Warren Buffett on Taxing the Wealthy More Heavily—Posner

Two weeks ago Warren Buffett made waves with a brief op-ed piece in the New York Times of August 15 entitled “Stop Coddling the Super-Rich.” In it he says that very rich people are undertaxed, but he would leave the federal income tax rates of 99.7 percent of taxpayers unchanged and only raise the tax rates of taxpayers who report more than $1 million of taxable income a year; if they report at least $10 million a year they would pay an additional surcharge. But he doesn’t say what the increased tax rates on either group should be. He also wants dividends and capital gains taxed at the same rate as ordinary income but does not say whether he thinks the uniform tax rate should be the present income tax rate (except for those earning over $1 million a year and therefore liable for the lesser or greater surcharge) or perhaps a lower rate because it have a bigger base. 

Buffett’s piece is short, and really the only thing of interest, besides the celebrity of its author, is his claim, based on his extensive personal knowledge of wealthy investors, that increasing  the taxes on the wealthy would not cause them to invest less. He may be right but he does not discuss the distinct issue of whether they would invest differently. 

The growth of the federal deficit, which is growing from a very high level at a rate of well over $1 trillion a year, cannot be arrested without more tax revenues. The alternatives are spending cuts and rapid economic growth. They are attractive to many conservatives but will not cut the mustard. The needs of government preclude the kind of drastic spending cuts that would curb the growth of the federal deficit without any need for additional federal revenues. Diehard opponents of increasing tax revenues even by closing loopholes without raising tax rates argue that the federal government is too large and can only be made smaller by reducing its income. But this argument contains two mistakes. One is to think that the federal government can finance its activities only by taxation. Not true; it can finance them with borrowed money, as proved by the Bush tax cuts, which did not lead to a reduction in the scale or spending of the federal government, but merely to an increase in borrowing. Of course, as the federal government approaches bankruptcy, the pressure to curtail federal spending is great and an increase in tax revenues would alleviate the pressure, but probably only slightly because the feasible scope for such an increase is very limited.

Second is a confusion between size of government and amount of government spending. The federal government is not too large in the sense of having too many employees or even too many functions. We need a large military, and we need regulatory agencies that are well staffed—regulatory laxity was a major contributing factor to the financial crisis of 2008 and the broader economic crisis that it triggered. What we can’t afford is not federal employees (including soldiers) but careening entitlements. But the administration of vast entitlement programs is not particularly costly. A small government can transfer immense amounts of wealth among its citizens. The problem is the entitlements themselves, not wasteful expenditures on administering them—indeed the Medicare program would probably be more efficient, and, specifically, less susceptible to fraudulent and other overbilling and approval of unnecessary or marginal medical treatments, if the Medicare administration had more staff. 

Military spending cannot be cut significantly without endangering national security. Of course there is “waste” in military spending as there is in most activities, but bureaucratic and political imperatives, as well as the inherent uncertainty of threats to national security, place limits on economizing on military spending. Most of the other discretionary spending of the federal government (that is, spending that Congress must approve every year) is likewise justifiable, including spending on domestic security, infrastructure, the environment, basic research, and disaster relief, as well as regulation. Discretionary federal spending can and will be cut if the deficit cannot be reduced by other means, but it probably cannot be cut a great deal without inflicting costs greater than the benefits. 

Anyway the real threat to the solvency of the federal government doesn’t come from military expenditures, which would be leveling off even if there were no budget crisis, or other discretionary spending, which if it cannot be greatly cut can nevertheless be kept in bounds without great hardship. The real threat to federal solvency comes from the entitlement programs—Medicare, Social Security, Medicaid, and many others—not because they are huge, though they are, and certainly not because they are costly to administer, but because their outlays are growing rapidly, especially Medicare and Social Security outlays because of the aging of the population and the rising costs of medical technology as a byproduct of technological advance. Political resistance to cutting these programs, or at least to cutting Medicare and Social Security, is fierce. The programs may be cut some despite their sacred-cow status, but not enough to reduce the rate of increase of the deficit to the rate of economic growth. 

So can economic growth be increased, then? In the near term, the combination of poor economic leadership and management by the Administration with the economic radicalism of congressional Republicans makes it unlikely that the government will do anything to stimulate growth before the 2012 Presidential election and the seating of a new Congress in January 2013. Eventually the economy may rejoin its long-term trend of an annual growth rate of GDP of a little under 3 percent; whether there is a set of economically and politically feasible policies that would increase that rate seems doubtful. 

Which leaves increased tax revenues as a seeemingly indispensable weapon against the soaring deficit. Indispensable—but not ideal. Any increase in tax revenues would be counterproductive in the present depressed state of the economy, because it would take money out of the private economy at a time when the government can finance its debt cheaply by borrowing at very low interest rates. The increase in tax revenues would have to be phased in gradually and meanwhile the deficit will be growing. 

Merely increasing marginal income tax rates, even on the millionaires and multimillionaires and billionaires, is likely to be counterproductive. Unless the percentage increase is substantial, it will not generate much revenue. And if the increase is substantial, it will induce a flight to loopholes. (Buffett would close only two of them—dividends and capital gains—and there are many more.) Only if increased rates were joined with a thoroughgoing reform of the tax system that would eliminate virtually all deductions and exemptions would the increased rates generate substantially increased revenues by preventing a flight to loopholes. The reform would have to be precise, leaving very little for regulatory adjustments by the Treasury, and represent an unshakeable congressional commitment, eliminating all uncertainty so that taxpayers would know exactly where they stood. Meaningful tax reform along these lines, though falling far short of what was, and today is much more urgently, needed, was achieved during the Reagan Administration; there is no reason, other than interest group pressures and other political forces, why it can’t be achieved today. But those pressures and forces are great.

Comments

[Mitchell K.]

According to Buffett, we need not worry about how raising such taxes might undermine economic growth. He writes, “I have worked with investors for 60 years and I have yet to see anyone... shy away from a sensible investment because of the tax rate on the potential gain.” Such an assertion flies defies credulity. Increasing taxes on the potential profit from an investment alters the expected return and rational investors will adjust their behavior accordingly.

He insists that “people invest to make money, and potential taxes have never scared them off.” Never? Does Buffett expect people to believe that investment behavior is somehow different from all other forms of economic behavior where people weigh costs against benefits? If so, one wonders why we don't have a capital gains tax of 99.9 percent!

If Mr. Buffett feels that he should be paying more taxes, he could easily forgo his dividends and capital gains (where he pays a roughly 15% tax) and collect a comparable salary from Berkshire Hathaway instead (where he would pay roughly 35%). He does not need to declare his charitable contributions and claim associated deductibles on his tax return. Yet, he states that he and many other mega-rich folks “wouldn't mind being told to pay more in taxes.” If Mr. Buffett likes paying taxes so much, why doesn't he pay more?

If he did so without announcing it in a Times op-ed, it would nullify the most tangible consequence (dramatically improving revenue collection is not one of them) of his tax proposals: convincing people that he is a great guy. It is that same impulse that compels someone to hold a press conference for his own philanthropy and lands him on the cover of Fortune magazine. Note the reference in his op-ed to the Giving Pledge (which he helped create) and the title of a previously published NYT Buffett op-ed: “Buy American. I am.”

[Jimbino]

I find it incomprehensible that a wealthy person so overtaxed under a Buffett scheme wouldn't simply renounce his US citizenship. I'd happily trade mine now with a Brazilian just to escape Obamneycare, and I'm far far from wealthy.

[NEH]

Buffet is right. The super wealthy are well aware of what would happen if the Nation trips into the abyss of default. In essence, the golden goose is dead and so would be all dividends and capital gains. If it means to pay a little more in taxes, so be it, as long as profit on investment continues. " No one ever went broke making a profit".

It's a shame that the Country has come to the point that there are those who would force the Country to do without. In terms of National Security, Health Care, Economic Care for the Elderly, etc.. This is the Twentyfirst Century and things cost, more so, than in the Twentith, Nineteenth and Eighteenth Centuries. The Twentyfirst Century man is just going to have learn to cope and ante up for the new pricing system. Dare we say it, "Close loopholes, reinstitute personal taxes, reestablish tariffs, customs and duties, raise wages and salaries. There is no other choice. Unless, we are all willing to do without.

[True religion jeans outlet]

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[Jack]

There is much to agree with this week:

"The growth of the federal deficit, which is growing from a very high level at a rate of well over $1 trillion a year, cannot be arrested without more tax revenues. The alternatives are spending cuts and rapid economic growth. They are attractive to many conservatives but will not cut the mustard."

........... Indeed! It seems that instead of "starving the beast" as was Stockman's plan and Reagan's campaign pledge, they've instead gone around three sides of the block; ie spending us bankrupt such that their are few choices but "starving the beast", or at least the back 90% where all the working people reside. I thought Prof Becker might include a comment on servicing the DEBT amassed from 20 years of "conservatives" for whom "deficits don't matter",

....But! had we an opp to roll back the clock (which one never does have) I'll bet we'd have given more consideration to paying our bills on time, and adhering to the "Paygo" principles hammered out in the early 90's that insisted on finding means of Paying for new or expanded programs. Not sure why this last band of "conservatives" threw those guiding principles on the junk heap and set THE post WWII record for expanding the size and cost of government, before any wars were begun.

"Military spending cannot be cut significantly without endangering national security. Of course there is “waste” in military spending as there is in most activities, but bureaucratic and political imperatives, as well as the inherent uncertainty of threats to national security, place limits on economizing on military spending."

.......... Oh? ARE we so poor at warmongering that we HAVE to outspend most of the other nations combined? That there is "waste" in the military" is an award winning understatement! While we are discussing military bloat, pork and excess, why was it that the son of HW, who used the skills developed in a lifetime of at least learning the diplomatic tools of governing, brought allies together for his (also unnecessary) little war, with them picking up 90% of the tab, but Jr went off "alone" in ill-considered haste, and stuck us with 90% of the warmongering costs? Well, "only a few trillion" and no use crying over spilled milk even if it's of flood-like proportions.

.......... Sorry, but I have to disagree. The time is NOW for us become more cooperative with others, as in Libya, and make it know that when it's time to curb the actions of "rogue states" that, as with "globalism" "WE" are all in it together. If their is a beast to be starved, or at least put on a high protein, LOW fat diet it's the military.

" Eventually the economy may rejoin its long-term trend of an annual growth rate of GDP of a little under 3 percent; whether there is a set of economically and politically feasible policies that would increase that rate seems doubtful."

............... Hmmmm, Yep. "May" Though with housing being on its backside with hopes ONLY of getting to its knees by comparison with the frothy days of 2.5 million new home starts, it's going to be "iffy" at best.

Why do I put so much emphasis on "housing?" Because it's the ONE business in which a young couple of modest means with just a few thousand to their names can walk in and trigger $250,000 of primary economic activity.

Those few bucks in the couple's typically slender bank account not only creates three full time jobs for those building the home, but more for realtors, hopefully honest bankers, title insurers, home inspectors and a host of others. In addition to most of the materials used in a home being from the US, or at least Canada, appliances, carpet, and most heavy furniture is still mfg'd here. After construction comes building decks, fencing, patios, landscaping and perhaps a pool.

The wages from this industry are QUICK to "go round and round and come out here" as construction guys and those in the ancillary businesses like to drive new cars and trucks and generally spend what they earm.

............ so? Our "hope" is a "return to 3%?" with our foot already in the 10% unemployment hole, and per capita productivity expected to continue at about 2%? Well, it's THIN isn't it? Dare one again mention further pump priming and spending on long needed and worthy projects as we've discussed here? Vs "hope?"

"The increase in tax revenues would have to be phased in gradually and meanwhile the deficit will be growing."

........... Well........ "every long journey begins with a single step, and IF we want to band to play, someone IS going to have to pay them. Could be a LONG dull decade with no music.

......... Becker is right on Buffet's article being too short to cover the revamping of the entire tax code that seems long due. But..... it seems a hopeless task with this wretched cast of characters, all too many of whom continue to fight for MORE for the privileged few, and what IS to be done with the witch doctors whose fealty has already been given to (socio-pathic?) Grover Norquist, he, of course unelected to ANY public office. Any paragraph of a new tax code that threatens to cost their sponsors a single worn thin dime will result in the kind of infantile tantrums we've endured since early spring.

But NEH, as is often the case makes a good point. Most often the wealthy, rich and super-rich are not dumb (though one need not travel far to find exceptions) and as one pizza chain owner recently said "I don't think it matters much what my tax bracket is if my customers are staying home". Yep, it may take a while but when the wavelets begin lapping at the custom shoes of those on the upper boat deck......... some are likely to call off their lobbyists and "give in" to policy benefiting our entire nation. Let's hope it's sooner than later.

[Jack]

Geez Mitchell do you know how boringly repetitious it is to again read suggestions for Buffet to voluntarily pay more taxes? He, as any citizen has a right to speak out on POLICY w/o being expected to open his wallet while the remainder of the "400 richest families pay just 15%".

Jimbino! I've been meaning to discuss the matter of those who've benefited greatly from our HUGE consumer driven society, but who would, apparently? RUN to the nearest tax haven if asked to pitch in their fair share of our defense budget, and for the $15 TRILLION in services about what we and they paid for over the years since Reagan was elected.

I tend to favor not being a protectionist, but then I'd rather not be a stooge either. You make the finest argument possible for insisting that those gaining commercial interests from our tremendous consumer market being expected to pay fairly for such access. But do you think many ran off after ""Clinton passed the largest tax increase in yadda?" or? did they kinda stay here an profit nicely from the booming economy?

[authentic true religion jeans]

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[Cash for Cars Florida]

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[Jim]

20% of the US population is over 65 years of age and holds about 65% of all private wealth but have less income than the age group between 25 and 65. By and large, the age group below 25 has little income and assets. Because many folks 65 and over may move to locales which are much less expensive and have low or no state income taxes, their cash flow and therefore income needs are less, in some cases considerably less. Therefore the burden of any tax increase falls disproportionately on the folks between 25 and 65. In other words, the rich aren't that rich as a group based on income. In addition, the wealthy already have their "stuff" snd probsbly don't need much more. Nevertheless, a VAT tax would be easy to administer, have no black market, everyone (including the undocumented) would pay it and credits for the poor etc could still be given. The economy probably will be stuck at something around 2% for a while so growth will not solve the deficit problem. A broader based fair tax might assumming that the feds don't waste it.

[neoclassical_libertarian]

Richard Posner, you miss a crucial fact about tax increases, deficits and the national debt: Increasing taxes won't lead to reduced deficits (let alone reduced national debt), it will simply lead to more spending. That's a paradox Buffet, leftists, Keynesians, including yourself, don't seem to grasp. The economist Richard Vedder, via sophisticated econometric analysis you didn't learn in law school, found that for the entire post-WWII era, each dollar of tax increase lead to $1.17 in more spending. This is after controlling for economic fluctuations, war spending, and inflationary increases in spending. Other economists have found similar results. Even Milton Friedman conjectured this phenomenon back in the 80's when he supported Reagan in bringing down the top tax rate (which would go on to raise more revenue as a percentage of GDP than the 70% tax rate). You are correct in saying that mere tax cuts will lead to more borrowing. A combination of tax cuts and substantial reduction in spending, especially spending on the warfare state, which you seem to love so much and has been the major threat to national security (another paradox you don't get). Privatizing social security to solve the problem of unfunded liabilities, eliminating the federal subsidy for employer-based healthcare (the third party-payer system which is the primary cause of medical inflation), expanding medical savings accounts and voucherizing the Medicare and Medicaid system with catastrophic health insurance would curb medical inflation, abolish unfunded liabilities, cover virtually every American, and put the American republic on a path to long term stability.

[NEH]

"Sophisticated Econometric Analysis"? Sounds like another program where figures don't lie, but liars sure can figure. Ever heard of Derivatives and mortgage backed securities all developed with backing of "sophisticated econometric analysis"? According to the last "sophisticated econometric analysis", the Country ought to be in a boom phase. But we aren't.

As for the "paradox", why, during the Clinton Admin. (before the unwise tax cuts that haven't stimulated the Economy), did the budget deficit begin to fall?

So much for "Neoclassical" Libertarian policy. You are aware that in any Macroeconomic system, it is driven by the big three consumers: Government, Commerce & Industry and the individual consumer. If you eliminate Government expenditures you've eliminated at least a third of Economic consumption. Now what does this do to an Economy? Force it into contraction. Can we afford that now?

[Joseph V. Smith]

I agree with much of what Posner and Becker say, but I sure do disagree with what Posner says about the need for more tax increases to reduce the deficits! To reduce the deficits, we need to rely primarily on spending cuts. And spending cuts can be implemented without hurting employment or economic growth !

Canada has been through its own version of a debt crisis. By 1995, its debt/GDP ratio was 68% after 20+ years of running budget deficits. In 1995, its political leaders finally woke up and did something about it. These leaders were members of the Liberal party, Prime Minister Jean Chretien and Finance Minister Paul Martin, Jr. And they were very successful.

By fiscal 2009, the debt/GDP ratio was down to 29%. This was accomplished by 11 straight years of budget surpluses (1997-2007) achieved primarily through federal program spending cuts. Its economy is now outperforming the US economy.

Some of the details behind Canada’s success are explained in an article from the WSJ August 1, 2011. More details can be found in two reports by David R. Henderson, PhD, an economist, found at the Mercatus Center, George Mason University. Just do a Google search.

Given the debt challenges facing the US, and the just passed “debt ceiling bill” I suggest all of you “spenders” and believers in “more tax revenues” read Dr. Henderson’s paper for a number of reasons:

• Spending cuts can lead to an improved economy. Keynesian economists, are you listening?
• Spending cuts can yield reductions in unemployment rates. Keynesian economists, are you listening?
• Spending cuts were required to make the fiscal math work. While Finance Minister Paul Martin’s 1995 budget did increase some taxes (not rates), the budget called for six to seven dollars in expenditure cuts for every dollar of increased taxes. Over a three year period, 1995-98, federal spending was reduced 14%. The result of years of cuts in federal government spending was that, as a percent of GDP, federal spending on programs fell from a high of 17.5 percent in 1992–93 to 11.3 percent in 2000–01.
• Tax revenues were increased, mostly by removing subsidies and gimmicks.
• The plans to reform government spending and reduce the deficits were led by liberals.
• Significant cash was raised by privatizing things.
• Recommendations are made for the US given its high debt/GDP ratio of 62% when this article was written in 2010.

If Canada can do it so can the US. The greater our economic growth is, the better it is for everybody: higher tax revenues, more jobs, higher personal incomes, etc. If you hurt the economic engine all suffer. That’s why I favor spending cuts over tax increases. I am in favor of tax reform that will eliminate special subsidies, loopholes and gimmicks.

Tax cuts are part of the Keynesian playbook just as is government spending. They were successful when proposed by President Kennedy in 1963 and his Keynesian led eco team after his first stimulus plan (1961-62 govt spending) failed to achieve the required results. (President Johnson signed the legislation in 1964.) The rationale behind the tax cuts is summarized in his letter of transmittal of his 1963 Economic Report. Read in particular pages ix-xxii. You can find this letter (at the beginning) and the full 1963 eco report report here:

http://fraser.stlouisfed.org/publications/erp/issue/1080/download/5732/ERP_1963.pdf

The letter and the report are classics for eco students. So is President Kennedy’s speech to the Economic Club of New York on Dec 14, 1962. And the tax cuts worked--they stimulated the economy far more than had been expected and they generated more net tax revenues for the government than had been planned. The results are summarized in later 1960's Economic Reports of the President which are all on line.

So by deliberately reducing revenues by huge amounts, actual government revenues rose. And unemployment rates were reduced too. Interesting.

I am sure all of Obama's economic advisors and Warren Buffet are familiar with the reports and the data. Raising taxes now when unemployment is so high, almost double the levels in 1963, could actually hurt the economy and produce net lower government revenues. This is what those 1960 Keynesians might be saying if they were alive today. It is not just conservatives.

Joe Smith

[TANSTAAFL]

NEH's basic view is that prosperity flows from the sovereign. Thank heavens our forefathers rejected that mistaken viewpoint when they freed us from the British Crown.

[Jack]

Joe? Umm......... would you please take one of those Fed budget graphs or lists and SHOW us where and how YOU would "cut" our way to balance? Thanks!

[Jack]

NEH........ states it accurately and succinctly. But our ideologues will persist in their "government produces nothing" ideology.

WOULD that we'd had half again as many regulators and overseers of the "financial sector" AND a boss that reminded them that the foxes needed constant watching.

BTW HOW could those charged with some oversight NOT respond to radio and other media ads for "no income, no assets, poor credit, come on in as we've a special on 120% loans this year?"

[Jack]

Joe? Look, half of our economy is based upon make work stuff that need not be done. Much of the problem of our "H/C" system is that it employs 11 clericals to Canada's one. Basically EVERYone IN medical "insurance" is deadwood burden along with lots of others that we should jettison.

WERE we to end up in another war that took 20% of our work force, you'd find not one shortage, and as in WWII productivity per capita (if measured fairly) would shoot through the roof. MOST of our manufacturers are so efficient that if they got orders for 10% or 20% more next year they could do it easily while adding far less than 10% to their payrolls.

After (IF?) you succeed in adding whatever percent of the federal, state and city employees to the back of a VERY long unemployment line will that make you happy? Do you think HIGHER unemployment will help your biz? or anyone else's biz?

As for taxes "killing the goose" one pizza chain owner admitted to "getting it" recently when he said "It doesn't matter too much what my tax rate is if my customers aren't there". Indeed....... a real businessman not a partisan ideologue.

[an observer]

Mr. Trichet, in a scholarly discourse on the elements of economic growth, defended the beleaguered euro project, rejecting criticism that its 17 nations are too diverse to perform well together. He argued that Europe has grown almost as fast and created more jobs in the last decade than the United States.

“Adjusted for population growth, there has been virtually no difference between U.S. and euro area growth over the first decade since the introduction of the single currency,” Mr. Trichet said. “The euro area, though, has created more jobs: 14 million compared with 8 million in the U.S.” He acknowledged, however, that Europe lags in deregulating its labor market.

Though too polite to criticize his hosts directly, Mr. Trichet said that income inequality is ultimately a threat to society. While the gap between rich and poor has also widened in countries like Germany, tax policies and more generous social programs mean that European countries still tend to be more economically egalitarian than the United States.

“Extremes of income inequality and restricted opportunity challenge our values and strain the fabric of our societies,” Mr. Trichet said. “Growth skewed towards the few (or absent for a large minority) risks social tensions, undermines institutions and encourages policy failures of one kind or another.”

[huaiyiting]

http://www.nikemallchina.com

[mujeres]

Military spending cannot be cut significantly without endangering national security. It's a shame that the Country has come to the point that there are those who would force the Country to do without.

[NEH]

tanstaffl, Really? Then how do you explain the assumption of the debt by the Federal Government which was incurred by the States to support the Revolution? You ought to study your American history a little more closely.

[Jack]

Recovery only for those too big to fail
ELISE PATKOTAK

From our Anchorage Daily News today:

COMMENT
Published: August 30th, 2011 09:01 PM

Mitt Romney heard we were having a jobless economic recovery and decided to help by tearing down his old beach house in San Diego and putting up a new one to the tune of about $12 million. Thank goodness we didn't let his Bush tax break lapse or some of that money might have gone to feed some hungry school kid whose parents were probably wasting their money on heat or rent or some such silliness. Then where would poor Mitt have been? He'd probably only be able to build an $11,995,000 second home and all his friends would have laughed at his pathetic little beach house. So Mitt did the right thing and put Americans back to work -- at least, we hope they're Americans.

Meanwhile, for those of you flummoxed by the economy's jobless recovery, I think I have finally figured it out. Let me see if I can give you a simple explanation of why we are in this national economic fiasco.

Let's start with those taxes you pay. Some go toward programs like Social Security with a promise from the government that they'll save your money for you and it will be there when you retire. Good luck with that. Some of your tax dollars go to fund critical functions of government such as unfunded wars of choice in countries that posed no threat to us. And some goes toward bailing out financial institutions that created toxic assets that were destroying them. So as we teetered on the brink of national financial ruin, the government squeezed the last drops it could from your taxes and gave it to the financial institutions that created the depr ... oops, I mean recession.

Yes, Virginia, the government took the money you so willingly gave for what you thought was the maintenance and repair of roads and the continued fiscal viability of your retirement program and gave it to those financial institutions that were deemed too big to fail. The result of that transfer of wealth was that those financial institutions did not fail. Most have paid the government back and are now sitting on great piles of money that they are loath to invest in the toxic economy they created. You can understand their hesitation. After all, you fell for their line in the first place. Why should they trust you with money again?

Because they are sitting on so much cash, we are being told over and over again that the economy is in recovery. Except this recovery is being called a jobless recovery because the only groups that seem to have recovered are those financial institutions the feds bailed out and their major shareholders don't really need jobs. Since they were too big to fail and you aren't, the feds will not be knocking on your door in the near or distant future to offer to bail you out of the financial disaster you are experiencing -- a disaster created when those bailed- out companies decided to let you borrow way more than you could pay back for a house not worth what you were paying for it.

Are you still with me or do you need a moment to sit and put your head between your legs until the dizziness stops? Take a deep breath because we haven't finished the journey yet.

So what we have in America today is a recovery of the richest at the expense of the poorest, while what's left of the once-great American middle class is rapidly shrinking. Because the vast majority of Americans who still have jobs have some understandable qualms about going into debt not knowing if those jobs will be there next week, they aren't spending or borrowing a lot. Meanwhile those businesses that were too big to fail have figured out that if they just make their remaining employees multitask and do three or four jobs at once, they can keep their payroll low and not risk expanding in a bad economy. If that keeps this recovery a jobless one, oh well, at least their assets are safe and we won't have to bail them out again in the near future.

The good news is that if you move to San Diego, I think there might be some job openings in construction there in the very near future.

........... does she have it about right?

[Jack]

Recovery only for those too big to fail
ELISE PATKOTAK

From our Anchorage Daily News today:

COMMENT
Published: August 30th, 2011 09:01 PM

Mitt Romney heard we were having a jobless economic recovery and decided to help by tearing down his old beach house in San Diego and putting up a new one to the tune of about $12 million. Thank goodness we didn't let his Bush tax break lapse or some of that money might have gone to feed some hungry school kid whose parents were probably wasting their money on heat or rent or some such silliness. Then where would poor Mitt have been? He'd probably only be able to build an $11,995,000 second home and all his friends would have laughed at his pathetic little beach house. So Mitt did the right thing and put Americans back to work -- at least, we hope they're Americans.

Meanwhile, for those of you flummoxed by the economy's jobless recovery, I think I have finally figured it out. Let me see if I can give you a simple explanation of why we are in this national economic fiasco.

Let's start with those taxes you pay. Some go toward programs like Social Security with a promise from the government that they'll save your money for you and it will be there when you retire. Good luck with that. Some of your tax dollars go to fund critical functions of government such as unfunded wars of choice in countries that posed no threat to us. And some goes toward bailing out financial institutions that created toxic assets that were destroying them. So as we teetered on the brink of national financial ruin, the government squeezed the last drops it could from your taxes and gave it to the financial institutions that created the depr ... oops, I mean recession.

Yes, Virginia, the government took the money you so willingly gave for what you thought was the maintenance and repair of roads and the continued fiscal viability of your retirement program and gave it to those financial institutions that were deemed too big to fail. The result of that transfer of wealth was that those financial institutions did not fail. Most have paid the government back and are now sitting on great piles of money that they are loath to invest in the toxic economy they created. You can understand their hesitation. After all, you fell for their line in the first place. Why should they trust you with money again?

Because they are sitting on so much cash, we are being told over and over again that the economy is in recovery. Except this recovery is being called a jobless recovery because the only groups that seem to have recovered are those financial institutions the feds bailed out and their major shareholders don't really need jobs. Since they were too big to fail and you aren't, the feds will not be knocking on your door in the near or distant future to offer to bail you out of the financial disaster you are experiencing -- a disaster created when those bailed- out companies decided to let you borrow way more than you could pay back for a house not worth what you were paying for it.

Are you still with me or do you need a moment to sit and put your head between your legs until the dizziness stops? Take a deep breath because we haven't finished the journey yet.

So what we have in America today is a recovery of the richest at the expense of the poorest, while what's left of the once-great American middle class is rapidly shrinking. Because the vast majority of Americans who still have jobs have some understandable qualms about going into debt not knowing if those jobs will be there next week, they aren't spending or borrowing a lot. Meanwhile those businesses that were too big to fail have figured out that if they just make their remaining employees multitask and do three or four jobs at once, they can keep their payroll low and not risk expanding in a bad economy. If that keeps this recovery a jobless one, oh well, at least their assets are safe and we won't have to bail them out again in the near future.

The good news is that if you move to San Diego, I think there might be some job openings in construction there in the very near future.

........... does she have it about right?

[Jack]

Tans -- It is interesting in terms of policy to consider where wealth does come from and how WE might increase it.

In the era you mention wealth was so closely connected to LAND that it was only "landed gentry" who could participate in our public affairs.

Then, of course, it became King Cotten and the phenomenal wealth that could be generated from the backs of slaves.

Then the industrial revolution, from which excesses of exploiting human labor brought us to the labor movement, federal work rules and the min wage, which "we" have allowed to atrophy to near irrelevance.

One thing we know is that the richest 400 families (paying but 15% on income they choose to declare) did not earn their huge sums from hourly work, but from the energies and labor of others and that jobs are never "created" without DEMAND for that which is produced and able to be sold. We also know, and expect that no one will be hired except for the expectation of turning a profit from the labors and creativity of the employees.

While "growth" has been slow for some time, still, we much know something about wealth generation as our per capita income $47,000 (PPP) is higher than all but a few small nations and Norway, or $188,000 per household of four.

The trouble is not with the concept of those organizing large groups of employees earning large sums, but with so much accruing to the topmost few that there's not enough left for our consumer based society to.............. consume.

One C-span caller put it succinctly in lay terms saying "Our country does a lot better when millions of Fords are sold than when a few Rolls-Royces are sold", while another caller commented on "needs" not being "demand" unless the individual need was accompanied by a buck to spare. Exactly.

We can continue on this ALL FOR THE RICH agenda and further coddling them with tax benefits taken out of the hides of working folk, but soon, if not already, they will find their even "recession resistant" products not being sold.

Wealth then? It comes from most of us going to work everyday to produce things of value that serve the needs of others while we amass our bit of wealth by paying off a home, car and other goods or investments, and paying for our share of the common wealth of our schools, highways and other infrastructure. Just now? we're dissipating wealth with 20% of our labor force either under or unemployed and had better soon get after changing directions.

What the President says is dead on: We're in a "crossing" where we need to respond to, too much reliance on costly, imported fuels, and put folks back to work on long delayed infrastructure maintenance and upgrades such that we'll HAVE something in the asset column as deficits continue either by paying unemployment and welfare costs or putting folks to work.

But! the President having lined out the direction does no good at all unless the best of his plans are (soon) implemented to the benefit of all.

"Cutting our way out?" Yah sure. So FEWER dollars in the hands of potential consumers? Beleagured families losing their home and moving in with relatives? or subsidized rentals and keeping their wallets zipped but for the most necessary of basic expenditures? Not even "American" much less wise. Won't work, never has, and can not work today.

[TANSTAAFL]

NEH writes: "tanstaffl, Really? Then how do you explain the assumption of the debt by the Federal Government which was incurred by the States to support the Revolution? You ought to study your American history a little more closely."

The question I posed was whether NEH believes prosperity flows from the sovereign. In reply, all NEH musters not even a weak example of a sovereign creating prosperity; instead, NEH refers to but misunderstands a zero-sum transfer of war debt from the States to the Federal government in the infancy of our Republic. That event alone created no wealth (although Hamilton correctly foresaw it would open certain avenues to wealth creation). As to history and its lessons, NEH ought to visit the library, and learn how British mercantilism was a significant factor behind the American Revolution.