or at 4th grade level, The cost per student per percent of math above or at 4th grade level) New York and New Jersey are near the bottom. They spend more money for less results.

http://www.msubillings.edu/caer/quality_rankings_o...

Results are not a direct result of how much money is spent, or necessarily graduation rates. In NYC, kids who actually graduate High School have an 80% illiteracy rate and require remedial reading. So how are they graduating ??? The answer is the schools will graduate kids who are clearly failing so they can continue to get the endless funnel of money.


My Esoteric profile image

My Esoteric 17 months ago from Keystone Heights, FL Author

When you say "More subsidies mean more enrollment which artificially drives up cost. It is a pretty strong constant in economics that if you subsidize something…you get more of it." Does that mean more demand is a bad idea, they we should work to keep demand down? Understand that the largest enrollment growth, which mimicked the growth in subsidies, was between 1950 and 1972 when tuition rates generally rose with inflation. It wasn't until the early 80s that college tuition started going through the roof. Not surprisingly, this killed the growth in enrollment which flattened out considerably, as did the subsidies as a percent of GDP. I don't think those facts support your argument.

To what time period are you referring when you say "Except we have an abundance of degree’s and not enough jobs to fill them. This is a total misallocation of resources." If I am not mistaken, that state of affairs only came to be true after the Great Recession of 2008 when 10 - 14 million people lost their job in the space of a year or so.

Income inequality is what leads to a lot of the misallocation of resources. When 50% or more a Americans income remains flat for decades and another 30% saw their income rise just a little while the remaining 20% saw huge increases, all for artificial reasons which distort the economy beyond recognition, you can't help but end up with everything else being misallocated.

You do know the end result of your position don't you? When you remove the subsidies, then as you say because demand is so artificially high, the higher education system will implode until it stabilizes where there are just enough colleges for those that can afford it. That would probably be the 1.5% enrollment rate (of total population) of 1950 instead of the 7+% it is today.

With so few college graduates who happily enter the workforce with their debt-free degree, what are they going to find? A world where middle management and up are all filled by foreign college degree holders who filled the demand left by the lack of degreed Americans. Under your scenario, that HAS to be the outcome because college attendance rates MUST plummet as colleges go bankrupt. Businesses will have no choice but to 1) import management from abroad (there will certainly be an overabundance of blue-collar workers without degrees) or 2) move overseas where the talent is. You can't have your cake and eat it too, you know.

I started college in 1965 and graduated in 1971 and costs were definitely NOT skyrocketing; that didn't happen until the late 70s and early 80s, during the stagflation years. By that time, the rapid growth in enrollments had flattened out.

When you assert that "The answer is the schools will graduate kids who are clearly failing so they can continue to get the endless funnel of money." you actually mean schools are in business primarily for the purpose of having money put in their coffers?

Your resource doesn't prove what you said. there are plenty of techniques to mesh that Montana data to make reasonable determination of the relative rankings of one state over another in terms of overall quality; the analytical hierarchy process (AHP) for one which is used by many large corporations to help make subjective decisions. The study I pulled from consider 10 to 12 variables at the school district level.


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My Esoteric 17 months ago from Keystone Heights, FL Author

The chart at http://globaleconomicanalysis.blogspot.com/2012/07... doesn't help either because there is little correlation between the subsidies as a percent of GDP, which was constant at around 1.03% from its 1978 reference point until about 2003 when it increases dramatically. I am not sure why for 2003 - 2007, but the reason is clear for 2008 and 2011, a rapidly decreasing GDP. From 2002 to 2012 it rose from 1.06% of GDP, topping out at 1.36%. It has decreased to 1.26%/

The reason there is little correlation is that while college tuition inflated rapidly from 1978 - 2003, subsidies were flat/ That is a zero correlation, isn't it? Then, from 2003 - 2007, you may have a slight case because they both grew in the same direction, quickly. But after 2007, when tuition continued to increase, the percent of GDP did increase in tandem, but ONLY because GDP collapsed. All-in-all, those charts tend to disprove your contention.


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LandmarkWealth 17 months ago from Melville NY

“Does that mean more demand is a bad idea, they we should work to keep demand down?”

It means that demand for college or any product or service should be organic. K-12 is to learn fundamentals. Simply encouraging people to go to college and accumulate debt due to inflated prices is counterproductive. If the subsidy isn’t there, the cost goes down. That makes it easier for the people who belong, and the others should go elsewhere. Trade & Vocational schools etc.

The enrollment growth alone is not what drives prices up. It’s the nearly unlimited endogenous supply of money that the gov’t guarantees those who wish to go to school. The schools know you can borrow without collateral (Now directly from the Gov’t). So they have no reason to watch cost. What would you do if your customer base could borrow to buy what you were selling with no collateral ??? I’d charge a lot more also.

It entirely supports my argument. The cost have been rising rapidly since 1978. That is the earliest point that the BLS produces data sets for the cost of college tuition. They didn’t track it prior. If you look at individual universities you can see it began to rise just before that as the subsidies kicked in. Using the example of Penn University…between 1960-1969 the cost rose just a little more than the inflation rate. From 1970-1978…the cost nearly doubled as the subsidies began. By the early 80’s the subsidies were not only in place…but had become common place. The increase in enrollment in the 50’s was a result of the College Scholarship Service of the 50’s which was launched by private institutions to provide aid commensurate with needs for those that demonstrated academic acumen. But there was no such thing as these broad subsidies until the mid 60’s, which was just the beginning. And like most subsidies…in a relatively brief period…prices begin to skyrocket. Things really began to move when the Higher Education Act of 1972 was passed.

“If I am not mistaken, that state of affairs only came to be true after the Great Recession of 2008”

You’re mistaken. Trade unions have been importing foreigners for a long time. We have oversupplied the labor force to be too top heavy for a long time. I have been in the financial services sector for nearly 20 years. I cannot ever remember a time when we didn’t get a constant supply of resumes of college graduates. We never have to go looking for them. Sometimes, they turn out to be totally unqualified and/or downright lazy. It is hard to find quality people, but not college grads looking for work. They’ve been everywhere for a long time. There has always been an army of them out there. And the trades have been short for a long time. In general our entire labor force has and has had for some time a massive structural problem of people who have skills that don’t meet demand. Kids graduate with college degrees because they are going to college just to go to college and racking up debt. Then they get out of school and often end up working in a field that has nothing to do with what they studied. So what was the point ??? Microsoft still imports software engineers from other countries. Many valuable skills are taught outside traditional universities. Companies like Apple get it…where they started their own University to hire and train employees directly.

“Income inequality is what leads to a lot of the misallocation of resources.”

No…misallocation of resources happens any time the gov’t socially engineers an outcome. Housing, Medicine, Education. All are socially engineered…all have major price and allocation distortions. Why is a DVD dramatically cheaper in constant dollars than a corresponding VCR 25 years ago ??? Because the gov’t doesn’t socially engineer the market. That translates into an effective pay increase for anymore who needs to buy them. The cost of all areas of gov’t intervention is a pay cut for every American as it costs more to acquire the item or service.


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LandmarkWealth 17 months ago from Melville NY

“When you remove the subsidies, then as you say because demand is so artificially high, the higher education system will implode until it stabilizes where there are just enough colleges for those that can afford it.”

No…demand will drop off somewhat…but those who choose to continue to take the traditional university route will not have a gov’t ATM card. The universities will know that…and they’ll charge less. They are not going to close their doors and say “We had a nice run”. Not by a long shot.

Unless you can explain to me why it is that even public state run (supposedly non-profit) universities have skyrocketing tuition. What exactly is it in their input costs that is rising so much faster than everyone else. Are they seeing electric expenses 10 times higher than the business across the street ??? Perhaps they are paying 10 times the cost to cut lawn on the University ??? Or maybe they raise the costs because they can. They know the kids have access to the lending…so they charge more and care not for managing costs.

“A world where middle management and up are all filled by foreign college degree holders who filled the demand left by the lack of degreed Americans”

Nonsense…people come here to get their degree’s more often as it is. There are X amount of spaces in the classroom. The most qualified person who wants to pursue that career path should get in. Sometimes that will be a foreigner…who already comes here as it is. And sometimes it will be a US born kid. That is really irrelevant. Frankly, having hired many people in big corporations for many years…unless you’re coming in with a PHD…nobody really cares where you went to school or what you majored in. The only exception is Ivy league which is a private club. The last kid I hired at Fidelity before I left had a Masters degree in criminal justice. He couldn’t get on the police dept and made a career choice change. His degree was worthless in relation to what he was hired to do. He was a go-getter…so I hired and trained him because of his attitude…nothing more. Not to mention those lack of degreed Americans will be charging the degreed middle manager $400 to change the $8 flapper in your toilet bowl, because the guy with the MBA can’t figure how how to do it.

“you actually mean schools are in business primarily for the purpose of having money put in their coffers?”

Yes…they are. They all want their race to the top grants from the Federal Gov’t…and their annual budget increase no matter what my property taxes are. Do you think a superintendent making $500k per year cares if the kids can read or not. They don’t. Why ??? Because what are you going to do to them. You can’t fire them…they’re tenured. You can’t choose to change schools without selling your home. You are powerless as a parent. You have literally no recourse other than to pay for private school…which is what I do.

“there is little correlation between the subsidies as a percent of GDP, which was constant at around 1.03% from its 1978 reference point until about 2003 when it increases dramatically.”

Subsidies are higher percentage than you are stating. Prior to 2010 student loans were not granted directly from the Federal gov’t exclusively. The loans were subsidized, but often issued by the bank. My student loan was issued by Marine Midland Bank. However, from an accounting perspective…it did not reflect as a subsidy until or unless it is defaulted on. Most loans historically don’t default…not yet anyway. Since I never defaulted…it was never reflected as a subsidy. However, as a practical matter, the bank was not going to lend me that much money with no collateral if the gov’t had not assumed the binding risk. That permitted me to borrow massive amounts of money, which college admissions knew full well I had access to. They even help you apply. That’s like asking the person you’re buying the house from how much you should borrow for the mortgage. Officially, I was not subsidized on the Federal budget…because I made the payments. But the underlying binding guarantee is what caused the loan to be issued. This doesn’t disprove my contention, it demonstrates that you are unaware of how subsidies are treated for accounting purposes.

I hate to break the news to you…but this has become a generally accepted principal in economics. For example a recent NBER paper found that private universities eligible for subsidies charge as much as 75% more than those not eligible. And ironically, due to their often large endowments, they often have enough money that must be given away, that they can be net-net cheaper than state schools in many cases. That depends on the schools and the size of the endowment. I helped get one kid of a client into Tulane for less than the University of Albany. However, when they are eligible for student aid, the evidence shows they crowd out private aid on a dollar for dollar basis. NBER paper below.

http://www.nber.org/papers/w17827.pdf


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

Additionally, tuition data from the NCES Digest of Education Statistics

and aid data from the College Board Trends in Student Aid demonstrated the correlation between Total Federal Aid and tuition as follows:

Private four-year 0.962

Public four-year 0.970

Public two-year 0.940

Additionally as pointed out below...

"ten papers that dealt with the ability of

colleges and universities to capture for themselves

federal student aid in the form of higher

tuition or reduced in-house assistance. Of

these ten, eight found evidence that federal aid

showed up in higher tuitions or smaller institutional

scholarships."

http://object.cato.org/sites/cato.org/files/pubs/p...


My Esoteric profile image

My Esoteric 17 months ago from Keystone Heights, FL Author

To say that "That makes it easier for the people who belong, and the others should go elsewhere." means, unambiguously, that people whose parents can't afford a higher education, don't deserve one. Do you have any idea of the poor optics that position holds relative what this country is thought to stand for? That is straight out of Burke and Kirk that there are the have's and the have nots, and that is the natural order of things. The latter, of course, implies the have nots are there by their own choosing and not the actions of the haves. (real life, in other words),

I just can't digest your, possibly unconscious desire to have a nation of a few wealthy, a few middle class, a few merchant class, and a large poor class, ala 1700s - 1945.

How do you justify that state of affairs being a good thing?

This "The enrollment growth alone is not what drives prices up. It’s the nearly unlimited endogenous supply of money that the gov’t guarantees those who wish to go to school. " is wrong on the face of it; the first sentence essentially disconnected from the second and is counter to what you have been saying -- increased demand (enrollment growth) increases costs. (Of course you forget the other side of the equation which is increased demand increases supply which lowers cost).

Now, it may be true that subsidies do increase demand, and therefore supply, the way you have framed it is false. In my day, and I think the same is true today, is that being able to qualify for college admittance comes first, the colleges capacity to accept the qualified students comes second, and finally, in last place, comes the ability to pay which determines if a student can get into any particular institution; not the other way around.

I am curious, your logic that any subsidy increases demand and therefore costs (because supply must stay constant for that to occur), then any form of financial aid is off the table including philanthropic grants, scholarships, and the like. I don't even need to ask if you agree, for you must for your position to hold water.


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

“To say that "That makes it easier for the people who belong, and the others should go elsewhere." means, unambiguously, that people whose parents can't afford a higher education, don't deserve one.”

No…it means what I said. People who want to pursue traditional university degrees should do so, and other fields should not. There are plenty of wealthy kids who don’t belong in universities as well, and only go because it’s a status symbol, so there parents make them. I had one client who sent their kid to Harvard because he had the grades to get in. He got out of school and couldn’t find work…which is very unusual for a Harvard graduate. When I asked what his degree was in, it was theology. Essentially, these people buried themselves in debt for a degree that offered no remuneration. Why…because he got in. So what…what did it get him…squat. He could have studied theology in the library or with the local rectory for free.

Optics are precisely the problem. People expect to get a degree even if it offers them nothing. And in many cases it does. I am not saying that kids shouldn’t go to school. I am saying the gov’t should be giving them massive amounts of credit to do so. Because all it is doing is driving up cost. Nothing is gained from tuition going up at the pace that it is.

“just can't digest your, possibly unconscious desire to have a nation of a few wealthy, a few middle class, a few merchant class, and a large poor class”

I have no such desire. You just assume that the only way to be successful is to obtain a traditional university degree. Nothing could be further from the truth. If you want to be a Lawyer, Doctor, CPA…then such a path makes sense. If you want to be a plumber, electrician and various other roles…than such a route is a waste of money. You just seem to presume that you can’t get wealthy in such fields…which is rather pretentious. And yet nothing is further from the truth. There is enormous wealth opportunity in most any field if you work hard enough. We have a client worth over 50 million dollars who started as a mechanic, and then borrowed the money to start his own truck leasing company. Today he has 250 employees. He did that on a GED. He may be the extreme, but a degree is not required to be wealthy. We’d have more people like that if we could revive the entrepreneurial spirit in this country. There are also plenty of lawyers who graduate law school and pass the bar who don’t have a nickel to their name. If you’re a criminal defense attorney in NY…you’re a dime a dozen. Success is defined by motivation and how hard you push yourself. It can be done in any field. And some of those field require traditional university training, and others don’t. If you want to work for a multinational corporation…chances are you want at least a 4 year degree. But it doesn’t have to be that expensive. If you want to be self-employed as small business owner…you’re probably wasting your money in college in most fields.

“I am curious, your logic that any subsidy increases demand and therefore costs (because supply must stay constant for that to occur), then any form of financial aid is off the table including philanthropic grants, scholarships, and the like. I don't even need to ask if you agree, for you must for your position to hold water”

No…gov’t subsidies increase cost. When a philanthropic group gives money…they are more careful about assigning needs to giving, because they are subjected to limitations. When gov’t gives subsidies, they care not for the cost of such subsidies…because their money supply is limitless. If my position doesn’t hold water…perhaps you’d like to explain why most of the research on this topic does in fact support the premise that financial aid is highly correlated to increases in the cost of tuition.

Let me explain a very basic premise about spending that Dr. Friedman once articulated.

When you spend your own money on yourself…you’re are conscious of both cost & quality/value.

When you spend your own money on someone else…You’re conscious of cost...but not always quality/value.

When you spend someone else’s money on yourself…you’re care not for cost…but very conscious of quality. (Employee’s using the corporate card at dinner)

When you spend someone else’s money on other people…neither cost or quality are relevant. (Gov’t subsidies, and most things gov’t does).

I am still waiting for your explanation on which of these input costs that both profit and non-profit universities are seeing rise so much faster than virtually every other sector to justify this massive spike in tuition costs ??? If you’re non-profit…than input costs would dictate output costs, since profit is not a motivator. So somewhere in the supply chain there is a spike in the cost to run the university.


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My Esoteric 17 months ago from Keystone Heights, FL Author

In your CATO reference, where is the other half of that diagram in figure 2 that shows increased demand increases supply and that increased supply lowers costs? That is a one-sided argument people and institution on the Right and Left extremes, of which CATO is one, often use to make their point. Because I know how CATO wants the answer to turn out, I always have to validate their analysis.

I was able to recreate one of CATO's correlation number. They did it by running a correlation coefficient between $ of tuition relative to $ of assistance. Since both increased in magnitude in tandem (in other words, they both went up together and they both went down together), it follows the Correv will be very high. The problem is, and CATO knows this, you can't make legitimate comparisons . I was finally able to duplicate the numbers, well one of them anyway, you offer above.

But, the correct methodology is to use normalized changes in educational assistance. in case assistance as a percent of GDP. When you do this, the correlation falls to around 20%. Consequently, while raw assistance keeps increasing over time, because GDP is increasing, it remained constant as a percent of GDP. To obtain the CATO results, spending on assistance must outpace the growth in GDP.

The correlations you provide above I also found in your CATO analysis and the appropriate time span, 1977 -2002, is used. But, unfortunately


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My Esoteric 17 months ago from Keystone Heights, FL Author

LW wrote "28% of families below the poverty threshold have more than 1 DVD player....give me a break !!!"

ME responds by saying WOW, arrest those deadbeats for wanting a little entertainment in their lives. It seems your position is "I am poor, therefore I must do my best to appear to be poor by denying myself any relief from my poorness".

Rediculous. 1) How many of those 28 out of 100 had the DVD given to them, 2) if they bought one, how many of the remaining, say 10 just to pick a number, bought their DVD as cheaply as possible, say $3 bucks at a yard sale, and how many splurged and paid full price, say a whopping $30 to buy a new one?

Is that a significant number (although I realize that for many on the Right, 1 is too many.)


LandmarkWealth profile image

LandmarkWealth 17 months ago from Melville NY

“where is the other half of that diagram in figure 2 that shows increased demand increases supply and that increased supply lowers costs?”

That’s a false assumption for a non-profit university. If a school has 100 seats available for a class and 150 apply, then 50 either don’t get in or go elsewhere. The following year, they get 175 applicants and still have only 100 seats available, so 75 go elsewhere or go nowhere. But either way, the input costs to run the school and service those 100 students of which they have capacity has not changed beyond normal CPI adjustments. Since they are not competing with the other university for profits, the increased supply is irrelevant. They already have masses of kids trying to get in with limited capacity. So if you’re non-profit, and you’re at capacity…the only thing that matters is the cost to service your capacity. So where is their justification for raising tuition costs year over year at such consistently astronomical rates? There is none. They know the kids can borrow more, so they charge more. Because even non-profits aren’t so non-profit. They are as bloated and irresponsible in how they handle taxpayers dollars as any gov’t agency.

“while raw assistance keeps increasing over time, because GDP is increasing, it remained constant as a percent of GDP.”

Define raw assistance. As we already established, for accounting purposes prior to 2010 a large percentage of assistance is in the form of student loan subsidies, which are not recorded as subsidies unless they fall into default and the issuing bank is forced to take the loss. In such cases the binding liability then becomes a subsidy to the Gov’t and is recorded as such. This doesn’t change that fact that university are well aware of the capacity of students to borrow without collateral in large quantities, and therefore have incentive to raise tuition well in excess of inflation…which is exactly what they have done. In order to quantify raw assistance…you need to incorporate every single student loan year over year.

“1) How many of those 28 out of 100 had the DVD given to them, 2) if they bought one, how many of the remaining, say 10 just to pick a number, bought their DVD as cheaply as possible, say $3 bucks at a yard sale, and how many splurged and paid full price, say a whopping $30 to buy a new one?”

Therein lies the difference in priorities. During the depression, people swam in the east river looking for driftwood to burn for heat. What would they have done with a DVD while they’re family was starving ? How many of them would have had more than one radio in their home, used or not? There is a laundry list of unnecessary accessories that people below the poverty level have in their homes as per the consumption census. I personally don’t care what they have. The problem is that they often have as many luxuries as I do, and somehow the left keeps coming up with more entitlements that I need to provide to them. Because nobody wants to clean up their own backyard anymore. I don’t want to hear about people crying poverty when they have the same nonsense I do, but I am expected to provide for them. If I have to choose between paying for used accessories, or a dental check-up for my kid…I get the dental check-up…and I don’t complain that insurance didn’t cover it, and then find the time to have more than one DVD player in my house.

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