Friday, August 31, 2012


Does taxation stifle creativity?

The notion that high taxes on people with more income than they can possibly spend discourages them from any activity that might further increase their incomes is a popular one with many people.  A Texas Senator used to say that he didn't know any poor man who might give him a job.  The implication was that this Senator had a job working for a rich man.  Well, perhaps he did.  It's not unheard of for elected officials to work for wealthy benefactors.  Mr. X, a very wealthy man, might approach the Senator and offer him a generous campaign contribution in exchange for a special deduction that he could use in preparing his tax return.  In that sense, the rich man had "hired" the Senator.

However, the belief that high taxes stifle innovation can not be verified by experience.  Innovators are usually young people, men or women, who are filled with energy and ideas but haven't yet made their fortunes.  We like to think of such persons as Bill Gates and Steve Jobs as important innovators.  They were, of course, and made a lot of money from their innovations.  But they had not yet acquired fortunes when they were innovating.  The taxes on their incomes didn't stifle them.

Gates' great innovation was the recognition that if nearly everyone were to possess and use a computer they would need a program that would translate the keyboard instructions they could remember and understand into the tedious machine language needed to operate the computer.  Such a program is called an Operating System.  An engineer whose name I do not know had created an operating system that didn't take up much memory and was well suited to the rather simple computers available at the time.  The engineer called the system "QDOS," which stands for Quick and Dirty Operating System.  Gates bought it from him and changed the name to "DOS" or Disc Operating System.  He peddled a version of it to IBM for use on the early IBM personal computers.  The rest is history.

This belief that high taxes stifle innovation is used to thwart attempts to make the super-rich pay a larger share than they do in the cost of governing.  In the case of our own federal government, the result is that the super-rich do in fact contribute a large share of the income, but not in taxes.  Their contribution is to purchase government bonds.  The result is almost the same as taxing them, except that the bonds eventually have to be repaid with interest.  The government is thus forced into a kind of shell game or Ponzi Scheme simply to acquire the income needed to provide all the services that we citizens receive.

Another part of the myth is that our government spends too much money anyway.  It should do less and spend less.  It acts as a drag on the economy because it sucks so much money into itself.  This part of the belief also fails the test of experience.  There's a simple question: what does the government do with the money?  It hires people to perform various functions and services.  The money goes right back into the economy.  A question for study is, is it better for the economy for the government to spend a certain amount of money, or is it better for private individuals and firms to spend it?  It depends on the specific project on which the money is spent.  A number of super-rich men are taxed, say a billion dollars, to pay for building a bridge across a river.  The bridge enables goods to be transported across the river cheaply and the resulting economic activity adds, say, a hundred million dollars to the economy.  The government has invested the money in a facility that provides a rate of return of ten percent.  If the super-rich men had been allowed to keep the money, would they have invested it in something equally worth while?  Maybe, maybe not.  Of course, not all decisions by government officials and employees are as valuable as the decision to build the bridge.  Government has been known to build bridges to nowhere just to please the constituents of an important Senator.

I welcome any comments, discussion, criticism, even castigation of my opinions.  You can post them here if you have a Google account.  In any event, you can send them to me by e-mail.

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Tuesday, August 21, 2012


Two Propositions: 32 and 37

Last night I went with a friend to a meeting of rather conservative business people.  The high point of the meeting was to be a debate or exchange of remarks between two candidates for the State Senate: Fran Pavley, the incumbent seeking reelection, and Todd Zink, the challenger.  Unfortunately Senator Pavley couldn't make it and Mr. Zink had to face a rather friendly audience without an opponents.  The majority of those attending the meeting were Republicans and a few of them were "red meat" Republicans.  To Mr. Zink's credit, he didn't give the "red meat" people much aid and comfort.  One person asked why it isn't a requirement in California for a person to show an identity card, such as a driver license, before voting.  There's a big possibility of fraud, etc.  Mr. Zink calmly replied that he had many priorities and voter fraud was way down on the list.  It is a crime that rarely occurs and there is no need for special tests to identify who is and who isn't a legal voter.

I thought that was a good answer.  I believe that Senator Pavley would have answered the question the same way.

Before Mr. Zink had his half hour or so with the persons present two individuals were given five minutes each to persuade the others to vote for their favorite propositions.  Proposition 32 requires labor unions to obtain permission from their members for spending members' dues in support of political candidates or issues.  I am not sure of the exact wording, so all I can say about it is that it seems to me to be just another attempt to stifle what little political power labor unions still have.  There seems to be no corresponding restriction on corporations in spending money for or against candidates and issues.

Proposition 37 would require that all processed food sold in California should be labeled to indicate whether it contains genetically modified food.  At present there is no such requirement in this country.  More than 40 other countries do require that genetically modified food be labeled.

I haven't read the text of either proposition yet.  My inclination at present is to vote NO on Proposition 32.  I believe that Proposition 37 is an exercise in futility.  Food labeling is at present governed by federal law.  If California tries to impose a standard stricter than that of the federal law, the proposition would be challenged in court.  The chances are that the federal court would eventually decide that the federal law preempts any State law regarding food labeling.  I will probably vote for the proposition but won't expect it to go into effect during my remaining lifetime.

I wish the backers of Proposition 37 would direct their attention on getting the federal law changed.  They should be sending petitions to our two Senators, Feinstein and Boxer, as well as to Representatives Waxman, Berman, and Sherman, to name a few.

This issue is a good example of the power of corporate money in our politics.  Companies like Dole, Green Giant, and Monsanto don't want genetically modified food to be identified as such.  Even though most such food is nutritious and harmless many people are suspicious of it and won't eat it if given a choice.  That would be bad for business.  And, as President Coolidge once said, "The business of America is Business."

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Sunday, August 19, 2012


It's not jealousy; we need the money

Conservatives, especially rich conservatives, react to proposals to increase the tax rates on high incomes with such responses as "class warfare" and "you're simply jealous of rich people."  I assert that these are merely sound bites meant to confuse and mislead the majority of voters.  We have in our country some serious problems that arise from the practices of some very rich people in maximizing their incomes.  One practice is moving jobs and factories to countries over seas which offer low wage, non-union workers.  Unemployment is a consequence of this practice.  Unemployment can be dealt with by providing jobs and work for the unemployed   According to apologists for the very rich, it is very rich people who have the money to start the businesses and factories that will provide the needed jobs.  Therefore, the rich should not be excessively taxed, but instead should be relieved of some of their tax burden so that they will have the money to start the new businesses and factories.

This is a plausible argument, but it isn't happening.  I don't see any rush by rich people to start factories to manufacture solar cells, wind turbines, and other new technology devices to provide new, clean sources of energy.  If they start new factories at all, they start them in China or other countries with low wage rates.

The US Constitution has a preamble, as follows:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
It seems to me that the preamble requires and authorizes the federal government to "promote the general Welfare" by encouraging and enabling the establishment of gainful employment of unemployed workers.  If the very rich won't create the factories in our country to provide employment, the government should do it, either by directly building the factories and hiring the workers or by providing suitable incentives and help to private entrepreneurs to do so.  This support requires money - lots of money.  Where is the money to come from?  Obviously, from the people who have lots of money and can easily afford an increase in their tax rates.  And, what could be fairer than that?  Let the rich, many of whom cause the unemployment problem, help pay for the cure.

Rich people are not sinful or evil.  They are just like the rest of us.  We make financial decisions to minimize or expenses and losses and maximize our gains.  When we shop for cars, we do our best to pay less than the sticker prices and try to negotiate deals with the car dealers.  We buy groceries at grocers that provide the best food at the lowest prices.  That's what rich people do with the money they invest.  It's more profitable to invest in a factory in China or Mexico than in a factory in the United States because of the labor cost.  What government has to do to reverse this trend is to make it more profitable to build and operate a factory in the United States than in a foreign country.  This incentive may be a tax break, a no-interest loan, or an outright grant or subsidy.

We need the money.

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Saturday, August 11, 2012


Are Labor Unions like Corporations?

The Supreme Court last year decided that both labor unions and corporations are entitled to spend as much money as they please in support of or opposition to political candidates and issues.  [I can't resist mentioning the French writer Anatole France, who said that the law in its impartial majesty prohibits both the rich and the poor from sleeping under bridges.]  In fairness, the Supreme Court was not original in its classification of labor unions and corporations as deserving similar similar treatment in law.  In the act that the Court threw out the same comparison was made by precluding excess expenditures by either corporations or labor unions.

I ask myself, why do we make such an equivalence?  It seems to me that labor unions and corporations are not alike at all.  Their objectives are different and not always in conflict.  The ways they are created and organized are different.  If you want to create and organize a corporation you obtain a charter from a State, often Delaware.  You announce the work or program that the corporation is going to undertake, such as building a toll bridge or a railroad.  You make a deal with an investment bank or a stock brokerage house to sell an initial offering of shares of stock.  You use your share of the proceeds of the stock sale (the brokerage house or bank takes its cut) to buy the real estate and equipment needed for the project.  You hire workers and you proceed with the work.

If you want to create a labor union, you find workers who are dissatisfied with the pay and the relations they have with their employers.  You get enough workers to sign a petition to impress the National Labor Relations Board.  The Board calls for an election of the workers.  If enough vote in favor, the union is certified and the employer now must negotiate with union representatives rather than with individual employees.

In the corporation, stockholders "own" the corporation.  In theory they control the corporation through annual stockholders meetings.  In practice the shareholders regard the money invested in their shares as investments. They are interested in income, either in the form of dividends or of capital gains.  The corporation is like a savings bank that pays good interest.

In the union, the members do not receive income.  Instead, they pay dues.  Union membership is not regarded as a source of additional revenue but as a means of dealing with representatives of their employer.  In some cases it represents an assertion of one's calling or trade, such as carpenter, plumber, or electrician.

Looking at and comparing labor unions and corporations amounts to a two-dimensional view of them.  They are like two lines that either meet or are parallel.  In the two-dimensional view we think of them as parallel vectors going in opposite directions and actually pushing against each other.  In three or more dimensions we see that the vectors are often skewed.  No matter how far extended, they never meet, regardless of orientation or direction.

This equivalence between corporations and labor unions is a concept that has been foisted on to us by persons, often conservative in political thought, who take the two-dimensional view of government and society.  Their belief is that "they're either for us or against us."  The notion that labor unions and corporations might have completely different and unrelated objectives is a nuance that does not fit two-dimensional thinking.

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The aging population problem

Yesterday (Friday, August 10) I watched a segment of the news from Japan on Channel 28.  A large part of the half hour program was devoted to how the Japanese government plans to deal with the rising cost of social security and other services for its increasing population of retired workers.  Can you guess?  Very simple.  The government plan is to phase in increases in the consumption tax and probably the income tax over the next eight or ten years to provide the extra money.  There was no talk of reducing the tax burden on the rich or reducing social security benefits.  Social security benefits may have to be trimmed some time in the future, but there was no talk of such changes.  There was talk of reducing "wasteful spending" by government.

How different is the discussion of this problem in our country!  Mr. Romney has just today announced his choice of Vice President: Paul Ryan.  The choice of Mr. Ryan signals that Mr. Romney is committed to the Republican program of reducing the taxes on wealthy Americans and reducing government services to retirees, to persons on Medicare, and other middle class and poorer segments of society.  Mr. Romney has gained the support of Grover Norquist, the Republican Grinch who wants to reduce the size of government to almost nothing.  At least now the voters will have a clear choice of the future path of the country in the November Election.

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Saturday, August 04, 2012


Republican intransigence may be counterproductive

It appears that Mr. Obama, being a more skillful politician and campaigner than Mr. Romney, has managed to make Mr. Romney's business experience an important issue in the election campaign.  Rather than mouth sound bites about how Mr. Obama has ruined the economy and prevented a recovery, etc., etc., etc., Mr. Romney has to play defense: defend his business record or change the subject, if possible, to his experience as Governor of Massachusetts.

Some of my friends have noticed that Mr. Romney has never disclosed his plan for curing the economic problems we experience.  Does he even have a plan worth disclosing?  I am reminded of the election campaign of 1976.  Mr. Nixon, running for reelection, announced that he had a "secret plan" for ending the war in Viet Nam.  He never told us what the plan was.  Of course not; it was a secret.  After he was safely in office for another four years, it became apparent what his secret plan was: declare victory and leave.  Perhaps Mr. Romney has another similar plan for the recession: declare good times and lower taxes.

The Republicans charge that Mr. Obama hasn't done anything effective to get us out of the recession.  I agree that nothing very effective has been done.  Most people who pay any attention to politics realized that the reason is that the Republican-dominated House has refused even to consider any of the administration's proposals.  If there is blame for inaction, it belongs as much to the House Republicans as to anyone.  Some of my friends who might otherwise vote for Romney concede that President Romney would do just about the same as President Obama.  The constraint of an ultra-conservative Republican Party would hamper either man.  The Republican strategy of absolute refusal to cooperate or collaborate with the Obama administration is turning out to be counterproductive.  It is difficult for Mr. Romney to paint Obama as a do-nothing President in the face of such obstruction.

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