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04/11/2010

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NEH

400 Year old Tax dodgers! How apropos for this time of year here in the States! As for most American "Conservatives", they either live in the "glorious" past or with an eye to it. Not realizing that we have long since moved through the "Modern Age" into a "Postmodern Age" and beyond. Yet the same tired, old, and wornout dogmas and solutions are dredged up from the past as solutions to the stormy present. As one great American put it, "time to think anew and act anew".

Perhaps we need to really consider and implement a "Presidential Line Item Veto" and and require Congress and the Office of Management and Budget to implement a "Zero Based Budgeting system" (how many separate line items exist in todays budget, not just entitlements?). At least it would give the Nation a fighting chance finacially.

Dr. A. Bajaj

Thanks for your response, Jack. Here are my responses to your points, point by point.

1. Our founders wisely skipped the option of direct democracy. As you can imagine it would lead to government of the most popular... kinda like the quality of the most popular shows on TV. In our most recent local election, (city council, school board and a host of bond issues) we had only an 18% turnout on issues and costs closer and more important in most ways than a national election. Needless to say getting an informed vote on the worth of the EPA, SEC, or whether military budgets, which is often pork to many areas, are sufficient or not.

Response: I'm not talking about an election. Just input from people, or even their elected reps. Perhaps all th estate legislators and governors could be asked to rank order federal services. This would give good feedback on what needs to be cut and by how much.

2. Had we started down a market based approach to medicine back in the 50's when they weren't able to do much, and the costs were typically far less intrusive, my guess is it MIGHT have constrained costs over the "insurance" system and lasted for a while. But I doubt is as neither the patient nor the Doc seems prone to negotiated prices.

Trouble is today a $100k episode is not uncommon and even were "market forces" to cut it by half it would most often bankrupt those of median incomes and below. Even WITH "insurance" medical bills are the number one cause of personal bankrupties. Thus no one gets paid and the family has been greatly disrupted.
Response: Try 90% reduction in cost for the $100K episodes. The same episode would cost a richer person $100K and a poorer person as little as 3-4k. People below a certain income level can be helped. Of course, full and total top quality health care for all just is not possible.

2.5 In teaching and other endeavors there's quite a cry for "accountability" and being paid for outcomes. Tough to do. In Anchorage our "worst" school is one that happens to have a 100% per year turnover. In medicine I'm sure you know that at times the best doctors have the highest failure rates for tackling tough cases perhaps with experimental medicine.

Response: depends on how we define outcome. Perhaps just the patient indicating they were satisfactorily treated and a hospital certifying that would allow a fixed payment for treating an ailment, regardless of how many procedures were performed.

3. Why would anyone favor phasing out SS? Perhaps for the oft claimed higher returns on equity? With the exception of the surplus planned in 1982 to deal with the boomers bulge there is no equity as it's a pass through program. Also SS functions as a disability insurance for many. Further as we are borrowers too, in some fashion, we're all benefiting from the SS "surplus" having been loaned at minimal cost to cover some of our massive debt.

Response: Phase out SS because its a large portion of the Federal govt entitlements and we can't afford it anymore.

3.5 The 401K as most of your suggestions primarily benefit upper income folk who CAN save a portion of their income. As one goes down from the median household income of just $50k, to half that or the $12,000 of min wage, a lifelong savings account becomes increasingly ludicrous. In this meltdown many middle class folk are either raiding their 401's, and of course most of the rest would be wiped out in mid-life by H/C costs were we take your prescription.

Response: Government can supply poorer people with 5% income as savings as I said earlier. Sad fact of life: poor people would save less than rich people. Can't help that.

4. "Flat tax?" Forbes spent $100 million of his inherited wealth answering "flat tax" to every political question and NEVER got into the greatly flawed details like "flat tax of what?" Say one guy is a wholesaler running a costly fleet of delivery trucks and working on razor thin margins. The other, who grosses about the same, has a small law office of low overhead and gets home with 50% or more of his gross. You'd wipe out the wholesaler on a gross tax while the lawyer would greatly benefit. See? you're back to dealing with deductions. After figuring one's deductions it's not much trouble to look up the progressive rate.

Response: Not sure what you mean. flat tax after deductions of course.

5. A national sales tax? Government costs us about 20% of the entire GDP (it's a bit higher today since we have to service the huge debt run up as, claimed, conservatives yielded to their base, and cut taxes w/o the, claimed, cuts to the budget. Tough for 'em since they are fond of military expenditures, especially hardware that often results in benefits to their regions.

Since not all sales and services would be captured by a sales tax the rate would have to be north of 25%. Can you imagine the chilling effect on sales were that $400,000 home now $500,000? Tack another 25% atop the current cost of H/C? Would Mercedes quit selling and only lease to duck the hefty tax? Would all sorts of barter arrangements take place in services? Would private party sales of things? Would the IRS have to be enlarged to capture cash sales of home repairs, household help, and imported goods of varying mark-ups?

Response: A 500K home that cost 400k earlier would not look bad at all if the annual income of the person buying that home went up by 38%! and so on.

6. Get rid of a high percentage of currently elected representatives? Ha! those out of power always like that one! The impetus for term limits died immediately once Republicans held Congress and the WH.

Response: While term limits for both parties would be great and eliminate the professional politicians we see today, we can still vote incumbents out, from both parties. That was what I was suggesting. Non-professional politicians who come in for a little while and then go back to real jobs would be more likely to vote for term limits for their positions.

7. BTW am wishing Sen Gramm had NOT eliminated the "onerous government regulation" of Glass-Steagal, and that regulators not snoozed while "bankers" stole us blind and tanked the economy of the world, but what regulations do you find of more cost than benefit?

Response: Not sure what you are saying. Regulation that guarantees a fair market and a free market is good. Regulation with an intent to socially engineer is bad, and always distorts the market, which with current program trading can lead to huge failures. Perhaps government should just focus on making sure banks and other financial institutions run freely and fairly, and not worry about who they are giving loans to?

---

Jack

NEH Take heart! For all the folderol, spending as a percentage of GDP is no higher than when it peaked during the Reagan era defense spendathon. I'm not sure if service on the debt built up during the multi term experimentation with cutting taxes below spending is in this graph. If it were it would give the top line a bit more of an upward slope.

http://en.wikipedia.org/wiki/File:Us_gov_spending_histry_by_function_1902_2010.png

Take a look, it's largely the pie shaped Health Care segment that is rising. As we all know there or two components, one, that of folks living longer and healthier lives I kinda like, the other, rapid inflation of traditional medical costs plus there being more things they can do is something we can address.

I'm not a fan of the PLIVeto; as my dad quipped in some pre-Clinton rounds of the mania "You may as well send Congress home".

Indeed! the whole purpose of, especially the House, is to convey the needs of their districts to DC where we hope the product of committee work, testimony, and horse trading passes those of most importance within something akin to a reasonable budget. (Yeah, I know that these days a band of lobbyists emerge from K street and demand "Throw down the box" after which much of the craftsmanship is ruined and WE get another batch of economic distortions.)

Consider, the guy in the bully pulpit has plenty of crank if he wants to use it, for example an honest conservative might say "I don't care what you do on the Hill as long as the total comes in under --- tax receipts? I've got campaign pledges to honor." And we've the "fourth estate" that blew the whistle on the massively wasteful pork of "bridges to nowhere" in my state of AK. They mostly died from exposure though we still have a small parasitic band of wastrels continuing to "study its viability"; something a six grader could easily devine as the stuff of fairy tales.

Zero Based Budgeting sounds good, but in a sense each Congress is beginning anew, so it's back to willpower and political inputs again. I had some hope for BRAC. (rounds of base closings recommended by an independent commision that Congress agreed to vote only up or down.) But it seems cutting "defense" in any way, including the pork fueled base in Salt Lake built to protect the city from Indians became unstylish in recent years resulting in long delayed rounds.

Well perhaps in the course of the Tea Partiers "taking back THEIR country" a "cuthabudget" message will get through........ at precisely the wrong time for much machete work.

Jack

Dr Bajaj: Well just for the sake of conversation........

I'll put leading XXXXXXXXX's in front of my responses be they right or wrong!

1. Our founders wisely skipped the option of direct democracy. As you can imagine it would lead to government of the most popular... kinda like the quality of the most popular shows on TV. In our most recent local election, (city council, school board and a host of bond issues) we had only an 18% turnout on issues and costs closer and more important in most ways than a national election. Needless to say getting an informed vote on the worth of the EPA, SEC, or whether military budgets, which is often pork to many areas, are sufficient or not.

Response: I'm not talking about an election. Just input from people, or even their elected reps. Perhaps all th estate legislators and governors could be asked to rank order federal services. This would give good feedback on what needs to be cut and by how much.

XXXXXXXXXX We have input from the people......... along with a hoard of lobbyists "representing some one". But with only 50% or so voting even in Presidential years we could use a lot more involvement.

2. Had we started down a market based approach to medicine back in the 50's when they weren't able to do much, and the costs were typically far less intrusive, my guess is it MIGHT have constrained costs over the "insurance" system and lasted for a while. But I doubt is as neither the patient nor the Doc seems prone to negotiated prices.

Trouble is today a $100k episode is not uncommon and even were "market forces" to cut it by half it would most often bankrupt those of median incomes and below. Even WITH "insurance" medical bills are the number one cause of personal bankrupties. Thus no one gets paid and the family has been greatly disrupted.

Response: Try 90% reduction in cost for the $100K episodes. The same episode would cost a richer person $100K and a poorer person as little as 3-4k. People below a certain income level can be helped. Of course, full and total top quality health care for all just is not possible.

XXXXXXXXXX Well on a much less skewed scale the H/C bill does subsidize lower income folk. (Personally I'd favor paying them rather than jiggering up yet more subsidies, but! Bernanke when cornered into a choice of "raising min wage or increasing the negative income tax -- EITC" he came down on the side of more subsidies. Oh........ and I would NOT want to be the guy showing up with $3k for a $100k deal; it's bad enough for those on Medicare to get in. Are you a practicing medical doctor?

2.5 In teaching and other endeavors there's quite a cry for "accountability" and being paid for outcomes. Tough to do. In Anchorage our "worst" school is one that happens to have a 100% per year turnover. In medicine I'm sure you know that at times the best doctors have the highest failure rates for tackling tough cases perhaps with experimental medicine.

Response: depends on how we define outcome. Perhaps just the patient indicating they were satisfactorily treated and a hospital certifying that would allow a fixed payment for treating an ailment, regardless of how many procedures were performed.

XXXXXXXXXXX Have you had the experience of coming to a new city and asking "Who's a good doc?" The replies are about as subjective and unscientific as anything ever said, they simply have no way of grading their care.

3. Why would anyone favor phasing out SS? Perhaps for the oft claimed higher returns on equity? With the exception of the surplus planned in 1982 to deal with the boomers bulge there is no equity as it's a pass through program. Also SS functions as a disability insurance for many. Further as we are borrowers too, in some fashion, we're all benefiting from the SS "surplus" having been loaned at minimal cost to cover some of our massive debt.

Response: Phase out SS because its a large portion of the Federal govt entitlements and we can't afford it anymore.

XXXXXXXXXXXXX False, since its inception it has been a standalone transfer program that has yet to become insolvent. BTW it can easily be fixed by reaching up and taking a small slice out of the top 6% who're nearly the only folks to have benefited from the productivity increases of the last 25 years, PLUS! the VERY juicy tax cuts that account for a substantial amount of our general fund shortfall.

3.5 The 401K as most of your suggestions primarily benefit upper income folk who CAN save a portion of their income. As one goes down from the median household income of just $50k, to half that or the $12,000 of min wage, a lifelong savings account becomes increasingly ludicrous. In this meltdown many middle class folk are either raiding their 401's, and of course most of the rest would be wiped out in mid-life by H/C costs were we take your prescription.

Response: Government can supply poorer people with 5% income as savings as I said earlier. Sad fact of life: poor people would save less than rich people. Can't help that.

XXXXXXXXXX But you CAN suffer from it as unemployed and low income folk come to realize it's a rigged game that just is not performing for them. IF the Tea Partier's were better at math, surely their ire would be directed at today's emaciated pay checks rather than combining forces to duck paying for the war.. AND the tax breaks for the wealthy.

4. "Flat tax?" Forbes spent $100 million of his inherited wealth answering "flat tax" to every political question and NEVER got into the greatly flawed details like "flat tax of what?" Say one guy is a wholesaler running a costly fleet of delivery trucks and working on razor thin margins. The other, who grosses about the same, has a small law office of low overhead and gets home with 50% or more of his gross. You'd wipe out the wholesaler on a gross tax while the lawyer would greatly benefit. See? you're back to dealing with deductions. After figuring one's deductions it's not much trouble to look up the progressive rate.

Response: Not sure what you mean. flat tax after deductions of course.

XXXXXXXXXXXXx Ah! I see! A HUGE break for sports heroes and WS thieves at the expense of those struggling, and all to often failing to eke out a middle class life?

5. A national sales tax? Government costs us about 20% of the entire GDP (it's a bit higher today since we have to service the huge debt run up as, claimed, conservatives yielded to their base, and cut taxes w/o the, claimed, cuts to the budget. Tough for 'em since they are fond of military expenditures, especially hardware that often results in benefits to their regions.

Since not all sales and services would be captured by a sales tax the rate would have to be north of 25%. Can you imagine the chilling effect on sales were that $400,000 home now $500,000? Tack another 25% atop the current cost of H/C? Would Mercedes quit selling and only lease to duck the hefty tax? Would all sorts of barter arrangements take place in services? Would private party sales of things? Would the IRS have to be enlarged to capture cash sales of home repairs, household help, and imported goods of varying mark-ups?

Response: A 500K home that cost 400k earlier would not look bad at all if the annual income of the person buying that home went up by 38%! and so on.

XXXXXXXXXX Well, be sure to figure in having to borrow another $80-$100k and pay interest on it for a long time. BTW......... looking throught the tax tables recently it seems the top rate is 35%. Did you ever read the fairy tale about the guy whose blanket wast too short so he cut some off the top and sewed it onto the bottom? In other words a 20% plus bite out of GDP is going to feel like a 20% bite no matter how many hucksters are selling snake oil.

6. Get rid of a high percentage of currently elected representatives? Ha! those out of power always like that one! The impetus for term limits died immediately once Republicans held Congress and the WH.

Response: While term limits for both parties would be great and eliminate the professional politicians we see today, we can still vote incumbents out, from both parties. That was what I was suggesting. Non-professional politicians who come in for a little while and then go back to real jobs would be more likely to vote for term limits for their positions.

XXXXXXXXX I wrote a bit to NEH on term limits, but would ask if you'd favor term limiting carpenters and doctors? ie. You're not likely to have politics with out politicians. No auto pilot for democracy.

7. BTW am wishing Sen Gramm had NOT eliminated the "onerous government regulation" of Glass-Steagal, and that regulators not snoozed while "bankers" stole us blind and tanked the economy of the world, but what regulations do you find of more cost than benefit?

Response: Not sure what you are saying. Regulation that guarantees a fair market and a free market is good.

XXXXXXXXXX Well, the old slickster trading on and demeaning his Econ degree carved a whole in the hen house big enough for every fatted fox on WS to waddle through and skiff off with the eggs AND the chickens. You've noticed?

Regulation with an intent to socially engineer is bad, and always distorts the market, which with current program trading can lead to huge failures.

XXXXXXXXXX Hmmmm........ haven't you been weighing in all along here in favor of cutting yet MORE breaks for the wealthy whose incomes are the only ones to soar over the last quarter century and living the hindmost to the devil? It seems "a level playing field is in the eye of the beholder". But the second graph down gives QUITE an objective view:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/


Perhaps government should just focus on making sure banks and other financial institutions run freely and fairly, and not worry about who they are giving loans to?

XXXXXXXXXXX Indeed!! And if you listen you'll hear a LOT about negligence of regulators and the rampant corruption as greed-driven WS "traders" and "bankers" took full advantage in raiding the till. I guess the "who" is a dig at Community RE-investing Act that was a drop in a very large bucket in the meltdown. If ONLY every low income mortgagee needed a work out or even defaulted entirely we'd hardly have noticed. It's good in every endeavor to sort myth from fact.

Thanks for responding and designing policies to "take back OUR nation" in favor of working folks is not and will not be easy!

Chris Graves

Jack, I think that I have addressed some of your comments in your reply to me a couple of days ago that I am just now having time to respond to in my previous comments. It seems that you still are not separating out questions of justice and how best to pursue the good. I believe this to be a critical, if not exactly absolute distinction, that many miss in contemporary political debate including Professors Becker and Posner. Whether or not greater equality is desirable under all circumstances is questionable, but even if it is, this is more of a question of what makes for a good society, not a just one.

As I have suggested in a reply to you a few weeks ago, I do not see the United States as a meritocracy. Instead, I see it as one characterized by liberty, which does not necessarily lead to those who are most talented or work hardest rising to the top of the totem pole in terms of income or status. I also do not see how you can argue for both a greater distinction in reward for the most able at the same time you argue for greater equality of result or some distributional pattern such as John Rawls' Difference Principle, which I see as a modified form of an enforced egalitarianism. For the meritocrat, people who exhibit traits such as greater effort, talent, intelligence, integrity, creativity or some such personal quality innately deserve greater societal rewards. For the egalitarian, what matters is not how someone gained their rewards, but how people stand in relation to each other either at any given moment or where they end up. If you believe in one distributional principle, you must reject the other. As Robert Nozick observed, meritocracy is a historical distributional principle while equality of result, or some variation of it, is either a "current time slice principle" or an "end state" principle. Either of the latter two versions of equality of result is an ahistoric distributional principle. What these divergent views of economic distribution do share is a focus on achieving an overarching societal pattern. But these patterns are very different. A meritocratic principle tolerates and even encourages inequality while the egalitarian principle does not or does so only begrudgingly, limiting inequality as much as possible. In contrast to both of these competing principles, a Lockean regime allows people to freely acquire property and trade fairly. This is a historic principle, i.e. it matters how you got what you have. It is also unpatterned, i.e. there is no overarching, predictable pattern to who will gain and who will lose.

Personally, I prefer the meritocracy, but I do not see how it is practicable to implement and sustain. There is no objective way to lay out the relevant criteria to judge, say, effort or virtue, and then reward these traits consistently. Even if we could, then we might very well end up with a society of, say, great artists with few who can produce the paint or brushes for the artists to carry out their work. We would also end up with some strange incentives that would certainly affect how people directed their efforts. For example, if people were to be rewarded by their effort, assuming we could objectively measure effort, then we would be rewarded for straining to do work that we were not as intrinsically motivated or talented to do leading to a catastrophic misallocation of labor.

There are two insurmontable problems with egalitarianism. The first is the reverse of the meritocrat. The egalitarian is oblivious to how the distribution arises making him indifferent to questions of justice in aquistion. The second problem is that maintaining the distribution requires extreme vigilance and social and economic intrusion by government into the personal lives of people who are otherwise engaged in activities that are not physically threatening to other people.

As for your point about corporate influence undermining our way of life, I am inclined to agree with you on this point. I certainly agree that those who have defrauded others should be punished along the same lines, at least, as those convicted of theft by taking. I also agree completely that government has the responsibility for laying out basic rules of order to govern business activity, and they should be enforced wisely and fairly. I am also dubious of whether the corporation itself is consistent with a classically liberal political order as liberal theorists ranging from Adam Smith to Herbert Simon have raised doubts about.

The two main problems with corporations are separating ownership from everyday responsibility for actively managing the firm along with the lack of accountability promoted by limiting the liability of the firm by making the firm distinct from its owners. I am also concerned that large corporations further a regimented, socially homogenizing effect breaking down the variety of cultures. This process of destroying unique ways of life that situate people together in a particular place has been exacerbated by the rise of global capitalism led by multi-national corporations that can act in a way similar to imperialists. This point ties in with your correct observation that people have become unrooted in recent decades making human relations less personal and more anoynomous. I do not believe that we should facilitate this trend with government, in effect, subsidizing it as the social welfare system serves as a replacement to more personalistic and localized institutions.

Perhaps, this conservative line of argument that I have just presented provides some clarity in response to your question concerning the influence of culture that I raised earlier. I was not addressing the issue of diversity within a culture in this discussion, but rather how different cultures manifest universal principles in ways appropriate for their particular setting. Specifically, I was touching on the Anglo-American devotion to individual liberty that other cultures do not emphasize to the same degree.

Chris Graves

Correction to my previous post just above: I should have said Henry Simon when identifying classical liberal critics of the corporation.

Chris Graves

Rick, I think you sell England's past short. There were real gains in the standard of living for wide segments of the population with the advent of commercial capitalism at the close of the Middle Ages taking off with the Industrial Revolution, as you point out. Life expectancy increased as did the lot of the average working person for several hundred years, and continues to do so today. That is why the population increased so dramatically during the Eighteenth and Nineteenth Centuries in England. The social upheaval did create problems in adjusting to the new social and economic structures, but the material condition of the vast majority of people increased--first for a rising merchant class followed in the mid-Eighteenth Century by steady gains in the income of the working classes. In fact, we stand on their shoulders in the accumulation of wealth and knowledge making improvements in technology possible that has considerably lessened human physical toil and suffering. With this upsurge of wealth came the outpouring of scientific research accompanied by advances in philosophy and theology as well as artistic expression. As more people moved into the middle class, they demanded greater recognition socially and politically giving rise to classically liberal political theory that became the foundation of the Whig movement that shaped English and American political and social structures. A lot of these developments are good.

I will admit that the overall level of personal happiness may or may not have improved during this time for wide segments of the population. The problem of dislodging people from their traditional work and their homes to find work in overcrowded, ugly cities involved real costs. The rise of modernism in the Twentieth Century has to be an outgrowth of rising incomes freeing people, in a sense, from traditional restraints that contributed to many people's well-being including the family, the community, the church, one's conscience, one's heritage. There has been something lost, as I suggested to Jack in my latest reply to him, in the rise of international capitalism that now acts in a way similar to imperialism. Real gains in people's material standard of living have been made in recent years throughout the world due to the beneficial effects of capitalism organizing and motivating people to produce greater amounts of wealth that ameliorates physical needs. But simultaneously, we have seen the kind of social disintegration occurring in places such as India and China that we have witnessed in Europe and America over the past one-hundred years. The liberal in me applauds these improvements, but the conservative in me is suspicious of these superficial advances. Here is a link to a discussion of the improvements in the living condition of the working classes in England during the Eighteenth and Nineteenth Centuries:

http://www.econlib.org/library/Enc/IndustrialRevolutionandtheStandardofLiving.html

I do think that the Founders of the United States were closer to the truth on the moral foundations of government than those coming at these issues based on the writings of the folks whom you suggest. It does not take additional scientific studies to identify the fundamental principles of governing. Our Founders were especially insightful at distilling the wisdom of the ages concerning governance, but we can verify their findings by considering our own experiences in light of the same teachings that they relied on dating back to the Bible, the legal codes and practices of the ancients, Plato and Aristotle, Machiavelli, Blackstone, Montesquieu, Locke, et al. When we do so, I believe that we can see that they were exceptional at forming a system of government that suits Americans.

I believe what clouds the minds of modernists who write on political economy work off of a paradigm with a flawed foundation. The first flaw is assuming that human nature and human ways of life are dramatically different now than in the past. Human nature is unchanging. We are presented with the same fundamental set of problems in a somewhat different setting that all people have had to deal with throughout history.

The second flaw is that we have forgotten to examine carefully and reasonably our philosophical assumptions about justice and the good as we focus purely on empirical matters of what makes for better production processes or more effective ways to deliver services to people. I certainly believe that empirical examination of these types of questions are important, and we do need to readjust how we apply our philosophical principles to the historical flux. At the same time, we must also retain and cultivate our grasp of the constant underlying, rational structure that governs the physical as well as the social world that we inhabit. In short, we have a lot more knowledge now from empircial reserach accompanied by less understanding.

The third error that has crept into our thinking is coming to the false conclusion that examining concepts of the just and the good is a waste of time or even destructive since they are merely subjective preferences that have no rational basis. We find such an error creeping into reflections on political economy as early as the time of Jeremy Bentham. The influence of Greek atomist thought on modern science, in turn influencing the thinkers you recommended above, introduced a intrinsic nihilism into modern thinking that removes the rational underpinnings of the universe and even from the human mind making rational examination seem paradoxically irrational. This catastrophic error in thinking reached its climax in logical positivism with its verificationist theory of meaning that thankfully has been recognized as self-refuting as well as just plain false.

As for your discussion of meritocracy and equality of result or some such variation, I refer you to my latest reply to Jack where I address this issue. As I said above, I see meritocracy and equality of result as inconsistent. I do think that the average working person who was poor in past centuries gained materially from freer markets as people now do in developing countries. As I said previously, improvements in the material condition of people is dependent on the level of wealth created. High taxes and governmental spending has been shown to lower economic growth by redirecting existing wealth away from savings and investment, thereby dissipating the means for sustained economic growth. Countries that have followed the leftist route, whether they be social democracy, socialism, or Communism have slower rates of economic growth or have resources badly misdirected away from meeting actual human needs and desires than countries that allow for freer markets. Income equality may very decrease in those nations that protect private property, enforce contracts, provide a stable legal environment, and allow price to determine output and direct resources, but the absolute position of the average person tends to improve in these countries if these measures are reinforced with a culture that encourages self-restraint and deferred gratification.

I am willing to say that while basic human rights are universal, the liberal political, economic, and social order may very well not be for everyone.

Jack

Chris reiterates: "As for your discussion of meritocracy and equality of result or some such variation,....."

Once again I do NOT ask for or expect "equality of result" but point out the SOARING rate of inequlity with the middle class and lower gaining no purchasing power out of the doubling of productivity. Surely they/we did and are participating in creating those gains. I'm equally sure that those 6% at the top did not produce the gains by themselves.

Further, as discussed here by myself and others A. the capitalist engine of production will not operate efficiently unless, like the diesel engine it resembles it has governers, precise fuel calibration etc. Like a diesel mechanic who understands that if all the lube oil is up top under the valve covers, the bottom end is going to self destruct I warn of our having big problems today (needless to say!) and yet bigger ones in the future if this troubling trend is not reversed. B. We all know that the inputs to capitalism are human capital, natural resources and capital itself. Thus, the benefit to both the liberty seeking individual and the society as a whole of merit-based rewards for our economic behavior.

Today it is not even arguable that a higher quality of human capital is THE most important variable in correctly employing the other two inputs for a higher level of productivity and increasing standard of living.

"Countries that have followed the leftist route, whether they be social democracy, socialism, or Communism have slower rates of economic growth or have resources badly misdirected away from meeting actual human needs and desires........."

"The lady doth protest too much, ..." In our fair nation the only increase in government spending/GDP is health care and servicing the DEBT. The H/C increases in an earlier model (pre-Medicare/Aid) would have been private expenses anyway thus they aren't an expansion of government spending. I expect spending to go up generally in concert with GDP and suspect that a model of inflation plus population growth would mean yet higher expenditures. I also expect public spending to go up with increasing complexity, the infrastructure of an aging nation, and the cost of scarce resources; government and the military are not exempt from high oil and commodity prices.

As for misdirected resources I'd suggest that the profits of the "financial sector" (30% of all US profits) at the peak of their antics and the subsequent meltdown demonstrates that the private sector has done a far better job of misdirecting resources and destroying capital than could be done by the most wasteful bureaucrat in the government. BTW hallelujah!!! They finally indicted one of GS's packagers!

Summing up, while "the founders" set up a fine Constitution (though requiring a few amendments over the years since) they were not gods and had hardly seen a corporation or knew much about capitalism. The Wealth of Nations was published in 1776 with the critiques by Marx, Engles and others coming 75 years later. Perhaps Andrew Jackson was one of our prescient founders as well and had a good bit to say about the corporate form:

"The problem with corporations as far as Jackson was concerned was they had no body to be kicked or soul to be damned. ..."

"Farewell Warning

Jackson genuinely feared the rise of a moneyed elite bent on enriching themselves at the expense of the hardworking people of the United States. Upon retiring from the presidency, Jackson gave a dire warning:

"...unless you become more watchful...and check this spirit of monopoly and thirst for exclusive privileges you will in the end find that the most important powers of Government have been given...away, and the control over your dearest interests has passed into the hands of these corporations."
—Andrew Jackson, Farewell Address to America, 1837"

And finally for those seeking liberty and independence:

By 1830, it had begun to look like Hamilton's ideal of elite-controlled companies and banks fostering national growth and expansion, might win out. The rise of the corporationA business enterprise legally separate from the person who operates it. had important economic consequences, contributing to a shift in power and wealth away from workers and landowners and into the hands of bankers and capitalists.

"The tradesman...who had a real craft that supported him, would find that businessmen were hiring women and children at very low wages to work piecemeal."
—Sean Wilentz, historian

The dangers were not limited to financial security.

Jackson was convinced that corporations and banks also jeopardized the political rights and influence of the common man. Unless Americans succeeded in reining in big business, the people risked losing control over their country forever.

Ahh, yes! It IS about centralization of wealth and power, and what more finally tuned machine than Walmart for killing off US mfg jobs, extracting the profits from our neighborhoods and leaving behind only ten buck jobs. The super rich heirs and a few other families were the impetus behind Bush's campaign to end the "death tax". Add in the revolving door of lobbyists influencing electeds, electeds becoming lobbyists, and top lobbyists being appointees and you'll have a pretty good idea about the level of rent-seeking and misdirection of increasingly scarce resources.

Jack

Bringing it all back home -- to the "entitlement quandry". In the year just ended when the whole nation is suffering WS paid themselves $140 billion in "compensation". Interesting number, it works out to be $1,000 per each member of our work force.

How did they do this in a tough year? Well, I don't know, but as all the "investment" banks have been bought by regular FDIC insured banks, or, as Sachs, become bank holding companies they can take advantage of the Fed rate of .5% or passbook interest of .15% and do nothing more than buy Treasuries with the click of a keystroke that are paying over 3%. Guess who is paying them the 3%.

In recent years all these investement firms have become publicly owned yet those trading on their own behalf are still routinely divvying up 50% of pre-tax income. What a sweet deal! And so much better than when they were privately held with their own stock options at risk. When they make money off these deals they reward themselves first and when they screw up big time the stockholder is the first bag holder then us.

While we do have some very difficult entitlement problems, we've a much larger problem in setting our priorities straight.

Chris Graves

Jack, I am all in favor of taking Andrew Jackson's approach to moderating the influence of those who have gained social and economic power by restricting competition through privileged positions granted by the government. Jackson's approach was to abolish the Second National Bank as he sought to lessen the role of government in granting special favors to the well-connected. He also followed Jefferson in advocating a de-centralized, agrarian economy, which I completely agree with in principle. I agree with Jefferson on his observations about the social ills that big cities breed along with industrialization. Again, I am conflicted on some of the practicalities of some of Jefferson and Jackson's goals.

It seems, however, from your comments that the strategy that you advocate the Federal government take in our present circumstances is not along Jeffersonian and Jacksonian lines of restricting the power of the state to grant certain people special advantages, but rather it is to grant certain other people special advantages to offset the way things have shaken out in the marketplace.

I am confused by your denying that you are arguing for greater equality of result (as opposed to equality before the law, which can countenance inequality of result), but then arguing for the need for greater equality in the economic distribution. Are you not advocating a greater role for state action to redistribute income? Or are you arguing along Jacksonian lines for simply removing special governmental grants and exemptions and then let the chips fall where they may? I am with you in principle on the latter strategy while strongly opposing the former strategy on grounds that such state action will lead to infringements on liberty as well as the natural social evolution of a culture.

Jack

Chris, attempt to clarify:

"Jack, I am all in favor of taking Andrew Jackson's approach to moderating the influence of those who have gained social and economic power by restricting competition through privileged positions granted by the government."

Agreed. One thing economists can agree on is that of rent-seeking being a sleazey means of hoping to improve a bottom line or make poor uses of resources viable. Successful rent-seeking is indicative of Congress and the Administration failing to do their job of representing the people as well as sledge hammering the capitalism each claims to revere. But I purposely highlighted Jackson's suspicion and dislike of the corporate model for precisely the reasons quoted.

"Jackson's approach was to abolish the Second National Bank as he sought to lessen the role of government in granting special favors to the well-connected. He also followed Jefferson in advocating a de-centralized, agrarian economy, which I completely agree with in principle. I agree with Jefferson on his observations about the social ills that big cities breed along with industrialization. Again, I am conflicted on some of the practicalities of some of Jefferson and Jackson's goals."

I'm more than convinced that modern economies require a "Fed" to lean against the winds of self-amplifying business cycles and avoid bank holidays. In Jackson's time they didn't know enough and as I'm sure Jackson noticed there were those who advantage themselves in filling the ill-defined void. I'd not applaud a president's advocacy for favoring an agrarian society as that runs counter to the "invisible hand" employing ever scarce resources in the most efficient manner, and especially not at the time when the south's strong suit was cotton and the north was rapidly industrializing.

Your mention of the social ills of big cities highlights the inherent tension between raw capitalism and the democracy of developing our resources for OUR welfare. In our largest city someone had the foresight and political power to establish Central Park.... a terribly wasteful use of land to the individual businessman who'd tally up the number of office buildings that could be built there. But in addition to improving the lives of New Yorkers there are economic benefits as well. On one those homebuyer shows I watched a woman hand over $7 million for a flat of about $7 million that didn't have a CP view but was only a few blocks away. She, with the werewithal to buy anywhere, opted to leave behind a large suburban home. The natural tension between "the market", human values and democratic action will always be with us. Just now we've long erred on the side of a slavish reverence for the market "always being right" and a huge mess on our hands as our reward.

"It seems, however, from your comments that the strategy that you advocate the Federal government take in our present circumstances is not along Jeffersonian and Jacksonian lines of restricting the power of the state to grant certain people special advantages, but rather it is to grant certain other people special advantages to offset the way things have shaken out in the marketplace."

Leave out "special advantages" (rent-seeking) and you'd be closer. The way things have "shaken out" lately is due to a whole lot of clever but ethically challenged foxes finding a gaping hole in the henhouse. What they were profiting from was not constructive or productive but destructive. It's clearly government that has to establish the frame work for a transparent market and, apparently, remind banker of the underwriting standards of their fathers in which prudent protection of capital was if not foremost, a high priority.

What would have happened in a "let 'em fail" model? The institutions would fail at great cost to small and less clever investors, the thieves would retire with their gleanings while a new cadre of "best and brightest" would emerge out of the ashes, make a few fashionable updates to the scheme and do it again. All games need rules and umpires with capitalism being no exception.

"I am confused by your denying that you are arguing for greater equality of result (as opposed to equality before the law, which can countenance inequality of result), but then arguing for the need for greater equality in the economic distribution."

Ahh! If we were starting anew with a generation coming of age that had equal access to education including college for some and vocational or apprentice for others, in a marketplace that emphasized merit we might not be far apart. Still capitalism has a pesky and inherent flaw. That is when there are few buyers and many sellers of commodities or unspecialized labor the price gets bid down below costs of production which is why every modern nation has farm price supports and a min wage.


"Are you not advocating a greater role for state action to redistribute income?"

I point out the soaring rate of inequality as being symptomatic of a failed "market" ie. a problem and something to be repaired. Today we do redistribute in a host of clumsy and costly "low income" programs which limit choice and do not enhance the power of capitalism. But the real redistribution of the last 25 years has been the soaring wages of top 5-10% while the rest make no gains at all. Let's go back to Jackson, for the most part the only guys earning a bundle would be owners of huge plantations and productive industrialists, each having put for a lot of effort with their total estates at risk and largely dependent on their management.

Today's overpaid CEO's and WS scammers are not modern day Edisons or Fords. Execs running established companies w/o risk wer probably over paid 30 years ago when they were at 50 times working folk's pay, today at 500 times it's undefensible. Is it due to "the market" deploying resources efficiently? Hardly, it has a lot more to do with their directors being of a similar "class" and taking care of each other. If running large organizations justifies salaries in the millions, how then do square that with our top generals, or those running our colleges and schools, or mayors, governors and even presidents?

Assuming this is a debilitating illness of our capitalism, the cure is not simple, But! since we're agonizing over how to pay for the medical care of our elders and the small pittance SS has become I'd favor sharply progressive taxes on those 6.3% who garner 30% of all incomes paid in America.

"Or are you arguing along Jacksonian lines for simply removing special governmental grants and exemptions and then let the chips fall where they may?"

That's my hopes after the wreckage has been repaired! However in the case of the min wage problem it's unavoidable that folks have to maintain themselves with food, housing and medical care and would favor that being covered by a higher min wage than a batch of transfer programs.


"I am with you in principle on the latter strategy while strongly opposing the former strategy on grounds that such state action will lead to infringements on liberty as well as the natural social evolution of a culture."

All we've created is an artificial construct built by man and there is little that is a natural social evolution. By nature I think we are much more cooperative and fit to survive -- rather than competitive with survival only of the fittest, whatever that might mean in a modern society. For "natural" I reflect on a camping trip or party where where perhaps a strong man chops the firewood, some one else tends the fire while yet others cook with no one being 500 times better. For capitalism to flourish and make the very best of our resources there has to be something in it for the least and gains made not only by the topmost but those millions doing the work everyday. The alternative would as Marx predicted so early on, that capitalism would periodically collapse in revolution and once broken, as in the 30's who knows what might replace it.

Ha! Once again I've written far more than intended. Apologies.

Chris Graves

Jack, thanks for your taking the time to reply to my comments with careful consideration. We shall have the opportunity to continue our dialogue on equality during this week's discussion of what to do about stagnating wages in the United States, so I won't address that issue any further here. I do want to respond to two points you made in your last post that I disagree with rather strongly that might help delineate the boundaries of our broader disagreements.

The first is on the nature of an agrarian economy. I am very much on the side of agrarians in opposition to industrialization not on economic grounds but on more holistic grounds that include the social and psychological. There is something about ties to the land that solidifies a person's psyche as he feels the link to nature and to those who lived before him that shape his identity as a person as well as a member of a community. Following along these lines, when one lives off the land, there is a natural rhythm to daily life that balances a person removing stress and anxiety that characterizes the clock time of the city and the business world. Additionally, following the natural clock over the course of the year allows one to avoid the rush of frantically attempting to take advantage of any opportunity for gain or consumption as a thriving economy of a metropolis raises the opportunity cost of any one particular activity, especially a seemingly wasteful use of one's time of a reflective conversation with a friend or savoring a meal as one watches the sunset.

In an agrarian economy, the rhythms of the body slow down to come into synchronization with the seasons. There is also no need to rush except intermittently since once crops are planted, no amount of hectic scurrying about and worry will make them grow one bit faster. Time for relationships open up and does time to worship, to read, to reflect, to appreciate the beauty and love one lives within. A greater sense of trust can develop as people become open to one another since they are wedded to the land. There is no fear that one's neighbor will kill to take what they can or attempt to exploit since cooperation is recognized and reciprocated as is misbehavior. Lives are lived as personal narratives that unfold with a dedicated audience to appear before in contrast to the anonymity and indifference of the city.

There is a reason that the American South, which is more agrarian, has been identified as the most communal and the most individualistic part of America as well as the most hospitable and mannerly. As we have moved into the New South with its greater urbanization and rapid economic growth, the genteel and feminine qualities of our people have been compromised. It is a shame that the economic viability of family farms has been compromised by technological improvements.

As for nothing being natural, I disagree here as well. As I was saying to Rick in my latest reply to him, there has been a tendency in modern scientific, that has become scientistic, thought to remove the Logos and its telos from our understanding. This tendency has permeated all disciplines and even contemporary common sense. In fact, understanding has been replaced with the quest for quantitative knowledge. The person qua human has been overlooked in the process as if each individual were nothing more than a molecule bouncing around in space whose actions are viewed not through the subjective lens of personal agency but through the scientific lens of mere cause and effect. Following Greek atomism, nothing is seen as having an intrinsic purpose or following the course of a rational structure. So, social structures are seen as nothing more than the products of arbitrary convention.

That is exactly what I want to challenge. The view that I have just described has been linked with science but is really nihilism in disguise and is ultimately anti-scientific and anti-rational since a rational order must be presupposed in order to study a phenomenon, natural or social, scientifically. This view has given people the impression that they can do whatever they please without consequence as we create whatever social structures that we whimsically choose to accommodate random choices. On this view, we can just create or recreate arbitrary rules for society, a human invention afterall, like those of a game and no one will be worse the wear for it.

Instead throughout the world and throughout history, people have recognized that there is a natural law that governs human conduct and human institutions just as there is a natural law that governs the physical universe. The Founders of the United States appealed to natural law in rebelling against the statutory law of Parliament and the policies and their enforcement of the Crown. My opening comment this week was not that of an anarchist, but was taken from a natural law perspective. I was drawing from an insight taken from Hinduism, which also recognizes natural law as dharma, that when one strays too far and for too long from the natural law, then the entire historical epoch can end and start afresh. There are laws that cannot be consistently flaunted and there not be some cosmic reaction that is brought to bear on us. It ain't all arbitrary just as our language and thought and the practices that flow from them have a rational substrate that makes them intelligible.

Jack

Chris: Having spent some of my youth on and idylic island in Maine among lobster fishermen where the tides, weather and sunshine were far more important than clocks and for the most part fishermen didn't fish for 7 winter months, I well understand your point about an agraian society. Ha! I was fairly well ruined for 50 week a year corporate rat race and have mostly worked on projects including summer fishing in Alaska.

But, assuming you aren't favoring a central effort to send us all back to the farming tech of yester century, these lifestyles require heavy equipment, or boats, engines, fuels, communication et al. Earlier you seem to favor "chips fall where they may" capitalism to establish the (natural?) rewards for one's labors. Leaving aside the mathmatical impossibility of living pastoral lives on the prairies or coasts wouldn't you logically have to extend "liberty" to the Tom Edisons and Henry Fords?

"The person qua human has been overlooked in the process as if each individual were nothing more than a molecule bouncing around in space whose actions are viewed not through the subjective lens of personal agency but through the scientific lens of mere cause and effect."

I too lament the loss of humanity as "half-men" become minor cogs in the wheels of an industrial machine, that as I further lament, as being run at increasingly frenetic paces, FOR an owner/manager elite.

But........ and depending on what our representative democracy does in the next few years, with the industrial age receding in the rearview mirror (12% of employment today) WE could enter a post-industrial future providing goods, services and H/C for all with, finally, the 4-day or less work week and much more leisure time in which back to the earth organic or hobby farms, mountain retreats, the arts, or helping those in poorer regions of the world could be part of many people's lives.

Consider..... in AVERAGE wage we're not only richer than all but a few living in unique small countries but richer than at any time in world history. But!

Remember reading "end of work" science fiction? Today, it may well be that high productivity plus production that will and must be done in emerging nations, on AVERAGE, we may be approaching such a time. Unfortunately, as the GM experiment with not just trash-heaping mid-career employees as productivity -- and production of other nations -- idled them before their retirement years shows there is no linkage for working non-owners to participate in the very productivity increases of which they played a strong role.

Disconnect! Instead of a relative paradise for most, instead a return to the lords and serfs our founders and many after fled with a job for those who prepare and get along go along, zipnada for the rest, and wealth beyond the Pharohs for a few.

You may be romanticising a bit about the old south with perhaps some considerable degree of the gentility enabled by the enslavement of some including the years of "reconstruction", segregation and other ......... provincialities that might come to mind.

But to some extent we might get somewhere with "natural laws" and for may part it's hardly natural for just hack CEOs of long established businesses to pay themselves more in one day than their working folk earn in two years. It's a due to a phony construct in which the beneficiaries and legions of the duped conveniently claim it's "THE market" almost to the ludicrous ends of including the WS thieves who criminally, callously or ignorantly brought down the world and set us back a generation.

See you on the tap dancing about "stagnation" side!

Jim

1. There is no "common tradition" except for historical periods of national character which in sum make up our national ethos, good or bad.

2. The replacement birth rate in the US is slightly below 2.1 even with the Hispanic contribution.The culture is bound to change with those kinds of numbers. In western Europe the birth rate is even less except for the Muslim population which is somewhere around 6.

3. Robert Reich, a guru of "fairness" admitted last week in the WSJ that the standard of living in the US was coming down for almost everyone and that it probably was not going to go back up. There are a few at the top who will do well but there are those who would like to "punish" those even though that will not make life better for the less fortunate.

4. That our national character has something to do with gun violence might be indicated by the low rate of gun violence in Switzerland where every male is required to serve in the military and upon discharge is required to keep his military assault rifle in his home and to train with it once per year.

5. Not everyone wishes for three homes, a Bentley and a yacht. Some folks seek the simple life and don't need much money to achieve that. I suspect more and more will adopt that attitude.


KWalter

What if a state treats disabled retirees differently, and worse, than it treats ordinary retirees? What if a state that provides free medical insurance to its retirees from age 62 until age 65 requires disabled 62 year old retirees (who are entitled to Medicare by virtue of the receipt of social security payments for their disability) to apply for Medicare or lose all medical insurance? Is this not burdening the exercise of the disabled retiree's right to receive disability payments? If they do not apply for the social security payments, they will not receive them, but if the disabled retiree applies for social security, they lose the medical insurance that would, otherwise, be provided to them for free, and they lose access to those of their doctors who do not participate in Medicare (those doctors who would rather see patients than do paperwork).

KWalter

PS to previous comment: And if states are allowed to off-load to Medicare their contractual obligation to provide medical insurance to retired state workers who would otherwise receive free medical insurance, does this not add to the federal fiscal crisis?

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In one of his few valid insights, the political philosopher Joseph de Maistre once wrote that every people gets the government it deserves. So they do, and we now have ours. In only two centuries we have managed to go from a government of reflection and choice to one of impulse and stalemate. This situation is unlikely to be changed by the election of a few more fiscal conservatives to Congress or another messianic president to the White House. So long as a majority of the voting public insists upon public benefits for which they are unwilling to pay we are headed for a fiscal train wreck that no institutional reform or economic theory will be clever enough to avert.

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