A Short Primer on McCainomics Versus Obamanomics: Top-Down or Bottom-Up
McCain and Obama represent two fundamentally different economic philosophies. McCain's is top-down economics; Obama's is bottom-up.
Top-down economics holds that:
1. If you give generous tax breaks to the rich, they will have greater incentive to work hard and invest. Their harder work and added investments will generate more jobs and faster economic growth, to the benefit of average working people.
2. If you give generous tax breaks to corporations, reduce their payroll costs, and impose fewer regulations on them, they will compete more successfully in global commerce. This too will result in more jobs for Americans and faster growth in the United States.
3. The best way to reduce the energy costs of average Americans is to give oil companies access to more land on which to drill, lower taxes, and lower capital costs. If they get these, they'll supply more oil, which will reduce oil prices.
4. The best way to deal with the crisis in credit markets is to insure large Wall Street investment banks, as well as Fannie and Freddie, against losses. This will result in more loans at lower rates to average Americans. (Bailing them out may risk "moral hazard," in the sense that they will expect to be bailed out in the future, but that's a small price to pay for restoring liquidity.)
All of these propositions are highly questionable, especially in a global economy. The rich do not necessarily invest additional post-tax earnings in the United States; they invest wherever around the world they can get the highest returns. Meanwhile, large American-based corporations are doing business all over the world; their supply chains extend to wherever they can find low labor costs combined with high output, and their sales to wherever they can find willing buyers. Oil companies, too, are operating globally and set their prices largely at the point where global supply meets global demand. Additional drilling here creates environmental risks for us but generates the same marginal benefits for consumers in China, India, and Europe as we might enjoy (most likely not for a decade or more). Credit markets are global as well, so the beneficiaries of bailouts of large investment banks and lenders are also worldwide while the potential costs (including moral hazard) fall on American taxpayers.
This isn't to argue that top-down economics is completely nonsensical. America is, after all, the world's largest economy. So whatever helps the top of it will to some extent trickle down to everyone else here, and whatever hurts the top is likely to impose some burdens all the way down.
But in a global economy, bottom-up economics makes more sense. Bottom-up economics holds that:
1. The growth of the American economy depends largely on the productivity of its workers. They are rooted here, while global capital and large American-based global corporations are not.
2. The productivity of America workers depends mainly on their education, their health, and the infrastructure that connects them together. These public investments are therefore critical to our future prosperity.
3. Global capital will come to the United States to create good jobs not because our taxes or wages or regulatory costs are low (there will always be many places around the world where taxes, wages, and regulatory costs are lower) but because the productivity of our workers is high.
4. The answer to our energy costs is found in the creativity and inventiveness of Americans in generating non-oil and non-carbon fuels and new means of energy conservation, rather than in access by global oil companies to more oil. So subsidize basic research and development in these alternatives.
5. Finally, in order to avoid a recession or worse, it's necessary to improve the financial security of average Americans who are now sinking into a quagmire of debt and foreclosure. Otherwise, there won't be adequate purchasing power to absorb all the goods and services the economy produces. (As to "moral hazard," the financial institutions that did the lending had more reason to know of the risks involved than those who did the borrowing.)
Listen carefully to the economic debate in the months ahead in light of these two competing economic philosophies. And hope that the latter wins out in years to come.
Top-down economics holds that:
1. If you give generous tax breaks to the rich, they will have greater incentive to work hard and invest. Their harder work and added investments will generate more jobs and faster economic growth, to the benefit of average working people.
2. If you give generous tax breaks to corporations, reduce their payroll costs, and impose fewer regulations on them, they will compete more successfully in global commerce. This too will result in more jobs for Americans and faster growth in the United States.
3. The best way to reduce the energy costs of average Americans is to give oil companies access to more land on which to drill, lower taxes, and lower capital costs. If they get these, they'll supply more oil, which will reduce oil prices.
4. The best way to deal with the crisis in credit markets is to insure large Wall Street investment banks, as well as Fannie and Freddie, against losses. This will result in more loans at lower rates to average Americans. (Bailing them out may risk "moral hazard," in the sense that they will expect to be bailed out in the future, but that's a small price to pay for restoring liquidity.)
All of these propositions are highly questionable, especially in a global economy. The rich do not necessarily invest additional post-tax earnings in the United States; they invest wherever around the world they can get the highest returns. Meanwhile, large American-based corporations are doing business all over the world; their supply chains extend to wherever they can find low labor costs combined with high output, and their sales to wherever they can find willing buyers. Oil companies, too, are operating globally and set their prices largely at the point where global supply meets global demand. Additional drilling here creates environmental risks for us but generates the same marginal benefits for consumers in China, India, and Europe as we might enjoy (most likely not for a decade or more). Credit markets are global as well, so the beneficiaries of bailouts of large investment banks and lenders are also worldwide while the potential costs (including moral hazard) fall on American taxpayers.
This isn't to argue that top-down economics is completely nonsensical. America is, after all, the world's largest economy. So whatever helps the top of it will to some extent trickle down to everyone else here, and whatever hurts the top is likely to impose some burdens all the way down.
But in a global economy, bottom-up economics makes more sense. Bottom-up economics holds that:
1. The growth of the American economy depends largely on the productivity of its workers. They are rooted here, while global capital and large American-based global corporations are not.
2. The productivity of America workers depends mainly on their education, their health, and the infrastructure that connects them together. These public investments are therefore critical to our future prosperity.
3. Global capital will come to the United States to create good jobs not because our taxes or wages or regulatory costs are low (there will always be many places around the world where taxes, wages, and regulatory costs are lower) but because the productivity of our workers is high.
4. The answer to our energy costs is found in the creativity and inventiveness of Americans in generating non-oil and non-carbon fuels and new means of energy conservation, rather than in access by global oil companies to more oil. So subsidize basic research and development in these alternatives.
5. Finally, in order to avoid a recession or worse, it's necessary to improve the financial security of average Americans who are now sinking into a quagmire of debt and foreclosure. Otherwise, there won't be adequate purchasing power to absorb all the goods and services the economy produces. (As to "moral hazard," the financial institutions that did the lending had more reason to know of the risks involved than those who did the borrowing.)
Listen carefully to the economic debate in the months ahead in light of these two competing economic philosophies. And hope that the latter wins out in years to come.
posted by Robert Reich | 8:21 PM
79 Comments:
Top-down has a lot of short-term advantages.
Bottom up has a lot of up-front requirements.
I spent years devising a "discourse-based" infrastructure.
Nobody seems to care.
"A workman is worth his tools" ... to contradict that is to invite the ire of a righteous cosmos.
best
--bentrem
By "improve the financial health of average Americans," I hope you are not suggesting a government bailout of households facing foreclosure. Housing prices are too high for average Americans to afford, particularly in hot markets like CA. To really help average Americans, government should stay out of the matter and let the prices come down drastically, which , absent government meddling, they will. Then Americans will again be able to buy a house without wagering their entire financial future on continued housing market strength.
Btw, top down = easy to implement
bottoms up = difficult and potentially wasteful to implement
One shouldn't gloss over that when considering relative merits.
I fear for the future of our productivity. Our education system is falling behind the rest of the world. More and more foreign born students are obtaining higher education degrees and moving back home. What is now our big advantage (innovation along with education and productivity) is slowly but surely leaving the U.S.
We've had top-down, and it's never trickled down to me. It's bad.
The latter is the way to go.
And that's all I have to say about that.
tt
What this country needs is some kind of fair appraisal act. Many people are getting help with their over inflated mortgages. But many people are not. I got a good interest rate and a 30 year fixed mortgage, but I feel the house was over priced. The problem was all of the housing was over priced. The banks want a bailout for what I consider artificial enrichment. Everyone should get a fair appraisal and I have always thought that the appraisal business is the most corrupt in the housing industry. We can't all walk away from our mortgages, but we should demand some kind of fair pricing standards. Unfortunately, the banks are taking heat for real estate agents, brokers and appraisers who have managed to line their pockets with gold on their way out. In other words, pure greed.
Given where are in a "season" when top down economics is not working, not to mention we are literally experiencing third world living 'standards' in some instances, I just can't figure out how anyone can embrace McCain's suggestions on the economy. Makes no sense!
But I suppose, after all the 'stress' and not wanting to 'whine' most have lost all sense of 'reason.
http://manchestersquare.blogspot.com
If only we did this or do that. If only we can get the right education. If only we can come up with the right formula for success for everyone. Blah, blah, blah....
As long as "educated" people are as greedy and unethical as our society has become, we are screwed. Period.
The honor and ethics in prisons among inmates is better than in our culture at large.
Top down is easy. Politicians just dutifully sign the bills that lobbyists pay them to sign.
It's easier to ship jobs out and give corporaitons subsidies to stip America of assets and jobs. It pays good bribes too.
Americans just need to get used to declining wages, rising prices and a corporate government that strips their protections. It's easy to let this happen.
America is about doing the lazy easy things.
Now the Chinese and Indians are hard working people. That's why our government works hard to improve their economies.
And top down helps foreign economies right now. It has a lot of short term advantages for wealthy corporations operating across multiple nations.
Bottom up, might prevent a Kuwaiti Prince from buying an seventh yacht. And that's unlucky.
Thank you. Thank you. Thank you.
Speaking of the bottom, America has some of the worst support for the unemployed in the first world. Supporting those truly in need, rather than the corporations at the top, during a time of decline is good for our nation's families as well as the economy as a whole. When you give a poor person money, they spend it in the market, rather than saving it (immediate stimulus). The lack of social concern in policy is linked to a greater belief held by members f the government that the financial sector can act more responsibly with tax dollars than can the people. Greenspan's low interest rate post 9-11 economic prop up that lead to this mess demonstrates the effectiveness of short term, lobbyist friendly solutions at solving long term social problems.
I read something recently about how despite all the noise about exporting jobs, the truth is that low-skill jobs are being eliminated everywhere -- including China -- because of automation in manufacturing.
So it seems the real key is not to preserve low-skill jobs here, but make sure people are bright enough to stave off being replaced by robots
I never understood Economics or why with a Democrat in office I had no worries on finding work. Reading this post, at least the latter makes sense now. You are correct, why should the rich or corporations place their "hard earned" money within our economy, as it slides downhill - I'd be more likely to purchase a small island and set up a resort for all the other rich! I also agree that everyone who has a job - part or full time - need to be healthy and motivated; no matter what a CEO may say, fear does not motivate people to do better.
Thank you
Any fool with a 401(k) benefits from strong corporate earnings.
The problem is, as we've discussed here before, the concentration of wealth and power in an elite fraternity. I don't mind removing corporate taxes altogether, but I think that for personal income over say $1 million a year, the government should confiscate like 80%! I really don't see who would oppose this plan except for the frat boys. Would it really lessen the incentives to perform? How many people out there performing right now make this much money? Not many
Robert said…
“Listen carefully to the economic debate in the months ahead in light of these two competing economic philosophies. And hope that the latter wins out in years to come.”(top-down vs. bottom-up)
Will Obama really be bottom-up? His main economics guy is Jason Furman. He’s so far been closely associated with the top-down corporate driven agenda of Robert Rubin. If Obama wins, more Rubinomics like we saw during the Clinton administration seems inevitable. I’m afraid the dems still believe this centrist approach is the way to go. It works politically so would they go back to the more traditional populist approach that would better serve the middle-class and the poor but present far more political risks. The pattern goes something like this: left of center dems influence primaries and elections but this influence significantly deteriorates when dems are governing.
Your econ policy contrast summary is interesting and obvious, but giving us 1 of 2 choices does not change anything.
What we really need is to get the Christian right and corporate America out of politics.
WE NEED CAMPAIGN AND LOBBY REFORM to rectify either of the econ policy options.
Lobbying is nothing more than "legalized bribery".
Voters listen to the campaign stump speeches that are simple sound bites and then, once elected, they follow the money.
Who was it that coined: "Democracy is a terrible system, but is better then anything alternative."
Change the system dynamics and motivations and real change has a chance of happening.
The elephant in the room when talking about the US economy is militarism.
It's not just that a small group of people have gotten obscenely rich (or richer) under GOP rule, but that what money is spent by the government is misallocated.
Under Bush the military sector has risen from 50 to 54% of the federal discretionary budget, while the proportion devoted to SS and Medicare/Caid has dropped by over 2%. There have been similar cutbacks in education and other social services.
Here's a report, if you are interested in the details:
http://www.cbpp.org/3-5-08bud.htm
Joseph Stiglitz has a new book out where he shows how the current wars will end up costing $3 trillion. That's an awful lot of money that could have been used for something better than death and destruction.
RR likes to write essays that will get attention, so he pares down the issues, but they are all related. The wealthy have too much money and too much political influence and push the entire economy in directions which favor their interests, but the entrenched military/industrial/congressional complex also feeds off the same gravy train and these two groups overlap strongly.
You can't fix one without addressing the other at the same time.
Always interesting to me the wails about housing prices and their need to fall, rise or whatever.
First of all, a house is a dwelling to provide a respite from the elements. We all need a dwelling of some kind. For some it is a tent for others a mansion and what one can afford is usually the determinate of that choice. One can argue that no one needs a 10,000 square foot home and that may be valid but that is not the issue. The issue is what do we need and/or desire in a dwelling.
Given that we need a roof over our heads we then have two choices; we rent or we buy. As long as there are houses to be purchased with mortgage payments fairly consistent with rents, then buying becomes a viable option. As many of us homeowners know, mortgage payments could end up being the least of our problems if we buy a house. Routine maintenance costs are bad enough; major repairs can be a backbreaker.
House prices are an economic phenomenon just like every other thing we buy, or seek to. They are driven by supply and demand which in turn is affected by rental costs, the cost of new construction and the availability of credit. If rents rise to the extent that mortgage payments are in parody then buying becomes the more attractive option. If the costs of new construction rise, as happens with everything we buy or consume, then the values of previously built homes will rise as well. This won't necessarily be a dollar for dollar rise due to new amenities in new homes and costs of maintenance and repair on older homes. If I own a home I purchased for $100,000 and next door, on a vacant lot, a new home of comparable size and quality is constructed and sells for $300,000, the value of my home will increase.
If restrictions on credit availability are loosened, buying becomes easier for many. Since owning one's own home is integral to the American Dream any easing of credit availability will stir up the market for buying. As with all other things, the increase in demand will drive prices up until home availability, new and old, reaches equilibrium with that demand. To a lesser extent rents would have a similar effect. Should rents rise disproportionately to mortgage payments then demand for buying homes will increase. Rents, however, are subject to their own set of supply/demand variables and credit availability is still the greater delimiter for home buyers.
Because, especially in the last 60 years, home values have constantly risen, driven by the above variables and others, owning has also taken on the guise of investment. For those starting out in their careers, purchasing that first home offers insurance against rising home values when looking for the next home. At some point it also becomes a retirement nest egg. Since in general, we are not sophisticated financial managers we also found our equity growth in our homes as a financial leverage vehicle and commenced to utilize that equity growth to acquire more "stuff". Because we are optimists - and without that optimism we would not have achieved much of our standard of living - we minimize the risk of using home equity for short term financing options. Assuming that our incomes are stable or will be rising, it makes financial sense to buy a new car with a tax deductible home equity loan versus an auto loan with no tax benefit.
Many of today's workers, in their 30s and 40s, have only experienced economic downturns that appeared to be aberrations. The S&L fiasco; 9/11; the dot.com bubble, all these did not seem to be the result of normal business cycle downturns. Average joe, assuming that these kind of aberrations will not recur and not having experienced the "normal" business cycle adjustments of the 50s through the 70s, tended to feel comfortable in his optimism.
As much as optimism feeds capitalism and economic growth, so too does greed, one of the more heinous of the seven deadly sins. Without greed as a principal driver, capitalism, at best, muddles along improving mankind's plight very little and, at worst, stagnates, leaving us with little or nothing, with, perhaps, the exception of farmers who tend to remain self sufficient.
So into this cauldron of economic brew we add the realization, which the wealthy have known for ages, that it is far easier to make money from money than from labor. Enter the housing bubble. Bond investments provide meager returns and are somewhat boring. Stock investments are much more exciting and instant gains can be found, but the number of uncontrollable variables usually mean some gains and some losses and net gains often only go to the professional players. Ergo, let's look at housing. We see a fairly constant rise in values with only minor blips here and there. Granted the gains are a little longer term but the risks seem minimal. Again, for average joe this seems a good place to park our money; see it grow and provide our dwelling needs all at one time. The money players see a different scenario.
If the moneychangers can spur home ownership demand by easing credit and making "free" loans available to the masses, especially with some fine print that few will read, they can create an almost perpetual stream of income by packaging and repackaging mortgages and then selling and reselling them. It is a wonderful market because the basic desire is already there. No need to spend millions on advertising and promotion attempting to create demand. All they have to do is let the public know that these "free" loans are available and the market will come to them. The eventual increase in interest rates to be paid on ARMs or Interest-only mortgages provide great leverage for the sophisticated investors; pension plans and very wealthy players. It clearly was a win-win scenario; until.
The advent of this wonderful profit generating process, of course, spurred demand for housing, which created increased prices and paper gains to those imbibing, which further drove even more demand to get on this wealth producing train. It is the rise in prices driven by this abysmal process that requires, and is, producing decreases in home values. If we return to a "normal" credit system where folks not qualified do not get loans, then prices will level off. Once the market stablilizes we will once again be back to "normal" market forces driving home values. This will mean a slower rate of increase in home values but by no means will mean that home values will not continue to rise. The cost of new construction, dependent on a diminishing supply of raw materials, will become the driver of increasing home values.
All this to get to: Those with fixed mortgages or with the financial resources to convert ARMs to fixed should interest rates rise, have little to worry about. They need a dwelling and the fact that in the short term the value of their home might be less than what they paid for it, is neither here nor there, as long as they can afford the mortgage payments. The values will rebound and though their equity growth may slow, at the end of the mortgage term they will own something of value. Likely worth more than they paid for it, albeit with varying degrees of "real" gain due to inflation. Even if rents were to decrease substantially, a likelihood economically at odds with current activities, opting out of potential long term gains, unless the savings is sufficient to invest and make up the difference, would seem a foolish action.
Home values will always rise. Location will be the prime determinate for how much. Prices in more desirable areas will tend to leave many unable to afford homes until their incomes rise enough. This is the way of the market. The way to maintain balance among the various market players is through tighter regulation and controls. Absent those, greed becomes the driver and caveat emptor becomes the wisdom of the ages.
I don't see where there's much room to responsibly do any more "bottom up" than we have; the bottom 50% of income tax filers now pay only 1.7% of the total income tax burden. With half the population on the nipple, we've created a giant class of folks that could give a rip about economic growth, so long as the politicians promise them more free goodies.
Pretty pathetic that so many folks pay more in PAYROLL tax alone (employee portion 7.65% of gross employment income) than they do in income tax. So we're supposed to further subsidize this class of citizens by cutting their payroll taxes too? That would truly expose the fraud of social security as being not an insurance program, but just plain old welfare.
Blue collar isn't the same as low skilled. Machinists for instance, are not low skill workers. In fact low skill low paying jobs are still available in the US. If you want to push a broom or unload freight on a dock, those jobs are still here. They rely on people buying stuff. So enjoy them while people still buy cigarettes and microwave ovens.
The jobs lost are in the middle. The jobs that pay a living wage.
China's economy has taken a hit because it relied on vacuuming the wealth out of the USA. Now the USA's wealth is drying up and China is going a bit hungry.
Eventually the money and military elites will jump ship, and refuse to defend anything but their own vision of America. To them the Constitution and due process has little to do with the American Brand that they're fond of.
I seriously believe that if these people thought that by winning the election the Democrats would somehow cause America to drop to number two on the world power rankings, they'd rig it in a heartbeat.
Their pride is in no way actually rooted in THIS land -- it's rooted in their commitment to winning at all costs.
Doc:
There is no panacea. Top down, bottom up, neither appears to be Valhallic.
You premise your bottom up philosophy relying heavily on productivity. Most of the productivity gains of the past 20 years derived from automation, not from more efficient workers. Actually, a strong argument could be made that work ethics among workers in emerging markets are far better than those of American workers.
There was a time when we had a huge edge in production system knowledge and could more easily integrate automation than many of those countries just entering the manufacturing sphere. That time has passed us by. One of the impediments to automation is capital investment.
With globalization, manufacturing has become the economic growth means for emerging economies. Low labor costs of course started the relay race but as we move to the other legs, experience and knowledge bases have grown in these emergers and capital can now flow freely to any point in the world where opportunities for savings exist.
Two major factors might offer us a temporary respite. If oil prices remain high then transportation costs may begin to offset labor cost savings, shifting some production back to the US for market proximity. The other factor is that, presently, we still represent the largest consumption market in the world and in order for our consumption levels to remain high we must employ more people at higher wages. These two scenarios are not mutually exclusive and may work in concert to improve our plights. They also, if likely at all, would be likely under either a top down or bottom up economic policy. Profits, much like water, seek the path of least resistence.
In my mind, Reagan set us on a path to believing that greed is good because, "them that has" will provide for "them that hasn't". As we segued to this new paradigm, it seems that the "them that has" group have not quite secured enough assets yet to start the provision for the "them that hasn't" group. I guess it could be argued that they are looking to help "them that hasn't" but are starting with the underdeveloped countries where "hasn't" is much more pronounced.
I fear that we have evolved to the point where the pilot of this spaceship is corporate/wealthy America. Maybe that was always true but the corporate/wealthy view has become much more myopic. Government has become just one more asset to be managed by the "real" people in charge. We are driven by capital growth not national growth.
A simple example is the cash activities of the oil sector. Far more cash is being expended on repurchasing stock shares than on exploration. Why is that? Primarily because less shares outstanding means better "eps" (earnings per share) and therefore stock prices go up and since executive bonuses are driven by increased stock values, execs benefit and the shareholders benefit. It's really kinda silly since "eps" is merely an arbitrary measure developed to try and equate the relative stock values of one industry/company to another.
Increases in overall profits, regardless the measurment standard, is the important measure. At best, as a measure of comparability, returns on assets employed is a more realistic measure of value than "eps". If increases in "eps" were significantly paid out in dividends my argument might be lessened but that is not generally the case; almost never.
In net, we know top down doesn't work and the only way bottom up works is if worldwide capital looks at us, essentially, as nothing more than a consumption market that requires the means for consumption.
I would agree that historically innovation has been our forte. If we can spur greater innovation, and the alternative energy sector appears the new frontier, that may lead to a bottom up scenario but maybe not. In today's world it would not be hard to take the benefits of our innovation and transport it to production environments operating more cheaply. Productivity, as with so many other commercial endeavors, is no longer the sole province of the US.
Pogo said it best: "We Have Met the Enemy and He is Us".
Well, our real problem is the lack of an economy. An economy requires the circulation of money. We only have money flowing to the top and not recirculating. That's what's killing our economy. As the money has flowed upward and outward, there is less and less actually left in America itself. We have debt at private, corporate, and public levels, and very little equity left.
I'm not sure Obama solves the problem, I do know McCain will make it worse. He has absolutely no clue about economics, and all the wrong advisers.
Speaking of McCain:
“Cerebral White Matter Abnormalities and Lifetime Cognitive Change”
McCain’s increasing memory and knowledge deficits as evidenced by his numerous “gaffes” recently is surely related to white-matter lesions in his prefrontal cortex. It’s time to start kneecapping this guy. Isn’t McCain hypertensive? Hypertension can contribute to the development of these normal age-related changes. They typically begin at about age 60. Will McCain submit to an MRI? This man is already dangerous enough. Adding cognitive deficits into the mix is a gamble not worth taking.
brain lol
notsofast:
An astute observation. One which we age impaired are surely cognizant of.
Art hit the nail on the head. THe gains in productivity are because of knowledge and high-level skills, not because of average workers, who have gotten dumber and fatter. Better robots means more productive and efficient companies. I also agree with him that not only do people work harder in China and elsewhere -- because unlike us they're still hungry, in the good and bad senses of the word -- but the developing-world immigrants in this country work harder too. That of course has always been the trend with immigration in this country. Just look at who's getting engineering degrees in this U.S. these days: half are foreigners, and a big chunk of the other half are either foreign-born or first or second generation Americans.
I think all this results from having all these products available to us all the time. No hunger means no drive. Unfortunately worshipping growth means that a strong economy will always entail weak-willed -- and ultimately just plain weak, mentally and physically -- consumers.
I recall hearing a factory manager for ( I think Ford automotive ) in China tell Ted Koppel on the Discovery Channel series on China that they are not currently using much automation in the Ford factory in China because the current low wages of their workers means that they make more money than having an automated factory.
I'm not saying that is good or bad. I think it is an interesting observation.
Irrespective of economic dogma, the next White House will get an opportunity with Congress to decide if we should
bail-out GM/FORD
nationalize our failing airline industry
prop up more banks and investment houses
send more troops to Afghanistan
burn even more coal
drill for more oil and gas in our waters
allow Iran to arm itself with nuclear weapons
let the dollar fail
The fact is, I live in the middle-class, an economic reality that neither McCain nor Obama understands. Neither candidate represents me, and neither would give a rat's ass to find out how my world works.
brooklyn:
Thanks for the appreciative nod.
I do tend to disagree, somewhat, with your cause/effect scenario. No doubt more "stuff" has spoiled us to a great extent. It is much easier and enjoyable to be a couch potato today than 30 or 40 years ago. But one could argue that a desire for more "stuff" is a motivator.
The cause of our declining work ethic is much more complex with many, many variables. As a starting point, although by no means the only one, let's look at labor unions. Along with the good they did for all workers not just their members, they did contribute to establishing very good wages for unskilled labor. Not totally a bad thing but it did have the effect of deincentivizing a need for higher education and upward mobility. Auto workers, especially, had wage and fringe packages that provided a very comfortable life and enabled enough savings to afford sending their kids to college.
Labor union seniority rules meant that competition in the workplace, striving to do a better job than your peers, was lost. Since one could not receive a promotion if workers with more seniority were ahead of them there was little desire to work harder or smarter. In fact the union psychology was, at times, a stern taskmaster for those who sought to beat standards and gain the favor of management. Though not universal the concept drifted beyond union shops.
The constant riff between labor and management lead to hiring degreed "management trainees" from outside rather than promoting from the floor. Not altogether a bad thing from a management perspective but I have seen biology majors hired into a foreman training program who hadn't the first iota of how manufacturing works nor were they endowed with any special people skills making them more valuable than an experienced group manager, a union job.
Unions did provide a reasonable damper on executive salaries. If the balance of wages got to far out of line the unions would put pressure on greater pay for the little people. They did many other good things but they also contributed to the aura of management wants more blood and we want more pay, or time off, or fringe benefits. Since this was an ongoing battle, workers derived a sense of do only what you have to to get by.
One of the difficult issues with pay is that monetary reward is a short-lived motivator. After awhile, a few months, a year, the raise you got is forgotten and feelings of inadequate compensation drift back in.
In come the Reaganites and there supply-side BS. This segued us to the idea that it was ok for executives to make scads more because they would use the excess to provide more and better paying jobs. The inequities festered and grew. The frustrations moved from the factory floor to the offices and even lower level managers. Companies not doing well gave only minimal annual merit increases but were paying bonuses to execs who had them built into contracts. Corporate America's kneeling at the alter of higher education caused them to began seeking degreed outside candidates for office, analyst, even clerical jobs, leaving those who worked for years stagnant with no growth opportunities. The concept seemed to be to load up with a young workforce with the capacity for promotions up the ranks even though there would be a limited number of those promotions. Let the games begin!
Of course coming in new and being unfamiliar with practices and policies many of the clerical, nonexempt workers, had to be the trainers for the new recruits. Not only were these lower level workers estopped from job growth but they had to train their new bosses on how to do the work that they had been doing for years. This did nothing to spur a desire to work harder. Hiring a few potential stars and promoting more grunts would possibly have provided more incentives.
During this long period we had more wives and mothers entering the workforce. They had split loyalties and responsibilities. Corporate America was way behind the curve in addressing these issues and in establishing policies and programs to facilitate the additional strains on many workers until legislation commanded it. When work environment improvements occur from laws the workers loyalty leans more to the government than the employer.
I could go on and on and cite example after example but the point is that a deepening chasm dividing worker from boss from exec from owner had a far greater impact on American work ethic than did more "stuff".
Workers were not innocent in this either. In my mind everyone is a professional at what they do and no matter how much or little they get paid, their own integrity ought to drive performance excellence. Alas!
Many should have and many did, get the message about more education, but social change doesn't happen in a vacuum and there are always those caught between cultural shifts. Going back to school after working a number of years and/or establishing a family and a base of comfort is very hard. I did it and I realize that the perserverance required is not in the makeup of many.
I don't know that I have remedies for the dilemma other than trying to instill professional attitudes in all workers from garbage collectors to CEOs but that is a cultural issue of garagantuan proportions. It could be aided by a better view from all of us, especially management, in the value of each worker, no matter what they contribute.
Does it give anyone pause, when seeing the billions in losses that the banking firms keep reporting, quarter after quarter, that they are able to stay afloat?
Seems like a whale of a lot of prior year's profits that were supposed to be providing more jobs.
I don't think top-down and bottom-up are the appropriate terms for these approaches. The conservatives seem to want to go for strike 3 in their failed economic policy of plundering the American treasury and public, and giving it to their rich friends. Obama seems to be more interested in guiding the economy.
I would describe McCain's typical conservative approach more as;
"Let them eat cake".
I think the best way to describe Obama's approach would be;
"Intelligent design".
So when it comes time to vote in November, the American public should remember, it may take divine guidance to get us out of this mess; and they should never forget, you can't have your cake and eat it too.
Dr. Reich:
You speak as though being rich is a thing to be punished by saddling them with a greater and greater tax burden (on this and other posts). Is not that we all are striving toward…part of the American dream. The fact is that the top 1% of income earners in this country contribute 40% of the country’s tax revenue. I do not understand how anyone can claim that they do not pay their fair share. I know lots of real people in the real world who work hard and enjoy the American dream, only to have the government take for 40-50% of their income – and ask for more, and who are tired of government waste, and who are tired of all the deadbeats taking advantage of the wasteful government programs.
While it is true that global capital flows to the most productive areas, even the most productive workers in the world can not offset a tax structure that is too high. Capital flows to the highest productivity, net of costs, all costs, including taxes. The USA has some of the highest personal and corporate tax rates in the world. Yet we have a deficit that is out of control. I can only conclude that this is a function of a big, bloated, inefficient wasteful government. Yet, I must be one of the few, because you and lots of folks want to increase taxes and expenditures. I just don’t get it.
Toast:
The eternal struggle between the French Monarchy and Evangelicals?
I have never grasped that idea; if it is my cake then I must have it before I eat it and therefore I did have it and ate it too.
I just think a little famine now and then is good for the soul. Sounds fucked up, but I mean it. Shouldn't have to be that way, but everything's been purposefully designed to erode self-restraint. In WWII they saved the tin from their gum wrappers to contribute to the war effort. Can you imagine that level of discipline happening today? I can't, and it saddens me
I should add that what I think is missing from just about all of modern economics -- except in the work of ecological economists, who occupy the fringe -- is any sense that efficiency is a virtue in and of itself. It's always about growth. Which is insane considering that except for sunlight coming in and heat going out, there is a finite supply of everything on this planet.
I think that even if a community of a thousand people occupied a vast and resource-rich planet, they should design their machines, tools, habits and behavior to achieve maximum output for minimum input. Strive for no waste, not because of scarcity, but because the norm guiding them should be something more elegant than bigger is better.
I think to gain optimal efficiency on this planetary system, a lot of people are gonna have to die. And I think I'm just about over all my qualms with that, even if I end up being one of them.
Top-down #3 is good to laugh about. During the months prior to a presidential election, gasoline prices have gone up, as if the Republicans are using the profits to fund their campaigns. Prices go up, even when there are no disasters or hurricanes. Now we see a drop in oil prices, as if the Republicans have caught on to the problems they might face in November, even with a hurricane in the Gulf of Mexico.
In addition, now's a good time to state that the most ardent, verbal Repubican I work with is now looking for a new position, after months of talking about health sciences offering "job security." I don't know the source of the Republican fervor this person has felt in the past year. It's as if the jobs creation monthly announcements did not penetrate into consciousness. Now it's time to face unemployment combined with making the COBRA payments. Of course, we all wish this person good luck in finding a new position.
Bottom up economics simply makes more sense. I hope your enlightened wisdom reaches our next President.
Suggested reading vis-a-vis globalization:
"Superclass: The Global Power Elite and the World They Are Making"
"INSIDE THE NETWORK OF BUSINESS, GOVERNMENT, MILITARY, AND CULTURAL ELITES WHO ARE REDEFINING POWER IN THE GLOBAL ERA."
http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=20002&prog=zgp&proj=zusr
Or listen:
http://www.youtube.com/watch?v=LHtNFZ6K0pE
tt
Hi! I'm an editor for Seeking Alpha. Please contact me at your earliest convenience at acarmel@seekingalpha.com. Abby
"The USA has some of the highest personal and corporate tax rates in the world."
where'd that bs come from? Those successful Europeans that are flooding our national parks with Euro's and smiling while Americans are bemoaning high gas prices and staying home would disagree, they seem happy paying up to 50 percent taxes while having 6 weeks of vacation time to cruise the cheap American West. (after a visit to Bryce Canyon a week ago where I could only afford a couple days of vacation time...)
Still, conservatives are bragging about our Wealthy at the top while ignoring that most people pay more social security taxes than federal taxes ....and the wealthy pay very little of that tax. And it's often a hidden tax paid half by the employer...meaning that approx. 15 percent is paid by lower income working people that the wealthy don't pay any or very little of.
David,see:
http://taxprof.typepad.com/taxprof_blog/2008/03/us-states-lead.html
We get the idea that the wealthy aren't paying much in taxes, when Warren Buffet says he pays less in taxes than his secretary.
Regular income for these folks is taxed high. That's why Golden Parachute funds and perks are paid in options and stocks that provide dividends. This way their income is taxed not as salary, but as capital gains.
The same capital gains taxes that are supposed to make Americans wealthy, even if they don't have privately allocated preferred stocks that are designed to provide steady income to a select group of people.
Anonymous I find the story about your billionaire friend and bit hard to swallow. Are you sure he's not just an exec with a large salary?
Dan said: "To really help average Americans, government should stay out of the matter"
BRAVO!
brooklyn:
We appear to be disagreeing more lately. My take on economists is different than yours. While I agree, that most economists hold growth as the ultimate goal, I find that to a fault they attempt to define it in terms of an almost euphoric efficiency.
In general, when economists analyze or posit economic problems/solutions they employ "rational man" theory. Implied in that theory is that a "rational man" will always seek the most efficient means of producing, delivering a product or service. They understand that this implication is not absolute but it is a necessary given if one is to evaluate the benefits of growth.
On the other hand some postulate ideas predicated on maximum efficiency as the primary reason for adopting the premise. The number of efficiency variables involved in pursuing growth is so vast that to dwell on them or even to delineate them would render most economic papers as perpetual works in progress.
If we look at the current energy problems and the articles presented by many "mainstream" economists, we often see references to net carbon footprints as the basis for choosing one alternative over another. Would this not be viewing efficiency?
I do agree that waste is abhorrent and our society is one of the worst in wasteful habits. Just as economic growth in emerging countries is focused on parody with our economy, so too will wasteful habits grow in those economies. Science and engineering would seem our only salvation in the long haul.
Elimination of population is always possible. Toast's ideas on incentivizing lower birth rates might be preferable to your solution but it's not necessarily an absolute cure either.
Biggest issue with your solution is who are the deciders? Politicians? No, they will choose their adversaries or those who didn't vote for them as the first to go. Religious leaders? Possible, but that puts them at odds with their tenets of the value of life and I don't know that they can be objective enough to look beyond atheists and agnostics first. Economists? Perish the thought that we would let economists have the final word on anything. Business leaders? The most likely since, supposedly, they have expertise in maximizing utilization of resources and might be better at determing those of lesser value, economically speaking.
The historical way has always been wars. Great wars. Given the weapons available today for massive annihilation, it's possible that any weaponry employed might produce unintended consequences affecting those who are left. The only answer may lie in the bumper sticker that Toast mentioned: "Where are we all going, and why are we in this handbasket?"
To get from top-down to bottom up, we need to shift our tax base, and collect for the commons, month in and month out, the value of such things as urban land, airport landing rights, electromagnetic spectrum, water rights, drilling rights, etc.
These things are rightly public property, and we permit the privatization of their economic value at our peril.
If we "predistribute" that value, we transform our society into a place that works for all of us, and welcomes the next child born consistent with our "self-evident truth" that we're all created equal.
Until we make that common right to the economic value real, we're going to continue to founder.
The classical economists had it right.
What sort of economics do you teach your students? Classical -- or neo-classical?
Greed, privilege and corruption would not be able to grab these common assets.
art a layman, please go read Progress and Poverty (available online at progressandpoverty.org). What costs is not the dwelling itself, but the value of the location. That can be as much as 90% of the cost, in a city like San Francisco. (source: 2006 FRB study, 2004 data) Why should that land value be privatized by anyone?
I'm not talking about disturbing title. That's secure. But I am talking about who is entitled to the economic rent.
Collecting economic rent, rather than permitting its privatization, leads to an efficient economy. Sure beats the alternatives
lvtfan:
Haven't read your referenced site yet but will.
In the meantime; I did suggest in my post that value is greatly predicated on location. You have to realize though that location value is essentially intrinsic and variable over time. Dwelling value is based on hard costs or replacement costs.
There is price comparability based on dwelling size. Granted the value of a 3,000 sq ft house in a poor neighborhood will be less than one in a wealthy neighborhood but in comparable, similarly situated locations dwelling size may be more of a price determinate than specific location.
Because location values are intrinsic they are much more volatile to supply and demand. At the same time, the neighborhood that is hot today may not be hot tomorrow and property values will decrease reflecting the decrease in demand. Even in that scenario, unless the neighborhood has become seriously undesirable dwelling size will be a buffer against price decline.
Much of this is true also for land sizes.
Undeveloped land has a value, to the best of my knowledge, established by the state initially until the market steps in. Once developed that land value may increase along with any dwelling value. We just did some adding on and now have two dwellings, totalling 5,000 sq ft, on 1.66 acres of land. Before the addition the ratio of my land value to the total value was 26.6%. After the additions the land value is 31% of the total. Don't ask me why that is.
I know nothing about SF other than home/land values in most of California are very high and have been for years. I do know that in Raleigh as the suburbs grew, urban home values declined. In recent years, due to a push by the local government to enhance the urban experience there are 1,600 sq ft homes on 1/4 acre lots near downtown that cost half again what my property is worth.
Maybe your website will provide answers but I would guess that if we are to make all land property public and the "owners" are to pay rents then the state governments will set the values at the outset. First problem I see is that there are quite a few local people here with tremendous influence on the local and state governments and likely they will receive special valuations.
What do we do going forward? Does the state revalue the land, and the rents, annually; when "ownership" changes; when dwellings are modified; does this method eliminate property taxes? If so, what difference does it make if I pay taxes or rents? If wooded lots are destroyed by natural events who pays to repair or replace? If a vacant lot, are the rents predicated on land values, as vacant, or after a dwelling has been added? If land values are altered after a dwelling is added should not the "owner" get some monetary benefit from that added value? If lands are to be rented by the state and the proceeds are to be distributed to the citizens, how do we citizens make sure that the state is maximizing our income? For instance if the state holds vacant commercial property and values it at x and there are no interested "owners" at value x, how do we citizens get the state to revalue the land to make it more attractive to "owners" and increase our incomes? What if the neighborhood gets rundown but the state refuses to lower the rents? The "owner" then suffers even more economic loss since the rents may be considered excessive for prospective buyers. If the state owns the land does not the market value of the total property truly reside in the dwelling value? And will not that dwelling value now be influenced by the location intrinsic value?
In net I don't see where we accomplish much other than a stipend to each citizen but the age old government shenanigans go on and we the citizens will end up holding the bag.
Keep in mind that much of the West was populated by the government giving away land ownership to those willing to brave the elements to take advantage of it. Historically land ownership had always inured to only the privileged or royalty. Private land ownership was one of the drivers of the greatness of our country.
I think my point is that economics should be studied strictly as a sub-part of ecology. In reality, economists do just the opposite, and in their models the natural world is nothing more than a sub-part of the human economy.
As for who will decide who stays and who goes, I vote Democrat!
I believe the Bottom up system holds tremendous advantages to the Top-Down system in many if not all of the categories mentioned. In todays society, with gas costs soaring to unbelievable heights, the most important of these economic categories is the candidates proposed solution to the energy problem.
This is where the bottom-up system shines. Not only does it offer a solution that improves sustainability and aids the world's crumbling environment, but it supports and encourages American ingenuity which is the cornerstone of all America's economic success.
With all environmental problems aside, the Top-Down "solution" is less of a fix and more of a temporary band aid, its putting more duct tape where the old duct tape has failed. We have seen that oil is not a permanent solution for the simple reason that as demand increases, the supply will continually decrease.
Alternative energy sources are the future, economically and environmentally.
Dan said..
"Btw, top down = easy to implement"
I'm sure winning the American Revolution was HARD.
Often in life the best things, the necessary things, are hard. They are worth doing. They last.
It seems a large part of our problem is that over the last 35 years or so, we've done what's easy.
"Otherwise, there won't be adequate purchasing power to absorb all the goods and services the economy produces."
That way of thinking was valid when the world was far from the physical limits to growth (or in other words, when the world was on the way up to Hubbert's Peak), and lack of aggregate demand was the factor that prevented economic output (and employment) from growing at their potential sustainable levels. That was indeed the case for the Depression and all recessions up to and including the brief one in 2001, with the exception of the 1970's oil shocks, which could be viewed as a drill for Peak Oil.
But now the world economy is bumping against the physical "limits to growth" - most notably, but not exclusively, in oil extraction -, with the Hubbert's Peak in the global oil extraction rate most probably occurring in the 2008-2013 timeframe, and on the way down from it the foreseeable negative growth rates in economic output (until stabilizing at a lower REALLY sustainable level(*)) will not be the consequence of insufficient demand but of a physical constraint from Nature, namely the relentless decline in the production rate of fossil fuels. In this new scenario, stimulating aggregate demand with ANY policy (be it monetary, fiscal, or any other kind), however progressively distributive of wealth and/or income it may be, will not be able to increase output at all, as no monetary or fiscal stimulus can reverse the decline of an oil field, and no such stimulus will be necessary to increase oil exploration efforts since the price of fossil fuels will be high enough to do the job by itself. Monetary stimulus in this context only raises the price of the critical limiting resource.
Economists aware of this new scenario do not worry about lack of purchasing power to absorb all the goods and services produced. They worry about ensuring enough goods and services are produced to keep people fed and warm.
There are a few big mountains in the world where you can drive to the very top. Those who have done that know quite well that it would be very unsafe to drive on the way down in the same way as on the way up. They make a driving paradigm change when they start the descent. In contrast, today's economists are severely paradigm-challenged. They have known nothing but the way up (to Hubbert's Peak), and they don't seem to be able to make the mental adjustment to the way down. As a result, their driving paradigms are becoming unsafe.
A clear instance is the approach to the housing issue. From a Hubbert’s Peak-aware perspective, the safe path would be to let mortgage financing dry up and residential (and business) construction in its current form come to a screeching halt. Because construction of more suburban, energy-inefficient McMansions is just digging further in the already deep hole most of the US population is in, as higher fuel prices will turn those homes into traps for their occupants.
Instead, the US needs to employ its labor and (ever more scarce) physical resources in a massive wind farm construction plan like Al Gore proposed recently.
Related to this, IMV the cars-on-natural-gas part of T. Boone Pickens plan is nonsense. Cars should go electric or at least Plug-in Hybrid (that’s why the US needs so much wind power). Natural gas must be reserved for cooking and heating.
(*) Since fossil fuels are an exhaustible resource, any economic activity based on them is by definition unsustainable.
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I thought Barack Obama did the correct counter-attack yesterday. When the Bush-McCain ticket accused Obama of traveling in Europe during the x crisis, Obama shot back and put his trip in the context of the Bush-McCain ticket stating he hadn't visited Iraq. Excellent comeback. Meet Roger Ailes, Fox CEO, Rush Limbaugh, drug addict, and the Swift Boat Veterans for Truth on their own turf, speak directly to them.
Perhaps I missed it being mentioned among the many erudite comments, but the most important tax reform for the upcoming administration is to lower corporate taxes. The US has among the highest corporate tax rates in the world; couple this with the health care burden and you see why we have lost so many jobs to overseas competition. We have chance right now to see real growth in US manufacturing, primarily due to the low value of the dollar; let's keep that moving by encouraging corporate investment here via lower taxes and a better sharing of health care costs with the government.
jver1010:
Nice try but corporate tax rates, though always a consideration, are seldom a prime determinate in where to set up shop.
Labor costs, government regulations, availability of labor, resources are all more important in the decision.
It is also folly to look at corporate income tax rates alone. Most other countries have a wider range of taxes, or higher rates, than the US. Value added taxes, and much higher gasoline taxes in the EU. Few countries offer the multiplicity of tax credits that the US does. Many don't have the aggressive accelerated depreciation options offered in the US. Carryforward/Carryback provisions for losses may vary significantly.
Many profitable US companies pay no income tax after applying all the deductions/credits available, so the actual tax rates mean little.
Corporate taxes are an important consideration but there is another challenge facing US corporations. Because the US is the only major industrialized nation that taxes based on citizenship not residency or domicile (that every other OECD country uses to tax), US multinationals must pay US rates (35% moving to 39.5% if Obama is elected and follows thru on his promises) no matter where in the world they do business which will make US companies the most highly taxed in the industrialized world.
Congress tried to fix this with the Foreign Sales Corporation (FSC) rules that were ultimately ruled illegal by the WTO. The Jobs Creation Act (2004) sought to rectify the problem but it appears Obama deems this a tax "break." High relative tax rates is not the sort of environment conducive to growth in a declining economic environment.
Bottom up growth is fine in theory but raising taxes and tariffs in slowing economy is economic suicide.
Matt Blackman:
...US multinationals must pay US rates (35% moving to 39.5% if Obama is elected and follows thru on his promises) no matter where in the world they do business...
How does that square with the fact that profits earned overseas are not US taxed until or unless they are repatriated?
The Jobs Creation Act (2004) sought to rectify the problem but it appears Obama deems this a tax "break."
I can't believe that anyone reviewing "The Jobs Creation Act" of 2004 could define as anything but a huge tax "break". There was nothing in the bill that tied multiple tax "breaks" directly to jobs creation. It was more of the same supply-side, "Field of Dreams" approach to economic growth. In net more BS.
Raising taxes in an economic slowdown or downturn is a reasonable concern but should not we look at Reagan's 1982 tax increases passed while a recession was actually going on not just a slowdown.
Bush 41 signed the 1990 tax increase in the middle of a recession as well. All the brouhaha that taxes have this tremendous effect on the economy is greatly exaggerated. No doubt, depending on the size and vagaries they can have an effect but your'e hard pressed to find where a tax increase lead to a declining economy.
How can we ever expect the mind set of today's businesses to understand it's their market that is shriveling?
What will it take for investors in all segments to understand the peril their investments face if they continue to pay executive salaries that are so out of control?
What will it take for our government to throttle the oil companies, speculators and suppliers of oil and bring them all into line?
Drive 55 and save now...
McCain = A moderate amount of Federal Govt is the answer.
Obama = A whole bunch of Federal Govt is the answer.
Jefferson = A very small of amount of local Govt in limited doses is bordering on too much.
I'm with Jefferson.
art:
No doubt Jefferson was a brilliant visionary but his worldview, in his time, is incomparable to the world today.
Given his brilliance I doubt he would come to the same conclusions that he did 200+ years ago. In the current vernacular, he would flip-flop.
Art A Layman:
Interesting. So what applied then does not apply now? I don't understand? Jefferson seemed to go out of his way to specify long-lasting truths. He was sharply skeptical of a strong Federal Govt, and was highly critical of the Federalists. Those Federalists had nothing on today's version of mega-State politicians (both Democrats and Republicans). I think Jefferson would be appalled at what he would see today, and I think his immediate solution was be to start from scratch. That was the conclusion that he spoke of in defense of absolutist power when he lived, and I don't see what has changed fundamentally that would make him flip-flop? What do you think he would do if he were to miraculously appear?
And allow me to explain how my comments about the State and central authority are germane to the original topic of economic policy (Obama vs. McCain). Economic policy in the US has become more and more State controlled, and less and less market controlled. In other words, we don't live in a free market society any longer. And we haven't for quite some time. The differences between Obama and McCain on economic policy is that neither believe in a truly free market, but they have a shade of gray difference of opinion as to how much the Govt should control the market. We all look down our noses at the Chinese Govt for controlling their markets, but HELLO, we do it too. And who does it benefit? Follow the money...
My response is linked here.
art:
I don't disagree with your propositions of what Jefferson would think.
I think he would find the current government actions intolerable but I think he would be equally appalled at the current state of the economy and how corporate and individual wealth accumulation has usurped the "general welfare".
My best view of his time was that government was the biggest risk to a free society. There were no monolithic corporations in his day nor do I think he would have envisioned their eventual existence.
I think in all he would be totally frustrated with what we have done with his dream and I do agree he might very well mount a revolution to take back the dream.
Dr Reich
I am writing to address my concern regarding Senator Obama's proposed social security tax increase. I do not feel that due consideration has been given to how this proposal will impact self-employed people. I am an anesthesiologist. I work 60 to 90 hours a week, I save lives daily in this very stressful position. I already will be paying taxes at the highest bracket i.e. 35%. Add to this the 15% that I will be paying for new SSI taxes plus state income tax. Almost 60% of my income above 250 thousand a year will be gone. This is a terrible disincentive for me to work my long hours. I am not in a business where I can make more sales and be more productive to offset increased taxes. Should the SSI tax increase come into being, I will become a part-time physician. I will no longer sacrifice the quality of my life and family time to surrender the bulk of my income to taxes. I can assure you this will be the case with many other physicians who are self employed and many will retire altogether. Obama's SSI tax plan to target the wealthy will unfairly tax the self-employed. I have supported and voted for Obama. Yes, I have a good salary, but didn't start earning it until after 12 years of higher education, a quarter million in student loans, and personal sacrifice that few in America would be willing to make. Poor tax policy will shrink the number of physicians in this country. I won't bore you with the number of times I have gotten up in the middle of the night to help resuscitate a patient or for emergency surgery. It took the hospital where I work 2 years to recruit me for this position. With tax increases, I will be gone and there will be no one to replace me.
drjohn:
Can understand your feelings but am inclined to wonder whether you devote those many hours to work for remuneration or at least partly for dedication.
Yours, as many others, is an admirable profession. It requires years of education and training as you suggest. To my mind the earnings you are afforded are deserved, you contribute far more to society than another widget.
You do skew your arguments a little however. The "employer" half of SSI than you must pick up is a deductible business expense so the net impact to your earnings is less than the 15%. There was a time when those in your profession, earning at the levels you are, in real terms, were paying 90% of a portion of those earnings in federal income tax. This did not seem to deter many from seeking a career in medicine.
At your earnings level, for whatever number of years you have been working, you have the luxury of opting out. Likely you have amassed enough personal wealth that allows you to entertain retiring or reducing your working hours. (One might worry that employing an anesthetist who is working 60 or 90 hours a week could be injecting an unnecessary element of risk.)
There are many other self-employed, earning far less, who do not have your retirement/hours reduction options. Granted they may not have spent all those years acquiring the necessary educational qualifications nor would they have incurred the debt you did to achieve same. Perhaps the greater inequity is why should you have to incur all that debt, especially to enter a profession, albeit a well paid one, that offers a unique service to your fellowman.
There are a multitude of issues facing the next president that are going to require additional funds. SS is one of many. At the same time there are failings in our society that need fixing and one of those is correcting this need for borrowing huge sums of money to secure an education. As a society we all benefit from a better educated populace.
Offering an extension of a "free" education beyond high school is probably not feasible due to the many who will start, encumbering taxpayers, and then either fail or drop out, creating vast waste. The best solution might be in continuing the debt accumulation but then allowing a tax credit for student loan payments, not just the deductibility of interest. Those who are successful would achieve a significant degree of return for all the years invested and their successful completion. It might further incentivize those tempted to give up to stay the course and complete their education. At risk would be those who cannot quite make it and who flunk out incurring the debt but no degree. For those, the current situation would not change but again there may be sufficient motivation to reduce that number.
Further, SS is an insurance policy, it somewhat covers the risk of disability, aids families faced with the early loss of a primary earner, and adds to your retirement income eventually. I understand that there is an element of redistribution in SS benefits but your payments will return you some benefit. Clearly, at your income level, it is not an investment with the best rate of return but it is still an investment more than a tax.
At your income level you likely can provide better options for yourself but that's a different argument.
Since SS is a program intended to benefit all the people it needs the funding capacity to continue. Are you better served by keeping the cap but raising the overall rate to generate an equal amount of additional funds, punishing millions? Would means testing benefits be a better solution for you and your family?
Given the universality of your talents you could move to another country with a more favorable taxation system but then what of the earnings possibilities? Though I commend your dedication, I doubt you work all those hours altruistically. More earnings invites numerous options.
Sometimes we should all count our blessings and predicate our contributions less on their economic value than on their societal value. All of us do not have the capacity to achieve what you did.
Good luck in your retirement.
Richard: Generally Reich's opinions seem about the best around but I think the $ 600 checks did little; consumers are getting smarter and paid down some debt but too many foreign items were bought to help the US.
Wouldn't a very strong push for alternative energy, like $ 20-50 Billion a year, phased in to let the markets figure it out best, help in many ways? Wind, solar, conservation, all tend to be rather simple and put many more people to work than nuclear, which has so many negatives, high costs, waste for taxpayers to be burdened with.
MIT apparently has a solar breakthrough and other's are bound to come. Picken's wind/natural gas plan also makes some sense to help bridge the next 20 years, getting much higher use of electric cars.
So with a wide range of solutions we can bring down our dependence on foreign supplies within only 5 years, and more seriously in 10-15.
Careful but massive investments in alternatives should pay for itself rather quickly, and be better for the environment, a win-win solution.
Part of the entire picture requires making people and companies pay fair taxes, as a recent report showed most firms pay NO TAXES to the US, nuts! A world-wide "can't hide" arrangement, with stiff penalties, could make them pay fairly and therefore we can pay off the Republican-inspired debts, maybe even lower corporate taxes a little.
Government spending must be frugal, as taxpayers rightly demand it, we must also start paying down the debt as Clinton did; the rich should know they did Better under Clinton as the economy, that they mostly own, did well and raised all 'ships.'
this whole idea is so divorced from reality I cannot even begin to list all the ways.
So we give tax breaks and rebates to the bottom to create demand. We then increase taxes and take away incentives for the top to produce the supply. When the supply dries up, what is the bottom going to buy? Bottom up is nonsense. It's like giving the ball to the bench warmers instead of the stars.
Taxing a person's wages, their livelihood, first of all, is a crime. It's essentially stealing by the State. There are other ways to raise revenue that are fair to all. But, given that no one is even suggesting this at the political level, other than Ron Paul, we move onto the best way to play the game at hand. All of this complexity could be washed away quite easily by 1 simple solution that is fair to all: a flat tax, with NO deductions, shelters, loopholes, etc. Just a simple flat tax. And now I'm waiting for someone to argue that a flat tax is not fair because it doesn't take more, proportionally, from the rich than the poor. That's right. That's what makes it fair...it's the SAME for everyone. But taxing wages is still State thievery.
you think it's fair, but the problem is a flat tax would be implemented under a system where currently only a few elites hold a majority of the production assets. in short, you would literally have most of the workforce producing goods and services solely for the owners of the factories. wake up!!! the balance we need, and so few understand, is more and higher marginal tax brackets coupled with extremely low capital gains and corporate taxes. we can't impede capital. we should encourage investment while curbing excessive pay and ownership. nobody, i repeat nobody, "earns" $50+million a year. your average worker makes $50,000 a year. don't tell me somebody is working 1,000 times harder, smarter, more efficient, etc.
to clarify, i beleive all personal profit should classify as income. no loopholes. stocks, options, etc. should all fall under the appropriate marginal income tax bracket. golden parachutes are a classy way of stealing from the company. both parties let me down immensely. one side advocates a welfare union state, and the other side believes in an unregulated free for all with loopholes.
Give people more money and they work harder? I think it would actually cause many people to realize they don't have to work as hard to make the same money as before.
I strong company promotes hard work.
I work in a company that educates it's own workers on principles that will help the worker do their job in a safer and more efficient manner. This gives the worker a sense of pride which benefits the worker and the company.
slyfoxx7...
Sounds like you've been polishing up on your Marx reader. I too have read the Communist Manifesto. I understand the argument about the means of production in the hands of few, as opposed to "the People." Well, it's pretty clear where Marx and Engels lead us...straight into human misery and cruelty, and guess what else: elitism! Check out a book on Soviet history sometime. Not pretty. So the argument that we need to spread the "means of production" around to "the people" is about as helpful as saying it would be nice if there was universal peace; it's true, but it doesn't correspond to reality.
Inherent in your argument is that the government should play some role is the distribution of wealth. Why? Why should the government have that authority? Why not allow "the people" to make their own wealth, without the government butting in? Do you think the government is your friend? If so, why? Because they strong arm some folks to get votes from others? Is that fair? I respectfully assert that it is not fair. The State has no compelling authority to regulate wealth. Doing so infringes on the natural right of all Men to make their livelihood in this world. Local taxes may be justified to promote local services that benefit all (e.g. roads, schools, etc.), but wealth redistribution via the State is patently harmful to all because it infringes upon our natural rights to benefit from the fruits of our labor. If the fruits of our labor are especially successful why should we be punished for that?
One last thing...do you think the US Constitution was/is a valuable model to follow? If so, have you read it? If so, how do you square the idea of Federal wealth redistribution with what is stated in the Constitution? By my reading the powers granted to the Federal government in that document to not support Federal powers to meddle with private property (mean of production), or the redistribution of wealth. Respectfully yours, Art
Anonymous...
I'm not sure how to respond to your assertion that people will NOT work harder in order to gain more wealth. By my estimation history tells us quite the opposite...that people are compelled to work hard in order to better their position in life, whether it is financially, or otherwise. When given no incentive to work harder people will do the bare minimum, whatever that may be.
Are you really suggesting that by taking a person's hard-earned money (via taxes) that it will compel them to work harder? Seriously!? Perhaps you are baiting me? You can't really believe that?
Anyway, what you said about your company is interesting. Do you rely on your company to provide such motivation? Don't you possess any motivation of your own? I hope so. Stop listening to your bosses and start thinking for yourself. Otherwise you are just a pawn in their hands. If they are good folks then that might be alright, but if they are not good folks...well I think you get the point. Respectfully yours, Art
I think it would be helpful to look at past implementations of top-down economics and the results and compare that to the history of bottom-up. One obvious example is Reaganomics:
1. Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.
2. Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.
i propose higher marginal tax brackets coupled with capital gains and corporate taxes both at 10%. don't even try to call me a liberal, marxist, etc.
anybody who makes $100+ million a year is somebody who benefits directly from an easy fed and congress's willingness to bailout everything. one could also be lucky to acquire such a windfall.
inflation is a poor man's tax. wake up. why is it, only the psuedo rich claim a flat tax is fair? the truly rich, such as gates and buffet know where a large majority of their gains come from. it's not all from work and innovation.
my plan is balanced and helps the wide investor class. marx did not advocate ownership in stocks. my tax structure encourages businesses from around the world to come here. it also incentivises boards to reinvest in the company and not their own paycheck.
if we get rid of bailouts and a loose fed, a flat tax might be extremely fair. however, under current policies the tax system is highly regressive. the government keeps throwing money at those working with the money. it's a shame a doctor can't make as much money as a banker who makes bad investments. don't you find it odd that those who work with money are the richest. i wonder why. they are literally given money. money doesn't represent work as much as it used to.
i propose higher marginal tax brackets coupled with capital gains and corporate taxes both at 10%. don't even try to call me a liberal, marxist, etc.
anybody who makes $100+ million a year is somebody who benefits directly from an easy fed and congress's willingness to bailout everything. one could also be lucky to acquire such a windfall.
inflation is a poor man's tax. wake up. why is it, only the psuedo rich claim a flat tax is fair? the truly rich, such as gates and buffet know where a large majority of their gains come from. it's not all from work and innovation.
my plan is balanced and helps the wide investor class. marx did not advocate ownership in stocks. my tax structure encourages businesses from around the world to come here. it also incentivises boards to reinvest in the company and not their own paycheck.
if we get rid of bailouts and a loose fed, a flat tax might be extremely fair. however, under current policies the tax system is highly regressive. the government keeps throwing money at those working with the money. it's a shame a doctor can't make as much money as a banker who makes bad investments. don't you find it odd that those who work with money are the richest. i wonder why. they are literally given money. money doesn't represent work as much as it used to.
slyfoxx7...
Please accept my apologies if I wrongly associated your views with those of Marx.
I agree with you about the Fed and the easy money, and the inherent advantage of the bankers. That's why we (citizens of USA) need to kick the Federal Reserve into the dumpster. I mean it! They stack the deck. And as you say, those who work in the financial industry make out the best. Well, it's no wonder why. They control the value of the money before anyone else gets their hands on it. When a bank can get cheap money from the Fed and then lend it out to the general population, the value that they lend it at is higher than the value after it is lent out because now there are more dollars in the market, thereby reducing each dollar's value.
So the Fed is the BIG problem here in so many ways. So I'm for abolishing the Federal Reserve completely. We didn't have one before 1913, and we don't need one now. You know, Thomas Jefferson was adamant about NOT having a central bank. He felt it would lead to despotism. (Which it has!) But he lost out to Hamilton. And we've all lost out because the Fed's powers are extraordinary, and mis-used. So I agree with you that the richest of the rich take advantage of a system that is intended to favor them. But I can't agree that a marginal tax system, of any kind, is fair, or even good. We are missing the forest for the trees. Taxation on personal wages is the chief evil here. It is thievery by the State. A fair taxation policy would include corporate taxes (flat), tariffs, and local sales taxes, the rate of which should be determined by states and localities, not the Federal Government.
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