Friday, April 30, 2010

A modest proposal

When things go wrong, people get mad, and when people get mad, they make mistakes.

I just watched Bill Moyers on public television.  He showed a bunch of people saying they are mad at corporations, that corporations are looting the common people.

But corporations are just a form of social organization that is very good at raising capital and producing goods and services.

It is the ruling class who are looting the common people, a ruling class of interlocking boards and CEOs and lobbyists and Congressmen and just plain greedy people who have forgotten to reward the people who are doing the work because they along with almost everyone else in America bought into the notion that greed is good and that it’s okay to take more than your share.  I want it all now.  It’s time for you to get into me.

The problem is the ruling class and the American social values that have until recently validated the behavior of our ruling class.  Greed has been good since Ronald Reagan’s presidency, approximately.  We let them get away with it.

The solution is to bring the people in the ruling class down to earth by raising marginal tax rates to at least 75 percent on income over one million dollars.  Take the fun out of expropriating the employees and shareholders of their corporations, let the rich bear their fair share of cleaning up the fiscal mess Wall Street created (whether they’re on Wall Street or not).

If they want to take their money out of the country, they probably can, but the IRS is making it more and more difficult.  If they want to leave, let them go, it’s still a free country, relatively speaking.

The Tea Party movement and the Republican party are sucker’s games, talking about getting government off people’s backs, when all they’re really talking about is protecting the highly unequal status quo and keeping taxes low for rich people.  The bottom half of the income distribution already doesn’t pay federal taxes.

Tax rates in 1944, when the country faced a similar fiscal debt load (but less overall national indebtedness), were 94 percent on incomes over $200,000 (about $2.4 million in today’s dollars).

The problem is not corporations, it’s the people who run them.  Peter Drucker’s long-ago dream of “pension fund socialism” failed to materialize (i.e., in which the public controls the corporations through their massive pension fund investments).  The separation of ownership and control of the American corporation has been perennial since Berle and Means wrote their class book on it in the ‘Thirties. 

So let’s hit ‘em with taxes.  Let’s teach the ruling class a lesson. Let’s bring them back down to earth.  Let’s raise the taxes on the stratospheric portions of the incomes they pay themselves for products and services generated by the work of others. 

Maybe then corporations will return to the pay multiples of only thirty years ago, when the top dog got thirty or forty times the entry level income—as if he or she were a member of the same team, one might say—not a multiple of hundreds of times. 

America is a banana republic with nukes until the inequality is reduced.

Raise tax rates on the super-rich who have taken all the income gains for the past decade.

Friday, April 23, 2010

William Black on our corrupt regulators

This is much-watch, especially if you’ve been seduced into drinking some of Obama’s financial reform Kool-Aid.  Obomba has proven himself a spineless cut-out for the military-industrial-financial Establishment many times over.  He may have good intentions, he may face a fecally-impacted Washington, he may face death threats every day, he may be doing all he thinks he can do given the cards he’s been dealt, but the fact remains that no significant reform of a broken America is taking place. 

Bill Black lays the blame where it belongs, on the industry-captive (industry-whore) regulators who had the power to preclude and then to clean up the mess all along:  Alan Greenspan, Ben Bernanke, Tim Geithner, Larry Summers, and so on ad nauseum. 

Friday, April 9, 2010

Best idea of the new century

Call a Constitutional Convention. See


How to Sober Up Washington

By Mark McKinnon and Lawrence Lessig

Washington is hopelessly broken. There’s only one way to fix it. Mark McKinnon and Lawrence Lessig on why right and left alike should call for a constitutional convention.

Washington is hopelessly addicted to money and thus to the status quo; drunk with power and incapable of getting sober and fixing itself. It’s time for an intervention—by the states.

Politically, we two disagree on just about everything. But the one thing we do agree on is that the institutions of government in Washington have become corrupt, held hostage by well-funded special interests. It’s no wonder that only 17 percent of the American public in a recent Gallup survey said they had a favorable opinion of Congress. American voters believe, and rightly so, that corporations, labor unions and moneyed special interests have a chokehold on politicians. Voters are disillusioned and discouraged because they don’t believe Washington represents the will of the people. And the recent Supreme Court decision in Citizens United v. F.E.C.—which permits unlimited independent corporate campaign expenditures—will only make this worse.

Continues here.

Saturday, April 3, 2010

The state of the labor market

And remember that “employment” counts those involuntarily working part-time jobs and those imputed to be “self-employed.”  See Mish or Tyler Durden for demolition of the current unemployment statistics.


The U-6 measure of un- and underemployment hovers around 17 percent.  Given the extreme inequality of the income distribution, this represents a sizeable and growing underclass.  How much fun it will be to live in the United States over the next decade will be largely determined by how the authorities choose to deal with this segment.

The Obama administration is being vilified by some for trying to address a mounting humanitarian crisis here at home, much as Bill and Melinda Gates are being vilified by some on the left for “racist” eugenic ambitions for trying to improve the health of the bottom two billion humans (which, in turn, will predictably lead to lower infant mortality and lower reproduction rates). 

The ruling class loves the current nasty political environment because it keeps their marginal tax rates low.  My read is that the powers that be are aware the economy is collapsing and are making their last greedy grab for wealth to set themselves and their families up during the depression that will unfold in a few years.

Marginal tax rates on incomes over $1 million should be about 75 percent in the current fiscal environment. 

Friday, April 2, 2010

The calm between storms

The stability of a 9.7 percent unemployment rate repeated three times can be expected to enhance consumer and business confidence or “animal spirits” in the coming months.  Recall that the measure of “animal spirits” of the obscure economist that I channel is

A = - (U – UMEAN)/Sigma(U)

where A is “animal spirits,” U is the unemployment rate and UMEAN is a 48-month exponential moving average of U, and Sigma(U) is its standard deviation over that period.  The idea is that that people make normalized judgments of current conditions based on what they’re used to, as suggested by adaptation level theory, and that the thing that most influences confidence levels is folks’ perceived job insecurity.


Making a freehand forecast of unemployment suggests that “animal spirits” will rise to about the zero level in time for the next Presidential election, and that the next collapse of confidence (which we believe is the signature of a serious business slump) will not occur until about 2013-2015. 

Our recession probability model forecasts virtually no chance of a slump in the next 12 months.


This is not to suggest the economy is healthy.  As regular readers know, I subscribe to the hypothesis of The Fourth Turning that we are heading toward a period of extreme change characterized by a complete collapse in the social contract and the legitimacy of the current government.  See this post and links for more.  From an economic perspective, the extreme inequality of income and wealth we have now is the strongest indicator that the system no longer works for most folks the way it used to.  In short, the ruling class—led by Wall Street—is now bleeding America to death.  There will be no lasting recovery without equalization of pay scales across corporate America, and fundamental reform of the financial sector to prevent the Fed from simply being a money machine for an elite few.

I’m including a chart on labor market volatility to underscore the dynamics of why confidence will increase in the next secular exhilaration.  The labor market’s volatility as measured by Sigma(U) will peak soon and begin to decline; labor market volatility tends to peak before “animal spirits.” Once unemployment falls below its adaptation level in about 2012, and A rises above zero the diminished labor market volatility will boost confidence sharply.


Without a rebalancing of aggregate demand through greater equality of incomes and more progressive taxation, America may sink into a neo-feudal state in which its worst authoritarian qualities will come to the fore, and in all likelihood extinguish the best of what America has been. 

What will the quality of the current expansion phase be?  I have to believe it will be characterized by muted growth.  Investment has collapsed, and “Knightian” or fundamental uncertainty has entered the picture with regard to the fiscal future of America.  Americans are still over-consuming; consumption must fall.  Government is tapped out—so where will the demand come from?

Instead of foolishly insulting them Krugman-style (although this could be part of the political cover game, Krugman just being a tool) we should be offering the Chinese opportunities to spend their trillions of reserve dollars on American businesses and real estate.  Make them offers now and we’re better off than we will be after the dollar collapses.  How unhappy are they in Montgomery, Alabama, that Hyundai decided to build a plant there?  Not very.  And we might remain friends and avoid World War III or IV or whatever your number is by promoting Chimerican symbiosis.  When was the last time we were at war with Great Britain?

My judgment is that the next downturn is likely to be worse than the last one.  Gird yourselves.