Do you still wonder whether banks will be nationalized? Does the idea of an auto manufacturer declaring bankruptcy scare you even just a little? Tell me you’re not still engaged in any discussions on whether or not the response to our economic crisis has been a step toward “socialism!” Please, come down off your soap box. This discussion of competing ideologies is so 20th century. Disco is dead baby and it’s time you adopted a new framework of thinking. What’s probably confusing you is that the ideology has already been settled. Once you see all of this to be purely matters of terminology, you’ll also gain an insight into what happens next.
For a short while, President Obama’s critics tried to frame the discussion in terms of Socialism. This is a non-starter. I think if you were to poll this president and this congress – a few far-left nuts not withstanding – you’d find each of them expressing a love for this country and not a one expressing a desire to become a Socialist State – even passing polygraphs. You’re using the wrong terminology! Accusing this administration of moving us toward Socialism may have the support of a technical definition, but it drips of ideological connotations where none belong. Think of it this way: the nuns in a convent live in a technically defined communist system (from each according to her ability, to each according to her need). But would you call them communists? Not only is the connotation unjust, the ideology is not accurate. This is what still causes those trepidations mentioned in the opening paragraph.
Listen to me and find some peace. The new ideology has actually been in place and growing for some time. The recent election was only the crowning of its leader. We must move away from Democrats vs. Republicans (too often these days, a distinction without a difference) and understand the new dimension, which is Progressive vs. Self-Reliant. The progressives have been in power in Congress for some time now. The first $350 billion to banks, the AIG bail-out, the “loans” to GM & Chrysler and so on; these actions were all cut from the same ideological cloth we’re witnessing now, only executed poorly. The progressive vision was not yet in place but the premise certainly was.
The progressive movement, in a nutshell, believes that a room full of the right people: smart, empathetic, energetic and highly motivated knows better how to solve the country’s problems than the messy, painful, erratic cycles of the free market. Their pronouncement to the masses, in its basest form: “Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.” The popularity of this movement has grown along with the “entitlement” nature of our populace. During the last election, I observed that we were at a tipping point; for the first time in our history there were more people in the entitlement camp than there were in the self-reliance camp. This was plainly evident when listening to the two candidates speak. “Democrat & Republican” were somewhat useless as descriptions when it came to domestic affairs. Instead, we had a one-party race between two candidates competing to see who could promise the most in return for your vote. (On the national level we call this type of quid pro quo a presidential election. On the state level we call it pork-barreling. On the local level it’s simply felony bribery.) This was an election between a progressive with a vision and a progressive without one. If Senator McCain had won we’d still have a progressive leader, but in disarray and more similar to the last days of President Bush. As it turns out, we elected the progressive candidate with a vision, thus affording us a smoother and more rapid pace at which to alter the very foundation of our nation. (Whether that’s to our benefit or not I leave to you.)
Gaining this more accurate insight into the ideology of those who govern (and those who requested them), allows us to make much greater sense of previous anomalies while also giving us some purchase on how future issues will play out. For instance, it’s now easier to understand why a team as well run and intelligent as the President-elect’s, could nominate and then stay with Senator Tom Daschle for THE primary position within the cabinet, knowing about his tax issues. At the time of his withdrawal for consideration, the official response was yes, they knew about his tax issues but didn’t think it would be a problem, given the fact that he was the exact right man to fill this all important post. You see? When you’re a progressive with the chance to save our country from itself, you tend to not waste time on such pedestrian issues as taxes and laws. The potential for a new and better outcome far outweighs these minor transgressions. Nothing new here; Congress routinely exempts itself from the very laws it passes. This “ends justifying the means” becomes so much more true when you are “the right man for the job.” “Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.”
The same understanding explains a stimulus bill stuffed with everything but an actual stimulus. President Obama noted that the bill “put his agenda in place” (and by extension, the agenda of the progressive movement). The putative writer of the bill, Speaker of the House Nancy Pelosi, “called the legislation ‘historic and transformational’ for its investments in the Democrats’ social priorities.” Substitute Progressive for Democrat and you begin to see the true purpose behind the bill. The recession is not the first priority. Getting the power centralized so that those smart, empathetic, energetic and highly motivated people gathered in the room on the hill can get to work; that’s the purpose. The recession itself is helpful in this regard and will disappear under their fine tutelage. This understanding even explains the snide, arrogant rejoinder by President Obama when he said “this is a stimulus bill. The definition of a stimulus bill is to spend,” (a mistake in definition if not in fact that just about any grade school child could explain). “Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.”
This new-found understanding can also, as I previously mentioned, shed light on decisions to come.
- Will the banks be nationalized? Of course not. Although any bank that does not pass The Stress Test (a test we created, the correct answers for which we also created) will come under our ownership so that the most intelligent people in the room can demonstrate how to properly run a bank. We’re not going to nationalize the banks, we’re simply going to own and run them… which is completely different. “Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.”
- Will GM & Chrysler go bankrupt? Of course not. Instead, we will help them financially and – more importantly – we will help them run their business (not to be confused with owning them!) thus preserving the universal dignity of all workers to be union members while also, finally, producing a green car that we know everyone actually, secretly wants to drive. “Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.”
The list could go on: AIG? Simply needs enough money and new regulations to find its path. We have the brain power for that. Health Care? Every single person was born with the right to health care (unlike some imaginary, inalienable right to the fruits of your labor) and once we put the smartest people in the room to work on it, the system will sing harmoniously. So forth and so on. Once you understand the ideology of who is driving and what the rest of us should be doing –“Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.” – you have a pretty good idea what’s going to happen each step of the way.
“But wait,” you might protest. “I do have a pretty good idea what’s going to happen each step of the way… especially the last steps. This brand of progressive philosophy was practiced in California for years and it bankrupted the 8th largest economy in the world!“
You might just have a point there. You might even want to know how the experts and intellectuals in Washington, DC are going to do things so much better than the experts and intellectuals in Sacramento did. The answer, of course, will come down to you as if carried by angels: “Please quietly sit down in the back seat and try not to be too distracting. We’re the best drivers, we’ve chosen the best route and you’ll like the destination when we get there.”
Welcome to the Nanny State. It’s no longer a matter of ideology… simply one of terminology.
Dan Connolly says:
Are we there yet?
Are we there yet?
Are we there yet?
🙂
March 2, 2009 — 5:46 pm
Tom Vanderwell says:
Sean,
As much as this might surprise you, given some of our past discussions, I would like to disagree with you (that’s not the surprising part) but I can’t.
Tom
March 2, 2009 — 6:29 pm
Dave Shafer says:
Nice post Sean! Although you leave out a place for those of us that are not true believers in either ideology!
And for the record, progressive politics goes back to the farmers of the 19th century and their fight against the New York Banks! Historically speaking progressive politics in this country was about capitalist against their workers, farmers against the banks, and citizens against those that wanted to fight wars in foreign lands. Progressives fought for the right to vote (blacks, women), the right to unionize, child labor laws, weekend’s off, 8 hour work day, right to not have to live in pollution, right to not be drafted and sent to some foreign land to shoot other folks, etc.
I prefer to call them corporatist instead, those that toil for the benefit of corporations. You know that “what is good for GM is good for the country” stuff.
But I ask you honestly, at this stage of our economic system, would you really want the banks to fail? Would you really want to live through 30% unemployment?
Do you really think the market is a perfect distributer of wealth?
Because it you do, then you can get a pretty good idea of what it would look like by looking at mid 19th century England [and to a lesser extent America]. Dickens anybody?
March 2, 2009 — 6:39 pm
James Boyer says:
I have to say, I really don’t care at all about the political name calling, or for that matter if we have taken a step towards socialism. I care that the right moves be made now to right this ship adrift and get things moving forward again.
I feel fairly comfortable in saying that the Republicans and Democrats in congress are all about as brain dead as George W seemed to be when it comes to getting this economy out of the rut it is in.
March 2, 2009 — 7:08 pm
Tom Bryant says:
“But I ask you honestly, at this stage of our economic system, would you really want the banks to fail?”
Dave, I think they have failed (at least in the case of Citi and a few others). We’ve now seen billions pumped into them, and the result? Billions in losses.
March 2, 2009 — 7:11 pm
Sean Purcell says:
Dan – hilarious…
Tom – I’m not sure what’s happening lately, but we seem to agree more often than we disagree. One of us should probably see a doctor…
March 2, 2009 — 8:10 pm
Sean Purcell says:
Dave,
The history is impressive, although you left a few off: they’re also responsible for income tax and prohibition! (BTW, they are not known for doing much to help black or native american voting rights). Having said that, this problem remains: their’s is a conviction that the government must play a role (the key role?) in solving social problems. Social engineering is usually so full of unintended consequences that the original goal pales.
As for banking, did you know that over 2/3 of all banks are considered healthy? As I mentioned in a comment on Brian Brady’s post over the weekend: the “banking industry” is no closer to failure than is the “auto industry.” It makes for great headlines but it simply is not true. GM & Chrysler may (already have) fail… not all the foreign makers here on American soil and not Ford! Some of the big banks may (already have) fail… but over 2/3 are fine including Wells Fargo!
Not sure how allowing those who cheated or committed fraud or just plain ran a bad business to fail is going to lead to 30% unemployment and a return to the 1800s…
In any case, the purpose of my post was to assist in seeing what the near future may hold by providing a framework through which to analyze.
March 2, 2009 — 8:31 pm
Sean Purcell says:
James,
I agree with you regarding the average level of activity north of the shoulders for most of those in congress – at least as far as economics go. But I do think we must care about how the ship is being righted. Vince Lombardi said “Fatigue makes cowards of us all.” We can’t let our fatigue over the economic “crisis” cause us to abdicate our responsibility to oversee those we hire to run the corporation called USA.
March 2, 2009 — 8:41 pm
Sean Purcell says:
Tom,
Dead on, except now we are the majority owners in the companies that have failed (after we pumped billions into them…)
March 2, 2009 — 8:43 pm
Dave Shafer says:
Well failure is a slippery term. The issue is the capitalization requirements and mark to market requirements. If Tarp I doesn’t happen, then much looks different now because of the above.
Cheating and committing fraud??? Don’t have any idea what you are talking about here. Those seem to be criminal issues?????
“Social engineering is usually so full of unintended consequences that the original goal pales.”
So does leaving things as they were, no???
Anyway, I was basically agreeing with you up to a point….just not liking your incorrect use of “progressive” in a stict historical meaning sense.
Have a good one….
March 2, 2009 — 8:44 pm
Missy Caulk says:
“The recession is not the first priority. Getting the power centralized so that those smart, empathetic, energetic and highly motivated people gathered in the room on the hill can get to work; that’s the purpose. The recession itself is helpful in this regard and will disappear under their fine tutelage. This understanding even explains the snide, arrogant rejoinder by President Obama when he said “this is a stimulus bill.”
You got that right, Sean. Stay fired up.
March 2, 2009 — 9:19 pm
Sean Purcell says:
Dave,
Agree with you (I think) on the mistake that is the mark-to-market requirement for banks. As for criminal behavior – yes I think there’s a lot of that going on and nothing being done. Actually, that’s not true; something is being done: the criminals are being handed great big piles of money marked as bailout. I’ll give you the first two examples that came to my head: 1. Citi was trying to buy Wachovia (go back to my piece Citi’s So Nice I Bought it Twice) and there was no way they were being honest about their financial situation. (You just don’t go from “going to buy the distressed” to “hey, actually we’re bankrupt” in less than three weeks). Worse yet, I have no doubt King Paulson knew. That whole Goldman connection smells. 2. Just this month that piece of work Immelt at GE swore up and down that GE would not cut their dividends… three weeks later a 70% slashing? Don’t think he was pumping the stock? Going from no change to a 70% cut in three weeks time means you are either criminally negligent or criminally ignorant. Either way, you’re messing with other people’s money and should be punished. More coming to mind now: Merrill’s office rehab or the “early” bonus payouts, the list goes on. Yes, criminal activity surrounds us. No one wants to play cop though.
I did not know I was misusing “progressive.” I don’t have the obvious historical knowledge you have, but I did know it had existed for a while and I thought it was considered a bit of a dead movement. Truth be told, I’m not sure why the current movement is called progressive (or more commonly: secular progressive) other than the shared philosophy that the government has the ability to fix what ails us. Maybe you can shed more light on that.
Always enjoy your comments Dave, and especially look forward to them when we discuss economics.
March 2, 2009 — 9:51 pm
Sean Purcell says:
Thanks Missy, I can’t seem to get unfired lately… 🙂
March 2, 2009 — 9:52 pm
Smithers says:
great post. you ahould be teaching, not chasing real estate commissions.
March 2, 2009 — 11:22 pm
Eric Blackwell says:
@ Sean – brilliant post.
My .02 – I am car-sick. I think Barney Frank (and other members who played into the banking crisis) and the other members of Congress in general suck as drivers. I don’t think think they will end up in the pretty utopian village they are describing. No one has been able to show me accurate pictures of people enjoying that progressive destination.
Time will tell.
Since I cannot back seat drive (although, I’m not gonna shut up…), my best course at this point is simply being quietly self reliant and successful in my own sphere in spite of who’s driving, not because of them.
March 3, 2009 — 5:32 am
Tom Vanderwell says:
Sean,
Let’s both go see the doctor and then we can compare diagnoses?
Keep on telling it like you see it.
Tom
March 3, 2009 — 7:08 am
Dave Shafer says:
Sean, here is the preamble for the first progressive party platform 1892:
The conditions which surround us best justify our co-operation; we meet in the midst of a nation brought to the verge of moral, political and material ruin. Corruption dominates the ballot-box…. The people are demoralized;… public opinion silenced…. homes covered with mortgages, labor impoverished, and the land concentrating in the hands of capitalists. The urban workman are denied the right to organize for self-protection, imported pauperized labor beats down their wages… and [we] are rapidly degenerating into European conditions. The fruits of the toils of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind…. From the same prolific womb of governmental injustice we breed the two great classes tramps and millionaires.
The national power to create money is appropriated to enrich bond-holders….
Silver, which has been accepted as coin since the dawn of history, has been demonitized to add to the purchasing power of gold…. the supply of currency is purposely [limited] to fatten [creditors]…. A vast conspiracy against mankind has been organized… if not met and overthrown at once it forebodes terrible social convulsions, the destruction of civilization….
Controlling influences dominating both… parties have permitted the existing dreadful conditions to develop without serious effort to prevent or restrain them. Neither do they now promise any substantial reform…. They propose to sacrifice our homes, lives, and children on the alter of mammon; to destroy the multitude in order to secure corruption funds from the millionaires….
We seek to restore the government of the Republic to the hands of the “plain people.”
Our country finds itself confronted by conditions for which there is no precedence in the history of the world; our annual agricultural productions amount to billions of dollars in value, which must, within a few weeks or months, be exchanged for billions of dollars worth of commodities consumed in their production; the existing currency supply is wholly inadequate to make this exchange; the results are falling prices, the formation of combines and rings, the impoverishment of the producing class. We pledge ourselves that if given power we will labor to correct these evils….
We believe that the power of government in other words, of the people should be expanded… to the end that oppression, injustice, and poverty shall eventually cease in the land.
[We] will never cease to move forward until every wrong is righted and equal rights and equal privileges securely established for all the men and women of this country….
[And what they were trying to accomplish:]
1. Resolved, That we demand a free ballot, and a fair count in all elections… without Federal intervention, through the adoption by the states of the… secret ballot system.
2. Resolved, That the revenue derived from a graduated income tax should be applied to the reduction of the burden of taxation now levied upon the domestic industries of this country.
3. Resolved, That we pledge our support to fair and liberal pensions to ex-Union soldiers and sailors.
4. Resolved, That we condemn the fallacy of protecting American labor under the present system which opens our ports to [immigrants including] the pauper and the criminal classes of the world and crowds out our [American] wage-earners… and [we] demand the further restriction of undesirable immigration
5. Resolved, That we cordially sympathize with the efforts of organized workingmen to shorten the hours of labor….
6. Resolved, That we regard the maintenance of a large standing army of mercenaries, known as the Pinkerton system as a menace to our liberties and we demand its abolition….
7. Resolved, That we commend to the favorable consideration of the people… the initiative and referendum.
8. Resolved, That we favor a constitutional provision limiting the office of President and Vice President to one term, and providing for the election of Senators of the United States by a direct vote of the people.
9. Resolved, That we oppose any subsidy or national aid to any private corporation for any purpose.
I think you will see in there some of the concerns you have even today. Soon after this the progressive farmer’s movement and the labor movement merged together. Remember this is a time before we built the large middle class we now have. In fact most historians agree that it was this movement that started the changes allowing the emerging middle class to develop.
This post is getting very long but this history is why I am a left-libertarian (ie Noam Chomsky), recognizing that what got us from the gilded age to the age of the middle class was progressive politics and an activist government [active against the power of capitalist]. However, I agree with you that the movement last’s gasp were the civil rights and environmental movements of the 1960’s and since then we have had a corporatist stranglehold on politics from both sides of the aisle.
My right libertarian brothers sometimes forget this history and forget what/how capitalism really does; concentrates wealth!
One more remark, the term “unintended consequences” has little meaning IMHO. If you are trying to say that any action has unpredictable results down the line, then I would agree with you, but point out that all human action or non-action has unpredictable consequences as a matter of fact. Therefore, the term “unintended consequences” in a political sense tells us nothing when attached to a particular policy or action.
As an aside, I have been trying to “predict” human behavior in both small groups and large complex systems for the last 15 years using the best of scientific theories and have found the one truth is that no science can predict humans either in small groups or large complex systems. It is a fools errand.
So I ignore economists and their gaussian science and listen to Warren Buffett because he has at least made consistent money in the market, something no academic economist has done! And when Warren stated the banks needed government help, that turned me from ambivalent to “buying” into the need. No one knows [can predict] how this will turn out, so we just have to hang on and watch; something most folks are not emotionally capable of when their money is at stake. That’s why most people of reasonable intelligence try their hardest to understand what is going on in our economy, latch onto to dubious theories or predictions. It is part of being human to try to make understandable chaos.
I have been doing some studying of Chaos theory, fractual geometry theory, and dynamical system theory over the last few years in my own particular search for making understandable chaos! Interesting stuff but unlikely to be the holy grail of prediction!
Did you read Buffett’s letter to investors? That might make a good post?
March 3, 2009 — 7:09 am
John Rowles says:
After eight years of “leadership” by an executive branch that designed policy to further the interests of the 2% at the top at the expense of everyone else, ran the Constitution through the shredder in order to usurp power for itself, and unilaterally started an unnecessary war in the pursuit of a morally bankrupt “What is good the the USA is good for the World” foreign policy, I am hopeful that “smart people” can figure out a way to control the damage and maybe even find a way forward out of the wreckage Cheney, Rove, and Bush (in that order) left behind.
March 3, 2009 — 8:42 am
Greg Swann says:
At first I thought Obama wouldn’t matter much. He would wreck the economy for two years, but then we would get a new Gingrinch-style congress and it would be Clinton Part II, a wonderful six years when nothing changed in Washington. But yesterday changed everything. Obama really is Jimmy Carter Part II, a foreign policy disaster. In four years, this man could do a lot of damage.
March 3, 2009 — 9:33 am
Dave says:
Dave Shafer,
Thankyou for your efforts to correctly define the “progressive” label. We have many critics of current government involvement in spite of the abject failure of the “contract with America”. We see those staking claim to the “fruits of our(their) labor” and pretend those fruits were not made possible by the “fruits” of others labor before. Public servants are spending our money wastefully. Although they have quite a way to go to catch up to the current crop of business leaders, don’t they.
Thanks again Dave, I hope you keep adding your comments.
March 3, 2009 — 11:57 am
Jeff Brown says:
The label of Progressive is used for one reason and one reason only — it resonates much better than Liberal, Socialist, or Marxist.
What it means when the rubber hits the road is that my tax rates keep getting ‘progressively’ higher. It means government keeps getting ‘progressively’ bigger, and worst of all, it means the portion of our population on the receiving end of my ever increasing tax funds are ‘progressively’ getting larger.
Regardless of what Progressive used to mean and/or stand for, what it means in practice today is that the producers are are going to be ‘progressively’ milked until the promoters of that ideology find themselves freezing to death in the dark.
A pig is a pig no matter how much lipstick is slathered on.
March 3, 2009 — 1:12 pm
Dave Shafer says:
Jeff,
“What it means when the rubber hits the road is that my tax rates keep getting ‘progressively’ higher.”
Actually in your lifetime your tax rates have not gotten higher. Your taxes have because of your success and inflation! 🙂
“Regardless of what Progressive used to mean and/or stand for, what it means in practice today is that the producers are are going to be ‘progressively’ milked until the promoters of that ideology find themselves freezing to death in the dark.”
By producers do you refer to capitalist or the actual workers who does the work that gets sold? That is of course the rub that the progressives fought!
March 3, 2009 — 2:42 pm
Jeff Brown says:
Hey Dave — “Actually in your lifetime your tax rates have not gotten higher. Your taxes have because of your success and inflation!”
No, my taxes went up because every time so-called ‘Progressives’ got their way, the marginal income tax rates went up.
“By producers do you refer to capitalist or the actual workers who does the work that gets sold? That is of course the rub that the progressives fought!”
Is your middle name Karl? 🙂 Are you, in plain English saying the workers on Ford’s original assembly line were ‘producers’? Really? They were about to starve until a real producer made it possible for them to survive.
I’m referring to the real producers, whose ideas, courage, and risk-taking has always provided the jobs for the workers who would’ve starved, freezing in the dark if it wasn’t for the ‘evil’ producers existence — and the jobs they provided.
Workers are a ‘dime a dozen’ for a reason. They make their living by the hour or salary for a reason — they’re relatively far easier to replace than the producer who’s paying them.
Of course that’s the dirty little secret ‘Progressives’ don’t want out in the light of day. The free market says you are worth more or less relative to the ease or difficulty in replacing you.
Bill Gates is worth so much more in the truly free market because he’s demonstrated the ability to create value out of nothing but an idea. Can his thousands of employees say that? Hardly, which is why Gates is labeled the producer, and they are labeled ‘labor’ — paid what a free market dictates is their worth.
Just as Ford made millions, and his employes made a few bucks an hour — the lesson needs to be learned once again. When the producer can train an eighth grader to do your job in a week or two, you’re just not that valuable, regardless of what Mr. Marx would have us believe.
March 3, 2009 — 3:29 pm
Dave Shafer says:
“Is your middle name Karl? Are you, in plain English saying the workers on Ford’s original assembly line were ‘producers’? Really? They were about to starve until a real producer made it possible for them to survive.”
That is what the progressives of the 19th and early part of the 20th century were questioning. That was my point. Personally I believe they [capitalist and workers] need each other very much and all that stuff about workers starving if there were no capitalist is Ayn Rand hyperbole. 🙂
And to complicate matters a little, the original progressives were farmers who certainly were producers in any sense of the word. They got a little hot under the collar about the NY Bankers who they felt got some advantages from the government (ring any bells?) and held them at gunpoint (literally as well as metaphorically) over getting their wares to market. Call it the original attack on the finance industry!
But that is politics, what some people say is the battle of rich people against other rich people! Not me mind you!
As to the tax rates, what follows is a chart of the highest marginal tax rate. Note how it drops during your adult life!
1968 – 75.25%
1969 – 77%
1970 – 71.75%
1971-1981 70%
1982-1986 50%
1987 33%
1988-1990 28%
1991-1992 31%
1993-2000 39.6%
2001 39.1%
2002 38.6%
2003-2009 35%
So the top marginal rate has gone down in your lifetime from the mid 70’s% to 35%, which is what I stated.
No doubt Republican dropped that rate and Democrats raised those rates, but the overall trend has been down. My dad used to say all politicians try to get as much tax money as possible to spend, the only difference is the Republicans will lie to you and do it, while the Democrats will pretend its for your own good! And he was a Republican.
But has overall taxation gone down? Well it depends on where you are in the economic game. It has gone down for those on top tremendously over the last 40 years. For middle class employees it has gone up slightly. For the bottom, their taxes have gone down.
In short the progressive tax system has become much less progressive (although it is still progressive with the wealthy paying the most by percentage), and the middle class taking it on the chin especially if they are employees!
I’m OK with a progressive tax system, because capitalism works to concentrate wealth into the owners [producers in your language] pockets and societies with large disparity of wealth are inherently unstable. I prefer a stable society over a chaotic one. But that is just me.
Personally, I think Obama went to far with the stimulus bill, trying to be everything to everybody. Should have limited himself to education and energy production, two areas where we could really use some infrastructure improvements and could rapidly increase jobs. But, he will learn the hard way on this one. Will the middle class take it on the chin again? Despite Obama’s promises I think it ends up on their shoulders after a brief respite with the wealthy.
Have a good one!
March 3, 2009 — 6:50 pm
Teri Lussier says:
>The putative writer of the bill, Speaker of the House Nancy Pelosi, “called the legislation ‘historic and transformational’ for its investments in the Democrats’ social priorities.”
My blood runs cold.
There’s a certain smell coming from the back of the car… 🙂
March 3, 2009 — 7:02 pm
Jeff Brown says:
Dave — this reverts perfectly to my post towards the end of last year, the subject of which was Two Villages.
We now live in the village where workers have the same value as the Fords and the Gates. Pretty soon you and I and the rest of the producers will be forming our own village, and keeping our own fish.
You have a good one too. It’s always a pleasure.
March 3, 2009 — 7:16 pm
Sean Purcell says:
Smithers – damn nice compliment. I appreciate it.
Mr. Blackwell – you sir, have the right idea. Please keep your hands and feet inside while the ride is in motion…
Tom – I can’t do it any other way.
Teri – Are you still having nightmares about being stuck in the back seat with Eric and I at Unchained Orlando? I swear that smell came from Eric…
March 3, 2009 — 8:45 pm
Sean Purcell says:
Dave,
Great comments. A couple of responses:
the term “unintended consequences” has little meaning IMHO. If you are trying to say that any action has unpredictable results down the line, then I would agree with you, but point out that all human action or non-action has unpredictable consequences as a matter of fact. Therefore, the term “unintended consequences” in a political sense tells us nothing when attached to a particular policy or action.
I find this a little disengenuous. True, all actions may lead to unintended consequences. But the “law of unintended consequences” as it is commonly used denotes the fact that centralized decision-making in furtherance of some sociological goal will almost always create a consequence of ill effect and surprise. This is also commonly stated as “they, are smarter than you.” It applies to politicians deciding how to “get” people to do what the politicians think is right just as it applies to prison wardens trying to generate ways to “get” prisoners to stay put or not commit crimes while in jail. “They” is any large group of motivated people and their collective intelligence will always see through and over run any rules, regulations & suggestions “you” (the people who think they know better) might create.
I have always been a HUGE Warren Buffett fan… when it comes to value investing. That man knows how to evaluate an investment and he has the right idea on time frames. As far as being an economist… I have my doubts (e.g. “shambles for years” is far-fetched to me). He may of course, be referring to his economy being in shambles given the depth of his investment in insurance and reinsurance companies. But I’ve no doubt he’ll ride it out the way we all should too.
I tend to agree with Jeff when it comes to defining roles. A producer is one who creates through the addition of value…. and then gets paid. A worker is simply one who takes for the addition of value. A perfect example of this phenomenon is pay raises. The vast majority of hourly/salaried workers expect a pay raise each year! Can you imagine?! Producers understand that you are paid based on the value you add to any equation. Simply showing up for another year does not increase the level of value you bring. A progressive movement form of theft if you ask me. Want more pay? Add more value.
In short the progressive tax system has become much less progressive (although it is still progressive with the wealthy paying the most by percentage)
Yes, I suppose that’s technically true. A drop from the 70s to the 30s is much less. But to add the that last line kind of belies the facts doesn’t it? The top 10% pay something like 70% of all income tax and the top 5% pay close to 40%. This is still pretty damn progressive, wouldn’t you say? Why in the world should someone who earns more pay more? There is no rational justification, only one of confiscation in furtherance of an agenda backed by weapons. President Obama is currently playing this classism game to a sickeningly perfect pitch. Selling the poor on eating the rich does not feed the poor and it gives the economy indigestion. 🙂
March 3, 2009 — 9:17 pm
Jeff Brown says:
Sean, there are times when I fail miserably to avoid naked envy of your ability to say what I think better than I do. This is one of those times.
March 3, 2009 — 9:28 pm
Sean Purcell says:
John,
So let me get this straight: the last group of really smart people did such an unbelievably, morally, economically, criminally bad job… let’s hope the next group of smart people can do better?
I don’t care if it’s “my” smart group or “your” smart group. The idea that any group of people could show up in DC and assume they are smart enough to know best how to run everything is unmitigated hubris. Politicians, to the degree that we have them at all, would do much better if they saw themselves a little less as all-powerful leaders and a little more as temporary help at the USA corporation.
March 3, 2009 — 9:28 pm
Sean Purcell says:
Dave,
Public servants are spending our money wastefully. Although they have quite a way to go to catch up to the current crop of business leaders, don’t they.
A nicely framed bit of moral equivalency there, yes. The lowly “public servants” are being wasteful, but at least they’re not monsters like those… “business leaders” (the lip curls at the very mention).
At least those business leaders did not confiscate my money as the public servants did. Nor does their wastefulness engender a never ending cycle of more waste as public servants centralizing power and purchasing poverty does.
March 3, 2009 — 9:35 pm
Dave Shafer says:
Sean, I love the discussion and am generally sad that these discussions tend to only last a day or two! When you add in all taxes, not just income taxes, the wealthy people still pay at higher percentages just not significantly higher. Follow this link for a visualization: http://www.visualizingeconomics.com/2007/11/03/nytimes-historical-tax-rates-by-income-group/
Clearly shows a progressive tax situation, but not an out of control tax the rich situation. As you probably know the facts are that the middle class has born much of the tax rate manipulation since 1960s, yet their overall taxation has remained relatively flat.
As you know I do my best for myself and my clients to prepare them to be independent of government retirement programs. But the fact remains that the vast majority of non-discretionary spending goes to social security and medicare. And the largest discretionary spending goes to defense, all the rest of the spending pales compares to these three giants. Which of these three would you eliminate? Because as it is over 90% of folks in retirement are dependent upon social security and medicare. Since the average person now spends 18 years in retirement, that is a long time to go without healthcare or income! And most people are fearful enough to not question the pentagon’s budget. Even Obama hasn’t cut it. Personally, I think you could cut it in half and still be defended just fine! But that is another post.
So any meaningful tax reduction has to come with the elimination of one or more of those programs.
As for Warren Buffett and the economist, he took them on [again] in his latest letter to investors. Personally, if I was forced to either listen to Buffett or an economist, then I go with the guy who has made the money [a producer], not the guys who have failed in every prediction ever made over the long run!
Check out my latest post on my blog for some analysis of what is happening with the market:
http://shaferfinancial.wordpress.com
There is an analysis of Berkshire Hathaway latest year end report on there too! I don’t think he was talking about his economy, but ours. You judge for yourself after reading my analysis of Berkshire Hathaway! 🙂
Have a great day!
March 4, 2009 — 8:53 am
Dave Shafer says:
Sean, maybe a post on the following section from Buffett in his annual letter. Seems like it is right up your alley!
Funders that have access to any sort of government guarantee – banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella – have money costs that are minimal.
Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.
This unprecedented “spread” in the cost of money makes it unprofitable for any lender who doesn’t enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the “haves” and “have-nots.” That is why companies are rushing to convert to bank holding companies, not a course feasible for Berkshire.
Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our
cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the
moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.
Thanks,
Dave
March 4, 2009 — 11:24 am
Sean Purcell says:
Dave,
I’ll have to take some time later to read Buffett’s full report but in the mean time I enjoyed your post on the economy and how psychology can play a role. No wonder we get along so well: psych was my major and still favorite form of analysis. I agree with both of your biases and will add a couple thoughts:
Recency bias not only misleads people in proportional reality, but it blinds them to current trends. For instance, there are a number of signs that the recession is already abating (inter-banks funding, commercial paper volume, real estate in lead areas) yet people are blinded to this reality because of the belief they have based on recent events.
Also, there is a corollary to the Bandwagon Effect. Within mob psychology there has been observed the tendency for those in a group (or on a bandwagon) to move toward the most extreme member of the group. This is not a happy thought given the economic bandwagon so many have jumped on or the extreme left position of its leader…
March 4, 2009 — 1:42 pm
Paul Francis says:
Great Article…
No matter if you are left or right..
It’s one thing when the money is there for the Government to spend… it’s another when they have to borrow it at the expense of taxpayers for pet projects benefitting their big special interest campaign contributors.
And that’s what the realy problem is… 8 years of wasteful spending and policies that created a massive hangover… and now policies that think the best cure for that hangover is chugging down a bottle of tequila.
I have a Russian friend who was 12 and living in Moscow when Russia went Bankrupt. Her family (and many others)had no idea it was coming because they were so brainwashed that the Government would always take care of them…
Animal Farm anybody?
March 6, 2009 — 4:33 am
Sean Purcell says:
Paul,
Tequila to cure a hangover… dead-on analogy. We can even combine it with the whole “spending like drunken sailors” analogy and put a nice big ribbon (of stupor) on the madness.
Interesting point about the systemic “belief” in the Soviet Union. People may dismiss your conclusion because we’re not communist, but that would be a mistake. The key here is not the method which delivers us to bankruptcy, but rather the required suspension of self-reliance that allows it. In that analysis, we are rapidly moving along the curve.
March 8, 2009 — 8:13 am