Donald Andrew Henson II

Archive for October, 2012|Monthly archive page

Which Economy?

In 2012 Election, American Economy, Current events on October 10, 2012 at 12:59 am

English: Stop sign in Quebec Français : Pannea...

I know I’m waxing political the last couple of weeks, and neglecting my sworn duty to blog the entire New Testament this year; it is election season here in the US, after all, and it’s hard to escape the noise of it coming from every direction. I promise I’ll be back to my secular rants about the NT soon.

I’ve written about the apparent confusion of the language here in the US between conservatives and liberals, commented on how the word ‘entitled’ has been transformed from a criticism of the upper classes to a pejorative for the working poor, and lamented that some accept lies as facts simply because they have heard them hundreds of times. But in all of this confusion, there is one idea that is so muddy and unclear that one hardly knows what it means – or whether it means anything at all. In fact, I think we may all have quite a different idea in our heads when we hear the words ‘the economy’.

Studies of bi-lingual children have shown that the same word spoken in different languages can produce very different images in the mind. One study involved French-Canadian children between the ages of 4 and 7 years old who had one English-speaking parent at home and one French-speaking one, and could use both languages with equal skill. The children were given a piece of paper and some crayons and were asked by an instructor, in English, to “draw a dog for me, please.” The children happily complied. The drawings all looked very similar, as do most drawings done by children of this age. No surprises.

The next day, the same children were given the exact same instruction, but this time, the whole event was conducted in French instead of English, so the children were told to “dessinez un chien pour moi, s’il vous plait.” Again, all of the drawings looked very similar to each other – but to the astonishment of the instructors, they all looked decidedly different from the drawings of the previous day. The study was repeated with a variety of different objects and creatures school children might be familiar with – every time with the same surprising result.

It seemed that when the children were communicating in French, they were actually thinking differently than when they were speaking in English. Is it possible that ‘un chien’ produces one image in the mind, while ‘a dog’ conjures another? Can it be that not only do different cultures have different ideas kicking around in their brains, but also different ideals?

Or, that what one person means when he says ‘the economy’ isn’t the meaning I get when I hear him say it? This might explain why we are in so much disagreement about how to fix our ‘economy’.

I’ve never been rich, so I have a decidedly middle-class idea of what a good economy might look like. To me, a good economy means that everyone who wants to work can find a job, and that those jobs pay enough to provide the necessities of life. With a bit of hard work, other opportunities to obtain better jobs with better pay become available, and some of the niceties of life, such as a house or car, can be afforded as well. Over time, not only can one afford a few comforts and modest luxuries, but a modicum of financial security. Professionals and successful entrepreneurs can scale to even greater financial heights, but pretty much everyone can expect to exchange his or her labor for a typical American lifestyle. Government assistance is for those who have temporarily fallen upon hard times or who legitimately can not work.

The availability and quality of work is an integral part, in my mind, of a good economy. But what about for those who don’t work for a living, but instead depend on the accumulation of wealth and a positive return on investments? I’m guessing that ‘a good economy’ means something altogether different for them than it does for me.

Notice that how well Wall Street is doing doesn’t factor into my thinking about the economy, but it would be perhaps the single most important factor for someone with a huge accumulation of wealth. For me, I’d like to do something I enjoy doing, and pay the bills doing it. For a person who doesn’t need to work, doing what he wants to do and paying the bills while doing it is a foregone conclusion; what he wants is something completely different from what I want – and thus his idea of what is ‘good for the economy’ probably doesn’t line up with mine.

He wants a good return on his investment. I want a good return for my labor. He might be able to win some, lose some; I cannot afford to work at something that doesn’t pay.

So, when Mitt Romney and other conservatives tell us that tax cuts for the rich are good for the economy, we need to ask, “Which economy?” When the rich have more cash, they invariably invest more into the stock market. As more money pours in, stock prices rise – whether the companies selling shares perform better or not, more buyers than sellers creates an influx of cash for a finite number of shares, causing  prices to rise. Therefore, tax cuts are good for the stock market and those who invest in it. If this is your measure of ‘a good economy’, then saying that cutting taxes for the rich is good for the economy is true.

However, if your idea of a good economy looks like mine, then tax cuts are counter-productive. Teachers, policeman, firemen, and other government employees get axed when taxes are cut, which sends most communities into a downward spiral. Those who lose their jobs can no longer shop or buy, meaning that local businesses lose income as well, meaning they may have to lay off employees as well. All those folks without jobs means lower tax revenues next year, which necessitates even further job cuts.

Depending on how it’s managed, this can still be good news for shareholders. Those redundant employees might be forced to take lower-paying jobs than they had before, and low wages increase the bottom line for big business.

But notice the big difference – the investor class can do well in either type of ‘good economy’, when companies are expanding and adding employees or when they are cutting costs by letting them go. If he’s savvy, the investor can make even more money when stock prices go down.

The man who depends on his labor for his living is not in the same predicament. When the economy is bad, he suffers. Some may find a way to start a new business in bad times, but most end up making less money than they did before. There’s no upside to a downturn for the working man.

I’m afraid I don’t have much sympathy for what ails the rich, nor am I concerned about what benefits that class without benefiting others. Mitt Romney pays 15% or less on his millions, which grow while he sleeps, while I pay 30% on what I earn by the sweat of my brow. He can adjust his investment strategy to incorporate a downturn; I’m left with the ultimate tax break – I get to pay 0% if I have no income at all.

When you go to the polls in the next few weeks or drop of your ballot before election day, you’ve got to ask yourself  – which economy are you interested in?

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Where Is The Evidence That Cutting Taxes For The Wealthy Creates Jobs?

In 2012 Election, American Economy, American Society on October 8, 2012 at 12:49 am

Before my conservative friends get all in a frenzy, remember that this is not a liberal website, but a secular one. Secularism, as defined by the man who coined the term, is “a form of opinion which concerns itself only with questions, the issues of which can be tested by the experience of this life.” In other words, one of the chief goals of secularism is to separate dogma from the debate; if you want to establish that something is true, repeating it hundreds of times might persuade the weak-minded, but has no effect whatsoever on those accustomed to basing beliefs on evidence.

Since Ronald Reagan, the conservative solution to every single problem has been to cut taxes. Known as ‘trickle-down’ economics in the ’80s (or ‘voodoo’ economics to George H.W. Bush, when he ran against Reagan in the 1980 Republican primaries), the assumption goes something like this:

Taxing those individuals who have realized the greatest financial success in our country is counter-productive, if not downright immoral. They are the movers and shakers, the job creators that keep the American economic system purring along like the finest luxury car. If we lighten their tax load, they will use that extra cash to do wonderful things, like build factories, hire employees, give to worthy charities, etc. This will, in turn, crank up the economy, and those new employees of those new factories will sing the praises of the ‘creators’ as they toil away for their weekly paycheck. Everybody wins – the rich benevolently bestow upon the lesser classes all the good things they have not the industry nor morality to produce for themselves.

Except – there’s absolutely no evidence that it actually works this way.

While every conservative politician will say ‘raising taxes hurts the economy’ or ‘cutting taxes creates jobs’, you’d be hard pressed to find a single study that supports this point of view – and hundreds graphs, charts, and studies that refute the idea.

Go ahead and do a Google search yourself – I’ll wait right here for a moment.

If you’re a conservative, you will obviously discount anything from the liberal sites like HuffPost or MSNBC.  But my search, “Do low tax rates create jobs?” turned up a great big ‘NO’ from pretty much every site I could find – at Forbes, here, and here; at US News and World Report; Business Insiderand a number of other sites not particularly noted for their liberal bias, all supported by data. In fact, the only ‘Yes’ answers I found were in the Wall Street Journal,  editorial commentary from conservative newspapers and blogs, and quotes from Mitt Romney. Not particularly in-depth economic analysis.

Take a look at these charts from the Center for American Progress:

This one shows that there is no correlation between the top marginal tax rate – what the richest Americans hypothetically pay – and the GDP. It does seem that lower tax rates flattened out the volatility in GDP, but didn’t cause it to spike upward. As a strong output generally indicates good employment conditions, it would appear from this chart that the effect of taxation on the economy was negligible.

This bar graph is astounding. It appears that when the top individual tax rate is ABOVE 39%, the number of jobs has grown around 2 to 2.5 percent. When the tax rate is lower than 39%, job growth has been minimal. How do conservatives account for this gap between what they preach and what the data shows?

And finally, a graph that shows growth rates rising when taxes are increased, plummeting when taxes are cut.

Now I’m not suggesting that raising taxes will automatically increase the number of jobs in this country – that’s something for honest, hard-working economists to decide. But a 5th-grader could look a these charts and see that the conservative mantra just simply isn’t true. Employment is a complicated thing, based on a lot of parameters. But one thing we do know is that when the economy is good, jobs are created. Raising taxes or cutting them may have a variety of effects, but creating or destroying jobs doesn’t seem to be one of them. Yet politicians are saying it hundreds of times a day.

Perhaps the idea of trickle-down or supply side economics would have been a valid economic theory in the 1950s. Back then, a successful man with excess cash on his hands had few investment choices. He could reinvest in his own business, help to start up another one, or invest in a stock market chock-full of good old-fashioned American companies. Any of those choices might have helped to improve the American economy, create jobs, etc.

But today, the world of finance and investment is radically different. So many financial vehicles today involve moving money around more than actually ‘investing’ it in to one place, and brokers and hedge fund managers often see a far better return in developing markets such as China or Russia. So the rich may still be job creators in a sense – it’s simply that the factories they are building and the jobs they are creating aren’t necessarily American. That money that wasn’t collected in the form of taxes, because of the idea that it would hurt investment, ends up building an Indian factory or collecting interest in a Swiss bank account.

One last thing that we know for sure about cutting the tax rates for the nation’s wealthiest (especially while fighting a couple of ill-conceived wars), is that it creates huge deficits:

I’ll admit that spending needs to be tackled as well – but there’s no question that if you take in less money, you’ll end up with more debt. What happens when governments face deficits? The have to fire policemen, teachers, firemen, and other government employees, meaning that unemployment rises.

So, as a secularist, I have to say that I’m still waiting for some evidence that cutting taxes for the richest Americans will help the economy. So far, that claim doesn’t make the cut. Got a chart or data to back up your claim? Share it with me.

I am a job creator: A manifesto for the entitled – Steven Pearlstein

In 2012 Election, American Economy, American Society on October 2, 2012 at 12:48 pm
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Photo credit: changsterdam

Steven Pearlstein, writing for the Washington Post, has really hit the nail on the head. While the rest of us are supposed to be grateful for a job that might pay the bills if we can get a bit of overtime, the rich think we’re just lazy sloths looking for handouts – the 47%. They, on the other hand are what keeps the country going.

When did ‘entitled’ become an adjective used to describe the working poor? Pearlstein puts the word back into its proper context with this post. I was so impressed that I’ve copied it in it’s entirety – or you can link to the original at WaPo.

I am a job creator: A manifesto for the entitled – The Washington Post.

I am a corporate chief executive.

I am a business owner.

I am a private-equity fund manager.

I am the misunderstood superhero of American capitalism, single-handedly creating wealth and prosperity despite all the obstacles put in my way by employees, government and the media.

I am a job creator and I am entitled.

I am entitled to complain about the economy even when my stock price, my portfolio and my profits are at record levels.

I am entitled to a healthy and well-educated workforce, a modern and efficient transportation system and protection for my person and property, just as I am entitled to demonize the government workers who provide them.

I am entitled to complain bitterly about taxes that are always too high, even when they are at record lows.

I am entitled to a judicial system that efficiently enforces contracts and legal obligations on customers, suppliers and employees but does not afford them the same right in return.

I am entitled to complain about the poor quality of service provided by government agencies even as I leave my own customers on hold for 35 minutes while repeatedly telling them how important their call is.

I am entitled to a compensation package that is above average for my company’s size and industry, reflecting the company’s aspirations if not its performance.

I am entitled to have the company pay for breakfasts and lunches, a luxury car and private jet travel, my country club dues and home security systems, box seats to all major sporting events, a pension equal to my current salary and a full package of insurance — life, health, dental, disability and long-term care — through retirement.

I am entitled to have my earned income taxed as capital gains and my investment income taxed at the lowest rate anywhere in the world — or not at all.

I am entitled to inside information and favorable investment opportunities not available to ordinary investors. I am entitled to brag about my investment returns.

I am entitled to pass on my accumulated wealth tax-free to heirs, who in turn, are entitled to claim that they earned everything they have.

I am entitled to use unlimited amounts of my own or company funds to buy elections without disclosing such expenditures to shareholders or the public.

I am entitled to use company funds to burnish my own charitable reputation.

I am entitled to provide political support to radical, uncompromising politicians and then complain about how dysfunctional Washington has become.

Although I have no clue how government works, I am entitled to be consulted on public policy by politicians and bureaucrats who have no clue about how business works.

I am entitled to publicly criticize the president and members of Congress, who are not entitled to criticize me.

I am entitled to fire any worker who tries to organize a union. I am entitled to break any existing union by moving, or threatening to move, operations to a union-hostile environment.

I am entitled to a duty of care and loyalty from employees and investors who are owed no such duty in return.

I am entitled to operate my business free of all government regulations other than those written or approved by my industry.

I am entitled to load companies up with debt in order to pay myself and investors big dividends — and then blame any bankruptcy on over-compensated workers.

I am entitled to contracts, subsidies, tax breaks, loans and even bailouts from government, even as I complain about job-killing government budget deficits.

I am entitled to federal entitlement reform.

I am entitled to take credit for all the jobs I create while ignoring any jobs I destroy.

I am entitled to claim credit for all the profits made during a booming economy while blaming losses or setbacks on adverse market or economic conditions.

I am entitled to deny knowledge or responsibility for any controversial decisions made after my departure from the company, even while profiting from such decisions if they enhance shareholder value.

I am entitled to all the rights and privileges of running an American company, but owe no loyalty to American workers or taxpayers.

I am entitled to confidential information about my employees and customers while refusing even to list the company’s phone number on its Web site.

I am entitled to be treated with deference and respect by investors I mislead, customers I bamboozle, directors I manipulate and employees I view as expendable.

I am entitled to be lionized in the media without answering any questions from reporters.

I am entitled to the VIP entrance.

I am entitled to everything I have and more that I still deserve.