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07/24/2011

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an observer

Jack:

1) Buffett really did say it

2) He is a hell of a lot smarter than you, a better Democrat, and you ought to listen, instead of jumping the gun

3) Buffett (and his partner Munger) are as smart as Einstein on Physics when it comes to incentives and human psychology (you should read Munger's Psychology of Human Misjudgment which is mostly a 25 page essay on incentives if you really want to learn something useful, for you own life and politically)

4) Buffett's point is several fold---starting with how bad an idea the present offered amendment happens to be.

5) Of his many lessons in making the remark, his most important is that you want a better government---create better incentives viz the people whose conduct you are trying to effect.

For example, I believe that pay for people in Congress should be deferred and should be based on performance (employment, growth, tax collectons v. deficits) (I doubt We would never have deficits exceeding 3% of GDP if we had a VATax)

By contrast, under our present system, the House Republicans likely will remain in office, notwithstanding the damage they have done.

In sum, if you believe that I do that taxes are trust funds and that we face unprecedented competition from globalization, then it is self evident that we need effective government and that we need to restructure the incentives applicable to running for office.

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Jack

Observer: You seem mightily impressed with Munger and Buffet and they have been wise and patient investors. But! First off their is no universal wisdom in our complex world, second, "many" like to cherry pick the utterances of the famous to shore up their own private agendas.

In the above, for starters it's HARDLY a forgone conclusion that a deficit limit of "3% of GDP is a worthy goal. In fact I could make a good argument for 3% deficits being a good and responsible amount of borrowing to do each year...... assuming it was wisely invested and not fritter away on current partying or ladling out unnecessary tax cuts for partisan reasons.

Consider: Had we the 4% GDP growth rate that is crucial to provide job opportunities for all with our population growth and in an era of continuing per capita productivity gains. With 4% growth and 3% deficits the debt would slowly become a smaller percentage of GDP.

If you like (many) like the family comparison, odds are a successful family will have far more debt at age 40 than they had at age 20, or like a growing company, most would be foolish not to have debt growing in some relationship to their growth in income.

Like companies or families, if we're presented with a (necessary) war, and/or flood and storm disasters we're pretty well stuck with "putting it on the card". At a more subtle level IF our businesses are being constrained and precious imported fuel is being wasted for the lack of modern rail we're better off building it now, on debt, and paying for it as we use it to good advantage just as most families do with homes and cars and companies do with needed machinery and facilities.

A recent example? President Clinton and Congress erred in maintaining high tax rates while running a surplus. In addition to, possibly restraining the economy, it left an opening for Bush's "slop the hogs" campaign to take hold. Too late was Gore's overly cute and complex "tax cut for the middle class" that sounded like, and was, one of those deals where it's the guy down the street that gets some convoluted break. Had they wisely implemented a tax break favoring 90% of working folk, it likely would have spurred the economy, and given boring Al a fine chance to limit his campaign to "Hi..... I'm boring Al, how about four more years of Clinton era prosperity w/o the drama".

Lastly? Take two countries, both named USA. One "runs a tight ship and perfectly balanced budgets". The other does precisely the same, except for running 3% deficits year after year that is spent entirely on basic research and subsidizes promising technologies in their infancy. Who wins?

Jack

A bit more on politics and "incentives for Congress?"


Let's take the House and Senate separately......... though both have high percentages of millionaires who are not there for the $150k many who are not millionaires could easily earn as just hack lawyers or in other professions or businesses back home.

The House? "curiously" there is a high drop out rate just after 10 years in office. Why? retirement is fully vested, but more importantly they've "earned" the chops to cash in as $500 or more per hour lobbyists.

The Senate? The stick around quite a bit longer........ perhaps 30 years on average if I remember accurately, for the same pay as House members. But! a much higher percentage of millionaires. And consider the life! From considerable ego feed to flitting off to many places of interest -- like checking out the military installation not far from my home, plus Alaska's world class fishing as was taking place when Sr Senator Ted Steven's party went down in a bush plane last year.

Then there's campaign money. Can't be touched, of course, except for ......... campaigning.......... eh? Well you see the problem of messing with their measly $150,000 or so?

Annnnnnnnnd! sorry, but your pay incentive criteria are not mine and few would agree on what they are. While YOU seem caught up in the deficit fad of the moment and what Congress as a whole is "supposed to do" you'll find most of your neighbors far more interested in securing PORK ala the $6 billion worth of extra C-17's that the Pentagon did not even request. All PORK for Boeing Long Beach and their many subcontractors and suppliers.

When you speak of "unprecedented global competition" and the need for Congress, and perhaps the President to do something different....... what are some of the things you'd expect them to do that would increase our ability to compete?

For my part I'd hope for a general overall direction much as that extolled by the President (finally responding to our energy vulnerability, having the Feds do their job of properly maintaining infrastructure and providing research and educational funding. Given their provincial nature (pork bringing, protection of farmers et al) and general stodginess after being in office FAR too long, I've little I've little hopes of them responding to short term market changes or picking "winning tech".

an observer

Jack

Your posts are the best thing going for right wingers--they are just non-sense.

Second, there is universal wisdom. As Harry Truman said, people don't change, the only thing that changes is the history you don't know. There was a reason Alexander the Great was great (who was his teacher?). Why is Shakespeare so important---his universal wisdom about people.

Buffett and Munger are not just "investers" who got lucky or who even found one great opportunity. Their success is at a much more stunning and fundamental level. Munger, in particular, has insights into people not seen since Shakespeare.

If you read what they write, or watch them talk, one will quickly see that both have unique world class minds and deep deep wells of wisdom, unlike this blog.

Buffett's observation cuts right to the point: one can alter the behavior of Congress by changing its incentives.

What is the argument for the Balanced Budget: that the incentives for Congress to spend (implicitly buying votes so as to get re-elected) override the public good. In fact, the incentives are so great that we need to block such action, entirely. Your post is full of speculations about incentives.

Given their skill and insights about people and incentives, you should think a lot lot more about what they have to say.

As for the rest of you keyboarding, your arguments are fundamentally dishonest. You attribute things not said, for starters. Observer is not concerned about the short term deficits (given the damage done by the Financial Depression, our "stimulus" has been too small and, worse, poorly designed and implemented, because Democrats, like you, have mush for brains.

In normal It makes sense to borrow only for expenditures that yield a return over time (capital investment, research, and education). However, if the expenses are recurring, it may make sense to just pay higher taxes, because doing such will lower private capital costs. I am a Keynesian and believe that in good times Gov't should run a surplus.

If Obama had intensity and passion, there are four things that he could have done/could still do to put people to work.

1) devalue. Because the United States is safe and secure, it is the best place to invest. If Obama would deliberately drop the value of the dollar, investment in America (and our real estate) would become incredibly cheap. The capital inflows would be enormous. 1/3 of real estate purchases now in Florida are by foreigners. Factories and jobs would move back or stop leaving

A collateral benefit is that it would drive people away from oil and motor vehicles.

2) cut health care costs by ending the tax deduction for employer provided health care and ending insurance except for major medical. Make doctors and hospitals compete for cash paying customers for routine services. Market forces will straighten things out, quickly

3) investment bank and infrastructure. At 2.75% interest, we should be in an immense gov't construction boom in internet, labs, transportation, etc. I would repeal Davis Beacon but only on the condition that contractors could immediately "double breast"

4) energy independence. We should subsidize the shift to natural gas (should have been Obama's first bill)

5) vat tax v. income tax

6) free education

7) make private mortgage loans non-recourse, forcing housing to bottom and clear. People who are trapped could walk away w/o penalty. The balance sheets of the banks would clean up, immediately

Xavier L. Simon

Enough!

What the country needs to get out of its current problems is growth, yet

Growing regulation and uncertainty are zapping it's vigor and vitality, and

A leaderless government that only wants to distribute a shrinking pie has become entirely dysfunctional.

Throw them all out.

an observer

Senator Shaheen is on the Senate floor, right now, reading letters from small business people and social security recipients, willing to agree to shared sacrifice. The right wings brown shirts and thugs best listen. The leaders of the tea party . . .

Tomorrow, I am getting a bumper sticker reading, "Face Up."

Face up

Instead they took him to be executed at the Place Louis XV, and in a sinister twist, they made him face his killer blade face up.

While he was being prepared, his executions ripped off the bandages holding his jaw together. So he endured his final excruciating minutes both in mind and body, before the self-same fate he’d been only too happy to dole out to others befell him. Robespierre was just 36 and he was guillotined a year and half after his key victim, Louis XVI.

an observer

WSJ

"Republicans are not fit to govern."

Air Yeezy

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Jack

Observer: If you lead off with a claim of another poster posting "nonsense" you really should support your statement well, and perhaps carefully purge your own claims as well. Our economy is a huge and complex elephant difficult to describe, much less fix, and certainly when we add in the aspect of our being a democracy, as we see, almost impossible to end up anywhere near the efficiency we would hope for.

In regard to Buffett and Munger, indeed they've been disciplined in executing on the basis of Graham and Dodd, and, of course with decades of experience have developed an eye for value.

IF....... "WE" thought high investment returns had much of anything to do with governing, you'll note that while Mitt Romney headed up Bain capital that they returned 113% per/year, however, I'd not be tempted to vote him into ANY public office.

The "argument" for a balanced budget amendment is no more than a silly political pose and/or a naive attempt to shirk responsibility and put the whole process on auto-pilot.

In your next? You favor a larger stimulus? As I would have and do..... but how would such be done were a silly and crippling BBA, by some miracle adopted?

As for "expenditures that yield returns" of course those are in the eye of the beholder....... and there are, in our complex society things we simply don't know, and many justifiable exceptions. I'm fairly sure you can come up with examples, but if need be I'll furnish some here.

As Nixon once said "We are all Keynesians", however the "good times" and as I pointed out about the end of the Clinton era, it's likely that the surpluses were larger than need be...... and shortly after the Bushies's deficits were much larger than justified.

Still $5 trillion of "spurring" made for a "jobless recovery" (from something other) declining wages along with a dramatic increase in the numbers below the poverty line -- and SOARING incomes for the top 1%, and 5% leading one to the obvious conclusion that it's not just ladling out Fed dollars but HOW they are spent/ and hopefully invested. Shall we agree at least that "spurring" that heavily targets the already very well off in some vague, never realized, hopes of "trickle down" and those heavily laden with fresh pork being "our" job creators is a complete farce?

Yes, the Clinton-Rubin and a host of far more cooperative Congress folk DID raise taxes to lower expected deficits and bring down interest rates and mortgage rates. Good work! Though, haha! now many of "our fiscal conservatives" are trying to blame scads of cheap money for the nearly complete corruption of the financial sector.

#1 No. First the dollar is likely as cheap as it can be due to decades of trade deficits, and despite the level of borrowing, our interest rates are so low that with currency risk there is no purely financial reason to invest in our debt. Further, we've LOTS of investment capital sitting idle...... awaiting DEMAND.

As for much of Florida being sold off at garage sale bargains, I suppose it does help get some of our foolish and corrupt banksters off the hook, but it does not warm my heart to see the fruit of our labors being sold to foreign speculators for dimes on the dollar.

Oil and motor vehicles? For some reason a decade prior to the oil crisis of the 70's I wrote a paper on the wisdom of shifting some of our income tax burden onto NON-renewable resources. It would have been wiser still in the mid 70's and wiser still any day of the past.

Obviously the effect would be that of billions of small decisions that would have lowered our dependence on imported oil and the vulnerability of our heavily dependent economy to "oil price shocks".

But making oil artificially higher by trying to further weaken the dollar just makes the bleeding of our people that much more painful w/o putting a dime in our Treasury.

#2 ...... is SO off the wall as to not warrant discussion.

#3 I'd agree completely until you get to "Davis Bacon" What is missing from our once strong economy is dollars on the street, ie DEMAND. As Gov buildings and infrastructure are here for many decades for the use of the people there is not reason to further pound down what are actually modest wages. (I've heard of some exceptions cherry picked here and there, but for the most part no one in the trades is getting rich.

#4 Except for the order, agree completely. The President ran heavily on reforming H/C and owed it to his supporters to do what he could. The NG thing came along after our WS thieves figured out how to manipulate oil prices to nearly double what they should be, based on the fundamentals. WERE all the oxygen not sucked out of the political room by Little Grover and his Forty backwoods rubes, we surely could be focusing far more intently on energy. Add geothermal, solar and wind to our list.

#5 Well, let me, again post the graph showing which gold-plated yachts were lifted by the "rising tide" of a doubling of per capita productivity. After digesting it, please reconsider why we should be conned into a highly regressive tax scheme.

The 2nd graph down tells the story most quickly, though if it broke out the top 1% that line would be yet steeper and the line for the top .1% would be steeper still.

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

Though hardly stylish these days THE tax reform should be a sharp increase in progressivity. In wage/wealth distribution we're at the level we used to scorn in Mexico and point to as their major economic problem.

#6 Yep, or nearly so. I've long advocated two more years of "free" be it college or voc tech. We've a "new economy" wanting 70% college or tech but graduate 30% or so. Alaska offers free tuition and books at UAA to those graduating HS in the top 10% and is doing more on "needs". But then we're an oil rich nation!

#7 ..... we'd have to talk! as it's a MESS. Indeed many who were just trying to "chase the market" to provide a home for their family WERE given a screwing by the callous corruption of all from local appraisers, to mortgage brokers and consolidators to the very "bond raters" who Haha! can rate US Treasuries? but "have trouble" with those "complex" derivatives designed by some geek down in their own basement.

Going forward the move to have both banker (originator) and home buyer have some "skin in the game" is a good one that served us well until the recent batsht era.

I know this industry pretty well and would partially settle for banks having to take or reject a short sale in 30 days. Realtors today are going nuts trying to placate potential buyers for months while the bank-owned property continues to deteriorate and bring down the rest of the block with it.

I'm not sure whether even government could cut through it all as the ultimate lender --- perhaps only a money market participant "bought" a certain contract and typically was not in on the fraudulent behavior of the sellers of the portfolio --- of junk.

One improvement in the direction you're going would be to let those being foreclosed rent the home at current market rates. Also as bankers KNOW what a foreclosure costs (a bundle!) they'd be wise to offer an attractive market based short sale to those who were foreclosed. Given the costs of moving, selling costs, plus sitting empty for vandals to strip, all involved could likely make their best deal with those currently living in the home. Messy stuff though!

Jack

Xavier -- What are the near term odds of immediate and deep cuts fueling "growth?"

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an observer

Jack:

You are such a dull blade---

You have absolutely no ability to look a facts and draw necessary patterns and distinctions

To mention Romney as being related to Buffett and Munger is beyond silly. Romney has been a skilled businessman. Buffett and Munger are a unique blend of science and art, having real wisdom and insight that is timeless. It is painfully obvious you have not read or studied much.

Beyond that, you don't understand that currency devaluation cuts the costs of our exports and increases the costs of imports which are powerful twin drivers of creating jobs in America.

As for health care cost, you don't understand that a tax deduction is a subsidiary which only increase costs became it protects inefficiency.

Last, I favor a VAT tax because our "progressive" income tax, while a wonderful idea, doesn't work in practice and it costs too much to enforce. We presently have over 100,000 IRS employees. A VAT could be enforced with 10,000 employees or fewer. We spend billions on private tax compliance. These are all wasteful, unproductive jobs (they redistribute income but do nothing to make us grow). To advocate for an income tax you have to prove that these costs justify the ends. They don't. A VAT can be made progressive in any number of ways, at a much lower cost (exempt food and 1st dollar utility bills is one way).

Democrats must learn that everyone has to be productive and add value.

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Jack

Observer.......... skipping your seemingly obligatory opening insult; you seem to have missed the point. I (clearly) mentioned Romney (who I consider unfit for high office) only to point out that one may be talented (or lucky) in some narrow business specialty and be no more insightful in politics or public office than millions of others.

IF, as you post, Buffet favors some sort of Nazi-ish throwing from office those who voted for a 3% deficit, that alone would make my case for his not understanding the nature of Federal budgeting, national security and our obligation to deal with any disaster -- including the dismal likelihood of a nuclear event if we continue to be so unwise as to not rapidly build down all nuclear weapons, declare all used in their mfg and delivery international contraband and cooperate with every nation and individual to enforce it.

There is likely no one posting or reading this page that doesn't understand the effect of a devaluation of a nation's currency on its imports and exports. Trouble is with freely floating currency rates it's not easy to accomplish ever if we agreed it was wise to do so.

It isn't wise to purposely manipulate our currency lower. Among the long list of reasons why is that export/import is a small fraction of our GDP with our soaring consumption/wastage of oil being a major import. As for the (even) higher price of oil dramatically changing behavior? It's one of our most inelastic commodities ie. when 200 million of us walk out to our gashog each day, perhaps to hop into another vehicle for the rest of the work day, in the short, even indeed, intermediate, run we've little choice.

Ha! having NOT taken my decades old suggestion to gradually ramp up taxation on ALL non-renewables while making it revenue neutral by lowering income taxes, we were teed up like a nation of patsies (or victims?) to "cheat" President Carter's prescient CAFE standards by building the biggest fleet of gas guzzling SUV and oversized P/U's the world has ever seen. Ha! many being over 6000 GVW so as to benefit from the "Hummer deduction" of up to $100,000 that made driving Ford's huge Lincoln Navigators and the like cheaper for high earners than the cost of pedaling an Escort for lower income wage earners.

In short if you want to lessen our (foolish) dependence on costly imported oil and those now manipulating the price, you'd be FAR better off to (finally) adopt an energy policy worthy of the name. Surely as we both agree an "Apollo" project to implement the switch of heavy transport first, to NG as often proposed by Pickens.

For lighter cars there will be a myriad of options and the slow replacement of our current gashogs has begun; perhaps toast President Obama for leading the way with a 54 mpg CAFE std by '25.

As for the VAT...... ALL taxing schemes require enforcement..... and you may get one in place just as the already fine art of Abusive Transfer Tax avoidance becomes an even bigger leak as, predictably, our export and import sector becomes a lot bigger.

Ha! you'd get a chuckle out of how difficult it is, and how many lawyers and accountants it takes for Alaska to get its "simple" 1/8 royalty tax from "our?" international corporations. One decade long suit involved shipping a Sea Land van full of file cabinets back and forth to SEA.

Also, there is NO way to make a VAT as progressive as our tax policy should be given a GINI on par with that of Mexico. Apparently most folks are not able to understand the degree to which the doubling of US productivity has been hogged by the top few percent while the oft promised "trickle down" becomes, as you see?? more flash-flooding UP, replete with the political power to prevent even the undersized move of rolling back the ever unaffordable Bush tax cuts.

While that politic may tend to make your case of our democracy having been SO coopted that we'll never extract proper taxation from the uber-rich, TRUST that being conned into a VAT or Forbes "flat tax" is just to give the rich an even greater break and one likely impossible to reverse.

Politically? watching these Teaparty rubes who've been conned by Koch Bros and like...... HAS done some good work to promote the public policy debate that has long been neglected -- to the advantage of "our" owner class.

At bumper sticker level people ARE seeing the "choice" of throwing gramps out of his Medi-caid financed Assisted Living for the slightly or very demented, vs holding harmless from the slightest increase in taxes for the wealthiest among us. A prediction? Ha! after a Pres campaign and 435 House campaigns with the ammo already put by, two thirds of the newbie 'baggers will NOT be on the government payroll come Jan 2013.

H/C tax subsidies? Ha! Our H/C system is such a mess that lamenting the tax deductible aspect is about like noting that a "clunker" on the way to the crusher has a bad tire.

But...... yeah, I do understand the game in which corporate bigs deduct "Health Care" policies that cost as much a median household income and include all from cosmetic to needed spa visits..... while those employees of "job creating small biz" find even high deductible, semi-"coverage" for (some) major medical costs unaffordable.

Those most vociferously opposed to "Obamacare" and what the President well understands simply don't have the vision to see our current house of cards is about to come crashing down on ALL of us.

Democrats have ALWAYS understood that we all have to be productive and add value. They number about half of our once fine nation and be they Hollywood film magnates, union guys assembling our cars in just 35 man hours, federal/state employees, currently in the post melt down unemployment line did their part to DOUBLE our per capita productivity over the last three decades.

Trouble is it's tough work to make up for the massively negative "productivity" of "our?" WS thieves, still un-prosecuted bankster and hedge fund managers paying only 15% cap gains rates on their
largely fictitious billions of "added-value".

Well, keep up the work! The internet gives us a voice we never had before and may well be the lifeline to restoring a semblance of democracy. Let's hope that is the case.

an observer

Jack

The classic definition of insanity is doing the same thing over and over again, expecting a new or different result.

Look around---your world is falling down around your ankles.

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Jack

Observer: Thanks! While my state of Alaska with some $100,000 plus per capita, banked, billions of bbls of oil and hundreds of trillions mcf of NG left in our, state selected lands, is something of a special case, the matter of our nation squandering its resources while being flown up a blind canyon for decades has not escaped my notice.

Cheers! and remember the thesis problem is not how "we" working folk rebuild our long raided Treasury, but how WE as a people, and one hopes, something of a democracy survive prosper and pass along a much more decent nation to those born into what we have left. As ever and while not at all sure what is at the root of your crusty comments I'm sure that we likely do agree that gutting Medicare/Medicaid does nothing to "fix" our (massive) H/C mess. Jack

another observer

“Although little consensus exists on what in fact was achieved by the major $800 billion stimulus package, I do not know of convincing evidence that it accomplished a lot in reducing unemployment and raising employment.”
“.. the most effective solution to the weak recovery is … an agreement between Congress and the president to cut trillions of dollars from federal spending during the next decade, and to reform the tax system toward a much broader and much flatter personal and corporate tax structure.”
I am surprised by the asymmetry in treating ideas from opposite sides of the table. There are (perhaps not very convincing) arguments that the stimulus has prevented much worse. There is no convincing evidence on Becker’s solution solving anything.
Why is it preferred over the other solution? Is it faith or science?

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This approach does avoid subsidizing all employment, but it fails to appreciate the magnitude of new hires even during bad times. The JOLTS data published by the federal government indicate that over 4 million persons are newly hired each month even during the current post recession period.

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