Tag: income inequality

Question 4
Hushbeck Answer to Question 4
Watts Answer to Question 4
Hushbeck Question 4 Reply 1
Watts Question 4 Reply 1
Hushbeck Question 4 Reply 2
1.) I want to touch on something, something of a fallacious nature. The former President’s attempts at cutting the capital gains tax did not do us good, but actually hurt us. This is roundly recognized as harmful. And as we can see, austerity as a philosophical issue is dead in the water thanks to the bungling of the economists who proposed it.
In regards to the proposition of the Fair Tax – I have personally advocated for a while the use of the Flat or Fair Tax system with built in progressive safeguards for such things as food and basic necessities. I believe here we could find some form of agreement because we can both turn to fact, rather than outmoded economic date often used to support Bush-era tax cuts.
We must equally separate risk from latent reward. By that, I mean we should have a tax system that is neutral on risk, or money invested, but opposed to rewards not earned either through labor or risk. While we may allow that a billionaire still invests money, what risk is there at that level? This is why I would rather see a tax on investment transactions rather than on rewards.
2.) What you call a false premise is not, it is just not your premise. If there is limited good, then to have more good, one must take good from someone else. One cannot generate more land, power, or real wealth, only the false security of money. Look at this way. Power is limited, which is why the Founders moved it from one man, the monarchy, to the hands of a few. Power was divided to prevent the assumption of one government branch over another. Land and real wealth is the same way. Yes, we generate more money, but is this wealth? Hardly.
3.) Great, we agree somewhat the role Government play in business is to encourage competition which will itself encourage choice. I want to focus on that.
What happens when there is no competition and thus no choice? What then is the Government’s role in ensuring that competition can be reborn?

Question 4
Hushbeck Answer to Question 4
Watts Answer to Question 4
Hushbeck Question 4 Reply 1
Watts Question 4 Reply 1
Watts Question 4 Reply 2
(The numbered questions were posed by Joel Watts to Elgin Hushbeck. See links above.)
1)  I find it interesting that you would describe the rate in poverty from the end of WWII to present as “highly selective blips.”  However the biggest problem your argument faces is that it runs contrary to the facts.  U.S. census data  shows that the percentage of the population in poverty declined from 22.2 percent in 1960 to 15.0 percent in 2011.  In fact the data shows exactly what I claimed. Most of the decline occurred in the early 1960s, and since then the rate has fluctuated between 11-15% range.  As for the 1990 welfare reform, the average rate for the 10 year prior to the law was 13.9 percent while the average rate for the 10 years following the law was 12.2 percent.  So your claims simply do not match the actual data.
As for your claim that “The ‘market based solution’ in the 1990’s created the market based problem in the last decade” again, that is simply false.  As I detail in the last chapter of Preserving Democracy, the current problems stem from two factors: the first was the housing bubble, and the second was the re-imposition of a depression era account rule in Nov 2007, which when combined with the economic down turn resulting from the bursting of the housing bubble devastated the economy until it was hastily repealed in April of 2009, but by then the damage had been done.
Neither of these factors were anything close to a “market based solution.” In fact they were quite the opposite. As I detailed in Preserving Democracy a key driver in the housing bubble was government intervention into the financial markets to pushing lenders to provide less restrictive loan terms. This was combined with quasi government organizations such as Fannie Mae and Freddie Mac which demanded that a large percentage of the loans they underwrote be from high risk groups.  So it was not market based solutions, but government intervention that was behind our current problems.
2) We simply have different understandings of what is happening in Europe.  For decades I have seen those on the left point to Europe as the model of socialism and one that we should follow, while I and other has seen the problems growing and maintained that what Europe was doing could not be sustained over the long term.  Now that Europe is in crisis, it is actually quite funny, in a sad sort of way, to see the problem being blamed on “unrestrained capitalism” as if Europe has secretly been some sort of bastion of capitalism run amuck and is only now coming to is socialist senses.
3) Well you claim that “wealth, like energy, cannot be created”  is a clear difference between us, and frankly from my perspective it reveals a fundamental misunderstanding of how the economy actually works.   Your comment that “Attempts at increasing the amount of wealth leads to inflation” leads me to believe that you are conflating wealth with money.   Wealth is found in the goods and service created in a country.
Increasing wealth is not inflationary.  In fact it is at times deflationary.  For example, it is well known that when Rockefeller entered into the oil business, he brought to it a considerable amount of innovation and reform that produces a lot of wealth.  What is not as well know is that he did this by cutting the cost of kerosene from well beyond the reach of most people down to something that they could afford, thereby vastly improving their lives in the process.
On the other hand, increasing the money supply beyond what can be supported by the amount of goods and services can increase inflation.  This is, I believe, what is so worrisome about our current policies.  The Fed has triple the monetary base in order to pump up the economy, leading to much of the growth in the stock market.  The Fed thinks that as the economy beings to grow that it will be able to manage this before inflation can really kick in.   Perhaps they can. But having lived through the stagflation of the 1970s I have very little faith that the Fed will now be able to do what it has never been able to do in the past.  Frankly, I think it I is a very real question as to whether what we are seeing is the beginning of real economic growth, or the beginning of inflation as the two are very similar.

Question 4
Hushbeck Answer to Question 4
Watts Answer to Question 4
Hushbeck Question 4 Reply 1
(The numbered questions were posed by Joel Watts to Elgin Hushbeck. See links above.)
1) You claim that “While many are coming out of poverty… there are many more who are going into it.”  While given the recent ecomonic problems this is undoubtedly true for last few years,  it is hardly true if one  takes a longer view, and certainly conflicts the statistic cited by Brooks of the unprecedented decline in poverty around the world.  For another example, in the US poverty declined steadily from after WWII to the mid 1960s when Johnson launched the war on poverty, and which point the decline halted and poverty actually rose slightly until the late 1990s when welfare reform move away from redistribution and towards more market based solution, at which point poverty declined again.  How do you account for these facts?
It is difficult to argue against such highly selective blips. However, one must first understand what poverty is. What we need to do is to discuss the United States and its rise in poverty during the last few decades. What are we seeing?
We are seeing an increasingly smaller group of people at the very top who own more with the remainder group owning less. Further, in the 1990’s, laws were put into place that first benefited the ownership society but has now shown to have created a false economy. The “market based solution” in the 1990’s created the market based problem in the last decade.
2) You cite Europe as an example, but European governments have faced growing fiscal problems in recent decades.  In my book, written before the recent economic problems I cited the growing problems in Europe as a reason we should not follow their example.  The more successful, such as Germany, have been moving more towards market based solutions while others are on the verge of collapse. They seem to be either moving away from the very policies you advocate or are collapsing.  Why should we adopt the policies that are failing in Europe?
This is a bit of a strawman. What I said was, “As we see in Europe, free market systems are sometimes controlled, and the better controlled, the more rewarding it is for their economies (German, for example).” It is well noted that the increase of capitalism has caused the problems in Europe. Further, as we can see, Germany is not all up for free markets without a tighter control. There is a Soziale Marktwirtschaft. So, sadly, nothing you have said in this question has an ounce of reality in it. Pure, unrestrained capitalism destroys, but Government regulated markets gives life.
3) You claim that wealth is fixed and that for the weathly to do good, they must take from the poor.  If this is true, how do you account for the growth in overall wealth in the United State given the grow in population over the last 100 years? If wealth were actually fixed as you claim, then there simply would not be enough of it to go around given the growth in population and everyone would be poor.  But the standard of living today is far higher than 100 years ago.
I think your mixing up some ideas here without a sound philosophical basis. First, wealth, like energy, cannot be created. It can be explored, stretched, and used. Attempts at increasing the amount of wealth lead to inflation which will correct itself. Further, I didn’t say wealth was fixed. I said there was a limited good.
For instance, when land was the ideal of wealth, the only way to get more wealth was to get more land. Then, we invented money — coins. But, this took away people’s land and other means of production — namely, land. This is the idea of limited good.
Yes, the standard of living is increased, but to what end? Wealth became more evened out. Now, we see it shrinking, pooling into just a few hands. This is why poverty and the decrease in the standard of living have occurred in the last few decades. And, you confuse standard of living with independent wealth. You remove the role government safety nets and technology have worked to increase the standard of living.

Question 4
Hushbeck Answer to Question 4
Watts Answer to Question 4
Watts Question 4 Reply 1
(The numbered questions were posed by Joel Watts to Elgin Hushbeck. See links above.)
1.) We have created a tax system set against work. You noted something like this in your analogy of those who earn and those who rest, but have the same IRS value. Do you think our tax system needs to change focus and instead tax at a higher rate those who do not earn but have?
I believe that the tax system needs to change focus, but not in the way you, or the article you cite, envisions.  I agree the current system is far too complex and there are far too many loopholes.  I also agree that this resulted in people making decisions for tax reasons rather than for business or personal reasons.  In short the tax system has become as much if not more a means of control and favoritism, than a means of raising revenue.
Thus I would support a far simpler tax system. One option would be to switch to a consumption tax, such as the Fair Tax, but such a radical change is most likely impossible, and not without risks.  If we stick with an income tax, it should be greatly simplified, preferably with a single rate.  The progressive nature of the code can be handled through a personal deduction shared by all.
I would also draw a distinction between money earned in wages, and money invested at risk. I disagree with the article and its implication that we should tax capital gains before they are realized. This would have a devastating effect on our economy, if for nothing else simply consider all the home owners who struggle to make ends meet suddenly being asked to come up with thousands of dollars because their their home had appreciated in value.  In addition, as simply a fiscal matter, higher capital gains taxes suppress growth and so often lower revenue.  As I document in my book, Bush’s cutting of capital gains taxes early in his first term, resulted in more money not less from capital gains taxes.
But for me the big difference is the issue of risk. When I work for an hourly wage, the law protects me and mandates that I get paid, as it should.  The biggest risk is that I will be laid off and even then I can get unemployment. However if I earn money from an investment, not only is there no guarantee that I will ever get paid, I might even lose my investment. This is why taxing unrealized capital gains is so dangerous, as it would at times represent a tax on money that one never even had.
One other factor in all this is the issue of corporate taxes.  A lot of the alleged inequality in taxes paid by the rich ignores the fact that their income is often taxed twice, once at the corporate level and then again at the personal level.  But it is only the taxes paid at the personal level that are factored into these statistics.
Finally I disagree with the article that our current problems are due to income inequality.  The problem is that very few people are investing.  In simplified terms those with money are either seeking to grow what they have at one end of the spectrum, or they are seeking to preserve what they have at the other.  Those seeking to grow do so by investing it at risk, just the type of investment that grows the economy.  Currently most people and companies are very much into preservation.
2.) You say, “growing the economy end up being very wealthy. ”But, you can only take from others. Sometimes, this involves selling, but if you are “growing the economy” this usually means you are a job creator. Thus, you are taking (to use some Marxism here) from the worker who is producing your product and giving him only a little in return. So, the question is, who really grows the economy? Is it the very wealthy, or the workers who aren’t?
Your question is based on a false premise, and serious misunderstanding of economics.  Wealth can be generated. The process is not just a matter taking from others, but also of giving to others something that they value in exchange.  Innovations and ideals that allow the economy to perform more efficiently can generate wealth.   In short the economy can grow, just like it can contract.
Still, to answer your question, while all are important, the most important are the first and foremost the entrepreneurs with the ideals and courage to start a business, and secondly those who fund them, which by necessity are normally, but not always, the wealth.  Note here that I draw a distinction between entrepreneurs who take risks, and a lot of upper management, who I consider to be just employees, assuming of course they are not themselves entrepreneurs.  Without entrepreneurs and the investors who fund them, there would be no jobs for the worker.
Most of the entrepreneurs I know, have had times when after paying the bills and meeting payroll, there simply was nothing left to pay themselves. And there is another key factor, which is that most businesses fail.  Not only is government ill-suited to pick winners and losers because bureaucracies tend to resist anything that is new and innovative; not only will they tend to make choices for political rather than business reasons; but most investments fail and thus the odds of picking the winners are very small. This is why you want thousands and thousands of individuals trying things out, this is why it is so important to encourage investment, not penalize it.
3.) You write, “where there is real choice and competition” in regards to an economy, but to create such a force, we have to get back this idea of the free hand of the market and entertain some sort of Government control of the markets. Is this acceptable, and if so, to what extent?
Of course I think it is acceptable. I am a conservative, not a libertarian. Government has a very important role to play.  However as I detail in my book, government action tends to be toward more planning and control that squelches growth rather than encourage it.  Thus I found George McGovern’s comments on this matter quite ironic.  After leaving government, and trying his hand at business, he commented that he never realized how difficult government makes things.
For me some key questions that government needs to ask are:
1) Will it actually address the problem?
2) What will the impact been on choice and competition?
3) What will it do to people’s lives? Not just its aspirations, but it’s actually effects.
I believe that a lot of what Government does would fail all three tests.  Thus for another recent example, the Dodd/Frank banking law would not have stopped the recent financial crisis.  It is particularly onerous on smaller institutions causing some to quit, and other to consolidate, and thus is reducing choice and competition.  It is one of the factors holding back the economy, as the role out period will take about another decade, and there remains a lot of uncertainty as to how all the regulations will come out.
So while government has an important role to play, the role should be one that encourages choice and competition, rather seeking to plan and control.