Investment versus speculation

by Doctor Science

WHBeard-BullsBears
William Holbrook Beard, The Bulls and Bears in the Market. I can’t figure out if the bears in this close-up:
BullsBearsCrop
are looking for more money inside the bull they’ve eviscerated, or are angry because it turned out to be a hollow, bubble-y sort of bull.

In July Bill Domhoff, sociologist at UC Santa Cruz, posted An Investment Manager’s View on the Top 1%, written by a long-time acquaintance who works in the business (and who wants to stay anonymous, not surprisingly). He emphasizes that there are two distinct sets in the “top 1%”:

The Lower Half of the Top 1%

The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well.

…Since the majority of those in this group actually earned their money from professions and smaller businesses, they generally don’t participate in the benefits big money enjoys. … Most of those in the bottom half of the top 1% lack power and global flexibility and are essentially well-compensated workhorses for the top 0.5%, just like the bottom 99%.

The top half of one percent, and especially the top tenth of one percent, are a different story:

The Upper Half of the Top 1%

Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

… Folks in the top 0.1% come from many backgrounds but it’s infrequent to meet one whose wealth wasn’t acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a “paper” asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. … One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company.

The important point here is that even the people who look like they’ve made their money from a business outside the financial industry — the Bill Gates or Steve Jobs types — really haven’t. They’ve made their money from *stocks*, not from selling things or services.

It’s not just the wealth from the stocks of their companies, either. This chart of income sources for the top hundredth of a percent

All_income_sources_top_01

shows that dividends — direct shares in profits — have become much less important since the 1970s, while “wages” have become much more important. It looks as though these extremely wealthy people are working for their money, doesn’t it?

Except that “wages” includes stock options and bonuses, which are often based on stock price performance. So wealthy people who aren’t getting money from S-corporations, sole proprietorships, and partnerships are getting almost all their income from capital stock/ real estate gains, and from stock-indexed wages.

And the stock market isn’t really for investment, it’s for *speculation*. “Give them money and get a percent of the profits” is be investment, because you (the wealthy person) are tying your income to how much money the company actually takes in for doing things. “Buy low, sell high” is speculation, because how much money you get doesn’t have to depend on anything the company actually sells or does — all that matters is what potential buyers think, and their confidence that the stock will continue to be worth more in a market of people who think like them.

No wonder so many of our Very Serious Leaders keep saying “confidence” is of overwhelming importance, more important to businesspeople than things like “are there enough customers?” — even though actual businesspeople are most concerned about lack of demand.

Speculation is driven by confidence, and the more large corporations are run by and for the interests of speculators, the more confidence — instead of customers — will seem to be truly necessary for business success. For gamblers, the Confidence Fairy seems real:

ForutuneWheel
Fortune and her Wheel, from an illuminated manuscript of Boccaccio.

and marketing — in the form of “if you believe in fairies, clap your hands” — is the most crucial element for success.

In any case, it looks as though the wealthiest and most powerful people in our society, regardless of what line of work they claim to be in, are all really in finance and Wall Street. The rest of us are the 99.9%.

252 thoughts on “Investment versus speculation”

  1. I think your analysis is mostly correct, but your claim that the Bill Gates or Steve Jobs have made their money mostly from stocks is misleading. Most of that stock is in the companies they founded and helped build, so it is at least somewhat grounded in provision of real goods and services. One could argue endlessly about the disproportional reward for them vs. others who helped build those same companies, but they’re still a different breed than speculators who had *nothing whatsoever* to do with the success of the companies in which they bought stock.

  2. Platypus:
    Actually, that’s one of my big points. We automatically think of Gates, Jobs, etc., as having made money from their firms’ goods and services, but what the investment manager points out is that the *great wealth* part comes from the stocks, which are speculative financial tools.

  3. I think my point of view on this is closer to platypus’.
    To me, the line between ‘investment’ and ‘speculation’ is more a function of (a) does your investment actually create new capital for an enterprise, and/or (b) do you have any meaningful, hands-on involvement in the enterprise?
    Or, a shorter form: do you actually contribute to the value that is represented by the stock price, or are you just laying bets (however well informed) on where it is headed?
    There are lots of problematic aspects to compensation in the form of equity, but IMO they are a different set of issues than investment vs speculation.

  4. bobbyp’s link at 8:56am is to this NYtimes article, which is interesting in that the article doesn’t show Mr. Lauder participating in any of the more egregious tax shelters of the late 1990s/early 2000s (though it would likely be hard for the NYtimes to find that out without the cooperation of Mr. Lauder or some disgruntled Big 4 employee or some sort of lawsuit between Mr. Lauder and his tax advisor).
    The tax planning techniques he personally engaged in (as opposed to his parents via estate planning/trusts) are said to be the following (in general order of the article):
    1. Deductions for charitable donations of his art.
    2. A variable pre-paid forward contract.
    3. A short against the box transaction.
    4. Pledging appreciated assets (stock) to secure loans.
    5. Deducting property taxes (and perhaps mortgage interest, though the NYtimes doesn’t say), though sometimes limited by the AMT (the latter according to his spokesman).
    6. Charitable deductions for fractional donations of artwork.
    7. Some type of strategy to avoid unspecified foreign – but not U.S. – taxes on the sale of stock in his broadcast network CME.
    Other than perhaps #2, these don’t seem particularly controversial or some sort of “loophole” exploitation. 1 & 5 are run-of-the mill itemized deductions. 6 was perhaps less-run of the mill in terms of itemization but was specifically blessed until Congress changed the law. 3 was a longstanding strategy until, again, Congress changed the law in 1997 or so (the “box” refers to a time when people held actual physical shares of securities and kept them in a lockbox). I find it hard to call 4 any type of tax strategy at all. 7 doesn’t concern U.S. taxes and so I’m not sure where to go with that.
    That leaves the variable pre-paid forward contract in #2. The IRS specifically blessed a certain form of these contracts in revenue ruling 2003-7, and Lauder’s spokesman said his transaction complied with this ruling (though that’s what they always say).
    If the point of the NYTimes article is to point out the tax planning techniques available to the extremely wealthy, then it seems they’ve succeeded on #2 and perhaps to a lesser extent on #7. If there was some other point, I’m not sure what it is.

  5. Ugh,
    My statement was a follow along from that of the good Doc that great wealth is from finance or “coddling” (maintenance of usually inherited swag). There was no implication that what Lauder has done is in any way illegal. Socially useless perhaps (my opinion, not that of the august NYT), but not illegal.
    As to #4, it’s pretty straightforward. A tax deferred is a tax saved. You get to realize the use of the financial power of the appreciated asset (or even spend it down) without selling it and paying the tax. The tax liabilit is deferred into the future. This is elementary bird in the hand stuff…..ask any accountant.
    The point of the article was to explain the methods employed by the uber wealthy to minimize their taxes. It should be smack-you-in-the-middle-of-your-eyes-obvious that these strategems are not available to the ordinary taxpayer. Insofar as that was the theme of the piece, it was very informative.
    Thanks.

  6. Russell,
    Let us look at the case of Mr. Gates in greater detail. The initial IPO in 1986 allocated to the public some 3 million shares raising 70-80 million dollars. This represents the initial ‘investment’ in the company. The buyers were essentially speculators. The IPO gave insiders, such as Gates, a way to make their portion of the business liquid (all those shares kept in house).
    Leaving aside charges that Gates basically swindled the author of MS-DOS to begin with, and the fact that the vast wealth of Microsoft derives essentially from a patent (thank you, government), it does not strike me that Mr. Gates invested all that much in the startup, though he was the prime founder and ran the company for many years thereafter. Point taken on that one.
    I should think the Doctor’s take has a great deal of validity. Gates’ great wealth derives from pieces of paper called stock certificates, the value of which is determined by the markets guess as to the company’s future outlook….not its past.
    Stocks are essentially speculative financial tools and provide their owners with liquidity….a valuable thing in a risky world.
    Regards.

  7. bobbyp: The point of the article was to explain the methods employed by the uber wealthy to minimize their taxes. It should be smack-you-in-the-middle-of-your-eyes-obvious that these strategems are not available to the ordinary taxpayer.
    Well, I guess it really depends on what level one looks at the article. Can ordinary taxpayers take charitable deductions? Absolutely, unless you think anyone that itemizes deductions is not ordinary. Does an ordinary taxpayer own a piece of art worth 9 figures? Obviously not.
    You are correct of course that #4 can be a tax planning technique in that if I want to obtain cash now I can either (a) sell an appreciated assets pay the tax and get the cash, or (b) borrow the cash and pledge the assets as security without incurring the tax, and choosing the latter (and presumably leaving the loan outstanding until death or repaying the loan with other income, paying interest along the way, of course). But people enter into secured loans all the time with little consideration of the tax consequences.
    In any event, as to what tax stratagems are available to the ordinary taxpayer among the seven I list, I would say only #2 (and #7 depending on how one defines ordinary taxpayer). No one is going to enter into a variable prepaid forward in exchange for your 100 shares of publicly traded X Corp stock worth $1,000 (though in theory it could be done). But if you want to donate them to charity or engage in a short-against the box transaction, it wouldn’t be much of a problem (borrowing specifically against those share might be more difficult, but they would certainly would be included in your assets for consideration of granting the loan, and I doubt Mr. Lauder got a $ for $ loan against his Estee-Lauder shares).
    In any event, I guess my points are that there’s nothing in the Times article to suggest Mr. Lauder engaged in any of the more egregious (legality aside) tax shelters of late (e.g., FLIP, BLIPS, OPIS, BOSS, Son of BOSS, COBRA, etc.), and that to the extent that the Times article implies that the strategies it discusses are only available to the uber-wealthy, it really only hits the mark on #2.
    More broadly, I’m not sure what’s to be done about this. To the extent that certain transactions only make sense on a large scale due to transaction costs, those will always favor the rich. One potential partial solution would be to adopt a mark-to-market system of taxation, where everyone’s assets are treated as sold for their FMV at the end of the year and folks are taxed on their gains (or are allowed to deduct their losses) based on such a hypothetical sale. That would eliminate 2,3, and 4 above as a tax planning technique, but such a system has its own issues.

  8. Gates’ great wealth derives from pieces of paper called stock certificates
    I’d say the liquidity of Gates’ wealth derives from the fact that he holds some portion of it — maybe most of it — in the form of stock certificates.
    The wealth itself derives to some significant degree from his management of Microsoft. Regardless of how you view the quality of his leadership.
    To put it another way – I probably own MS stock. I frankly have no idea if I do or not, if I do it is via some fund or other. But it’s highly likely that I do.
    My contribution to the value of MS as an ongoing concern is significantly less than Bill Gates’.
    That’s pretty much all I’m saying.
    I understand that the value of stocks, specifically, fluctuate based on investors’ estimate of what their future worth will be, but their value also reflects the real value of the underlying enterprise. Especially over the long term.
    It’s not a totally made-up number.

  9. More broadly, I’m not sure what’s to be done about this.
    Thanks for the reply. Yes. Several of those items can be employed by those of the hoi polloi who manage to rise to the level of qualified itemizing deductors (many don’t make this level). However, donating your grandmother’s paint by numbers work to charity and claiming a deduction has nowhere near the chachet or throw weight of donating priceless pieces of art to a world famous museum that obligingly puts you on the board and pays for your fancy meals at swanky meetings where you can meet and exchange insider information with other members of your class and write it off as a business expense. Apples vs applets? At some point it strikes me there is indeed a phase change.
    What to do about it? Many ideas try to deal with the results (huge wealth disparity? Then tax it!) instead of the causes (how about a financial transaction tax? lower caps on mortgage interest deductions? Treating all income as, well, income? patent reform? Corporate structural reforms).
    That’s where I would like to start. I see the difficulty in trying to “take” from those that have. It’s a tough sell. But if we as a society adopt rules to insure that very few ever acquire that much to begin with? Then the shoe is on the other foot. Those that want the advantage need to justify it, and the Mores will have to convince us they indeed deserve More.

  10. (b) borrow the cash and pledge the assets as security without incurring the tax, and choosing the latter (and presumably leaving the loan outstanding until death or repaying the loan with other income, paying interest along the way, of course).
    This is available to anyone with an asset, but how this is a tax avoidance measure is beyond me. The loan has to be paid back, with dollars on which the tax has already been paid. At best, you are encumbering an asset, and incurring an obligation. Plus, there’s the interest, as was noted, but unless the loan was for a business or the purchase of real estate, the interest isn’t deductible. The obligation never goes away unless it is paid in full. If the borrower dies, it is passed along to the estate. The borrower can’t default, because then the lender levies on the collateral. This doesn’t look clever to me at all. It looks like what put so many people underwater before the bubble burst.

  11. But if we as a society adopt rules to insure that very few ever acquire that much to begin with?
    BP, I’d like to know three things:
    1. What rules should society adopt to achieve this end?
    2. Why?
    3. How do we know such rules would make others’ lives materially better and how, more importantly, can we be sure these rules won’t make things worse?

  12. McTx,
    You can sell the asset today and pay the tax today (let’s say it’s 15%). Or you can defer the tax for a very very very long time. What is the present value of that tax obligation in today’s dollars? Depending on the discount rate, and the length of time of the deferral, that obligation can be made to be very small on a discounted basis. The interest on the loan may or may not be deductible. That one I don’t know. But if the loan is rolled over into another asset that earns income or has appreciation, this offsets the loan cost. Plus the orginial asset continues to grow at whatever rate, and you get the advantage of interest on interest, tax deferred.
    I’d suggest you talk with your accountant. If you defer a tax long enough, you effectively do not pay it. If this did not make sense, why would a centimillionaire do it?
    Cordially,

  13. 1. What rules should society adopt to achieve this end?
    I listed several above.
    2. Why?
    Because I believe these policies will help us to acheive a saner, more just, more responsible, and healthier society, with a stronger social contract while still promoting individual freedom.
    3. How do we know such rules would make others’ lives materially better and how, more importantly, can we be sure these rules won’t make things worse?
    The conscious adoption of destructive social policies since J. Carter in the late 70’s, accelerating with the Reagan presidency, and up until now have directly led to lower rates of economic growth, growing income and wealth inequality, increased social alienation, and the rendering of the social fabric. If the policies I advocate contribute to turning that trend around, what’s not to like? I can say this: Major policies adopted since the 70’s have been a disaster. How can you possibly defend them?
    This has been another general answer to a general question.

  14. but their value also reflects the real value of the underlying enterprise.
    If I buy a share of MS today, I contribute absolutely nothing to its value as an on-going enterprise. My funds go to somebody else who sold for any number of reasons, and not toward buying more programmers and office space in Redmond, WA.
    The real value of a stock is the stream of future earnings, not the amount of “shareholder equity” on the latest balance statement.

  15. If I buy a share of MS today, I contribute absolutely nothing to its value as an on-going enterprise.
    This is, *precisely*, my point.
    Bill Gates contributed quite a bit to the value of MS as an on-going enterprise. I have no problem with him being wealthy.
    IMVHO, if we want to incentivize productive entrepreneurial activity, I can see the sense of giving Bill Gates, frex, some kind of favorable tax treatment on the income he derives from the stock he holds in MS.
    Me, personally, not so much.
    I don’t think our current public policy makes those kinds of distinctions.
    That’s my point.
    If we don’t want to incentivize entrepreneurial activity via the tax code, then our problem is much, much, much simpler.
    If you make income, it gets taxed, as income, at whatever the appropriate rate is for your income bracket.
    I would also basically not lose a lot of sleep over that plan, either.
    But if we are in fact going to give people tax incentives to *invest*, then the incentives for a guy like, frex, Bill Gates should really be different than they are for a guy like, frex, me. At least as regards our respective “investment” in MS, specifically.
    IMVHO.

  16. But if we as a society adopt rules to insure that very few ever acquire that much to begin with?
    I guess I consider myself reasonably far to the left, as Americans go. At least, Americans who aren’t graduate students.*
    That said, I find the idea of adopting rules specifically aimed at limiting what any given individual can acquire to be very problematic.
    How much is “too much money”?
    Who gets to decide?
    What if somebody is just freaking lucky?
    What if somebody is just really smart, hard-working, and freaking lucky?
    As far as I’m concerned, I’m looking for three things, and pretty much only three things:

    1. structure our social and economic public life such that more of the wealth that gets created goes to folks who do the stuff that folks actually pay money for
    2. strictly limit the influence of private wealth on the political process
    3. if we’re going to raise revenue via an income tax, it should be realistically progressive

    Beyond that, if money’s what you’re after and you happen to grab the brass ring, mazel tov.
    Some people are really good at what they do. Some people do stuff that commands a high rate of compensation. Some people are very driven and competitive and are highly motivated by the idea of getting dirty stinking rich.
    Whatever floats your boat. I don’t see a need to try to limit how wealthy somebody can be, I just don’t want them getting special favors.
    * that was a joke.

  17. Major policies adopted since the 70’s have been a disaster. How can you possibly defend them?
    The 1970’s were an economic disaster for the United States with multiple oil shocks, a sharp decline in American manufacturing, double-digit inflation and high unemployment. How can you defend the policies that led to that?

  18. I have no problem with Bill Gates being wealthy. I have a problem with a set of policies that promote, protect, and coddle that extreme amount of wealth…in his particular case patent law, and effectively shift income upward. So of your items 1-3, I come down more heavily in favor of policies that can be identified with your item 1, because if you are relying more heavily on items 2 and 3, well, the horse is already out of the barn, the omelet broken, and etc.

  19. Whatever floats your boat. I don’t see a need to try to limit how wealthy somebody can be, I just don’t want them getting special favors.
    Rising tides aside, I feel we are on the same tack, but looking through different ends of the viewing glass. I would argue that special favors (i.e., consciously adopted social policies beginning in the 1970’s-often termed “neoliberal” in some quarters)have worked to promote and/or create the vast disparities in wealth and income we now observe, and concomitant social ills that follow: The destruction of the commons, anti-democratic concentrations of economic and political power, and the rending of the social fabric.

  20. I’m in agreement with the first half of this post, and very much in disagreement with the second half.
    There are people making a huge amount of ‘financial’ money. I strongly suspect something shady or bad for the overall economy in it.
    But it is totally wrong to tie this quote to that concept:
    “The important point here is that even the people who look like they’ve made their money from a business outside the financial industry — the Bill Gates or Steve Jobs types — really haven’t. They’ve made their money from *stocks*, not from selling things or services. ”
    No. They built up strong businesses creating and selling very important things and services. They sold off SHARES of those businesses, and that came in the form of stocks. Their stock options were indeed speculation, but it was a bet that they could make the companies even more valuable than the strike price of the stocks. For the most part they did so.
    Interestingly, I would say that a lot of the big bank/finance money involves taking money from people like Jobs and Gates. The finance sector is supposed to facilitate profits, but I think it has been taking a larger and larger percentage of the facilitated profits. When you see people like Jobs and Gates making lots of money off the stocks from their own companies, the economy is probably functioning well. When you see big bankers making just as much and more, then I suspect the economy is not functioning well.

  21. DBN,
    I don’t know what policies you are referring to. Perhaps you could state them. As for the 70’s:
    1. We went off the gold standard. This was a good thing. Our balance of payments made it untenable to continue supporting.
    2. The oil shocks experienced by the world economy were not driven by US domestic economic policy.
    3. Unemployment decreased steadily in the 2nd half of that decade only to spike upward again during the early 80’s recession.
    4. Despite all the oft cited problems, economic growth was slightly more robust in the 70’s than it was in the 80’s.
    5. We have continued to lose manufacturing jobs to overseas competitors throughout the 80’s, 90’s, and the oughts.
    6. We have a 9% unemployment rate right now. Perhaps you are not paying attention?
    I lived through the 70’s. The world didn’t end. People still had good incomes. A typical single wage earner could still support a middle class life style–the house, the car, sending the kids to college. Today, these things seem like a dream to many, if not most American.
    So I ask again: How can you support the policies, beginning with the Carter de-regulations and reaching their apogee under George W. Bush, that have brought us to this woeful state?
    We have adopted some very bad social policies. It’s time to change them.

  22. Sebastian,
    Did Bill Gates acquire more of his wealth from (a.)The income stream derived from the business known as Microsoft; or (b.) The fact that as founder, he held a gigantic portion of the original stock allotment?
    Agree in part re your rant about bankers, but historically, most of American business growth has been financed by retained earnings not funds raised from “investors”.

  23. I could not agree more. Last week I wrote a similar post on why corporate IT is oblivious to their new role. But, I do think the renaissance of IT is coming. Either that or the same time next week we will be using EC2 dashboard to provision new server 😉

  24. My objection to discussion of the ultrawealthy focused on Bill Gates and Steve Jobs types is that we all understand that they at some point made a widget that had some value and so there is some proportion of the money they definitely earned. What about the ultrawealthy’s kids? How many of the top .01% are wealthy because of an inheritance? Do we feel as passionately about letting them squat on their parent’s billions? If I had 3 billion dollars, I’d evade taxes just as brilliant as Mr. Lauder. “Here,” I’d tell the lawyers. “Hide it.”
    Also, I can never quite square the fact (is it a fact? I will proceed as though it is) that there is diminishing marginal utility to a dollar with the fact that we are so keen on concentrating dollars in one place. Isn’t almost statistically certain that we have enough smart and hardworking poor people who would, proportionally, benefit far more and arguably benefit our economy far more if they had a larger share of wealth, even if doing so took money away from the Mr. Lauders?
    I think the bedrock belief of people who oppose higher marginal tax rates is that the money is already in the right places. Everyone who is rich now (or at least sufficient proportion such that we should only meddle, if at all, in the other direction) deserves it. The worthy people are already rich, and taking money from them and giving it to the poor is throwing money away.

  25. Bill Gates contributed quite a bit to the value of MS as an on-going enterprise. I have no problem with him being wealthy.
    The motivation and reward for doing what Gates–and many other much smaller players–did is that there is a market for the stock, i.e. ownership, of the company Gates or whoever puts together. No market, no incentive.
    We are mixing a lot of different concepts here. I am in general philosophical agreement that deferring taxes in most contexts makes for bad policy. Tax gains net of losses/expenses in the year of the gain? Fine. For companies that have a loss, should they be allowed to carry that forward? I think “yes” is the right answer. It’s better to allow a company to stay in business and use next year’s profit to cover last year’s loss. The rub comes in how you define “loss”.
    That’s probably a discussion for another day, assuming anyone here has the expertise to address it substantively.
    What I can’t fathom is how GE can pay a dividend but no taxes. Something smells there. Immelt’s proximity to this administration doesn’t make that smell go away.

  26. I don’t see that the distinction between investors and speculators is necessarily important. The problem is that with publicly traded companies, there are people who are rewarded for reasons that don’t necessarily have anything to do with the quality of the product or business management. This goes not just for bankers and financiers, but top level corporate management. I don’t know how to fix it, but it’s not my inclination to demonize people who know how to get rich off of the system. Somebody needs to change the system.
    In the meantime, I agree with those who want to 1) increase income tax rates on the very wealthy and eliminate some deductions, 2) tax financial transactions (see Krugman yesterday), 3) tax inherited fortunes, 4) eliminate wealth as a factor in the political system.

  27. One thing that occurs to me that could stand some hard review is this business of buying up a ton of high priced art and then donating to a self-created foundation, where the donor retains functional control, and getting a tax write off for doing something that is pretty much self-aggrandizing fun.
    If I could figure out a way to depreciate/deduct golf clubs and green fees, my views on this would probably change. Maybe I could donate my game to a foundation on theory that the good I do is making all other golfers feel better about their game.
    The problem is that with publicly traded companies, there are people who are rewarded for reasons that don’t necessarily have anything to do with the quality of the product or business management.
    This is true in every aspect of life. There is no solution. Certainly not one that wouldn’t have its own set of bad problems.

  28. So, given that buying and selling shares on the market, subsequent to the initial stock issue, doesn’t really fund capital investment by the company the shares are for, what’s the justification for treating dividends the capital gains from sales of stock *purchased from a previous shareholder* differently from wage income?
    Is it just that it will entice more initial investors, knowing that there will be a greater demand for the shares they purchased, because of preferential tax treatment for all *subsequent sales* of those same shares? It wouldn’t be enough to give special treatment only to the initial investor? Would that many people thereafter choose not to make money simply by buying and selling something because the taxes would be marginally greater?
    Does this special treatment really have a major effect on the level of actual capital investment?

  29. I don’t have a problem with people becoming wealthy through their own work – whether that means creating a company that does very well, or having a skill people will pay through the nose to watch performed, or otherwise putting some effort into the achievement.
    What I do object to is letting that vast wealth be passed on to successive generations in its entirety. I don’t see how anyone can argue the descendants “earned” that money, nor how taxing it can be considered “penalizing them for their success” (their success at what, precisely? Picking the right parents?). What unlimited inheritance is good for is building an oligarchy, and oligarchies aren’t good for anything except perpetuating their own privilege.
    As Americans once upon a time knew monopolies were bad for society, we also once knew no-limit wealth accumulation was bad for society. We had things like estate taxes to limit the size of financial legacies, as we used to have anti-trust laws to limit the consolidation of business. It’s kind of a shame we no longer believe those things or have those things.

  30. I do not know how it can be argued that relatively high taxes on the rich penalizes them for earning the money. it would be a penalty if the taxes actually affected quality of life, I suppose, if the taxes were so huge that the rich person was not able to live as a rich person. That’s not even close to being the case in the US. If the tax cuts for the rich were not extended weatlhy people would not have to pull their kids out of private schools, forgo the purchase of that fourth car, or sell their seventh house because they couldn’t keep up the mortgage. The poor old rich people are not going to suffer!
    On the other hand those Repulican politicans who refuse to reinstate the taxes on the rich are the very ones who oppose funding unemployment, Medicaid, Pell grants, want to turn Medicare into a voucher system…changes that would very dramatically and horribly impact millions of people.
    Claiming that taxing the rich is a penalty is an attempt to make it look that there is a moral issue involved, a moral wrong done to the poor deserving rich people. But without the higer tax rate for the wealthiest us middle class people or working poor people who have to make up the lost revenues out of our much smaller incomes or try to live without the services that our society can’t afford without the taxes from the weathiest.
    There’s a moral issue involved alright, but its not the so-called penalty of taxing weatlh.

  31. This is true in every aspect of life. There is no solution. Certainly not one that wouldn’t have its own set of bad problems.
    Actually, McKinney, although I agree that life is unfair, I don’t agree that there is no solution to the problem of corporate executives basically plundering employee pensions to pay themselves more money, and collecting giant bonuses when they’ve laid off workers and run a company into the ground:

    “CEO salaries are still running at double the 1990s CEO pay average after inflation adjustment according to the 17th annual executive compensation survey, CEO Pay and the Great Recession by the Institute for Policy Studies. At a time when many laid off Americans are hurting financially, CEOs are reaping the rewards of handing out mass pink slips. Layoffs pay off for CEOs, with the money in saved wages further padding their plump paychecks. CEOs at 50 companies — “layoff leaders” in the study — that laid off the most employees took home an average pay of almost $12 million in 2009, 42 percent more than the average CEO pay.
    Most firms — 72 percent — announced mass layoffs during periods of profit, reflecting a growing trend in corporate America: tightening the workforce to increase profit and maintain high CEO salaries.
    Even CEOs who lost their jobs, like Fred Hassan of Schering-Plough, the highest paid layoff leader, received a $33 million golden parachute when his company merged with Merck, while 16,000 employees lost their jobs. Hassan’s total 2009 compensation — $49.6 million — is enough to provide all 16,000 who were pink slipped average unemployment benefits for more than 10 weeks.

    These are the job creators we keep hearing about? Right.

  32. On CEO pay, what’s most interesting to me is a comparison of U.S. based MNC CEO’s compensation to non-U.S. based MNC CEO’s. The former outstrip the latter by a large margin, controlling for obvious variables. Why?

  33. Sapient writes: Actually, McKinney, although I agree that life is unfair, I don’t agree that there is no solution to the problem of corporate executives basically plundering employee pensions to pay themselves more money, and collecting giant bonuses when they’ve laid off workers and run a company into the ground:
    Several points: (1) we weren’t talking about CEO pay, (2) your link on CEO’s plundering pensions for all sorts of evil purposes is likely grossly in error, since not a single example is provided by the law firm who is posting this startling information, (3) your examples of overpaid CEO’s doing bad things-laying people off-is a classic example of using anecdotal evidence to prove a general trend (GF, where are you?) and (4) what is your plan: put together a federal agency on Equity in Executive Compensation? Using what criteria and metrics, that will apply to every publicly traded company in the country?
    I ask again, rhetorically, is there anything the progressive left doesn’t want to regulate?
    And, finally, no, these are not the job-creators that Palin et al like to tout. That group is small business owners and entrepreneurs starting new businesses.
    And a final “finally”–if you want to see executive compensation go up, just raise taxes. The large corps will simply increase compensation to produce the same after tax gain.

  34. (3) your examples of overpaid CEO’s doing bad things-laying people off-is a classic example of using anecdotal evidence to prove a general trend (GF, where are you?)
    […]
    I ask again, rhetorically, is there anything the progressive left doesn’t want to regulate?

  35. Tex,
    There are a variety of corporate structural reform proposals out there that would presumably act to align shareholder and management incentives (for example, barring the management from voting shares held by the corporation) that could also bring management pay down (also decreases costs & raises profits!).
    You should be familiar with them, so I assume you are just having another bout of ideological dyspepsia. And if you have not heard of managements of some companies looting the company pension system, then you really do live on another planet.
    So I’ll ask you, just rhetorically:
    IS THERE NOTHING CONSERVATIVES DO NOT WANT TO STEAL AND CALL THEIR OWN?

  36. The motivation and reward for doing what Gates–and many other much smaller players–did is that there is a market for the stock
    A brief aside on this point:
    First, I think you are confusing ends and means here.
    Second, I also participate in a market. It’s the market in consumer goods, which constitutes 70% of the GDP of the US.
    Not an inconsequential thing.
    By your logic, perhaps I should get a tax break for buying stuff.
    this is a test in case I’ve discovered what’s wrong….
    The test is coming through loud and clear.

  37. ‘m unable to post a lengthier comment for some reason. I’ll try once more, but I’ll be horrified if it turns up later as many times (and slightly different versions) as I’ve thought I put it up. I’m not sure quite what’s going on.

  38. Well, failed again to post my full comment. I guess I’ll just have to briefly state my agreement with bobbyp’s response to McKinney. The American Airlines bankruptcy (to reduce “labor costs”) is today’s “anecdote,” with the deposed CEO walking away with millions (an 11% raise he received over the previous year, when there was a 471 million loss; a $982 million loss through the first nine months of this year). I wonder how many of the employees got an 11% raise. Can’t wait to read about tomorrow’s anecdote.

  39. The motivation and reward for doing what Gates–and many other much smaller players–did is that there is a market for the stock
    Another brief aside on this point:
    Has someone suggested abolishing the market? Or was it something else far short of that?

  40. I am having the same posting problem as others. What follows, hopefully, is a series of responses in separate comments.
    There are a variety of corporate structural reform proposals out there that would presumably act to align shareholder and management incentives (for example, barring the management from voting shares held by the corporation) that could also bring management pay down (also decreases costs & raises profits!).
    Taking this one example: what evidence is there that the cure isn’t worse than the ill? Is every publicly traded corporation a bad actor? What happens if the non-management voters start making really stupid decisions? Further, it seems to me that when we impose new rules on everyone because of the conduct of some, it’s group punishment.
    just having another bout of ideological dyspepsia
    Good one. You know I’ll be playing this one back, again and again.
    IS THERE NOTHING CONSERVATIVES DO NOT WANT TO STEAL AND CALL THEIR OWN?
    So, the conservative analogue to the progressive yearning for more and more regulation is theft. Speaking only for myself, I don’t like telling other people what to do absent compelling reasons. The fact that some companies do things I don’t like isn’t a good enough reason to interfere in the operations of every company. Further, the kind of regulatory scheme necessary to prevent the kinds of wrongs the left desires to fix would be incredibly oppressive. Regulations are like rain–everyone gets wet. Compliance is costly, far more so for smaller outfits than the really large companies.

  41. Comment No. 2:
    Has someone suggested abolishing the market? Or was it something else far short of that?
    I am not clear what the suggestions are–maybe it’s just ideological dyspepsia. But, reading between the lines, I think what we’re hearing is two things: stock market investment is speculation and non-productive and generally not socially responsible and, therefore, we should tax the carp out of it–transaction taxes, no more capital gains, no more deferred taxes of any kind (so, tough luck IRA and 401K participants).

  42. Comment No. 3:
    Second, I also participate in a market. It’s the market in consumer goods, which constitutes 70% of the GDP of the US.
    Not an inconsequential thing.

    All brought to your courtesy of corporate America. Out of curiosity, for those who put something back for the future, do you invest in the stock market? Bonds?
    By your logic, perhaps I should get a tax break for buying stuff.
    In fact, depending on congress’ mood swing, this could be the case. Example: in 2004, it was deemed in the public interest to sell more vehicles over a certain weight. So, a business purchaser could buy, say a large SUV, and expense the entire thing in the year of purchase. Back in the day, I hunted and fished a lot, pulled boats, trailers, and hauled a lot of stuff around, so my law firm bought a big SUV and paid, effectively, 60 cents on the dollar for it. Stupid, but there you go.

  43. The American Airlines bankruptcy (to reduce “labor costs”) is today’s “anecdote,” with the deposed CEO walking away with millions (an 11% raise he received over the previous year, when there was a 471 million loss; a $982 million loss through the first nine months of this year).
    It may be that the AA management was and is inherently corrupt and incompetent. Or, it could be that, but for their efforts, the company’s losses would have been larger, the bankruptcy would have been filed sooner and would have been much more severe.
    I put a client into bankruptcy over an FLSA matter. It’s kind of an interesting counterpoint to the labor angle cited by Sapient. Under the FLSA, you pay overtime in the week it was worked. My client did things a little differently. It was an ambulance service in which employees worked six 48 hour shifts and three 72 hour shifts every nine weeks. However, so that employees had level paychecks, they got paid 56 hours every week, with time and half for the time over forty. It averaged out with every overtime hour being paid at time and a half, although not every OT hour was paid in the week it was worked. My client even had a letter from the US Labor Dept expressly approving this process.
    It turns out that you can’t do this even if the Labor Department says you can. It turns out that we were underpaying our employees in the three 72 hour weeks by 16 hours of overtime. The overpayments in the six other weeks were viewed, by the law, as a gift. When my research revealed we were in technical violation of the law, I told the client and it immediately agreed to pay (again) for the “underpayment”. However, the lawyer for the class wanted double damages. I put my client into bankruptcy and he didn’t get double damages.
    The sword cuts both ways and I’d bet that there are two sides to the labor dispute at AA. I will also point out that my client provided, and continues to provide emergency services to over a half a million Harris County citizens at a level of care well above state standards. Every ambulance is a Mobile Intensive Care Unit, our paramedics are trained way above state requirements and it is a completely private, non-profit endeavor. No good was served by squeezing more than a half a million bucks out of this small, vital operation, but that was the effect of laws, regulations and judicial interpretations that are the unintended consequences of the regulatory state.
    Or, maybe this is just more ideological dyspepsia. Smiley face goes here

  44. Ok, for those having problems posting larger comments, first, save your entire comment in Word or some other cut and past format. You will be told your long comment is posted, but it isn’t and you don’t want to lose it.
    Then, cut your comment up into bite sized pieces and post serially. Back to work.

  45. McTx: Back in the day, I hunted and fished a lot, pulled boats, trailers, and hauled a lot of stuff around, so my law firm bought a big SUV and paid, effectively, 60 cents on the dollar for it.
    All of that was related to your law practice?

  46. The sword cuts both ways and I’d bet that there are two sides to the labor dispute at AA.
    Perhaps, but only one side gets to walk away with millions of dollars of money that rightly belongs to AA’s shareholders (the majority of whom have no say whatsoever in executive compensation); while the other side gets to be unemployed, then called lazy for not taking part time work at a fraction of their previous wages.
    Taking this one example: what evidence is there that the cure isn’t worse than the ill? Is every publicly traded corporation a bad actor? What happens if the non-management voters start making really stupid decisions?
    Well, golly, since we can’t all foretell the future with 100% certainty, I guess we’d better not ever change anything. Or only change them to benefit already-rich people, since you seem to have no problem with any of THOSE proposed changes, like extending the Bush tax cuts, lowering the capital gains rate or eliminating regulations that exist to protect workers.

  47. Is every publicly traded corporation a bad actor?
    *Every* company? Probably not. But how are we defining “bad actor” here? I’d bet solid money that every company in the DJIA is, right now, doing *something* shady, unethical or outright illegal. I’d bet less solid money that the same is true of every company on the S&P 500. In fact, let’s just say that everything from mid-cap up is probably kinda suspect.

  48. I am not clear what the suggestions are
    I think the overall gist of the original post, and most of the thread, is that not all forms of capital ‘investment’ really deserve either that name, or the preferential treatment that investments received under US public policy, tax-wise and otherwise.
    Some people put lots of their own money and time into a business that they themselves own and run.
    Some people direct their own or other folks’ money into businesses that use that money to improve or expand the business.
    Some people buy and sell fractional ownerships in businesses from people who bought them from people who bought them from people etc etc etc… who fall into one of the other two categories enumerated just above.
    These last folks contribute zero dollars to the actual business, have zero involvement in the productive effort of the business, have zero involvement in its governance or management, and may not even know what they own.
    It seems, to me, that it’s fairly easy to distinguish between the value created by the three.
    It’s lovely that folks who *speculate* in securities create a market that provides liquidity to *investors*. I’m sure they would do so even if their returns were not taxed at the highly preferential rate of 15%, because they would still make more money than burying their cash in the back yard.
    In most years, anyway.
    Almost certainly, the number of folks speculating in securities would be sufficient to provide liquidity to the original investors.
    And if not, we would all find another way for investors to cash out. People are resourceful like that.
    Hey, they could sell the business to the workers!
    tough luck IRA and 401K participants
    If I’m not mistaken, distributions from tax deferred savings plans like IRAs and 401K are taxed as earned income. The assumption is that your overall income level is probably lower at retirement, so you just pay at a lower rate.

  49. Dr. S., ‘real world’ investment decisions (such as: do I upgrade my manufacturing plant ?) are driven by ‘confidence’, in a quite similar manner to those decisions that you label speculative.
    McKinney T., you seem to be setting up on or two straw men to defend the status quo.
    “…I don’t like telling other people what to do absent compelling reasons. The fact that some companies do things I don’t like isn’t a good enough reason to interfere in the operations of every company…”
    This sort of thing looks pretty compelling to me:
    http://www.nytimes.com/2011/03/25/business/economy/25tax.html?pagewanted=all
    http://www.nytimes.com/2011/11/26/business/for-companies-the-good-old-days-are-now.html
    “…the kind of regulatory scheme necessary to prevent the kinds of wrongs the left desires to fix would be incredibly oppressive…”
    Why ?
    For example, many liberals believe in a simpler tax code, with lower rates and fewer exemptions. Simpler means less expensive to administer, and also less easy to avoid. Lower rates benefit everyone but those who don’t pay the current rates anyway.
    Unless you imagine that current regulation is as efficient and well directed as is possible to imagine, then your statement above is born of dogma, not analysis.

  50. What bothers me about McKinney’s reflexive anti-regulation bias is that corporations are creatures of statute. They exist as a product of made-up rules; they operate under made-up rules; securities are made-up things, with their own legal framework that is all made up. In other words, these aren’t natural beings that should be allowed to let evolve all by their own competitive stronger, more fit, selves. They are basically sets of regulations, some of which may be inadequate or wrongheaded. It doesn’t seem to me that tweaking this set of regulations to produce an outcome that’s a bit more beneficial and just to our society as a whole, rather than to a relatively few annointed players, is such a threatening concept.
    Perhaps we should go back to common law partnerships which were based on people’s individual agreements, involving mutual consent, meeting of the minds, etc. Then, maybe there would be an argument for saying “just let the talented businessman do his thing.”
    Just kidding, of course – I’m a believer in our system, basically. But when the system is consistently producing inequitable results, I don’t really understand why the masses of regulations that corporations are shouldn’t be tweaked.

  51. Further, it seems to me that when we impose new rules on everyone because of the conduct of some, it’s group punishment.
    This is rather telling. Rules are, by their mere existence and content immaterial, punishment? Um…
    Also, punishing who, exactly?
    sapient’s prior comment dovetails quite nicely with this as well. Corporations aren’t natural entities which we are burdening down with unnatural rules. They’re unnatural sets of rules that we are adding to, subtracting from, or modifying. And that’s it.

  52. We also have inconvenient controls at the airport because some guys have used their lack and/or inefficiency in the past to commit acts detrimental to a lot of people. Few will object to those regulations per se but it is reasonable to discuss the value and efficiency of these in detail. Some may be simply intrusive whithout real added security while others are simple, cost-effective and non-intrusive and nonetheless work well. Or it can be the other way around (full NMR bodyscan lasting about 6 hours before you may use the bus to work).
    There is lots of corporate malfeasance and the damage is considerable on an international scale. Personally I am willing to have some pretty intrusive regulations, if this can reduce that significantly, although I know that there will be negative side effects. It’s a matter of balance.
    As for shareholders making stupid decisions if allowed, it’s their own money. If they overrule the CEO and it turns out bad, bad for them. If the CEO runs the company into the ground and is even rewarded for it, that looks worse to me, even if it was not done on purpose.

  53. McTx: No good was served by squeezing more than a half a million bucks out of this small, vital operation, but that was the effect of laws, regulations and judicial interpretations that are the unintended consequences of the regulatory state.
    It’s all so…human.

  54. My point is that the investment/speculation question should be a live one, but if we’re talking about Gates or Jobs as examples of being on the wrong side of it, we aren’t talking about the same thing at all.

  55. I’m with Sebastian on his last comment. Gates and Jobs may have made most of their money from stocks, but the companies they started wouldn’t have existed without their efforts, and they created lots and lots of value for the rest of the world (with lots and lots of help from other people, though many of those people also benefited nicely).
    There’s a big difference between what people like Gates and Jobs did to make lots and lots of money and what some hedge fund manager who utilized complex derivatives and/or high-speed computerized trading did to make lots and lots of money.

  56. Sebastian,
    I don’t believe anybody is talking about “wrong sides”. You and Russell seem to be hewing to a similar line….you don’t like the term “speculator” beging applied to Jobs and Gates. Please address how venture capitalist fit into this scheme. Are they of the same heroic cut as Gates and Jobs? Mere speculators? Tweeners?
    (A.) Assume a world without stocks. Somebody builds a business. It grows big. Really big. the owner’s wealth derives from the income from the business. How wealthy is this person?
    What’s missing? (B.) The ability to split the firm easily into little pieces of paper that speculators can buy…AND SELL, and the ability to multiply shares held X share price and call that “wealth”.
    Under which scenario is the founder wealthier? (A.) or (B.)?

  57. B) because he can’t grow the business big enough unless he either has the corporate form or can become a monopolist.
    The fact that you seem to think the answer is A) is indeed an enormous problem with our having this discussion.
    Frankly, I strongly suspect that the problems we are talking about go well beyond simple investment in stock. Partially divided direct interest in an ongoing business isn’t really the issue so far as I can tell. Things like betting that they fail, and then hedging that bet at 100x leverage becomes the problem.

  58. Please address how venture capitalist fit into this scheme.
    That’s a hard question to answer because “venture capitalist” covers a wide range of individual.
    Some VCs are basically looking for the next hot thing to pump and flip.
    Some VCs make serious, long-term investments of both capital (their own and other folks’) and their personal managerial expertise to grow a good idea into a solid business.
    So, IMVHO, it depends.
    One thing you don’t mention in your question is the role that going public plays in raising capital. Issuing and selling shares in a company isn’t done solely to make the founders’ stake liquid, it’s also done to bring working capital in the door.
    Gates and Jobs are probably not good examples of people who acquired ‘excessive’ wealth, because as rich as they are (or, were), their personal wealth is actually dwarfed by the value their businesses created.
    I mean, their wealth is certainly excessive in the sense of being far, far, far more than they could ever have made sensible use of in 10 lifetimes. Gates, for example, appears to have recognized that, and has given quite a lot of it away.
    But I’m not sure it’s excessive relative to the value that his work created.
    I agree that there is a problem here, but I’m not sure Gates and folks like him are where it’s located.

  59. I’m not sure why the terms “speculator” and “investor” are helpful. Everyone is trying to make money. The term “speculator” implies that a person is betting on the success of an enterprise in order to make money. But isn’t an investor betting on the success too (with money, or labor, or intellectual effort)? Even if the “investor” is an employee and lends labor to the enterprise, satisfaction is measured in money. Obviously “shorting” is different than “investing” in a company, but as long as there isn’t any self-dealing, I’m not sure how destructive to society “shorting” is.
    Still, it’s true that when a company “goes public,” priorities change. (This is anecdotal, McKinney, just so you know – I speak not only from personal experience, but from the accounts of many friends and acquaintances.) Suddenly, unlike a closely held or employee owned business, management is looking at one thing, and one thing only: profit. When, say, an employee owned business is facing hard times, lay-offs aren’t the first way people think of to cut costs. In a closely held business, where the owners are part of the same community where the employees live, it’s less likely that they’re going to incur the wrath of the community by laying off people.
    I’ve seen this happen over and over with small corporations, privately held (by owners who were either Democrats, Republicans, liberals and conservatives – didn’t matter). In bad economic times, every effort was made to keep employees on board. One company I know of took pride in keeping every single employee employed throughout the Great Depression. Companies made reasonable profits; some years were better than others but, all in all, these were successful enterprises, where people were paid a living wage, and owners were quite wealthy. As soon as they went public, boom – layoffs, mergers, acquisitions, more layoffs, dissatisfied employees, no loyalty between employees and management (in either direction) – in other words, a much worse place to work, and a much more questionable product, and no connection between employees and management.
    Is anyone to blame? The private owners who “went public” got filthy rich, but who can blame them for doing that? Other than that, it’s just the way the system works. The system rewards short term profits, the largest profit margin possible. Be damned the quality of the product. Be damned the quality of the workplace. Be damned the longterm health of the corporation. That’s what public stock trading does to business. I don’t blame anyone who knows how to get rich off of that system – I’d love to know how. But is it really a good system? I don’t think so.
    And I’m not demonizing corporate management either. I don’t think they lack empathy. They’re just part of a system in which they play their part – if they didn’t do it, somebody else would take their place. They might as well be the ones who get rich – why not them? It’s a system problem, not a human problem.

  60. One thing you don’t mention in your question is the role that going public plays in raising capital.
    For the most part, disagree. Generally, the firm is already capitalized prior to the IPO. The founders have shares. The VC boys have shares. The underwriters have shares. Absent those times when we have goofy stock manias, the firm is already a going concern or has some other valuable revenue stream (for example, Gate’s monopoly deal with IBM).
    MS did not really need the cash from the IPO. It was already a stone winner.
    The IPO enables the insiders to cash out or “realize” the extent of their new found wealth as dictated by the now public stock price.

  61. B) because he can’t grow the business big enough unless he either has the corporate form or can become a monopolist.
    Tell that to Cornelius Vanderbilt.
    The fact that you seem to think the answer is A) is indeed an enormous problem with our having this discussion.
    You are deliberately being obtuse. Economically, they are the same. The output of goods and services is the same in either case. I said nothing to indicate otherwise.
    So yes, mission control, we have a problem.

  62. It’s a system problem, not a human problem.
    Agree. And that leads directly to the answer. We need to do something about the system.

  63. I’ve seen this happen over and over with small corporations, privately held (by owners who were either Democrats, Republicans, liberals and conservatives – didn’t matter).
    As an aside, I *very specifically avoid* working for publicly traded companies. For exactly the reason sapient cites here.
    A bad week on the market, for whatever reason, and people get canned ‘to send a message’ that management ‘is serious about cutting costs’.
    Which is to say, they are ‘sending a message’ that they can make the numbers look better this quarter.
    It’s boneheaded.
    In 25 years, I’ve worked for precisely one publicly traded company, and that was for precisely one year. And that was plenty.
    I like small shops, operated by their owners. I know them, and they know me.
    But I digress, as usual.
    One thing you don’t mention in your question is the role that going public plays in raising capital.
    For the most part, disagree.

    As with so many things, the reality here is that ‘it depends’.

  64. I’m not sure why the terms “speculator” and “investor” are helpful.
    Also for the record, IMVHO there is a useful distinction to be made between speculating and investment.
    Investors actually create value in the enterprise itself. They bring their money, their time, their expertise, their whatever, to the enterprise.
    Speculators do not.
    Whatever policy flows from that is sort of another question, but the fundamental distinction exists.

  65. Also for the record, IMVHO there is a useful distinction to be made between speculating and investment.
    russell, the distinction you make is an interesting one, but I think it’s based on your own personal definition. The technical distinction is that investors are concerned about preservation of principal (safety of the money they put in), and speculators are primarily concerned with maximizing return. It has nothing to do with time, expertise or whatever.
    In many cases, it’s a distinction without a difference: I might buy a painting that I personally enjoy having in my living room, whether or not its worth anything. I invest in it if I think it might hold its value and appreciate. I speculate if I think the artist is on a track to become the next Picasso and I’m going to make huge bucks when I sell it. All three scenarios would assume that I would take care of the painting while I owned it. The latter two would imply some knowledge and expertise. The investor bought it for its value. The speculator would sell it in a heartbeat for the right price. I’m not sure why they would be treated differently, or could be, since it’s really a matter of attitude.

  66. Just to follow from my previous comment (and as Doctor Science mentioned), technically an “investor” in stock would be in it more for dividends (a share of the profits), while a “speculator” mainly hopes to make money on the sale of the stock. But an investor wouldn’t turn into a speculator merely because he expected the stock to appreciate, and would sell it if so. In a sense, the short term capital gain tax penalty is meant to punish speculators. Anyone willing to hold stock for over a year is deemed an investor.

  67. The technical distinction is that investors are concerned about preservation of principal (safety of the money they put in), and speculators are primarily concerned with maximizing return.
    Aha, in my ignorance it appears I have run afoul of terms of art.
    And, given the technical definition, I agree. For purposes of this discussion, there isn’t much difference between the two, so defined.
    Here is the thing.
    Income derived from capital investment is treated very favorably, tax-wise, as compared to earned income.
    The rationale for this is that we, as a society, want to encourage capital investment. Working for a living, apparently, needs no such reward, the threat of starvation is a sufficient inducement.
    In fact, however, not all kinds of capital investment are the same. Some kinds result in the creation of real value in the thing invested in, and some do not.
    There’s a purpose and a place for both (or all) kinds of investment, obviously. But for purposes of deciding *what kinds of behaviors we are going to encourage through favorable treatment under law*, I’d say the kind of investment that creates tangible value is more deserving than other kinds.
    Assuming, again, that we want to be in the business of using tax law to incentivize one kind of behavior rather than another.
    You could also argue that simply making more money might in and of itself be a sufficient spur to invest, and that from a tax point of view income should just be considered income.
    That argument doesn’t seem to be on the table, however.

  68. All of that was related to your law practice?
    Yes, client entertainment. But still, I agree it’s stupid to use the tax code to promote car sales even if that means, theoretically, keeping car companies in business.
    I’m sure they would do so even if their returns were not taxed at the highly preferential rate of 15%, because they would still make more money than burying their cash in the back yard.
    I am sure they would too, but not so sure if the tax rate is 35-38%. Risk/reward kicks in and, on balance, we are better off with a liquid, publicly traded economy.
    If I’m not mistaken, distributions from tax deferred savings plans like IRAs and 401K are taxed as earned income. The assumption is that your overall income level is probably lower at retirement, so you just pay at a lower rate.
    You are correct, but this is true for all tax deferred income. Someday the gain is realized and a tax is paid.

  69. (I am commenting serially so that it all gets posted)
    Nigel writes Unless you imagine that current regulation is as efficient and well directed as is possible to imagine, then your statement above is born of dogma, not analysis.
    I believe, upthread, you will see me specifically call out GE and the uber weathy’s penchant for donating their art (or what-have-you) to their foundation, getting a big PR boost, a big tax write off and retaining functional ownership of the donated goodies.
    Also, nothing in my comments even remotely suggests that I am opposed to leaner, simpler tax codes or any other kind of reduced, less complex scheme. Just the opposite, reading between the lines fairly.
    My comment, that you call dogma, was focused on compelling companies to “do something” to make them more fair, socially responsible, whatever. That is part of the progressive bent: make corporations, rich people, employers, etc “do something” to make life better for others. Tax rates and the tax code—yes, people are made to pay taxes—are not class/behavior specific, i.e. certain people aren’t told what they must do other than pay taxes, and that rule applies to everyone based on income level.

  70. What bothers me about McKinney’s reflexive anti-regulation bias is that corporations are creatures of statute.
    Corporations aren’t people so why should we treat them like people? This is, I suppose, one of the true disconnects between the progressive left and whoever. There isn’t a single corporation anywhere that actually does something that isn’t also made up of people who are either employees, owners or both. So, when you tell a corporation it has to do X, you are telling people they have to do X. If you think it is fine to tell a person doing business as a corporation to do X, but not fine to tell that person in his/her individual capacity to do the same thing, for my money, you exalt form over substance, labels over actuality.
    First and foremost, this is a free country. Telling other people, regardless of how they do business, what they can and cannot do is a last resort, compelling need situation.
    Also, everytime you impose a new expense on a business, you deprive that business of expansion money, money for raises and bonuses, etc. You can’t worry about lay offs on the one hand, and burden a business excessively with regulatory obligations on the other. If you think compliance isn’t a cost factor, then you simply haven’t had first hand experience running a business.
    Also, punishing who, exactly?
    Any and everyone who owns their own business in one of several corporate forms.

  71. Personally I am willing to have some pretty intrusive regulations, if this can reduce that significantly, although I know that there will be negative side effects. It’s a matter of balance.
    Of course you are, because you will never have to personally deal with the impact of compliance and penalties for noncompliance. It’s the easiest thing in the world to lay requirements on others, particularly when those “others” aren’t on your list of favorites.
    It’s all so…human.
    No, it’s all so oppressive and stupid. I am guessing you’ve never enjoyed the experience of being in litigation, with literally everything on the line, substantial legal bills coming due every month, AFTER having received approval by your gov’t for doing what you do.
    To me, this comment is derivative of the eggs/omlette cliché: “As long as someone else’s eggs are getting broken to make an omlette pleasing to me, I am fine with that.”
    There’s a big difference between what people like Gates and Jobs did to make lots and lots of money and what some hedge fund manager who utilized complex derivatives and/or high-speed computerized trading did to make lots and lots of money.
    Yes, there is, functionally. And that matters why? The logical endgame of this kind of thinking is that we have a regulatory scheme that endorses some kinds of business endeavor, but not others. Then, we can all apply to our gov’t for permission to do this or that kind of business, fill out the many forms to show that we are on the ‘good’ side of enterprise and not the ‘bad.’

  72. The ability to split the firm easily into little pieces of paper that speculators can buy…AND SELL, and the ability to multiply shares held X share price and call that “wealth”.
    And, again, why the hell should anyone care whether Gates wants to own or sell his business to someone else, or many others, who want to buy it? You spend your money your way, they spend their’s their way.
    The system rewards short term profits, the largest profit margin possible. Be damned the quality of the product. Be damned the quality of the workplace. Be damned the longterm health of the corporation.
    It’s all so . . . human. Smiley face.
    Sure, in a country this size, not everyone is going to work and play in the manner decent people expect. I agree completely that the quest for the next quarter’s profits and meeting or exceeding analysts’ predictions is one stupid way to run a business.
    That said, small operations lay people off, as do large ones. Publicly held vs privately owned, I can find examples that cover the range of benevolent to cruel. The problem is, there is no good way to legislate kindness. Even very well meaning companies find themselves in difficult straits and have to make hard, unpleasant decisions.
    I’ve never, so far, had to lay anyone off for economic reasons, but I’ve had to terminate several people—a fair number over the years—for performance issues. I find it very, very unpleasant, even when dropping the ax is clearly and obviously warranted. What would be a real problem for, however, is having to get a legal opinion from an employment specialist on those occasions where someone doesn’t measure up and needs to find work elsewhere. The undercurrent here is that business decisions of this type should be subject to some kind of third party review and criteria.

  73. The IPO enables the insiders to cash out or “realize” the extent of their new found wealth as dictated by the now public stock price.
    Economically, they are the same. The output of goods and services is the same in either case.
    Yes to the first and no to the second. You won’t get the second, i.e. a company producing goods/services, if the owners can’t sell that company and make money doing so. People start a business because (1) they like being the boss, (2) they think they can make a go of it and (3) they plan to sell it someday and retire. Stock is how ownership of a business is evidenced and traded, like title to a car.
    Investors actually create value in the enterprise itself. They bring their money, their time, their expertise, their whatever, to the enterprise.
    Speculators do not.

    “Speculators” is used pejoratively by most here for a reason. The idea that people and institutions buy and sell securities hoping to realize a gain offends some people. They won’t just say that. Everyone says they are fine with letting people ‘speculate’, they just want speculators treated differently, particularly those that are very good at it. If I buy a stock that pays a 5% dividend and has a decent chance of appreciating, I am putting my money in an investment that pays a return and could well appreciate. I would like to be left alone by those who, whether they will come out and say so, would prefer that I make money in a different way.
    But more to the point, speculators are the market, the only market, that gives many people a reason to build a big business: so they can sell it.

  74. So, when you tell a corporation it has to do X, you are telling people they have to do X.
    I think the distinction here is that people have no choice but to be people. They do have a choice about whether to be part of a given corporation, or any corporation at all.
    That and, except for one-person corporations, when you tell a corporation to do X, each person who is part of the corporation does not personally and individually have to do X. Some subset of the people composing that corporation will have to contribute in some way to the corporation’s doing X.
    Corporations can do things as organizations that individual people cannot. That’s why their different from plain old “people.”

  75. The logical endgame of this kind of thinking is that we have a regulatory scheme that endorses some kinds of business endeavor, but not others.
    That sounds crazy. What sort of society in history has ever conceived such a thing?

  76. I would like to be left alone by those who, whether they will come out and say so, would prefer that I make money in a different way.
    I don’t think anyone here is suggesting that you or anyone else shouldn’t be able to speculate. Just that it’s not something that should be encouraged with special tax treatment, whereas investment that results directly in value creation might be worthy of such special tax treatment.

  77. “Speculators” is used pejoratively by most here for a reason. The idea that people and institutions buy and sell securities hoping to realize a gain offends some people.
    I haven’t been on this thread, but yeah, I have a notion that a speculator is someone trying to get something for nothing.
    I don’t know if you or anyone here plays a lot of craps, but if you do, you know that you bet the pass line, which means that you are betting on the person throwing the dice to win, rather than bet against him. (I’m pretty sure that a lot of the folks I’ve played craps with are more conservative than liberal). At least the way I see it, the speculator is akin to the guy betting on the no pass line. I realize that one could define a speculator as some just betting pass OR no pass, but there seems to be a quality when I think of speculator as the guy betting on the no pass line, which is a bet that the shooter is going to lose. So I’d suggest you hone your arguments at your local casino, telling your fellow crap shooters that betting the Don’t Pass is simply logical and come back and tell us how you do ;^)
    To me, speculators bring to mind vulture funds, which have recently been in the news a bit. If you want to define terms so that we can exclude ‘good’ speculators and put a clear dividing line around bad speculators, I’m all ears, but I don’t see how you can do that.

  78. Yes to the first and no to the second.
    I am reminded of the bitter zoning struggles in my county upon the adoption of the Growth Management Act which essentially mandates higher densities within a certain prescribed geographical area by limiting what is commonly called suburban “sprawl”.
    This resulted in bitter recrimination from those just beyond the line who had nice 5 acre plots enabling them to live a bucolic country/urban lifestyle free from the crime and “others” associated with crowded urban areas, but who also wanted to be able to subdivide their property and cash out big time when they retired. Why, it was asserted, the GMA was taking away their “wealth” and “limiting their freedom”.
    Wealth and freedom created in the first place by the rules known as zoning laws.

  79. “the speculator is akin to the guy betting on the no pass line…”
    Nick the Greek always bet the no pass line and laid odds.

  80. If you want to define terms so that we can exclude ‘good’ speculators and put a clear dividing line around bad speculators, I’m all ears, but I don’t see how you can do that.
    Well, if, to use your example, someone acts in an overtly predatory and exploitative manner, that is more than mere speculation, it is precisely as I described: predatory and exploitative. Not that I have a lot of sympathy for stupid lenders who lend to poor risks or for countries who borrow and do not expect to have to pay according to the terms of the loan. The rule of law and all of that.
    Wealth and freedom created in the first place by the rules known as zoning laws.
    That’s one way of looking at it. I don’t agree with it, but it’s one point of view. If I buy something predicated on an existing system of rules and laws and without notice of imminent and material change in those existing rules and laws, and then, at a later date, existing rules and laws change in such a way that materially affects my investment, I see that portion of my wealth being taken away and the freedom which I once had being denied. Your comment treats freedom as a privilege, not a right.
    Moreover, if I follow your point, what you are talking about isn’t zoning–it’s re-zoning, i.e. changing the rules in the middle of the game. In extreme or significantly changed circumstances, with just compensation for those injured, this can be necessary. I don’t know enough about your situation to have an opinion.

  81. McTx: No, it’s all so oppressive and stupid. I am guessing you’ve never enjoyed the experience of being in litigation, with literally everything on the line, substantial legal bills coming due every month, AFTER having received approval by your gov’t for doing what you do.
    Me and, what, 99.99999% of everyone else in the country? I mean, is the idea that we can’t have a regulatory state unless it’s perfect and/or has no unintended consequences? Yes I know you’re not saying that, but you sound like you’re saying that because someone somewhere might unjustly be screwed by this rule we can’t have the rule, even though it works just fine in the vast majority of cases.
    To me, this comment is derivative of the eggs/omlette cliché: “As long as someone else’s eggs are getting broken to make an omlette pleasing to me, I am fine with that.”
    Yes, yes, I’m not allowed to think regulations barring dumping toxic waste into drinking water are a good thing because I will never be in a position to have to comply with such regulations. Just like I’m not allowed to have an opinion about the Iraq War because I’ve never served in the military.

  82. If you think it is fine to tell a person doing business as a corporation to do X, but not fine to tell that person in his/her individual capacity to do the same thing, for my money, you exalt form over substance, labels over actuality.
    Then you are fine with people working to further corporate interests being held accountable for their actions in their individual capacity? Or do you actually feel that form reflects substance, that labels do correspond with an underlying reality? You can’t have it both ways. Either individuals working on behalf of a corporation are treated exactly as individuals, or they are not. You can argue about where we draw the lines, but you cannot, as above, dogmatically assert that we daren’t lay corporate-only regulations upon corporations simply because they are made up of individuals. That dog don’t hunt.

  83. Yes, yes, I’m not allowed to think regulations barring dumping toxic waste into drinking water are a good thing because I will never be in a position to have to comply with such regulations. Just like I’m not allowed to have an opinion about the Iraq War because I’ve never served in the military.
    I am pretty sure this is a pair of straw men.
    Then you are fine with people working to further corporate interests being held accountable for their actions in their individual capacity?
    You are confusing two separate issues. My view is that, in economic activity, individuals and corporations have the same freedom of action. People choosing to do business with a corporation know that they must look to the corporate entity, not the individuals behind the company, for commercial obligations and some torts.
    That said, individuals doing business in the corporate form remain individually liable for their criminal acts, for torts in which they owe a duty independent of their employment, in FLSA cases and in any number of other contexts.
    If I understand the majority view here, you included, it is fine to require a heavier regulatory load on a corporation than on an individual simply because of the corporate form. I am simply telling you that I don’t buy into that. In this regard, the distinction is superficial.

  84. Which is to say, they are ‘sending a message’ that they can make the numbers look better this quarter.

    That, coupled with middle management (e.g. division VP and higher-level directors) electing to do things that are downright illegal but difficult to discover, such as taking revenue on current inventory, and then taking a return in the next quarter, in an attempt to boost this quarter’s numbers at the expense of next quarter’s.
    This is just an example of something I know has happened; not at my current employer but at a previous employer.
    But there are probably endless stupid things of this nature that are done simply to make numbers look better. It’s likely that such incentives are also in effect at privately-owned corporations, but are less subject to market scrutiny so the incentive from above is less. Probably. Depends on the owner(s), and how inclined they are to micromanage.

  85. The logical endgame of this kind of thinking is that we have a regulatory scheme that endorses some kinds of business endeavor, but not others.
    We have that now.
    If your business endeavor results in earned income — i.e., somebody pays you, personally, for rendering some good or service — you will be taxed at a rate between 10% and 35%, plus 4.2% on the first $106,800.
    If your business endeavor results in a capital gain, you will be taxed at a rate between 0% and 15%.
    In this regard, the distinction is superficial.
    If McK, personally, screws up and is sued, they can take your house, your personal savings, whatever they can find in your name.
    If McK, Inc. screws up, they cannot.
    Not a superficial distinction, at all.
    Also: as far as “undertones”, or “what some here might think”, IMO you’re engaging some serious mind-reading.
    I would personally appreciate having the discussion confined to what people actually say, or don’t say.

  86. I’m much more with McKinney on the litigation question. It is borderline crazy that you can have something signed off by the relevant government agency and then get your ass sued off for the same agency later deciding that it was wrong. And it is more than crazy that it can send you into bankruptcy. And it happens really quite often. Much more than should be dismissed with arguments along the lines of “regulation isn’t perfect”.

  87. I’m much more with McKinney on the litigation question.
    I understand the problem here, but I’m curious to know what the solution is.
    In an extraordinary number of cases, regulation exists as a response to somebody behaving very, very badly.
    As far as I can tell, the options are (a) regulation, and (b) vigilante justice.
    As in, your carelessness results in e. coli in my food, I’m coming after you with a gun.
    Is there a third option? I’m all ears.

  88. McTx: I am pretty sure this is a pair of straw men.
    Well then what were you saying when you referenced that particular litigation and the whole eggs/omelet thing?
    And even in your particular case, from your own comment (emphasis added), Under the FLSA, you pay overtime in the week it was worked. My client did things a little differently.….The overpayments in the six other weeks were viewed, by the law, as a gift. When my research revealed we were in technical violation of the law, I told the client and it immediately agreed to pay (again) for the “underpayment”.
    So, the law says you must do X, your client did not-X, when called on doing not-X the defense is “DOL said it was okay,” but apparently this isn’t a defense to a legal action brought under the FLSA by someone other than the DOL, as provided by the FLSA (if I’m reading your comment correctly).
    I agree that this seems to be a particularly sympathetic case for your client, especially after they agreed to pay twice for the same work and the DOL ruling. Nevertheless, there are good reasons not to let administrative rulings overturn/contradict what the law as passed by Congress and implemented in formal regulations provides.

  89. That’s one way of looking at it.
    You miss the point. The point is, we as a society make the rules. They are not handed down from on high. People’s oxen get gored when they change. Ask the Native Americans. They were subjected to some pretty brutal zoning regulations.
    You seem to think the rules are just fine as they are. I disagree. They are biased toward certain behaviors that, in aggregate, have resulted in negative outcomes.

  90. Correction above: “tax” should have been “take”. My subconscious sociopathic ‘consficate all wealth and give it to the parasites’ bias got the better of me….although I might add “some here” seem to believe the two words are exactly identical.

  91. Sebastian: It is borderline crazy that you can have something signed off by the relevant government agency and then get your ass sued off for the same agency later deciding that it was wrong.
    Why is this borderline crazy? If you get a ruling from an agency that blatantly contradicts the law, why shouldn’t you be on notice that you’re not entitled to rely on the ruling? Wouldn’t the “law” be meaningless then, so long as you can get someone at an agency to go along? And aren’t there generally rules for when you may and may not rely upon such a ruling?
    Look at McKinney’s case, based his comment and my recollection, it seems that the FLSA says you have to pay overtime in the week it’s worked. His client didn’t. It’s not like we’re dealing with vague and/or particularly nuanced/complicated rules here, AFAICT.

  92. If I understand the majority view here, you included, it is fine to require a heavier regulatory load on a corporation than on an individual simply because of the corporate form. I am simply telling you that I don’t buy into that. In this regard, the distinction is superficial.
    How is it “superficial”? You fail to explain this. Again, you make the assertion that, while it’s perfectly fair for a corporation to be treated as having certain attributes not identical to a natural person, we cannot e.g. place a heavier regulatory burden upon one than the other, because we must treat Statutory Americans the same as Uterine Americans… because, why, a Statutory American is made up of individual Uterine Americans! Or have you abandoned that tact, and just moved on to arguing that we must treat the two sorts of persons identically in terms of all burdens we place upon them, except when it’s okay not to, because they’re both people?
    Really, we have plenty of different laws and regulations governing economic activity for natural and unnatural persons. Are you arguing we must streamline them all down to one standard? Shall, e.g., corporations be taxed at the individual rate? Or is it okay for this aspect of their economic activity to be *gasp* treated differently?

  93. Also, let me just add that as someone who has spent his professional life since 2002 immersed in the Internal Revenue Code and the regulations and administrative guidance thereunder, I am intimately familiar with things like unintended consequences of rules, the substantive and administrative burden they impose on businesses, regulatory complexity, and the problem of unscrupulous “bureaucrats” (for lack of a better word).

  94. Well said, Envy.
    The corporate form of personhood is granted by the government acting on behalf of We The People in pursuit of shared social goals (insert goal here). The goals are chosen, discarded, and/or modified as part and parcel of the political process.
    The regulation and taxing of said persons is the price they pay for the valuable attribute of limitted liability.
    Since they are not ‘real’ persons, the assertion that closely regulating their behavior and taxing them to the max is an impingement on human freedom is a non sequitor.
    It is a simple matter of negotiating the price (insert famous Churchill story here).
    That’s what participants do in a market economy. Full Stop (insert favorite Russellism here).

  95. Nevertheless, there are good reasons not to let administrative rulings overturn/contradict what the law as passed by Congress and implemented in formal regulations provides.
    Except it was the other way around. It was an administrative ruling that opened the door to the suit.
    As far as cites go, replying to BP, I have no idea where one goes to find a compilation of agency abuses. But, ask me how many times I’ve had clients cited by OSHA on cases that were absolutely frivilous or how many times I’ve had clients get bombed by banking regulators–the answer is, and this is my personal experience, over a hundred in the last 10 years. I doubt that my clients are just exceedingly unlucky.
    And, to round out the picture, a majority of the bureaucratic functionaries I’ve had to deal with in these situations are arrogant and stupid and intractable. Once you’ve had these experiences on a repeat basis, the glow of a an efficiently regulated economy dims considerably.

  96. The deal with bureaucracies is that they are inefficient.
    They’re less than optimally responsive, they’re frequently unable to deal with the relevant details of specific situations, and they’re often populated by people whose primary motivation is to protect their own position and cover their own butt.
    Public sector, private sector, same/same. There’s nothing magic about the for-profit context that makes private bureaucracies any better than public ones.
    Unfortunately, if you want something done in a consistent and systematic way on a large scale, a bureaucracy is probably your best bet.

  97. “….over a hundred in the last 10 years.”
    As a commercial construction project manager, I am well aware of OSHA and how it rolls.
    I’ll stack the cost of a few hundred instances of bureaucratic arrogance against the hundreds of thousands of easily preventible workplace accidents any day. Any Time. Any Where.
    Don’t even go there.
    Thx.

  98. Look at McKinney’s case, based his comment and my recollection, it seems that the FLSA says you have to pay overtime in the week it’s worked. His client didn’t. It’s not like we’re dealing with vague and/or particularly nuanced/complicated rules here, AFAICT.
    Correct, it’s not complicated, it’s just that almost no one understands the FLSA and how it’s been administratively extended. The intent of the law is to pay 1.5 X hours over forty worked in the same week. No problem there. Employers are not permitted to move OT hours to a week where the employee works less than 40 hours to avoid OT. No problem there. The intent of the law is to ensure that workers are paid OT for time over 40. That got bent somewhere along to way to a stupidly inflexible rule that says, as in my client’s case, that paying more OT in one week and less OT in another week, so long as ALL OT owed is paid, to make everyone’s life more manageable and predictable results in a one way windfall for the employee and a huge burden on a small employer. Note: small employer, and lack of compliance resources. FLSA is one of a many, many federal and state regs businesses have to live with. Any one rule standing alone is easy enough to comprehend. The problem lies in finding out what that one important rule is, among all of the other important rules that small and medium sized operations can’t reasonably be expected to know about.
    And, in any rational world, if the employer showed that in fact the money was paid and was paid in a systematic, objectively timely fashion, there would be no violation or, at a minimum, a warning and an opportunity to get it technically right going forward. But, regulations aren’t written by people who have to live with them, nor, as was the case here, are they written in an intelligent, balanced fashion.

  99. “It was an administrative ruling that opened the door to the suit.”
    Similarly, municipal building inspectors sometimes make a wrong call on the Building Code. Typically, you can’t sue for their mistake. The responsibility of designing and constructing per code lies with the designer and the builder.
    That is why they are called ‘professionals’.
    IMHO a firm with those crazy kind of work hour assignments for hourly workers should have known from the get go what the OT requirements were. The FLSA is not rocket science, and that’s what good corporate attorneys are for.

  100. I doubt that my clients are just exceedingly unlucky.
    You’re a lawyer. They wouldn’t be your clients if they didn’t have problems in the first place. When the regulators don’t make life too hard on businesses, those businesses don’t bother lawyering up. They’re most likely to lawyer up when they think the case against them is bullsh1t. Your sampling method is statistically unsound.
    That said, there are some serious jackoffs in the world. Some of them work for the government. It sucks when one of them manages to get their hooks in you.

  101. IMHO a firm with those crazy kind of work hour assignments for hourly workers should have known from the get go what the OT requirements were. The FLSA is not rocket science, and that’s what good corporate attorneys are for.
    It’s called an EMS for Emergency Medical Service. They work in shifts, staying at the station just like firefighters, where they nap, watch TV and whatnot when not making calls. They work 2 days a week out of six weeks and either stay home or work another job the other 5 days. Not a bad gig really.
    My client had a letter from the DOL saying their program was fine. WTF else should they have done? See my comment above. Your kind of thinking is exactly the kind of indifference that business owners find infuriating.
    And, the end story for my client’s employees? For some bizarre reason, when they started getting paid per the strict application of FLSA regs, everybody got less. I was heartbroken.

  102. You’re a lawyer.
    Correct.
    They wouldn’t be your clients if they didn’t have problems in the first place.
    Sometimes. I have plenty of cases that are total BS. The problem isn’t something my client did, it’s that my clients typically have deep pockets.
    When the regulators don’t make life too hard on businesses, those businesses don’t bother lawyering up. They’re most likely to lawyer up when they think the case against them is bullsh1t. Your sampling method is statistically unsound.
    Your premise is flawed. OSHA and bank regulators, the kind my clients most frequently encounter, routinely take positions that are extreme and unsupported by law or the facts or both. They do this to sweat settlements and fines out of businesses. Whether my clients are uniquely unfortunate, I can’t say. My sense is that if my clients experience routine chickenshot, it’s not all that uncommon.

  103. I’m trying to remember how this is relevant to the discussion of investment vs speculation.
    Not that I’m looking to point any fingers as far as threadjacking goes, just curious about how we got here.

  104. And, to round out the picture, a majority of the bureaucratic functionaries I’ve had to deal with in these situations are arrogant and stupid and intractable.
    I’m glad Russell got to this first, because I was about to ask if this was supposed to be *in contrast* to the smiley helpful folks one finds in the average corporate customer service or HR department? We can start with Consumerist.com and work our way out from there if you need details.
    (I also love the value judgements on attributes that, if one of your attorneys displayed them, you’d probably characterize as steadfast, hard-bargaining, and confident. Man, shoes sure do change feet a lot, don’t they just?)
    Yes, one of your clients apparently got a raw deal in one specific case. How we generalize out from that, I have no idea. But going by your standards, we dast not change or eliminate any regulations, because who knows what the unintended consequences might be?

  105. “As far as I can tell, the options are (a) regulation, and (b) vigilante justice.”
    How about if the relevant agency rules on your case, you can’t get sued when you comply with the ruling until X amount of time after the explicitly change it.

  106. How about if the relevant agency rules on your case, you can’t get sued when you comply with the ruling until X amount of time after the explicitly change it.
    I agree, Sebastian. There are a lot of ways to make the system better. That doesn’t mean we don’t need regulations.
    regulations aren’t written by people who have to live with them, nor, as was the case here, are they written in an intelligent, balanced fashion.
    Actually, sometimes regulations are written by industry, at least in part. When regulations are promulgated, there’s a comment period and final rulemaking takes into account public comments, especially informed comments that add data. Wikipedia has a description of the system.
    russell: As to how we got here from investment versus speculation, I think the conversation went from there to corporate structure and whether public corporations make decisions in order to benefit speculators or investors, from there to why Statutory Americans should or should not be as responsible for their decisions as Uterine Americans (thank you for those very descriptive terms, envy!), then to whether corporations should or should not be allowed to do whatever they want.

  107. Of course you are, because you will never have to personally deal with the impact of compliance and penalties for noncompliance.
    As it happens I may very well be in that exact position as early as next year and sit on the opposite side of the table from a former colleague and have to deal with regulations I had an indirect hand in in crafting. Not financial regulations admittedly but those about toxic waste. It was not my personal choice to leave the position of the regulator*, so please do not claim that I probably tried to craft those regulations to profit me when changing sides. I will not become a lobbyist (although historian can not be 100% excluded if all else fails).
    *fixed-term work contract not extended. The agency was short on money again and this is the favored lay-off method.

  108. How about if the relevant agency rules on your case, you can’t get sued when you comply with the ruling until X amount of time after the explicitly change it.
    IMO that would be great. But as sapient points out, that’s still regulation. Just less stupid regulation.
    As to how we got here from investment versus speculation…
    Thanks for the synopsis, sapient. I was just having a “Hey, wait a minute, weren’t we talking about X…?” moment.
    regulations aren’t written by people who have to live with them
    ?????

  109. I was just having a “Hey, wait a minute, weren’t we talking about X…?” moment.
    You’re one step ahead of me. I forgot the original subject despite the title of the post. I guess the hamster in the wheel that keeps my mind going took a smoke break. That would also explain why he seems to get winded so easily. Now I’ll go back to spinning around in circles and whistling tunelessly.
    Before I do, though, I want to mention that I agree that there are both stupid regulations and stupid regulators. It’s kind of a baby/bathwater thing as that goes, and it doesn’t preclude the need for new regulations to address the new tricks people and corporations pull (or the old ones we decided to let them start pulling again – Glass/Steagall, anyone?). In any case, I’m sure there a plenty (plenty!) of existing regulations that we’d be better off eliminating, simplifying or improving.

  110. MckT wrote:
    “But, regulations aren’t written by people who have to live with them …”
    Didn’t we have a 200-comment thread a few months ago bemoaning the thorny thicket of regulatory capture?
    The agency formerly known as the MMS (Minerals and Mines Management?) thought it had solved the problem of customer relations with the oil companies it regulated.
    I can’t remember now who was blowing whom, but somehow or other BP and others enjoyed too many happy endings until the unhappy ending in the Gulf.
    From what I read, it seems many of the folks down there dealing with the aftermath of the Gulf spill can’t decide for whom the jag offs — the private sector jerkoffs or their gummint counterparts.
    hstd wrote:
    “That said, there are some serious jackoffs in the world, …”
    Yup. We live in an adversarial culture at all levels wherein steely-eyed jackoffery is the chosen tactic, and a celebrated one.
    Jagoffs live many other places besides directly under Donald Trump’s combed-in-three-directions toupee.
    While I’m gratified that folks from all walks of life have been integrated into the executive ranks of business and government previously reserved for white male jackoffs, it is too bad that many of the new participants have had to adopt jackoffedness as well to get some business done.
    Speaking of jagoffs (the Pittsburgh pronunciation and spelling, where “jagoff” is just about the only word you hear if you make the mistake of rolling down your car window in traffic), I caught Tea Party boy Rick Santelli on CNBC last week while visiting the ‘Burgh, and in commenting on an effort to draft him for a run at the Presidency he declined the offer but said if he were to be elected he would serve one term and warned that EVERYTHING would be done his way and that’s it.
    Then the Jagoff In Chief folded his arms, thrust his lower jaw out and gazed somewhere off camera nodding his head in full agreement with himself just like another jagoff figure from history — Benito Mussolini.
    I’m sure Santelli’s a nice guy and fun to drink with, which would make the fistfight we would have later all the more regrettable.
    This digression is in the service of bringing the thread back around to what Santelli should confine his “reporting” to:
    investment versus speculation.

  111. So while in Pittsburgh, the editorial pages of the two local daily papers are filled with letters to the Editor from various lower-level and powerless jagoffs regarding three issues in the spotlight:
    A. The jagoffs at Penn State.
    B. The jagoffs at University of Pittsburgh Medical Center (even non-profits now put their jagoffs front and center these days in America), which is attempting to oust hundreds of thousands of locals insured by Highmark Blue Cross-Blue Shield from using their largely monopoly hospitals because of a dispute with the Highmark jagoffs.
    C. Drilling for natural gas in the Marcellus Shale formation and the, uh, magnificent public relations provided by the drilling company jagoffs.
    There was a letter to the Editor about the latter which caught my eye and I thought MckTexas would find amusing (sorry, I would link but I couldn’t find it now that I’m back in Denver) from a local landowner who detailed her dealings with the land man jagoffs from various drilling companies — in short — after failing repeatedly to contact government officials who might give her some information (it seems jagoff Republican Governor Corbett has had all of the government jagoffs defunded so they must stand down from their jagoffery, thus giving private sector jagoffs the run of the State), she called one of the drilling companies to ask why their workers were trespassing on her land and setting explosives off adjacent to her land without so much as a phone call so they could be welcomed to the neighborhood and she got a call back from a very cheerful gentleman from Texas who assured her, oozing just the friendliest downhomedly bushwah, that, yes ma’am, they surely would keep her informed of all pending activity ON and around her property.
    The very next day, say 14 hours later, she looks out her kitchen window on the farm and spots a group of men resting their jagoff butts against her back fence well inside her property line.
    No warning, jagoffery being offered by surprise in fuckwad America these days at every turn.
    Out she huffed to the backyard to ask the trespassers, some of whom wore shirts with oil drilling company logos, to please leave and the only thing she could get out of them was that they were from ….. Texas.
    Then one of them shrugged his shoulders and said we no speaka de english and then they shut their pie holes for good before leaving slowly and nonchalantly.
    The previous Texan on the phone who she could HEAR smiling like a realtor reptile as he lied with his eyes while his hands were busy working overtime through the phone lines couldn’t be reached the next time around.
    I’ve got to say that at least the jagoffs in the private sector offer arrogance, stupidity, and intractability with a Lone Star State wink and a smile as they slit you open and let your guts spill all over your shoes, unlike those humorless gummint-type jagoffs.
    Funny thing, too, the jagoff Ayn Rand legislators and Governor elected in PA last year are trying to advance speaka de English-only and other severe anti-immigrant legislation in Pennsylvania, but I guess all manner of funny-talking Texans are welcome to have their way since mum is the one and only word.
    I’m sure they are fully in favor of shotguns loaded with buckshot too, but nice moderate liberals like the lady in question never seem to take them up on it.
    In closing, I’m always impressed by the sheer, unmitigated jagoffery of Texas politicians and business people who make it into the national spotlight, but Obsidian Wings seems only to attract the few nice people (they must keep their heads down at home) from Texas to post here.
    😉

  112. But, regulations aren’t written by people who have to live with them, nor, as was the case here, are they written in an intelligent, balanced fashion.
    So much to do, so little time. Yes, I agree, not as well written as it should have been. The intent here was “THESE regulations”, meaning FLSA, aren’t written by people who have to live with them. I went on to inartfully try to articulate that thought in the balance of the sentence and neglected to note the redundancy or make the right clarification.
    I agree that many industries have input into regulations. There is an express provision for notice of rule making, input, etc. But, industry doesn’t actually write the regulations, the agencies do. Some are more susceptible to industry capture than others, but that is a different problem.
    I concede all points above noting my error.
    Count’s anecdote at 11:34 struck a familiar note. Trespassing by seismic exploration companies, known in the business as “doodle buggers”, is, if not widespread, at least it’s fairly common. That said, it is highly unlikely any level of gov’t would be aware of whether the doodle buggers were exploring or where. The typical context of a trespass is that 90% of local landowners give consent and the rest don’t. The DB’s need to run a line from one consenting landowner to another but a nonconsenting landowner is in the way. They tend to just forge ahead. The nonconsenting landowners have a decent case, FWIW, but it’s a civil action for trespass, not a regulatory violation AFAIK.

  113. The DB’s need to run a line from one consenting landowner to another but a nonconsenting landowner is in the way.
    A line of what?
    The nonconsenting landowners have a decent case, FWIW, but it’s a civil action for trespass, not a regulatory violation AFAIK.
    What’s the landowner’s case if doodle buggers are greeted with Count’s buckshot?

  114. The lines, the one’s I’m familiar with, are as Slarti indicates. They run out from a sensing device, are spiked every 50 feet or so and the spikes are driven into the ground. A charge is detonated, a device in the spike picks up a signal from the charge’s resonating off of the underground formation resulting in a seismic picture. The technical stuff eludes me. I had a client who denied permission to enter, they entered when he was gone, left a wad of spiked cable on the property which became covered with grass and my client later stepped on a spike. Being diabetic, this produced a number of long term problems.
    What’s the landowner’s case if doodle buggers are greeted with Count’s buckshot?
    Not good. Even for trespasser’s, a land owner is under a duty not to willfully or intentionally inflict injury. Use of deadly force is restricted to defense of oneself or another or, for some damn reason, prevention of theft of property after dark (weird Texas law). There are other angles, the preceding is just the general picture.

  115. “prevention of theft of property after dark (weird Texas law).”
    I knew a woman who shot (and killed) a trespasser at night in her backyard, they didn’t count it as self defense but did eventually let her off on this law. She was about 60 and lived by herself, and the trespasser was clearly up to no good. All this was in Killeen.
    Not sure how odd that law is, she certainly shouldn’t have been required to wait until he got to the house and attacked her to defend herself, and that is a bigger issue in the dark.

  116. “prevention of theft of property after dark”
    Which explains why most stealing in the United States occurs right out in the open in broad daylight.
    Thus, banks and markets are only open during the sunshine. If they require the cover of darkness, why, they can trade securities and sell iffy mortgages overseas.
    Sort of like horizontal drilling wherein mineral rights are tapped under the surface owners’ property as the latter snooze.
    Yes, the surface owners are offered pretty good money to participate but if the question is “what if I don’t want to?”, well, the perfectly legal answer is “well, we’ll do it anyway from your neighbor’s property.”
    I’ve nothing against developing the Marcellus or other resources and the jobs that come with, but some landowners are rightly concerned about water quality and other values, etc.
    It’s a rational tradeoff we are told. Yes, but do we know all that is being traded away so rationally in the land rush of irrationality.
    Sorry, we can’t wait to determine residual adverse effects, say the companies and the politicians working for them, and if we’re lucky, we’ll be out of here in ten to twenty years without a forwarding address when those fracking chemicals eventually start making your chickens molt every other week and your cows go cross-eyed, and the kids grow up a little listless and eyebrowless.
    Just kidding. Mostly.

  117. some landowners are rightly concerned about water quality and other values, etc.
    Some landowners do damned well to be concerned about all of the above.
    Just kidding. Mostly.
    Not me.
    Here’s a news flash for anyone living in the Marcellus shale area.
    Mineral extraction companies will be very happy to f**k you over if that will make them money. They’re not your friends, and don’t forget it for a minute.
    Cover your @ss.
    Consider this a PSA.

  118. Totally agree with your 11:22 p.m, russell.
    Anyway, back to the original subject of this thread, I just finished The Big Short (I know, I’m behind). But I thought it was interesting how in the final chapter, the author recounts his luncheon with the Salomon Brothers former partner John Gutfreund, who saw the company go from a partnership to a private corporation, then was responsible for taking it public. Very, very relevant to this thread. That move was blamed (or seen as a portent) for much of the subsequent Wall Street debacle. If you haven’t read it, all, you should. You would like it, russell (but you’ve already read it probably). You should read it, McKinney, since you seem to deny the significance of the statutory and regulatory structure which allowed and facilitated the running amok of the financial industry.
    I’m actually the last one to read it, but I’m really glad I finally did.

  119. Seed you property’s borders with caltrops. That should keep the guys away but keep a sign ready, so nobody can claim not to have been warned. If they wear boots with steel or kevlar inlets then you’ll have to resort to bear traps. And then there are those nice covered pits* filled with nasty (non-lethal) stuff. Better avoid landmines or area denial chemicals.

    Btw, over here police indeed warns that most burglaries are now committed during daylight hours. A) people tend to be at work during the day while at night they are at home B) since everyone believes that burglars come at night suspicious activity during the day will often be overlooked.
    *shoebox size not mineshafts.

  120. All this was in Killeen.
    Not sure how odd that law is, she certainly shouldn’t have been required to wait until he got to the house and attacked her to defend herself, and that is a bigger issue in the dark. And, the fact that it was Killeen is telling. Relatively small Texas town with a strong, inherently conservative bent. The chances of convicting the woman for anything other than performing a public service were right around zero.
    Probably not a “theft after dark” situation, but more of a reasonable fear of her life kind of deal.
    Sort of like horizontal drilling wherein mineral rights are tapped under the surface owners’ property as the latter snooze.
    I am pretty sure slant hole drilling is illegal.
    You should read it, McKinney, since you seem to deny the significance of the statutory and regulatory structure which allowed and facilitated the running amok of the financial industry.
    Sapient, you are mistaken. What my comments above address is the implicit notion of many here that there is some presently missing and ill-defined regulatory scheme that can make people treat their employees more kindly in the compensation department and/or promote a more equitable distribution of company earnings. I think this is wishful thinking and the kind of thing, that if enacted, would cause much more harm than good.
    Seed you property’s borders with caltrops.
    This is the obvious solution, of course. Alternatively, a blend of a dog, good locks, perimeter lighting and property insurance with your portable valuables photographed and inventoried is pretty much the best you can do. As you might imagine, many folks in Texas keep a gun handy and it is not too terribly uncommon, popular thinking aside, for a homeowner or shopkeeper to successfully put up a fight.

  121. “I am pretty sure slant hole drilling is illegal.”
    I know it is in Texas, due to scandals in the middle of the last century.
    My knowledge of this is thin (all of my knowledge is thin) but I think there is a distinction between (1) an operator slant-hole drilling into a another operator owner’s leased mineral rights and stealing the resource … and (2) owning mineral rights under someone else’s surface property and paying an adjacent landowner to allow a pad to be constructed from where directional drilling to the legally acquired below-surface lease can be accomplished.
    Now, if the surface owner owns the mineral rights under their property and refuses or is not recompensed for the exploitation, the scenario above would be illegal.
    Shale formations by definition require directional/horizontal drilling because of the difficulty of negotiating the geological structures.
    I also stayed in a Holiday Inn Express last night.
    That drilling sound you hear is me undermining myself.

  122. I am pretty sure slant hole drilling is illegal.
    Directional drilling is not only common in natural gas extraction in the Marcellus Shale, it’s the only way the field is viable.
    I have no idea what infrastructure is in place to let local governments or property owners monitor whose property a directional well enters. I’m sure the company drilling well has a good idea, but I’m not sure what requirements there are for them to disclose that.
    The regulatory environment here covers multiple states, counties, and towns. My general sense is that there is no organized or uniform set of regulations.
    I’m happy to defer to some degree to Count’s understanding of the law about this, because he’s in CO, where this crap has been going on for several years now. But what’s true in CO may not be true in OH, PA, WV, and NY.
    A non-trivial number of people are dealing with water that they can no longer use, standing pools of toxic waste water from fracking extraction, and other ills of large-scale industrial production, in their backyard.
    My understanding is that the going compensation rate for all of this is now something like $15K – $20K an acre, which is great money if you have lots of land and not much cash. But it’s not so great if you find it hard to live in your own home anymore.
    the implicit notion of many here that there is some presently missing and ill-defined regulatory scheme that can make people treat their employees more kindly in the compensation department and/or promote a more equitable distribution of company earnings. I think this is wishful thinking and the kind of thing, that if enacted, would cause much more harm than good.
    As best I can tell, what the “many here” that you refer to are looking for is a restoration of laws and business practices that were common – the norm – during a period when this country was, in fact, extraordinarily prosperous. The undisputed economic heavyweight champion of the world.
    So, when you claim “wishful thinking” and “more harm than good”, I reply, sez you. The facts and the history are not on your side.
    As far as the present-day state of the art, we are now looking at the expiration of a popular, broad-based middle class *tax holiday* — the 2% FICA holiday — because the Republicans in Congress cannot agree to fund it with a 3% increase in the marginal rate on earned income above one million dollars a year.
    I will remind you that the payroll tax holiday was a long-time conservative proposal short-list favorite.
    Nobody’s talking about “more kindly”. “Kindly” is so far off the table as to be a dim sentimental memory.
    We are well into “f**k you, hippie” territory.
    That sentiment cuts more than one way.

  123. If we want to dive further down the Marcellus rabbit hole, it’s always worth noting that hydrofracturing chemicals, specifically, are exempted from regulation imposed by the Clean Water Act.
    That is commonly known as the Halliburton loophole, because it was inserted into the law at the urging of then VP Dick Cheney.

  124. There’s also the seismic connection with fracking. It’s not clear to me that scientists understand this very well.
    But back to my own stream of consciousness about the financial industry, I thought this article was interesting on the subject of why the instigators of the financial meltdown aren’t in jail.

  125. “The important point here is that even the people who look like they’ve made their money from a business outside the financial industry — the Bill Gates or Steve Jobs types — really haven’t. They’ve made their money from *stocks*, not from selling things or services.”
    I read a few exceptions to this but I want to firmly object to this characterization.
    This is the equivalent to saying that people don’t get paid for work, they just work the banking system to access their direct deposit paycheck.
    Stocks and stock options as payment of potential future earnings for present work are the way most people get wealthy for the value they HAVE added. Selling your company for shares is how you capture the worth of years of value add.
    These aren’t examples of getting wealthy from the “financial” system, they are the best use of the capital generation role that Wall Street is supposed to perform.
    an aside, The discussion of current shareholders as just speculators with no value add is also misleading in a macro sense.
    Having liquid capital formation capability is the life blood of growth for most companies. For nonpublic companies that devolves to owners putting more money into the company, for public companies it means maintaining the ability to use stock as a currency to raise money or buy other companies. Having shareholders who believe that whatever dilution might happen through these money raises and purchases will be effectively used to add enough value to grow the value of their shares is critical to the health of most companies over time.
    When they don’t, they sel,l and luckily their is someone who will buy. If enough people don’t, then the shares go to zero and the company has increasingly limited growth options and management gets replaced.
    I won’t go into the things I believe Wall Street should change (I did that a few threads back) but the idea that shareholders are nothing more than gamblers, or dupes, is just not correct.

  126. This is getting fracking ridiculous. It’s time for a speculative post on the necessity for the reform of corporate immunity from purposely abusive EPA regulations that have the unintended consequence of promoting the shooting of trespassers who engage in horizontal drilling in the dark.
    This would be a good investment. 😉

  127. If you want even out earning power in the U.S, you have to raise the 15% capital gains tax.
    I can understand the argument about concentrating wealth. But, I don’t get this sentence. Absent confiscation of principal, earning power simply isn’t going to be evened out.

  128. Even some of the 1% are Occupying the 1%:
    http://www.washingtonmonthly.com/political-animal/2011_12/we_cannot_cut_our_way_to_great033925.php
    Meanwhile, some who previously backed Obama and then abandoned him because of the Affordable Care law and then lost their health insurance in the Bush economy only to become mortally ill, have decided to re-Occupy their enthusiasm for the socialist Kenyan:
    http://www.washingtonmonthly.com/
    I guess it helps her re-ignited enthusiasm that the genocidal Republican filth, along with a few Democratic butchers, in the U.S. Congress and running in the Republican primary are trying their best to bankrupt and murder the woman.
    Up with cancer. Up with expensive cancer.

  129. I don’t get this sentence. Absent confiscation of principal, earning power simply isn’t going to be evened out.
    There is no sane person who is arguing for making the earning power of everyone in the US equal. No one.
    Different people do different things, derive their income from different sources, work more or less hard, are more or less skillful at what they do.
    Everybody understands that. Everybody.
    The most ambitious thing anyone is calling for is for public policy to be adjusted so that it is less blatantly skewed to the advantage of wealthy people.
    Not because they hate wealthy people, or resent their good fortune, or want to stick it to the man. But because the imbalance between the wealth that is flowing to the wealthy, versus what flows to everyone else, is creating serious problems for everyone.
    Everyone.
    Plus, it is simply, plainly, and palpably unfair.
    My suggestion to you is to eat the meat and spit out the bones. By which I mean, rather than seizing upon one sentence that you find impractical, perhaps focus on the overall point of the article.
    I’m glad you understand the part about concentrating wealth. The tendency of the current capital gains tax regime to concentrate wealth is the overall point.

  130. By which I mean, rather than seizing upon one sentence that you find impractical, perhaps focus on the overall point of the article.
    But that’s what we do here. All of us.
    But because the imbalance between the wealth that is flowing to the wealthy, versus what flows to everyone else, is creating serious problems for everyone.
    Like I said, I get the part about excessive concentration of wealth, but what specific problems arise from this? Current type problems? The deficit is a taxation issue, not a concentration issue, so I am missing the problem angle.
    Plus, it is simply, plainly, and palpably unfair.
    The tax rate or the concentration? I ask, because even if we taxed the Fortune 400 at 50%, no one else’s earnings are going up noticeably, no it isn’t as if we all get something we aren’t currently getting. Wealth is still going to concentrate, even with an estate tax.
    Put differently, suppose the top 1 percent paid 50% taxes and just made half again what they are making now–the concentration would be the same, there would just be more tax revenue. Would that be satisfactory?
    The tendency of the current capital gains tax regime to concentrate wealth is the overall point.
    Isn’t the fix simply to put in brackets for higher levels of cap gain earnings, say a 15/20/25% bracket at 750,000/1,500,000/3,000,000 and call it a day, with a one time exception for sale of a closely held business?

  131. what specific problems arise from this?
    A lot of people work one or more jobs and are still poor.
    Since we don’t actually want our friends and neighbors to starve, or live in their cars or a cardboard box, or die from something stupidly treatable like pneumonia, we prop them up with one form or another of welfare.
    Or, not.
    In either case, it’s not so great.
    The tax rate or the concentration?
    The concentration.
    Because one one-thousandth of the population do not personally generate half of all of the wealth represented by the total capital gains created by the US economy.
    Put differently…
    No need to put differently.
    Isn’t the fix simply to put in brackets for higher levels of cap gain earnings
    I’m not sure there is one single thing that is “the fix”, but your suggestion seems generally reasonable, and would be helpful.

  132. Isn’t the fix simply….
    To answer somewhat more completely:
    Increasing the capital gains tax rate would improve the revenue picture for the feds, which would be helpful.
    It would also mitigate, to some degree, the discrepancy in overall income distribution, which might be a useful outcome.
    But what would be a more substantial ‘fix’, in my eyes, would be a more equitable distribution of wealth, up front, without mitigation by the tax regime.
    Not redistribution, not mitigation of unequal distribution, but simply more equitable distribution.
    That’s my point of view.

  133. But what would be a more substantial ‘fix’, in my eyes, would be a more equitable distribution of wealth, up front, without mitigation by the tax regime.
    I think we’ve come full circle. I don’t see how you make that happen without a problematic regulatory regime. I mean–leaving aside the question of the propriety of the gov’t deciding how profits should be shared–how do you write a set of rules that will cover an economy the size of the US without making compliance a nightmare for all but the largest companies who can bear the cost?

  134. I don’t see how you make that happen without a problematic regulatory regime.
    You would not need a problematic regulatory regime. You would need a different regulatory regime.
    Look, there are any number of countries in the world which are similar to us in terms of their political and economic maturity and sophistication, but which do not manifest the extraordinary level of wealth and income disparity that we do.
    There are a number of reasons for that. Public policy is a part of it. Not the only part, but part.
    And in those places, people start businesses, employ people, make tons of money. The regulatory environments in those places don’t stop people from being very successful, indeed.
    In this country, we had a much different regulatory environment until fairly recently. The impulse to deregulate is something like 30 years old.
    But people in this country started businesses, employed people, and made tons of money in that regulatory environment.
    It’s a matter of deciding what’s important to you, and moving forward from there.
    What we have decided is that facilitating the concentration of wealth is what’s most valuable to us. People might not put it in quite those words, but those are the policies we have embraced, for at least the last generation.

  135. I don’t see how you make that happen without a problematic regulatory regime.
    Well, what russell said, but also:
    McKinney, I guess it’s silly to keep saying this, expecting a response, but we already have a regulatory regime. The system of public corporations is a highly regulated and artificial system, but the regulations work in favor of the wealthy accumulating more wealth. (Privately held corporations are less so; partnerships are even less so; sole proprietorships are even less so. Corporations aren’t just a group of freewheeling businesspeople doing their thing – they get advantageous treatment from government.) You find it “problematic” to change the system slightly to bring the wealth distribution more in balance. There are many ways to do such a thing that wouldn’t be difficult to administer. For example: How about all employees sharing a stock bonus pool, rather than bonuses being for management only? How about bonuses being tied to performance? How about employee compensation bearing a reasonable relationship to management compensation? All of these things are very simple, and they’re just examples. Whose nightmare is it to implement reforms? It’s only a nightmare for people who want to continue the status quo.

  136. Deregulation of the financial sector has increased the ability of some people to make lots and lots of money without making anything (at least not particularly useful for anything but making those people lots and lots of money) or facilitating the making of anything useful (repeat parenthetical). This can be reversed through legislation.
    The ability to organize labor, in more useful ways to workers, could be increased by legislation.
    Political power could be made less wealth based than it now is through legislation.
    Funding for public goods that facilitate both business and the opportunities for people to climb the economic ladder, including early childhood and post-secondary education, could be increased through legislation. (Your capital gains tax suggestion would be a start, McKinney.)
    The abilities of people with money and resources to squeeze money out of those with less of both could be lessened through legislation and better safety nets.
    A higher minimum wage could be enacted through legislation.
    Subsidies for highly profitable industries could be reduced or eliminated through legislation.
    Estate taxes and could be increased through legislation, as well as the elimination of loopholes.
    All of these things would, even if very indirectly in some cases, reduce the systemic concentration of wealth and income over time.

  137. What HSH and Russell said. Current incentives are skewed. For example, given the liquidity preference of the wealthy, a lower capital gains rate subsidizes a certain type of “investment”…i.e., stocks. And here we are right back where we started….are stocks investments or speculation? I’d aver that financial markets are a social construct that lever economic wealth and act to concentrate economic power within a relatively small elite.
    Let us start from the beginning:
    1. Absolute power corrupts absolutely.
    2. Unconstrained absolute power is not a social good, and in the long run is socially destructive (history, which see).
    2. Policies that skew incentives, encourage and/or grant economic rents act to promote the concentration of financial and/or economic wealth. This is not so good.
    3. The concentration of wealth acts to concentrate political power.
    4. Concentrated political power acts to reinforce and magnify the power of those who already have economic power.
    5. Go to 1. above. Do not pass Go. Do not collect $200.
    6. 2. above.
    So when you say you don’t ‘understand’ this, McKinney, you are reflectively hitting off your right side and a lot of your comments slice OB to the right.
    That’s stroke and distance, rule 27-1.

  138. Take the crisis of the Euro. That idiot, David Brooks, celebrate the ‘virtuous’ Germans and castigates the profligate PIGs….standard wingnut morality play economics (“if you’re poor, it’s your fault”).
    Does he not realize that the GDR has very high taxes? Very powerful unions? An extensive social safety net? Relative economic equality? Higher social mobility than the US of A? An economy shaped by extensive state intervention to be an exporting powerhouse?
    Is he simply a liar? Or deluded?

  139. I vote for deluded liar.
    Or maybe a liar who hopes to delude.
    Well, maybe, too deluded to lie, except to himself; in other words, a true believer, who reads the lies of others and then deludes himself into believing them.
    Also, the high-paying gigs to pontificate his bullsh*t.
    Brooks plays both sides of the street in his grift, which has the slight advantage of being an elitist grift, unlike Palin’s, Cain’s, Perry’s, Bachman’s and Moe Lane’s, not to mention Gingrich’s pseudo-intellectual-Pol Pot-attends-the-Sorbonne glibness, in that he adores the virtuous incentives for we usual suspects of hard times, ie. unemployment, low wages, indebtedness, and misery, only for the poor and the middle class natch, but then falsely blames and deplores Barack Obama for creating those incentives so, in Brooks’ mind, we can get back to the disincentives of good-paying jobs, medical insurance, and families staying together under the supposed wealth-creating policies of the Republican Party, which of course corrupt the poor and the middle class and lead them to un-virtuous America-destroying behavior, which must be vanquished, you guessed it, lower taxes on him.
    I don’t think Brooks should be killed during the coming violent revolution in this country, but ample pepper-spraying at close range seems a likely punishment

  140. Does he not realize that the GDR has very high taxes?
    I think you mean the FRG. I doubt that Brooks would be a fan of the GDR should it still be around. 😉
    I guess he also overlooked that the smaller partner (FDP) in the current ruling coalition went into a nosedive since it fully embraced GOP-like policies and has a good chance to miss the 5% mark in the next election (which is the treshold for the German parliament). One Bundesland (=state) now has a green Ministerpräsident (~governor) and Berlin almost got one too (we kept the red gay* one instead).
    *btw, the head of the FDP who is also the foreign minister happens to be gay too. And to imagine Angela Merkel having sex is too much for a sane brain to bear 😉

  141. And to imagine Angela Merkel having sex is too much for a sane brain to bear 😉
    What about a nice shoulder rub?

  142. For example, given the liquidity preference of the wealthy, a lower capital gains rate subsidizes a certain type of “investment”…i.e., stocks.
    BP–are you sure about this? The people I know reasonably well who are really, really well off make their money in real estate, mostly commercial, which also features cap gains treatment if the property is held more than a year. Real estate, as you know, is not liquid.
    financial markets are a social construct that lever economic wealth and act to concentrate economic power within a relatively small elite.
    If that were the case, then the good old days often referred to here by others would never have existed since financial markets preceded them by many decades.
    But, the good old days are only “good” in the rear view mirror. Back then, progressives made the same arguments about corporate wealth and greed I hear today. Really, there is nothing new in that regard.
    If I were going to make a statement of this nature, I would say that a market economy is cyclical, analogous in many ways, and also congruent in many ways, with history. By definition, that means ebb and flow, up and down.
    Static economies don’t swing. They don’t do much else either. Also, no country without a market economy has ever experienced a meaningful quality of life for the vast majority of its population. Power and wealth were always concentrated at the top.
    The frequent comparisons here to Europe are interesting, mainly for their selectivity. For the most part, favorable comparisons usually end up pointing to Germany as the model. Bits and pieces of Sweden, England, France are held out from time to time as something to emulate, but, overall, the comparisons across the board for these countries is problematic.
    I’ve spent a fair amount of time in England, France, Spain and Italy and some time in Sweden. One of the things I do when we travel is look at real estate prices. Americans of relatively modest means live in much larger apartments and far many more live in single family homes. Apartments here, at least in Texas where I’ve lived most of my life, routinely have playgrounds and swimming pools, even those serving the more modest income levels. Grocery prices are better, cars and gas are cheaper.
    So, not all comparisons with Europe are favorable. And then you have cultural overlay and population size. In Sweden, for example, I had dinner with a half dozen insurance company executives. For Sweden, they would be considered conservatives. Yet, their views on the Swedish social contract made them look like Russell on a roll (smiley face goes here)–the consensus was that everyone was owed a minimum standard of living whether they chose to work or not. I couldn’t tell you what the common level of consensus is in Germany for the basic social contract, but reason suggests it is not what it is here.
    But, the main distinguishing features of the US vs any one country in Europe is, first, our size, both population and geography, and, second, our diversity. We have many subcultures, some with ethnic origins (Mexico being a good example), some regional, some of mixed genesis. You can’t impose a one-size-fits-all set of complex rules to the extent progressives would like on country this size. Simply because something works, or seems to work, in one place doesn’t mean it can work here.
    1. Absolute power corrupts absolutely.
    2. Unconstrained absolute power is not a social good, and in the long run is socially destructive (history, which see).
    2. Policies that skew incentives, encourage and/or grant economic rents act to promote the concentration of financial and/or economic wealth. This is not so good.
    3. The concentration of wealth acts to concentrate political power.
    4. Concentrated political power acts to reinforce and magnify the power of those who already have economic power.

    Yes, this is true. And, the two largest, highest body count examples of absolute concentration of power in recent history were the opposite of market economies. One has failed, the other is saving itself by moving to a market economy. With all of the attendant have and have-not problems associated therewith.
    Rule 27-1 is a good one to remember. Also, it is good to remember that the white stakes are on the left side of the fairway as often as they are on the right.

  143. From Slart and McKinney, alternately, in the balcony:
    That was wonderful!
    Bravo!
    I loved that!
    Ah, that was great!
    Well, it was pretty good.
    Well, it wasn’t bad…
    Uh, there were parts of it that weren’t very good though.
    It could have been a lot better.
    I didn’t really like it.
    It was pretty terrible.
    It was bad.
    It was awful!
    It was terrible!
    Take ’em away!
    Bah, boo!
    Boo!

  144. You can’t impose a one-size-fits-all set of complex rules to the extent progressives would like on country this size.
    I will attempt to save sapient the effort of stating the obvious:
    We *currently have* a set of complex rules, that apply, nationwide, to a country this size. We *currently operate* in a highly regulated environment.
    The US *is not* an environment free of encumbering regulation. Not remotely.
    Nor, in fact, would we want it to be. If you consider what an unregulated environment would actually look like, I’m sure you will agree.
    The question is whether the outcomes that *our regulations* drive are desirable.
    It’s lovely that the average American lives in an apartment that is larger than the average Swede.
    It sucks that something approaching 20% of the working population are either unemployed or underemployed. It sucks that the average duration of unemployment is the longest it has been in 70 years, if ever. It sucks that millions of people are bankrupt, losing their homes, have no health insurance or inadequate health insurance, are buried under debt loads they’ll never escape from, and may never work in their chosen fields again, in their lives.
    It sucks that the physical infrastructure of the US, built at great cost and no little sacrifice by generations of Americans, is decaying, and we won’t spend the funds to repair or replace it.
    It sucks that in an environment where the vast majority of folks are facing some kind of financial hardship, we can’t agree that extremely wealthy people — people whose earned incomes exceed one million dollars a year — ought to contribute an additional three cents on the dollar on their income above one million, so that *every other person in the country who works for a living* can have another year or so of relief on their withholding.
    And so on, and so on, and so on, and so on, and so on.
    But yeah, our apartments are larger than the average Swede’s.
    You get the life you choose. As individuals, and as a nation.
    We have chosen to prefer to encourage the accumulation of extreme concentrations of wealth in a few hands, as opposed to the broad well being of the nation as a whole.
    That is what we have chosen, not least because the way that we go about “choosing” things like this has been corrupted to an almost absurd degree by the flow of the giant pools of private wealth that our policies help create.
    That is what we have chosen, and that is what we have.

  145. I’ve spent a fair amount of time in England, France, Spain and Italy and some time in Sweden. One of the things I do when we travel is look at real estate prices. Americans of relatively modest means live in much larger apartments and far many more live in single family homes. Apartments here, at least in Texas where I’ve lived most of my life, routinely have playgrounds and swimming pools, even those serving the more modest income levels. […]
    So, not all comparisons with Europe are favorable.

    This is point, while true, is painfully misleading, as it at best passingly and dismissively addresses the foremost factor driving the above: the EU is cramming a population roughly ~166% of the US into a land area less than half the US’s size. Looking at real estate through an economic lens while suggesting differences in population distribution and geography are secondary renders the comparison more-or-less useless. That real estate in various western European countries does not compare favorably with real estate in a random spot in the US is cherry picking. To put it mildly. It’s not some glorious superiority of the US economy that makes real estate cheaper, it’s that there’s a lot more space per person over here.

  146. We *currently have* a set of complex rules, that apply, nationwide, to a country this size. We *currently operate* in a highly regulated environment.
    Well, yes and no. There are degrees and extents of complexity. What we have isn’t, apparently serving so well, but is the problem too much or too little or enforcement, or something else entirely or all of the above. My point is the massive size and heterogeneity of US commerce defies the kind of solutions being advanced here. We aren’t talking minimum wage or parts per million of X element per Y gallons of water, we are talking about a regulatory regime that would, going forward, mandate a different class of compensation for, I assume, everyone in the private sector.
    That the economy is in a recession is tangential to the discussion, but it makes my point about cycles. They aren’t going away, as bad as they are. I am unsure how the regime being proposed would fix the recession–force companies to hire, to expand and to pay per a preset formula? In the end, a regulation without a sanction is toothless.
    This is point, while true, is painfully misleading
    Not misleading at all, and the fact that apartments and homes are more plentiful and cheaper here because we have more area to build on is beside the point. If you want to compare quality of life, how someone lives everyday is part of that comparison. Cars, gasoline and groceries are a part of life here and there. They are cheaper here. That’s a big deal.

  147. Cars, gasoline and groceries are a part of life here and there. They are cheaper here. That’s a big deal.
    So is the fact that you need a car to do almost anything in much of this country, but it’s a big, bad deal, rather than a good one. Quality of life, indeed.

  148. So is the fact that you need a car to do almost anything in much of this country, but it’s a big, bad deal, rather than a good one. Quality of life, indeed.
    Subjective judgment. If most people prefer maximum personal mobility, and if they are able to have it, you say that is ‘a big, bad deal’?

  149. we are talking about a regulatory regime that would, going forward, mandate a different class of compensation for, I assume, everyone in the private sector.
    ???????
    I’m not really seeing anything like this, in anybody’s comments.
    The only thing *remotely* like this might be hairshirt’s comment about a higher minimum wage.
    Which, since the minimum wage is currently at its lowest value in real dollars since 1950, can hardly be called a radical proposal.
    What exactly do you think people are calling for?
    Cars, gasoline and groceries are a part of life here and there. They are cheaper here.
    And yet, Europeans drive and eat. They drive nice cars, actually, and eat quite well.
    If you want to argue from everyday quality of life, you need to include more than point-of-sale cost of cars and groceries.
    Among other things, we pay for our “cheaper” cars and groceries in lots of other kinds of coin.
    A topic for another day, no doubt.
    Nobody expects the US to be a carbon copy of Europe. The point of citing European examples is simply to demonstrate that it’s possible to have a healthy and productive economy while also having a more equitable distribution of wealth and income.
    Can it be done? Yes, it can. People do it.
    We don’t.

  150. We aren’t talking minimum wage or parts per million of X element per Y gallons of water, we are talking about a regulatory regime that would, going forward, mandate a different class of compensation for, I assume, everyone in the private sector.
    I’m talking about minimum wage, among other things. On the rest of the above, I have no idea what you’re on about, McK.
    I am unsure how the regime being proposed would fix the recession–force companies to hire, to expand and to pay per a preset formula?
    I don’t see anyone talking about “fixing” the recession or preventing all future recessions. People seem to be talking about extreme and harmful disparities in wealth and income, which may contribute to the depth and frequency of the business cycle. And no one is talking about making everyone exactly equal, either. Some degree of inequality is unavoidable and likely healthy.

  151. You guys having been spending too much time watching the Muppets.

    If Muppets had not been, Yoda there also would not. Explain that, you must.

  152. That the economy is in a recession is tangential to the discussion, but it makes my point about cycles. They aren’t going away, as bad as they are.
    Slightly tangential to the discussion, perhaps, but this recession is not part of a “cycle.” There may be some cyclical elements, but mostly it is a result of the financial industry meltdown, largely caused by insufficient regulation and oversight of the financial industry, an industry that was engaged in fraudulent practices (not to mention legal malpractice) on a massive scale. And they were able to pull it off, and get away with it for the most part, because of their wealth and power over the political system.

  153. On the rest of the above, I have no idea what you’re on about, McK.
    I’m in the same boat.
    Explain that, you must.
    What I’ve never understood is why Yoda sounds Amish, but he doesn’t have a beard.

  154. On the rest of the above, I have no idea what you’re on about, McK.
    Sorry for not being clear. Regulations that call for an objective, empirical result: parts per million of X, time and a half for hours over forty, what have you, are like traffic laws, minimum liability insurance requirements and tax brackets. The standard is clear, compliance follows or not, and the penalty follows the ‘not’ part. What you are talking about isn’t subject to a clear, objective standard, just some kind of desirable end result. Even if, and perhaps especially if, you simply instituted some kind of mandatory salary ratio from top to bottom and applied that to every enterprise in the country, such a system would never work.
    And no one is talking about making everyone exactly equal, either.
    No, I realize that. Just ‘a lot more equal than is currently the case.’ It’s relatively easy to describe a preferred outcome. But, when that preferred outcome is a income distribution that approximates Sweden or Germanny, imposed on an economy the size of the US–and leaving aside the potential, if not certainty, for oppression, recession, capital flight etc–it just won’t work. The regime would be too complex, enforcement would be a nightmare, and trying to make it work could easily be far more destructive than what we have today. My take is that it would almost, absolutely be more destructive, but I don’t have a cite, so I’ll limit to being IMHO.
    And they were able to pull it off, and get away with it for the most part, because of their wealth and power over the political system.
    They were able to get away with it because the whole damn country was complicit. Who was surprised to find out that loans were being made that almost certainly couldn’t be repaid? People were talking about the Real Estate Bust for several years before it happened. And on the regulatory side, I’m pretty sure the regs you complain about were gamed into the system by the very largest players. Which is another problem with regulations of this particular nature: they get bent by the very largest players, often in a way that perversely produces a competitive advantage over smaller operations.
    Finally, cycles have multiple causes: The Great Depression had several discrete causes, ditto the Dot Com Boom and Bust. They can cause faster than expected growth and deeper than expected recession.

  155. Who was surprised to find out that loans were being made that almost certainly couldn’t be repaid?
    It wasn’t just that there were loans made that couldn’t be repaid. It’s that the loans were bundled into securities, then sliced and diced into more securities, that were given AAA ratings by ratings companies paid by the banks. The loan defaults might have been foreseeable. The hiding of the risk, the double dealing of the securities – that was seen by the perpetrators, and that’s what caused the meltdown.

  156. What you are talking about isn’t subject to a clear, objective standard, just some kind of desirable end result. Even if, and perhaps especially if, you simply instituted some kind of mandatory salary ratio from top to bottom and applied that to every enterprise in the country, such a system would never work.
    Not everything I’m talking about is regulation, per se. Improving, for instance, education or public health or national infrastructure, has diffuse and broad economic benefits, whether it requires empoyers to X or not. Having publicly provided or funded options for, say, child care allows people to work rather than being on welfare.
    What I’m talking about is providing public goods that give people from the middle class on down more ability to live productive lives, as opposed to taking such away because we can’t afford to raise taxes on the relatively few people who are accumulating more and more of our national income and wealth.
    What I’m also talking about are simple laws or regulations that disallow deceptive, opague and onerous interest schemes, fees, surcharges and what have you that are used to take money out of the pockets of resource-constrained people and put it into the pockets of resource-rich people and corporations – be they used by banks, pay-day lenders, rent-to-own enterprises, shady landlords, car dealerships or whatever.
    What I’m talking about is not throwing the labor-organizing baby out with the bathwater.
    Hell, I could throw in drug laws that put non-violent poor people and minorities into jails, completely fncking up families and their finances.
    Are estate taxes so incredibly complex to administer? Or minimum wage laws? Or more progressive taxes on investment income? Or eliminating unproductive subsidies? (Would that be a simplification?)
    What’s so hard about any of this, other than the fact that there are monied interests and bought-off politicians in opposition to it?

  157. Who was surprised to find out that loans were being made that almost certainly couldn’t be repaid?
    Alan Greenspan

  158. Everyone knows that Dr. Pangloss is not the good guy in Candide, right?
    That the economy is in a recession is tangential to the discussion, but it makes my point about cycles. They aren’t going away, as bad as they are.
    The trend in wealth concentration, wage stagnation, and income inequality is going on some 40 years now. It has nothing to do with the boom/bust cycle.
    Subjective judgment. If most people prefer maximum personal mobility, and if they are able to have it, you say that is ‘a big, bad deal’?
    You speak as if needing a car to do anything outside of the densest urban centers in America is just a state of nature or an outcome of millions of individual personal preferences, rather than the result of very particular urban planning and zoning laws. Why are you so unable to step outside your own paradigms?
    I’ve actually LIVED in Europe, and people there like “maximum personal mobility” too (whatever the hell that’s supposed to mean). They can achieve it using some pretty remarkable public transportation infrastructures, and when they absolutely need cars, they rent them. Last time I spent an extended amount of time in Germany (a month), I used a car exactly twice.
    And yes, I would say that planning everything in the US around cheap gas prices, ubiquitous car ownership, low-density development, and poor fuel efficiency is, actually, a “big, bad problem.” It’s a whole bunch of big, bad problems tied together, in fact.
    Let’s raise fuel taxes to what they are in Europe and then see how people feel about our current transportation and development strategies. I bet investment in rail and buses, and living closer to urban centers, will suddenly — miraculously!!! — become a lot more attractive.

  159. The hiding of the risk, the double dealing of the securities – that was seen by the perpetrators, and that’s what caused the meltdown.
    I thought it was a butt load of people going into default, unserviced mortgages and thus, no real asset behind the security. That, and no solvent responding party on the credit default swaps.
    What’s so hard about any of this, other than the fact that there are monied interests and bought-off politicians in opposition to it?
    Well, except none of it relates to the topic at hand, which is income and wealth inequality. What I infer from your list of particulars is that higher taxes converted to these items would materially change people’s lives. I could debate some of these points, or point out that we have a huge national debt and huge state and city debts and new spending probably isn’t in the cards, so it seems to me to be pretty much a moot point.
    If the issue is simply higher taxes on the uber wealthy to fund more programs, then the issue is not income and wealth disparity, except perhaps as a by-product of lower taxes.

  160. I thought it was a butt load of people going into default, unserviced mortgages and thus, no real asset behind the security.
    When that kind of risk is made apparent on the books, the transactions don’t fly. It was the fact that the risk was hidden in the bundled securities that the lending became so profitable.

  161. Not misleading at all, and the fact that apartments and homes are more plentiful and cheaper here because we have more area to build on is beside the point.
    Not beside the point at all. If you wish to compare the effects of regulatory regimes in terms of how they affect quality of living, you need to make an apples-to-apples comparison, or at least account for why one apple has a rind and a higher acid content. So… a little reductio ad absurdum to drive your point into the ground. Note that the following includes unsourced assumptions, but they’ll not be overly controversial, methinks.
    Let us assume New York County, New York has a more rigid regulatory scheme as pertains to building, maintaining, selling, etc. real estate (and higher real estate prices, and smaller average dwelling sizes), than Lake and Peninsula Borough, Alaska. By the logic you outlined above, we can meaningfully conclude from this that the regulatory scheme of New York County compares unfavorably to that of Lake and Peninsula Borough, as judged by the quality of life of the inhabitants (because more and cheaper real estate => better QoL), and therefore, for any random county, the Alaskan regulatory scheme for real estate is preferable to that of New York. The fact that the geography and population density of the two are not the same is beside the point.
    [Wiki links for the two counties removed to try to stay out of the spam filter when re-posting this comment.]

  162. the potential, if not certainty, for oppression, recession, capital flight
    Oppression? Raising taxes on rich people is oppression? Capital flight? From the biggest, deepest, most transparent (mostly) capital market by orders of magnitude in the entire world? Seriously?
    You’re hyperventilating.
    Here. Try these and call me in the morning:
    1. A small tax on financial market(s)transactions.
    2. Drastically reform our patent law.
    3. Lower the value of the dollar to encourage exports and domestic production.
    4. Absent health care reform….allow folks to participate in the healthcare programs of other countries.
    5. Subject those who are currently protected from the winds of foreign competition to, well, competition. Isn’t competition a good thing? Why do we restrict it so for doctors, accountants, professors, and lawyers?
    6. Re-level the playing field as between unions and management…or even tilt it in favor of organized labor.
    7. Corporate governance reform.
    These are just a few ideas. I see no burdensome regulatory regime as a result.
    SOCIALISMiny!!

  163. The Planning Commission is a seven-member board appointed by the Mayor and confirmed by the Assembly. The Planning Commission is involved in subjects such as capital improvements, land use regulations, and overall physical and economic development of the Borough and its communities. Its primary responsibilities include the implementation of the Borough’s Comprehensive Economic Development Strategy, Coastal Management Plan, Subdivision regulations, and Development Permit regulations.
    Socialism. It’s everywhere. Feel you the Force does!*
    *and here I thought Yoda was a particularly odious Soviet apparatchek.

  164. What I infer from your list of particulars is that higher taxes converted to these items would materially change people’s lives.
    That a very selective reading. I do advocate higher taxes on very high incomes to fund public goods that benefit people at all income levels, directly or indirectly. But I don’t see how raising the minimum wage requires taxation, or ending subsidies, or easing drug laws, or strengthening laws that favor labor organizing. And estate taxes very much address wealth disparities.
    I guess I have to try harder.

  165. If you wish to compare the effects of regulatory regimes in terms of how they affect quality of living, you need to make an apples-to-apples comparison, or at least account for why one apple has a rind and a higher acid content.
    I wasn’t comparing the effects of the risk of regulatory schemes, I was comparing, as is often done here, wealth/income differences between Europe and the US and pointing out, validly, that even if people make less here (I’m not sure that’s the case), they live as well or better than their counterparts, and even those who are somewhat better off, in Europe.
    Oppression? Raising taxes on rich people is oppression? Capital flight? From the biggest, deepest, most transparent (mostly) capital market by orders of magnitude in the entire world? Seriously?
    Context, BP. I was speaking directly to a regulatory scheme that would mandate reducing income disparity to match Germany or Sweden.
    On the rest, I’ll call you right now. I don’t like transaction taxes because they are regressive and have to be taken at point of sale. You can’t accumulate and only pay a tax after X number of transactions. I have no idea what you mean by drastically changing patent law. I sort of get what you mean on 3 and the remaining are too vague for me to comment on with any degree of specificity.
    But I don’t see how raising the minimum wage requires taxation, or ending subsidies, or easing drug laws, or strengthening laws that favor labor organizing.
    I agree, these are not tax related. My bad.

  166. I was speaking directly to a regulatory scheme that would mandate reducing income disparity to match Germany or Sweden.
    Who has proposed such a scheme?
    AFAIK Sweden and Germany don’t even have schemes that mandate some specific level of income disparity.
    “Mandated levels of income disparity” is a pure strawman. I suspect you know that.
    There are a variety of reasons why income disparity has increased in this country over the last 30 to 40 years. They include:
    Changes to the tax code.
    Increased opportunities for offshoring less-skilled labor.
    Extremely high compensation in C-level corporate management.
    Deregulation of the financial industry.
    General economic disruption caused by speculative bubbles, see also the immediately preceding item.
    Possible things we could do at the public level to mitigate it could include:
    Mild increases to the progressivity of the tax code. Realistically, this would basically mean letting the Bush cuts expire, as intended.
    Provide incentives to employers to not use offshore labor.
    Basic and obvious reforms to corporate governance so that C level dudes don’t write each others’ compensation packages.
    Re-introduce obvious, sane regulation of the financial industry to limit the risks they can take with other people’s money. Enforce existing laws so that people who make themselves rich by LYING TO OTHER PEOPLE go to jail.
    If that particular set of causes and fixes doesn’t float your boat, suggest some of your own.
    But the levels of inequality that we are seeing are actually harmful to the US as a society. They’re corrosive to any sense of basic fairness, and given the free and easy access to the political process that we have granted private money, they distort our political life in harmful ways.
    This isn’t obscure stuff, we just have to decide whether it’s important to us to address it, or not.
    So far I’m not seeing a lot of traction happening.

  167. Since the topic touches Germany, let me add a few morsels.
    The relationship of Germans to cars is similar to that of USians to firearms. Regulate at your own political peril. Freie Fahrt für freie Bürger!
    The reunification created for a time a situation similar to the disparities found in the US. What still worked in the fomer GDR got destroyed systematically by companies form the FRG with considerable help from consevative politicians. Wages in large parts of Eastern Germany are still lower than for comparable jobs in Western Germany. Until quite recently public employees East officially got only a certain percentage of the legally fixed amount for the same work as public employees West due to lower living expenses. Directly after reunification there was a really scandalous policy for Beamte (civil servants. that’s a special class over here with certain privilegies and duties). West-Beamte who got posted to the East got EXTRA money (Buschzulage = wilderness bonus) because of the ‘hardship’ to have to live there (while their ‘native’ Eastern colleagues got LESS than standard). That had to be changed rather quickly to avoid real trouble in the ranks.
    Germany has no official minimum wage (it is currently under discussion to introduce it). The main reason is that unions are still well organized (transregionally and to a degree uniting former smaller unions for several professions) and thus can bargain from a similar positiom of strength as the employers. That way threats to just move a factory from one corner of the country to another do not usually work since the union in both places will be the same.

    As an aside, a few of the unions have grown so big that they show similar behaviour to the corporations. Employees of unions don’t have a union themselves and are often treated accordingly, i.e. badly.

    I’d say the German system is working but could not be easily exported or further expanded. It was able to cover the differences between North and South (who changed their position of economic strength at some time during the Cold War with Texas..eh..Bavaria becoming rich after being a poorhouse for decades while once properous Northern Germany declined) and managed to absorb the former GDR but just barely.

  168. If you control for the deregulation of the financial industry I wonder if there is much income disparity trend left. Because back to the investment vs. speculation concept it is frankly astonishing how many of the very tippy top earners are in finance. (And I don’t mean Gates or Jobs self-investment either).

  169. Tx,
    Context? Izza’t what you call hyperventilating dyspepsia?
    Item 1: They have this tax in England. The London securities market is quite vibrant.
    2-5. Read Dean Baker’s “Beat The Press” blog for two weeks, and you’ll get an intro or link to these ideas.
    6. Vague? Have you not heard of Card Check? Have you not heard of Taft-Hartley? How ’bout we repeal it?
    Call and raise.

  170. If you control for the deregulation of the financial industry I wonder if there is much income disparity trend left.
    My understanding is that there are a couple of dynamics involved, one of which is *definitely* very large increases in earnings at the very highest percentiles. So, the more elite financial professionals and C-level executives at large corporations, mostly.
    But in addition to that, real wages from the middle on down are also basically flat or maybe slightly negative for the last couple of decades.
    Added to that are the real impoverishment of the folks who have lost jobs since ’08 and have never been able to either get a job since, or get a job at a comparable rate of pay.

  171. I’m sure that this is all fascinating, but my concentration, none too strong at the moment anyway, got derailed at:
    an apartment that is larger than the average Swede
    And somehow never got back on track. My loss, I’m sure.

  172. If you control for the deregulation of the financial industry I wonder if there is much income disparity trend left.
    If you throw in tilting the playing field against labor organizations, our high dollar policy, the reluctance of the Federal Reserve to take its mandate to promote full employment seriously, deregulation of other industries (trucking, airlines, etc.), tax giveaways for the already rich, so-called “free trade” deals, and the promotion of protectionism for favored classes, why yes, I’d wonder the same thing.

  173. Your average Swede is open to time-sharing.
    The larger Swedes can be subdivided.
    The very small Swedes, so tiny you can hardly see them, tend to live alone, despite being r-roomy in the hips.
    I understand squatters are now inhabiting formerly very expensive and high square-footage residential real estate in Texas, even legally in some cases.
    Apparently, in Texas, the Community Reinvestment Act incented even wealthy people to leverage beyond their means and then move to Sweden to escape oppression.

  174. If that particular set of causes and fixes doesn’t float your boat, suggest some of your own.
    Happy to: first, quit fixating on the income/wealth disparity thing and keep in mind the progressive view is a minority view, as is the libertarian. Also, as an operating premise, be open to the notion that, historically, other than defense, the left has a poor record of cutting gov’t spending. Finally, the deficit is a big issue for most people. Maybe not Krugman and his followers, but most others. Offering to cut in the out years in exchange for tax increases and stimulative spending in the near term is not a credible offer.
    Against this background, and in this order, more or less:
    1. cap spending for the next two years at current levels, with congress free to reallocate within the capped budget as it sees fit. This is actually possible, IF there was a president who would veto any budget that failed to comply. So, I capitalized “if” for a reason.
    2. drop the employee side of FICA for people making less than a combined income of 150K for two years and phase back over the next two out years. This is stimulative, hopefully, and also relieves business of having to give pay raises for these two years. Essentially, business can budget labor costs for two years.
    3. lower the corporate tax rate to 15% AND legislate an opt in/opt out regime for US companies that hide their revenue overseas through transfer pricing and other dodges. For companies that opt in, their products from overseas come into the country duty free. For these companies, all income earned overseas is deemed earned in the US with a tax credit for taxes actually paid overseas. For opt outs, a duty is imposed equivalent to the 15% income tax. Make enforcement so unpleasant that it’s easier to opt in.
    4. Reinstate the Clinton rates on income over 250K per couple, but apply to deficit/debt reduction only.
    5. Deem 80% of executive income “earned” in the year the benefit is conferred. Allowed deferred stock options up to 20% of compensation package, on the theory that it gives execs an incentive to cause long term enhanced performance.
    6. change the holding period for exec comp stocks to 3 years for cap gain treatment.
    7. progressively tax cap gains in 5% increments at 750K/1.5mm/3mm rates.
    8. estate tax of 40% on liquid portions of estates in excess of 25mm, and 20% on land, fixtures and capital. Gray areas created by accounting voodoo are presumptively liquid. Make overcoming the presumption difficult.
    9. make “controlling officers” strictly liable, i.e. no “knowing” or “intentional” scienter requirement, for material mistatements in public filings, disregarding titles and the corporate form. Jail time for bad actors. As a subset, simply SEC filings so that they can be read, as to their material issues, in one sitting by a reasonably well educated lay person.
    10. targeted regulation of non-standard securities with capitalization requirements and jail for book-cookers.
    After that, it’s ‘everybody go to work and look mainly to themselves for getting by in this imperfect world.’

  175. quit fixating on the income/wealth disparity thing and keep in mind the progressive view is a minority view
    I’m not sure it’s your place to tell me what to “fixate on”. It’s not your place to tell me what to think is important, or what to be concerned about.
    That said, it is, however, abundantly clear to me that my point of view is not the majority point of view. I’ve come to terms with it.
    Also, as an operating premise, be open to the notion that, historically, other than defense, the left has a poor record of cutting gov’t spending.
    Nobody, and I do mean nobody, has a good record of cutting government spending.
    Nobody. Check the numbers.
    Finally, the deficit is a big issue for most people.
    It is for me as well.
    I’m not looking to expand any kind of government program. I want people to get paid more for the work they do, because their work is what creates wealth.
    That’s pretty much 100% of my point of view on any topic having to do with political economy, in this country, at this time.
    People who do the thing that folks pay for should get more of the money. Period.
    That doesn’t require any kind of weird governmental regime. More than anything else, it’s a ground level cultural thing. It’s just not one we have.
    Here in the US we place inordinate value on the accumulation of wealth. I think that’s f**ked up, by which I mean corrosively antisocial and destructive of democratic and/or republican self-governance. And those are just the pragmatic aspects.
    All of the above is obviously my personal point of view, and reflects my personal values, just like the idea that no impediment should be placed in the way of folks who want to get as filthy stinking rich as they like is yours, and reflects yours.
    I’m not asking you to ‘quit fixating’ on your point of view. It wouldn’t occur to me to do so.
    I’m just articulating mine.
    I focus on the disparity of wealth and income in this country because I believe it is harmful, to all of us. This is not some weird idea that I’ve pulled out of my butt, the historical record is more than on my side.

  176. I’m not sure it’s your place to tell me what to “fixate on”. It’s not your place to tell me what to think is important, or what to be concerned about.
    Russell, I wasn’t directing that point to you specifically. You asked for my thoughts on the general subject of how to fix things. I think the recurring themes on the progressive left are misplaced and don’t lead to practical solutions. As I’ve been told here, many times by many commenters, my POV is wrong, usually wrong in a big way. But, those general comments are simply the background for what I think could be done.
    I focus on the disparity of wealth and income in this country because I believe it is harmful, to all of us. This is not some weird idea that I’ve pulled out of my butt, the historical record is more than on my side.
    It may very well be harmful. The problems is, a direct fix is both unattainable, as a practical matter, and could very possibly be far worse than the ill. A strong centrist candidate could get a number of things done that are, conceptually, capable of implementation.
    There are those on the conservative side who fixate on somewhat analogous concerns, e.g. the number of African American children growing up in single family homes. The problem/solution range of thoughts is pretty broad and often draconian. For my part, like income inequality, only indirect methods will mitigate the issue, and even then it’s a function of time. A lot of time, depending on the problem.
    So, to close this out, I wasn’t personalizing the discussion. I was attempting to frame the premises on which a solution could be built.

  177. What’s interesting in America since the real estate bust is the number of capacious 4000-square-foot Swedes standing empty at the insistence of Jaime Dimon, moldering on their foreclosed foundations, and growing cheaper by the day, while your average family of four who can’t get a mortgage is now huddled into rented two-room Swedes with no storage space and a rise in the rent every six months.
    Even the latter’s aspirations to knock out a wall to make a suite of Swedes is thwarted by the small print in the lease agreement.
    Sweet.

  178. I find parts of McKinney’s proposal interesting. I strongly disagree with what looks like an extremely weak inheritance tax (unless that’s a proposal in addition to our already weak estate tax, in which case it would be an improvement).
    I don’t think capping expenditure at 2011 levels for two years is a great idea, but I also doubt we’re going to get much in the way of stimulus spending going forward, so it’s not significantly worse than what I expect anyway.
    FICA cut: oh, stimulus by tax-cut. Ok, I suppose, so long as we’re assuming the funding shortfall for SS/Medicare will be made up via general fund/borrowing (in other words, I’m leary of defunding those programs deliberately and then turning around later and claiming they’re hopelessly underfunded and thus must be cut).
    #3 I simply don’t know enough to intelligently discuss, but it *sounds* good.
    #4 – fine by me.
    #5 – I have no idea if it would work, but I don’t mind it.
    #6 – same as 5.
    #7 – sounds interesting. Still leaves cap. gains as a separate tax structure, but introduces progressivity. Ok, I guess.
    9 & 10 sound good, to the extent they can be written up properly and actually enforced (there would be MUCH wailing and gnashing of teeth from “industry leaders” and such if anything like that were attempted).

  179. I was watching “Doctor Zhivago” the other night and marveling at the distinction without a difference between Zhivago’s in-laws being forced at the hands of the humorless State to give up most of the square footage in their manse in Moscow for allocation (come to think of it, it reminded me of when the property managers and space allocators for one’s private employer in America show up once again snapping their tape measures to further reduce the workers’ cubicle space, while the petty czars in the corner offices sleigh off to their dachas every weekend) to the homeless and destitute and the real estate “market” of today’s America wherein ample square-footage manses are left empty while some folks are left unallocated to fend in tiny cardboard box Swedes or pay rent equal to their former mortgages to cohabitate in your average two-room Swede, which may contain a space-saving Murphy Bed, but let’s face it — Jesus wasn’t born in Ireland because they couldn’t find three wise men or a virgin there either — and as it was even He was born in a homeless manger, landlords being what they are throughout unrecorded history.
    Some folks’ extreme ideas of what constitutes Communism and Capitalism are like looking at a sex manual and being presented with two extremely uncomfortable methods of f*cking when all you really want is to relax into the missionary position with the help of a little small-s socialistic lubrication to ease the friction.
    You drop Jaime Dimond’s name in a thread comment and you sure as heck better answer the question: “So, what about Jaime Dimon?”
    The other day, the CEO and victimhood poster-boy of J.P. Morgan said, in comments before his TARP colleagues (I favored TARP, because without it Jaime Dimon, DaveC, and and I would sleeping Stooges-style in a Murphy Bed in MckT’s basement while the latter would be out in the middle of the night scarfin up firewood to keep us all warm) that he was being taxed at a 39.5% marginal tax rate at the Federal level.
    What?
    When even this guy Dimon lies or doesn’t know what his present marginal tax rate is under current law (35%) in FOXNation, then what is the point of having civilized conversation about anything with these people.
    Let’s instead go at it with the cleansing edge of the machete for awhile to give the usual suspects time to take their minds off hating the swarthy Kenyan in the White House and to consult with their tax accountants long enough to learn the effing facts about their own tax burden, which so offends them at any rate, that it “feels” heavier than it really is.
    If the high marginal rate was 2% today, Dimon would lick Eric Bolling’s face and rend his Countess Mara tie while waxing victim-wise about HIS 3% burden.
    And while they’re at it, tell me once again how high marginal earners from the late 1930s to the early 1960s had their last earned dollar taxed at 91% (with steeply marginal rates on down the line) and the unionized and non-unionized economy, innovation, and wealth managed to grow hand in hand at famously rapid clips without the American industrial brain trust throwing off the shackles of such awful oppression and expatriating themselves to Occupy a safe deposit Swede in the Barbados, or Delaware.
    Dimon’s marginal rate will rise to 39.5% in 2013 unless martial law is declared by President Newt Romney in the nick of time, at which point Dimon will call it 42% with an eye toward zero.

  180. MckT, how come you’re not participating in the Republican Presidential primary debates? 😉
    At least you take the trouble of stating some rational bullet points without referring to actual bullets to please the base.
    Meanwhile, from Gingrich, for example, we get the big idea (it’s very simple, in a very, very fundamental way) that unionized adult janitors in poor school districts should be fired from their jobs and have the work contracted out to their 12-year old children to teach both family members the value of the work ethic in America.
    Presumably, as a result, the kids will put their noses to the grindstone located up Gingrich’s fat and very fundamental fundament while their parents previously employed as custodians can take over their kids’ crack habits to pass the time while the kids are at work making real money.

  181. I don’t honestly know how you’d allocate a source of tax revenue to deficit/debt reduction only unless you have a balanced budget. If you run your government like it’s a wallet full of credit cards, it matters not that you’re using some of your income solely to pay off debt if you’re still racking up debt hand over fist.
    So, I’m guessing that item 4 only is sensible if in conjunction with provisos to keep the rate of debt change nulled out over some time span using the rest of the budget.

  182. MckT, how come you’re not participating in the Republican Presidential primary debates? 😉
    At least you take the trouble of stating some rational bullet points without referring to actual bullets to please the base.

    Seconded.

  183. At least you take the trouble of stating some rational bullet points without referring to actual bullets to please the base.

    People who do that should be put up against the wall and shot!

  184. Count and Russell–thanks, but I really am not a Republican, or what passes for being a Republican these days.
    As for Neutron Gingrich, I am really at a loss for words. I am glad he is being attacked on the left, but if I were in command of the left, I would do whatever I could to promote his candidacy. Other than Bachman and Paul, he seems the easiest to defeat once people really get to know him. A little bit of Neut goes a long, long way.
    I don’t honestly know how you’d allocate a source of tax revenue to deficit/debt reduction only unless you have a balanced budget.
    Fair point. Let me clarify: if spending were to be capped and the capped year’s revenues still fell short of spending, you would use the tax dollars acquired through to the increase to 38% (or is it 39%) to pay that current deficit down. Now, the hope would be that getting corporations to actually pay 15% while stimulating, again hopefully, the economy with a two year FICA holiday, you would see sufficient revenue to run little or no deficit. The hope also, is that with a 15% corp rate, offshore hiring would be less desirable since we are going to capture the money anyway if the corp opts out. With a lower max bracket, one of the incentives (lower taxes) to go offshore is eliminated or significantly reduced, and the advantage of staying onshore, even with a higher labor cost, is reduced training and you can do more with less people here than “there.” Plus, lower transportation costs. But, like any other damn proposal, it’s theory and conjecture.
    Count, if I had a basement, you could sleep there. We do have an extra bedroom. The max marginal rate, effectively, is 37.95% on earned income by people who are self-employed= 35% income tax, 2.95 medicare tax.
    More Neut bullship–disclosing that I am on the bubble for some forms of torture lite in the theoretical ticking time bomb situation, his blanket statement that waterboarding simply is not torture still has me in knots. For that one brief moment in time, I did wish I was in the debate. “If it’s not torture, let’s waterboard your ass for 5 minutes, on video, and put it on YouTube. If you can withstand 5 minutes and are still willing to take that position, you win. In or out, Neut?”

  185. keep in mind the progressive view is a minority view, as is the libertarian.
    Are you sure about that? Got any cites? I do.
    Cite 1:

    Six in 10 Americans say the federal government should pursue policies to reduce the gap between the wealthy and less-well-off Americans, although fewer express support for the Occupy Wall Street movement that’s been protesting U.S. income inequality.
    Sixty-one percent in this ABC News/Washington Post poll think the wealth gap is larger than it’s been historically. And despite longstanding public concerns about activist government, six in 10 also say the federal government should seek to reduce that differential.

    Cite 2:

    Two-thirds of likely voters say the American middle class is shrinking, and 55 percent believe income inequality has become a big problem for the country, according to this week’s The Hill Poll.
    Only 14 percent of respondents said the middle class is growing and another 14 percent said it is staying the same, while an additional 19 percent said income inequality is somewhat of a problem for the United States. Only 21 percent said inequality was either not much of a problem or no problem at all . .
    Close to 7 in 10 said the income tax system is either somewhat or very unfair — a finding that was supported among most ideological groups and income levels.
    But voters are also far from convinced that a flat tax — like the one Texas Gov. RickPerry (R) proposed last week — was the solution to that problem.
    A clear majority — 58 percent — said they favored a graduated income tax system, with only 35 percent backing the sort of flat tax that magazine publisher Steve Forbes pushed for during his 1996 presidential campaign.

    Cite 3:

    THIS WEEK’S TOPIC
    Are the growing inequalities of wealth and income in the U.S. a problem?
    10% No, we have upward mobility that other nations lack
    25% Yes, that’s why the Occupy Wall Street movement has caught on
    19% No, free enterprise lifts everyone’s standard of living
    45% Yes, and with more than half of Congress among the rich 1 percent, it will continue

    I could go on, but I’d like to see even a single cite from you on just what is and is not “minority opinion,” because I suspect that you are deeply into “How could Nixon have won? Nobody I know voted for him!” territory.

  186. BTW I have a sealed envelope here listing all the ways you’re going to try to dismiss those poll results and what they mean, so tread carefully!

  187. Until such time that compelling evidence is brought to my attention, I will monitor Rev. Graham’s progress in this area.”
    Phil, getting people to agree that income/wealth inequality is a problem isn’t that difficult. They will say the same thing about, e.g., children born into single parent homes. Where the rub comes is selling what I take to be the progressive recipe for addressing the issue. I think gross disparity in wealth control is a problem, less so income, or could lead to a problem, so I would have said ‘yes’ if asked. That doesn’t make me a progressive.
    Which envelope had my answer? Smiley face.

  188. Meanwhile:
    http://money.msn.com/business-news/article.aspx?feed=AP&date=20111208&id=14602228
    Obviously, the solution is to fire more unionized janitors in poor neighborhoods so they can spend quality time sitting around the kitchen table with their families making the tough budgetary decisions facing American Koch Brothers in today’s tough, cash-flush economy.
    Also, whatever we do, let’s not approve ANYONE to head up the new Consumer Finance Bureau in case the out-of-work janitors plan to make financial choices, play the stock market and/or jeopardy with their unextended unemployment benefits with unintended consequences, like wishing they still had a job.
    MckT: I know you are not what passes for a Republican these days (the filter having become so porous), but you’re all we’ve (“we” being what passes for Marxists over at Redrum) got, so please don’t go.
    Thanks for the offer of the spare bedroom.
    Where are DaveC. and your former file clerk going to sleep?
    I am fundamentally a kidder.
    In closing for the day, regarding Newt (and Dick Cheney, John Yoo, and George W. Bush), I have a friend with a first DUI conviction who will be prevented from entering Canada for up to ten years, but Newt and company are apparently welcome to visit that country at any time and water board their population with impunity.
    OK, an alternate closing since Phil is quoting poll results. DailyKos cited a poll among what passes for likely Republican voters in Illinois, I think, who said they would rather have seen Obamacare abolished than to have Osama bin Laden hunted down and killed, probably because the fact that Obama gave the order to carry out Osama’s demise is so confusing for them due to the similarity in names.
    Wait, we hunted down Obama, well, good, it’s about time that ………. I’m sorry? It was OSAMA we hunted down? Well, hasn’t our government anything better to do?
    The poll didn’t ask if the likely Republican voters believed the four hijacked planes on 9/11 were commandeered by Donald Berwyn, the CBO, and the ghost of Franklin Delano Roosevelt, and for good reason.
    Have a good rest of your week, folks.

  189. Haha, I assumed that was a C&P error but wasn’t going to call attention. (On a message board at which I’m a longtime commenter, someone once accidentally copied, into a thread about the Star Wars movies, something from a work email about the importance of getting individual utility meter data. The whole thread instantly transformed into a series of “Star Wars” quotes for “utility meter data” substituted in, and it’s been a meme going on three years now.)
    Where the rub comes is selling what I take to be the progressive recipe for addressing the issue.
    Maybe, maybe not, but you’re arguing by assertion here.

  190. but you’re arguing by assertion here.
    Maybe, maybe not. (rimshot?) Post-Nixon, i.e. my memory, the first major tilt left was McGovern. He got hammered. Thereafter, Clinton won, but after rolling out a more aggressive left’ish agenda than he explicitly campaigned on, the Dems lost the house for the first time since the 50’s. A similar thing happened in ’10. You’re right–I assert that the details of the progressive agenda are a tough sell. But, I didn’t come up with that out of thin air.
    I am chuckling over the meter data/Star Wars thing and thinking the Count would be a superstar in that game. I am mortified at what I could have posted. Seriously, I really could have put my foot in it big time.

  191. I was able to dig it up – in a thread called “The crimes of George Lucas,” in response to someone mentioning his alleged destruction of the original, un-Special-Editioned negatives of the first three movies, this happened:

    Please note that utility data for the entire campus is also included. This was the only data made available with the application, and in order to accurately estimate and verify savings, individual building meter data will need to be obtained from the campus.
    ^^^this, far and away. its one thing to churn out crappy product, lots of aging directors do that (hell, young ones too!), but deliberately screwing up your past work – so that NO ONE can ever enjoy it again, that’s a whole other level of unforgivable.

    Hilarity ensued:

    “You’ve never heard of the Millennium Falcon? She’s the ship that collected the individual building utility meter data in less than 12 parsecs.”

    “I love utility data!”
    “I know.”

  192. Later this evening, I promise myself the luxury of reading the whole thread, but for now I have a quick reaction to the fact that both McTx and Russell are concerned about the federal government’s debt and therefore the federal government budget deficits of which the federal government’s debt is made. My reaction is a question:
    Why do YOU care how many trillions of dollars the federal government owes?
    Seriously: how would your life, or mine, be any different if the federal government’s debt got reduced 33% to $10T, or increased 33% to $20T in the next N years?
    I know the axiomatic answer to this question: less debt is better than more debt, even if it’s not my personal debt. What I mean by “axiomatic” is something like “I just plain feel better about it”. The federal government’s debt may not make a practical difference to your life or mine, but the mere awareness that the US federal government owes $15T could conceivably diminish your enjoyment of life in the same sense as the awareness that pigs have to die if I am to eat ham sandwiches diminishes mine.
    Having or not having a ham sandwich is a practical thing. Having or not having a car or a house or the money to buy ham sandwiches is a practical thing. How many zeroes appear in some federal government ledger in red ink is not, in itself, a “practical” thing. It can have practical consequences — and those practical consequences can be very different for different people.
    You guys are practical people. So, leaving aside the “axiomatic” answer to my question just for the moment, what are your practical reasons for caring about the federal government’s debt?
    –TP

  193. Debt service costs a lot of money.
    Yeah, but the alternative to servicing debt is to pay down the principal. That costs even more money.
    –TP

  194. the alternative to servicing debt is to pay down the principal. That costs even more money.
    Once. I.e., you pay it once, you’re done.
    I have no problem with the feds running in the red, and IMO the “balanced budget” stuff is crazy talk. I also don’t think our current level of debt presents a critical threat danger to the nation *at this moment*.
    It’s just high, higher then it should be, IMVHO. If I’m not mistaken, it’s something like 60% of GDP, which is historically very high, WWII excluded.
    Retiring federal debt is not number one on my list of concerns, but it is on the list.

  195. Tony, eventually, if left unchecked, we will owe more than we can pay and the gov’t will cease to function because it can’t meet payroll and no one will sell or lend to it because it doesn’t have the means to make good on the obligation.
    Sure, the Fed can print money, rendering everyone’s savings and investments worthless, but still accomplishing the same end result: the full faith and credit of the US means nothing. The global fallout of such a default, which is what it would be, is incalculable.
    Put differently, no one will lend to the Feds forever. Like no one is buying up Greek bonds (except speculators paying way below what, if Greece were prudent, they were intended to be worth).
    A competent economist with no ideology driving his/her analysis could be a lot more detailed and specific. But, it’s not for nothing that so many intelligent people are looking at this issue with great concern.

  196. If we were simply financing all of our own debt, I’d chalk this up to a fiat currency argument. But we’re not. We sell quite a bit of our debt overseas, and once our debt gets to a certain point, buyers will begin to balk at investing in our Treasury bonds at the current rate of return, IMO. Which will drive the Treasury bond rate up, which will drive the cost of debt service up.
    If you don’t see that this can lead us in a direction that’s highly undesirable, I don’t think we can have this discussion.

  197. Slarti: once our debt gets to a certain point, buyers will begin to balk at investing in our Treasury bonds at the current rate of return, IMO. Which will drive the Treasury bond rate up, which will drive the cost of debt service up.
    I think that’s generally correct, though, I wonder… Right now the 10 year treasury rate is 2%, 20 year 2.75%, 30 year 3%. Lenders willing to take 3% for 30 years in a currency that the borrower controls!
    So, I would suggest that perhaps something else is going on here. What that is I’m not sure, but historically low interest rates in the face of historically high debt levels (outside of WWII) certainly suggests there’s more to this than your typical lender model of “negotiate a higher interest rate from someone who is already deeply in debt.”

  198. It’s funny, though, that our historically high debt is accompanied by oversubscribed bond auctions at historically low yields. It’s also funny that, with all the money-printing going on as of late, inflation has been less than noteworthy.
    Japan’s economy has been stagnant for some time, but the particular problems we’re always being warned about regarding national debts, namely inability to borrow at reasonable rates and runaway inflation, have yet to occur for them after decades of large deficits and large and growing debt.
    But we can always wring our hands about these things despite the empiricism that should have us focusing on how we allocate real resources in the real economy. It’s like we’re trying to figure out how fast our car is going by looking at the temperature gague when there’s a perfectly good speedometer right next to it. Even just looking out the window would be an improvement.

  199. Tony, eventually, if left unchecked, we will owe more than we can pay and the gov’t will cease to function …
    It’s the meaning of “we” that I am trying to probe here, McKinney.
    “The government is us”, I sometimes remind people who rail against “the government”. As a (d)emocrat, I truly believe in that notion. So “we” should all care about the government’s finances because they are in the end “our” finances. And yes: too much debt on “our” balance sheet can have all sorts of ugly consequences eventually. (Though as ugh and hairshirt note, bond buyers seem to think “eventually” is over 30 years away.)
    But I am a pragmatist as well as a (d)emocrat. You and I do not share “our” finances. You have your balance sheet and I have mine. We are not Communists, or even (c)ommunists, here.
    You and I each have our own balance sheet; Russell has his; Uncle Sam has his. Each of those four balance sheets ultimately affects all the others, but not in the same way. If I go broke, it matters less to your balance sheet than if Uncle Sam goes broke. If Uncle Sam improves his balance sheet by cutting his spending, I might go broke sooner than you do; if Uncle Sam does it by raising tax rates you might go broke sooner than I do; if Uncle Sam does neither maybe you and Russell and I all go broke eventually.
    I don’t know about you, but my own financial well-being is strictly a function of my own balance sheet. Not yours, not Russell’s, and not Uncle Sam’s. Note that I said “financial well-being”. There’s more to well-being than money, but it’s money we’re talking about here.
    So I come back to my original point: in practical (i.e. financial) terms, Uncle Sam’s debt per se does not affect me. What does affect me is how much tax Uncle Sam collects from me (me, not you) and how much Uncle Sam spends on me (ditto). Would you say the same thing, in reverse, or not?
    I hope it’s clear, BTW, that I’m not trying to make this personal. “You” and “I” could be any two Americans.
    –TP

  200. “So, I would suggest that perhaps something else is going on here. What that is I’m not sure, but historically low interest rates in the face of historically high debt levels (outside of WWII) certainly suggests there’s more to this than your typical lender model of “negotiate a higher interest rate from someone who is already deeply in debt.””
    What is going on here is that lenders see us as the safest major government to lend to. It is a relative term not an absolute one. So long as the EU looks like it is going to be a basket case with governments intentionally shooting themselves in the foot (even more than us), people will lend to us. That probably won’t last forever, though it may very well last quite a while.
    As such it probably makes sense not to worry too much about the debt for now. Though it certainly would be stupid to use it as an excuse for a hog-wild, credit-fueled spending spree.
    If we could get hard rules about limiting government spending during economic expansions, I’d suggest borrowing money to have an enormous stimulus now. But we of course can’t get any such hard rules, so I’ll live with “don’t make things crazy by lowering taxes or keeping the money supply particularly tight”.
    But the answer to Tony P’s question can be found in the bond markets of Greece and Italy. Everything was under control with the spreads until VERY SUDDENLY it wasn’t. Countries with modest debt ratios don’t have to panic when the very suddenly comes along. Countries with large debt are in serious trouble when it happens.

  201. Ugh, I think that in the short term our debt is seen as safer, perhaps, than the debt of some other nations. But that’s only in a relative sense of goodness. Maybe at some point, no one is going to want to buy debt. And then where will we be?

  202. Maybe at some point, no one is going to want to buy debt. And then where will we be?
    What if the government simply spent what it spent, received whatever tax revenue it received, and left it at that? There is currently no functional need for issuing bonds. It’s a vestige from the days of the gold standard.

  203. Slarti: Maybe at some point, no one is going to want to buy debt. And then where will we be?
    Instead they will buy…? I mean, where is one going to stash $1 trillion that is currently being loaned to the US gov’t on a yearly basis for use as it sees fit? Loan it to a bank? The stock market? Loan it to some other sovereign state? Which of those options provides the greatest likelihood that one will get one’s principal/initial investment back on such a large sum these days?
    I mean, I don’t think I necessarily disagree with you or Sebastian on this point, but it seems to that the U.S. is on a fundamentally different level than, say, Italy (and certainly Greece). In that we have the world’s largest GDP (by far), a large land mass, a stable democratic political situation, a large productive population (albeit at 9% unemployment currently), and relative geographic isolation (yes, the oceans really do protect us in a way that they do not protect, e.g., China or India).
    No other country is large or stable enough to absorb this amount of free floating cash at such low rates, and I don’t see that changing for a very long time.

  204. Seb,
    Your point about “suddenly” is a very good one. You (an individual, a corporation, a government) have been borrowing at 3-5% for years; your debt has grown from 30% of your annual income to 150% of your annual income; your lenders have watched you keep borrowing and building up debt but have kept lending you long-term money anyway; and then SUDDENLY they demand 15% or 30% interest on any new money you want to borrow. Who can tell what might cause that transition? Certainly, I can’t. But I can imagine some possible triggers:
    1) SUDDENLY, people with money to lend find stock investments, say, that promise 25-50% returns.
    2) SUDDENLY, your annual income drops so a debt that used to be 100% of your income becomes 200% of your income overnight.
    3) SUDDENLY, your lenders discover that your annual income all along has been about half what they thought it was.
    4) SUDDENLY, your lenders discover each other and realize that your debt is twice what they individually thought it was.
    I’ve been too busy to follow the Greek debt situation as closely as I should have, so I don’t know if any of these three imaginable triggers are at issue there. Maybe #3 is the likeliest for Greece, something else for Italy, and something else entirely would cause a sudden transition for the US.
    What I find hard to believe is that lender “psychology” changes overnight. If I’m willing to lend you $100K at 5% for 10 or 20 years because I know you make $100K/yr and you’re 30 or 40 years old, I can imagine myself saying “Well, now that you’re 50 years old, I’m only willing to lend you another $50K but for just 5 years, and only if you pay 15% interest.” But I can’t imagine myself being surprised that you just turned 50. I can’t imagine myself offering you the old deal the day before your 50th birthday, and insisting on the new deal the day after. It seems to me that my terms would get slowly, not suddenly, stricter over time. (Unless, of course, something like one of the 4 triggers I mentioned came up as you were blowing out the birthday candles.)
    Maybe I’m too rational to be a bond investor.
    –TP

  205. The problem with comparing the US debt load with Italy or Greece is that the US govt./Fed Reserve controls the currency. All dollar-denominated debt could be retired more or less immediately by the creation of more dollars. The govts. of Greece and Italy (and Spain & France, etc.) cannot create Euros, so the risk of default is greater.

  206. It doesn’t change overnight, but it changes MUCH faster than the government can adequately respond to. The Greece thing has been brewing for about three years. I suspect that the bond market kept believing that the European Bank/EU was going to take serious steps to deal with the mess for about 2 and a half of those years. And then when it became clear that they weren’t going to do much, it suddenly fell apart.
    I actually think that the Italian default is more likely at this point. Italy is running a surplus except for its debt repayment. Default would normally cause all sorts of problems, but the Germans seem intent on forcing Greece to go through all the pains of dealing with a default, without any of the benefits of having a devalued currency. That doesn’t strike me as sustainable–at that point they might as well default and at least gain control of their own destiny again (which they can afford to pay with the tax receipts from their primary budget surplus). Greece never had that option, as it has an enormous budget deficit and thus relies on new loans to pay current bills.
    “The problem with comparing the US debt load with Italy or Greece is that the US govt./Fed Reserve controls the currency. All dollar-denominated debt could be retired more or less immediately by the creation of more dollars. The govts. of Greece and Italy (and Spain & France, etc.) cannot create Euros, so the risk of default is greater.”
    This is one of those right but wrong explanations. Yes the US Treasury could just do that, but then it would be a real inflation monster (thumbnail guess more than 120% of GDP), and the rates of the next sale of Treasury debt would have to cover that expectation. So it would stop the ‘debt’ crisis by causing an actual inflation crisis (as opposed to the “oh noes, worry about 3% inflation” crap that we hear about now).

  207. Seb:
    Paying off all debt in a short time would generate unacceptable inflation, true. But local control of the money supply allows for less drastic influences on the economy. A larger number of dollars and the Fed announcing a target inflation rate of say 4-5% would give an incentive to the businesses currently sitting on large cash reserves to spend/invest, which should boost growth and therefore tax revenues, thereby improving the federal balance sheet.
    Given that here in the real world the Fed is unwilling to take any steps to achieve the current inflation target (2%, I believe), I don’t see that happening any time soon, but just because the tools aren’t being used doesn’t mean they don’t exist. The individual euro countries don’t even have the tools.

  208. Let’s be totally cynic. Maybe the US situation is different because the country is ruled by the plutocrats, so other countries’ plutocrats know that they will always get their money (or they can effectively take part in the ruling themselves). Secondly the US are armed and dangerous, so putting pressure on would be risky. And at least one GOPster candidate for POTUS does not know that China has nukes (and should possibly be attacked before it gets any).
    Thirdly (is that grammatically correct?), there is the threat of mutually assured financial destruction. If the US go down, all the world will go too. Those calling the shots in the US know that and are already to a degree banking (no pun intended) on it. ‘Do as we say or we will blow up and take all of you with us!”.

  209. In addition to my comment above another cynic speculation. Maybe the greatest risk would be to try to reform the system, reducing the influence of the plutocrats in favor of the people. Since the mob is unreliable, the lenders may see that as a greater risk than the longterm unsustainable policies of today and pull the plug. We could already see an example of that in the case of Greece. The attempt of the Greek government to let the people decide* got immediately answered with threats of instant execution and had to be abandoned (iirc less than two days after floating the idea).
    *I think that was more about blame-shifting and hide-saving than democratic ideals but it does not change the results.

  210. Howlers:
    Tony, eventually, if left unchecked, we will owe more than we can pay and the gov’t will cease to function….
    Absolutely false as the writer then went on to admit. So why so state?
    We sell quite a bit of our debt overseas. Several things here. The % held by furriners is quite manageable. Our deliberate ‘high dollar’ policy exacerbates this problem. We (through the IMF) have historically punished governments who do not retain substantial dollar reserves. China deliberately pegs its currency low to subsidize its export machine. They HAVE TO buy our paper. Oh, and this little thing about our balance of trade.
    This is one of those right but wrong explanations. Yes the US Treasury could just do that, but then it would be a real inflation monster
    A rather bad ending to an otherwise reasonable post. This dreaded inflation would occur if there was some other dire exogenous shock to our productive capacity or if we were in a condition of full employment. Neither is on the immediate horizon.
    HSH makes good points.

  211. This is one of those right but wrong explanations.
    Presumably then, under your theory, Spain (which was running public surpluses prior to the crisis) and Ireland (celebrated in hard currency quarters as undergoing a ‘miracle’ prior to the crisis)should not be suffering any problems right now, correct?
    So, what did they do wrong?

  212. For those of you concerned about our debt/GNP ratio (you especially, Russell), I ask you to read this and post a comment or two.
    I think hairshirt would enjoy it, too.
    All the best, and Merry Christmas to you all.

  213. Maybe I’m too rational to be a bond investor.
    Actually, investors who can buy US Treasuries on margin have done quite well over the last two years on a total return basis. 😉

  214. So, what did they do wrong?
    In Greece’s case, they hired Goldman to manage their bond sales.
    I keep waiting for somebody to wake up and figure out that GS is a criminal organization.
    I appreciate Seb and McK’s comments here, and I don’t mind wearing the token lefty who’s worried about debt hat, but to be honest I don’t see anything like imminent disaster in current US debt levels.
    It would be good to have a plan for buying it down over, say, the next twenty years. That’s my concept.
    We were actually sort of on track to do that until about ten years ago. Ooops.
    Bobby, thanks for the link I will check it out.

  215. “So, what did they do wrong?”
    They were in the Euro.

    It was also a mistake to let the Greeks partake in the first place. It was obvious from the start that their numbers were fishy. The only surprise was HOW fishy they were.

  216. It would be good to have a plan for buying it down over, say, the next twenty years. That’s my concept.
    For you deficit hawks, consider: “The last time the US sovereign radically lowered the ratio of public debt to GDP was between 1946 (the all-time high for the Federal debt burden at 121.20 percent) and 1974 (its post-World War II low at 31.67 percent). Arithmetically, of the 89.53 percentage points reduction in the Federal debt burden, inflation accounted for 52.63pp and real GDP growth accounted for 55.86 pp. Federal surpluses accounted for minus 20.51pp.”

  217. “So, what did they do wrong?”
    They were in the Euro.
    Yes. Still are in fact.
    They both no longer control their own currencies, and cannot undertake fiscal and monetary policies to counteract the worldwide economic bust that began in 2008. Instead, they are tied to the auterian German morality play that passes for ‘serious thought’ these days.

  218. It is borderline crazy that you can have something signed off by the relevant government agency and then get your ass sued off for the same agency later deciding that it was wrong.

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