Libertarian Leanings

Word Games

We're having a remarkable debate over who owns the money. 

We Americans pride ourselves on our self-reliance and independence.  America, itself, is said to be the last best hope of mankind.  We know it's true because of the countless people from every corner of the world who risk death and endure extraordinary hardship in order to reach our shores.  They come in search of a better life.  They come to America because they know America is a place where they can build their dreams, a place where they can make some money, a place where they get to keep the money they make.  That translates to security.

Democrats are bent on changing that.  In fact they're having a group tantrum over it, like envious children certain that mom gave one more than she gave the other.  To their great horror, some Americans earn more and have more than others, and it has them seething.  In the perverse logic of progressivism this is an intolerable injustice that demands correction which they, in their last lame duck gasp, hope to accomplish by preventing high earners from keeping what they make. 

A progressive presumption is revealed:  The U.S. Treasury has a right to as much of our earnings as our governing elite see fit, in order that they may decide the fairest way to spend it for the common good.  Note: The common good can best be defined as their re-election chances.  Lefty Democrats are faced with two problems as they contemplate exercising their right to our money. 

For starters we are now into the longest recession in history, a recession progressives had been so confident they would stimulate away.  It's still here in spite of billions in stimulus, and even thick skulled liberals are dimly aware that raising taxes isn't a good idea when the economy is struggling for traction. 

Their second problem is that most Americans resist the notion that someone else is entitled to their toil and sweat.  It's only the leftmost of the left who believe in it.   

Democrats find their solution in word games.  Not raising taxes becomes a "tax cut" in progressive parlance.  Allowing Americans to keep what they earn becomes "a giveaway" in lefty vernacular.  In the liberal mind, the more successful you are the less you deserve to keep what you earn and if, heaven forbid, the law allows you to keep it, progressives will say you're robbing the poor. 

Progressives have a third problem, actually.  In order to raise taxes to levels they find more acceptable, lefty Democrats simply need to do nothing.  They can have what they want by going home, because current rates which have been in place for seven years now are scheduled to expire at the end of this year.  So what's the problem?

It's that damned recession.  In the midst of this unending recession they've gone and nailed their class warfare colors to the mast, committing themselves to raising income tax rates on anyone they judge to have made as much money as they ought to.  In a nutshell they don't have the nerve to do what they'd like to do.  If they did they would be responsible for killing off any hint of a recovery, and they know that voters will punish them severely for it.  They've just been given a demonstration. 

So lefty Democrats are absolutely livid.  Here's a little flavor of their vitriol before Obama negotiated a tax deal with the Republican leadership.

Following several hours of floor speeches hammering the GOP, a handful of Democrats including Sens. Bob Menendez (N.J.), Charles Schumer (N.Y.), Debbie Stabenow (Mich.), Claire McCaskill (Mo.), Jack Reed (R.I.) and Jeff Merkley (Ore.) attacked Republicans in a press conference, repeatedly using the word “hostage” to characterize the status of middle-class tax cuts.

“Do you allow yourself to be held hostage and get something done for the sake of getting something done, when in fact it might be perverse in its ultimate results? It’s almost like the question of do you negotiate with terrorists,” Menendez said when asked whether he and other Democrats would accept a compromise with Republicans.

“The majority has a responsibility to get something done, but [also] to get something done that is good for the country,” he added.

McCaskill likewise lambasted Republicans, accusing them of putting the wealthy ahead of the middle class and warning that if Republicans win the debate over tax cuts “it really is time to take up pitchforks.” Both Menendez and McCaskill are up for re-election in 2012.

Schumer, who handily won re-election this year, acknowledged the anger vented by tea partyers and others during the election but insisted that didn’t extend to upper-income tax cuts.

Voters “did say ‘repeal health care,’ they did say ‘reduce the size of government.’ But not a single one of them from the tea party or anywhere said ‘give tax breaks to the wealthiest,’” Schumer said in a rare moment of candor.

But Obama cut his deal, and Democrats got everything they wanted: an extension of current tax rates for the middle class, extension of unemployment benefits, extensions on various tax credits.  Republicans wanted the rates extended permanently but had to settle for a two year extension, which means we will have this debate again in two years. 

To no one's surprise, Democrats are not delirious with joy.  They did not get to raise taxes on the rich and it has them so distraught they're threatening to torpedo the whole package.   Now who's holding the middle class hostage?

• Earlier this month, Sen. Harry Reid, D-Nev., said: "We could take a major step toward fixing our economy today if Republicans stopped holding the Senate hostage to more tax giveaways for millionaires."

• Last month, the liberal Daily Kos complained that the GOP was "holding 2 million unemployed hostage on behalf of richest 2%."

• Back in July, President Barack Obama accused Republicans of "using their power to hold this relief hostage -- a move that only ends up holding back our recovery. It doesn't make sense."

But now it's Democrats who are threatening to hold up the tax deal -- and with it the extension in unemployment benefits (which have already started to run out for millions of long-term unemployed) -- until they get what they want on taxes.

It makes you wonder if Democrats have any clue about the impact of their policies.  Based on the likelihood of the tax deal's passage though, one would have to conclude, yes.  It's apparent they feel compelled to support it out of fear of what will happen to the economy if they don't.  They now own the economy.  If the economy stays in the tank, so do their re-election chances, and that, after all, is the only impact they care about.

So we get these charades where things are called the opposite of what they really are.  A vote to leave tax rates alone becomes a vote for tax cuts.  Leaving money in wage earner hands instead of taking it in taxes is called a giveaway.

The word games attest that progressive policies are important only to extent that they enhance progressive power.  Incensed over a projected 10-year loss in revenue that amounts to $700 billion if taxes are not raised on the rich, progressives neglect to mention that the middle class "tax cuts" that they champion are projected to cost $3 trillion over the same period. 

Democrats need middle America to buy into the rage.  So we get talk of "hostages" and "terrrorists."  The language is designed to inflame.  After all, who besides a Democrat will be outraged over somebody getting to keep his own money?   Word games. 

Unfortunately for the left, most Americans think money earned should belong to folks who earn it -- namely themselves.  But it may turn out that many high income tax payers are about to begin thinking in terms of tax consequences instead of productive investment.  Think of what that means for the economy.  How can anybody be surprised at the dismal economic performance under Democratic governance?  Word games are the only thing Democrats have going for them.

It Won't Work. It Never Works.

Obama plans to raise taxes on the rich to finance the federal takeover of the health care industry.  Now there's a novel solution.  Do you suppose the president thought it up all by himself?  Original or not, Alan Reynolds gauges the effectiveness of the idea.

It won't work. It never works.

The maximum tax rate fell to 28% in 1988-90 from 50% in 1986, yet individual income tax receipts rose to 8.3% of GDP in 1989 from 7.9% in 1986. The top tax rate rose to 31% in 1991 and revenue fell to 7.6% of GDP in 1992. The top tax rate was increased to 39.6% in 1993, along with numerous major revenue enhancers such as raising the taxable portion of Social Security to 85% of benefits from 50% for seniors who saved or kept working. Yet individual tax revenues were only 7.8% of GDP in 1993, 8.1% in 1994, and did not get back to the 1989 level until 1995.

Punitive tax rates on high-income individuals do not increase revenue. Successful people are not docile sheep just waiting to be shorn.

Just as health care reform is not intended to improve the health care system, "equality" is not about giving people an equal chance.  Both are, above all else, about extending government control.

The Cost of Social Justice

According to the Wall Street Journal, the gap between the rich and poor is shrinking.  Well this ought to have our lefty friends delirious with joy! 

In 2007, the top 1% of U.S. families accounted for 23.5% of all personal income in the U.S., according to economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics. That was a level not seen since the Roaring Twenties.

The top 1%'s share appears to be falling fast. Mr. Saez and other economists expect income going to the top 1% of taxpayers -- currently, those with about $400,000 a year -- will drop to somewhere between 15% and 19% of all income by 2010. That still would leave income distribution more top-heavy in the U.S. than in many other countries.

One early indication: Median chief-executive pay at companies in the S&P 500 fell 15% in 2008 (to $7.3 million), according to University of Southern California pay expert Kevin Murphy.

"Based on past experience, it looks like inequality will go down and change the long-term trend of America becoming a less egalitarian society," says Ariell Reshef, a University of Virginia economist and another student of the equality issue.

This is among several potentially far-reaching changes wrought by the bursting of the housing and credit bubbles and the deep recession that ensued.

Unfortunately there is a flip side to this.  So far during recession years of 2008 and 2009 the economy has suffered a net loss of roughly 6,929,000 jobs.  3,851,000 of those losses came in 2009, and we haven't counted September, October, November, and December.

But let's stay focused on the silver lining!  A mere 7 million more people out of work is such a small price to pay in the struggle to keep people from getting richer than lefties say they ought to be!  Right?

The Real Gap Between Rich and Poor

One of the more interesting things about Joel Kotkin's The Blue-State Meltdown and the Collapse of the Chicago Model is that he identifies the real gap between the rich and the poor.  According to Kotkin it is the result of two key blue state economic principles.  First is 'the relentless expansion of public sector employment and political power.'  The second key blue economic principle says that there is 'ever expanding high-end “creative economy”' that will pay for it all.

And what do you get?

'The Great Delusion and Its Blue-State Victims

This elite strategy has served to bifurcate most blue states into an affluent core and a rapidly declining periphery. For example, California, a state whose shift from red to blue has given some heft to “progressives” everywhere, has experienced an increasing gap between a small sliver of wealthy metropolitan residents along the coast and an increasingly marginalized interior populated largely by middle- and working-class Hispanics.'

 Don't hold your breath waiting for the mainstream press to begin reporting on the concentration of wealth among the elite.  Well, they are the elite actually.  Definitely part of the "creative economy."  All you have to do is listen to their Obama coverage.

Middle class squeeze?

According to Drew Cary, not only are the middle class not being squeezed, Americans have never had it so good.  Take a look at this:

Gates to slay dragon

Today's Wall Street Journal reports that Microsoft's billionaire chairman Bill Gates will give a speech at World Economic Forum in Davos, Switzerland calling for "creative capitalism."  His idea is to harness market forces to better address needs of the poor.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates will tell world leaders at the forum, according to a copy of the speech seen by The Wall Street Journal.

Mr. Gates isn't abandoning his belief in capitalism as the best economic system. But in an interview with the Journal last week at his Microsoft office in Redmond, Wash., Mr. Gates said that he has grown impatient with the shortcomings of capitalism. He said he has seen those failings first-hand on trips for Microsoft to places like the South African slum of Soweto, and discussed them with dozens of experts on disease and poverty. He has voraciously read about those failings in books that propose new approaches to narrowing the gap between rich and poor.

Gates ideas have been met with skepticism from those who tend to believe capitalism is the cause of world poverty rather than the solution to it.  Some argue that poverty became a priority for Gates only after he'd made his billions.  William Easterly, a New York University professor and former World Bank economist, doesn't believe enough profit can be made from the people on the bottom to capture and retain the interest of private business.

"There's a lot of people at the bottom of the pyramid but the size of the transactions is so small it is not worth it for private business most of the time."

Gates disagrees. 

...companies including Microsoft had donated huge amounts of cash and products to developing countries without seeking to create sustainable growth. Free Microsoft software in some countries spawned broad usage of computers, while in "other places you announce a big free software grant, come back a few years later, nothing," Mr. Gates said.

His growing awareness of such limits sparked new ideas on how businesses could approach poor countries. At a dinner near Seattle in 2004, Mr. Gates met one of the leading thinkers on that front, C.K. Prahalad, a University of Michigan professor who had written "The Fortune at the Bottom of the Pyramid." In that article and a subsequent book by the same title, Mr. Prahalad proposed that the world's four billion poorest people represented a huge market for companies willing to try.

If Gates is successful formulating and promoting a market oriented approach to fighting poverty, he may finally deliver the death blow to that tired old leftist dragon that perpetually seeks to impose anti-capitalist totalitarian solutions on the pretext of ending the grinding poverty imposed on those trapped in corrupt third world anti-capitalist totalitarian regimes.

The disappearing middle class

Walter Williams, John M. Olin Distinguished Professor of Economics at George Mason University, examines one of the left's eternal grievances, that the middle class is disappearing.  In fact, he's discovered where they went.

What about claims of a disappearing middle class? Let's do some detective work. Controlling for inflation, in 1967, 8 percent of households had an annual income of $75,000 and up; in 2003, more than 26 percent did. In 1967, 17 percent of households had a $50,000 to $75,000 income; in 2003, it was 18 percent. In 1967, 22 percent of households were in the $35,000 to $50,000 income group; by 2003, it had fallen to 15 percent. During the same period, the $15,000 to $35,000 category fell from 31 percent to 25 percent, and the under $15,000 category fell from 21 percent to 16 percent. The only reasonable conclusion from this evidence is that if the middle class is disappearing, it's doing so by swelling the ranks of the upper classes.

The top one percent

Thomas Sowell talks about the top one percent -- in income that is -- who have become the focus of so much rhetoric, particularly in this election season.

A recent column by Anna Quindlen in Newsweek (or is that Newsweak?) laments that "the share of the nation's income going to the top 1 percent is at its highest level since 1928."

Who are those top one percent? For those who would like to join them, the question is: How can you do that?

The second question is easy to answer. Virtually anyone who owns a home in San Francisco, no matter how modest that person's income may be, can join the top one percent instantly just by selling their house.

But that's only good for one year, you may say. What if they don't have another house to sell next year?

Well, they won't be in the top one percent again next year, will they? But that's not unusual.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring "class" -- especially by those who have overdosed on the magic formula of "race, class and gender," which has replaced thought in many intellectual circles.

Are the poor getting poorer?

Although it's an article of faith among liberals and other leftists, Dr. Walter E. Williams, John M. Olin Distinguished Professor of Economics at George Mason University, says no.  In America the poor are getting richer, too.

In 1971, only about 32 percent of all Americans enjoyed air conditioning in their homes. By 2001, 76 percent of poor people had air conditioning. In 1971, only 43 percent of Americans owned a color television; in 2001, 97 percent of poor people owned at least one. In 1971, 1 percent of American homes had a microwave oven; in 2001, 73 percent of poor people had one. Forty-six percent of poor households own their homes. Only about 6 percent of poor households are overcrowded. The average poor American has more living space than the average non-poor individual living in Paris, London, Vienna, Athens and other European cities.

Nearly three-quarters of poor households own a car; 30 percent own two or more cars. Seventy-eight percent of the poor have a VCR or DVD player; 62 percent have cable or satellite TV reception; and one-third have an automatic dishwasher.

That said, a segment of the American society that remains in long term poverty is distinguished by one particular statistic.

There is far less poverty in married-couple families, where presumably at least one of the spouses is employed. Fully 85 percent of black children living in poverty reside in a female-headed household.

Poverty is not static for people willing to work. A University of Michigan study shows that only 5 percent of those in the bottom fifth of the income distribution in 1975 remained there in 1991. What happened to them? They moved up to the top three-fifths of the income distribution -- middle class or higher. Moreover, three out of 10 of the lowest income earners in 1975 moved all the way into the top fifth of income earners by 1991. Those who were poor in 1975 had an inflation-adjusted average income gain of $27,745 by 1991. Those workers who were in the top fifth of income earners in 1975 were better off in 1991 by an average of only $4,354. The bottom line is, the richer are getting richer and the poor are getting richer.

Poverty in the United States, in an absolute sense, has virtually disappeared.

My emphasis above.

Would you like your revolution in red or orange?

Someone named Barbara Ehrenreich has a riotously funny column in The Nation entitled Smashing Capitalism.  It's funny because she's serious.

Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys. The American poor, who are usually tactful enough to remain invisible to the multi-millionaire class, suddenly leaped onto the scene and started smashing the global financial system. Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.

And how, might one ask, do the downtrodden bring down an unfair economic system?  According to Ehrenreich the downtrodden stop making their mortgage payments.  After the obligatory swipes at Wal-Mart, Ms. Ehrenreich hits her stride.

Personally, I prefer my revolutions to be a little more pro-active. There should be marches and rallies, banners and sit-ins, possibly a nice color theme like red or orange.

Yes, red would be nice, but then it's not a perfect revolution anyway.  After all, this great crime against the downtrodden was to lend them money, so instead of a real revolution, we make do with a "strangled cry of pain".

Global capitalism will survive the current credit crisis; already, the government has rushed in to soothe the feverish markets. But in the long term, a system that depends on extracting every last cent from the poor cannot hope for a healthy prognosis. Who would have thought that foreclosures in Stockton and Cleveland would roil the markets of London and Shanghai? The poor have risen up and spoken; only it sounds less like a shout of protest than a low, strangled, cry of pain.

How far we've come when the "downtrodden" are home owners.  Clearly, if the poor are able to scrape together enough pennies for a downpayment on a house, we are doing a miserable job of extracting their every last cent.  What could we be doing wrong, I wonder.