Category "Taxes, The Commons & The Social Contract"

More on Housing Prices and Wealth

December 21st, 2011 by Andy in Taxes, The Commons & The Social Contract

As housing prices have fallen, millions of homeowners have found themselves owing more on their houses than the houses were worth. That greatly increases the risk of foreclosure. If the house is worth more than the mortgage, the rate of foreclosure should be zero. Regardless of how bad your cash flow situation is, do to job loss, divorce or health problems for example, you would always be better off selling the house and getting something, even if it is less than you paid for the house, then letting the bank take it and get nothing. By propping up the price of houses, the tax credit did help slow the increase in the rate of foreclosures. Still 22.5% of all houses with mortgages are worth less than the value of the mortgage today. Another five percent or so are worth less than five percent more than the value of the mortgage. If prices start to fall again, those folks well be pushed under water as well.

On the other hand, it is not obvious that propping up the prices of an asset class is really something that the government should be doing. After all, it is hurting those who don’t have homes and would like to buy one. Support for housing goes far beyond just the temporary tax credit we had last year. The biggest single support is the deductibility of mortgage interest from taxes. Since homeowners are generally wealthier and have higher incomes than those that rent, this is a case of the lower middle class subsidizing the upper middle class. If you are in the 35% bracket, then effectively the government is paying 35% of your mortgage interest, if you are in the 10% bracket, the government is effectively picking up only 10% of the tab. The same incidentally holds true for other tax deductions, such as charitable contributions. Also, even if they are home owners, people with lower incomes are more likely to take the standard deduction rather than itemize their taxes. The mortgage interest deduction only applies if you itemize.

There has been much discussion of trying to rationalize the tax system and bringing down tax rates, but to do so the base would have to be broadened through the elimination of deductions. The mortgage interest deduction is one of the biggest of these. An attempt that leaves the mortgage interest deduction in place would have to be mere tinkering around the edges. While the concept of lower rates and fewer deductions is a good one, transitioning from here to there in the current weak housing market is going to be difficult to say the least. The value of the mortgage interest deduction has largely been capitalized into the prices of existing homes. If it were to suddenly go away in a big tax reform, the result would be another sharp drop in housing prices, and with it the wealth of the middle class. I would greatly prefer a slow phase out of the mortgage interest deduction. Conceptually I am all in favor of getting rid of it, but doing so suddenly could have devastating consequences.

Despite the seasonal bounce in the unadjusted numbers, the second down leg in prices is probably still underway. Fortunately will probably be a much shorter leg than the first one. Still, that is bad news for the economy. Used homes make very good substitutes for new homes, and with a massive glut of used homes on the market, there is little or no reason to build any new ones. With used home prices falling, they undercut the prices of new homes. A homebuilder simply can not compete with a bank that just wants to get a bad asset, a foreclosed home, off of its balance sheet. Residential investment is normally the main locomotive that pulls the economy out of recessions. It is derailed this time around and there seems to be little the government can do to get it back on track. Eventually, a growing population and higher household formation will absorb the excess inventory. The key to higher household formation (Economist speak for getting the kids to move out of Mom and Dad’s basement and into a place of their own) will be more jobs. Unfortunately, residential investment is normally a key source of jobs when the economy is coming out of recessions. Sort of a tough chicken and the egg problem.

If the prices existing home prices can stabilize, and not just because of an expensive artificial prop, it will be extremely good news for the economy. It will stop the foreclosure problem from getting worse, since being “underwater” is a necessary, but not sufficient condition for a foreclosure to happen. It means that the wealth of the average American is not being eroded. That should help consumer confidence. It also lays the foundation for a pick up in new home construction. When that happens, the economy will see a huge benefit. This recovery has been lacking the normal locomotive, residential investment, which historically has pulled it out of recessions. When that locomotive gets back on track, the economy will pick up speed. Under the new GSE refinancing program, there are some incentives for people to use the refi to shorten up the maturity of their mortgage. That would help people get back into a positive equity position sooner, but not add a lot of immediate purchasing power to the economy. Paying down your mortgage is a form of “forced savings,” and a 15 year mortgage includes much more of this forced savings than does a 30 year mortgage.

Four months of ever so slight improvement on a seasonally adjusted basis is not enough to declare the end of this downturn, but it is a hopeful sign. The seasonal adjustments though are going to start to turn negative over the next few months, and thus the seasonal adjusted numbers will start to look weaker than the unadjusted numbers. Don’t get to frightened if that happens, even though the news reports will probably start to get hyperbolic about it. We are getting closer to the bottom in housing prices, but are not there yet.

- Posted by Dirk van Dijk, Chief Equity Strategist at Zacks Investment Research of Chicago. Follow Dirk on Twitter @DirkHvanDijk

Home Prices and the Disparity of Wealth

December 20th, 2011 by Andy in Taxes, The Commons & The Social Contract

We are not seeing any significant progress on the housing front. With existing homes, it is not the volume of turnover that is important, it is prices. The level of existing home sales is only significant relative to the level of inventories, since that provides a clue as to the future direction of home prices. If there is an excess inventory of existing homes, then it makes very little sense to build a lot of new homes. It is the building of new houses that generates economic activity. It is not just about the profits of D.R. Horton (DHI). A used house being sold does not generate more sales of lumber by International Paper (IP) or any of the building products produced by Berkshire Hathaway (BRK-B) or Masco (MAS). Turnover of used homes does not put carpenters and roofers to work. New homes do. When new home construction picks up, it could do so in a very big way (at least percentage wise) from the current extremely depressed levels, and the national home builders will probably pick up market share as hundreds of small mom and pop home builders have gone out of business in this downturn. A doubling in new home construction would still put the level of construction at historically very low levels, and many of the national builders could see their revenues triple or more.

Sales of existing houses simply collapsed in July 2010, after the home buyer tax credit expired, and have remained depressed ever since. The extremely high ratio of homes for sale to the current selling pace is likely to downward pressure on prices. Existing home sales in September fell by 3.0% from August, and the months supply edged up to 8.5 months. That is still high enough to indicate downward pressure on prices. That absolute level of listed existing homes for sale has been coming down, falling 2.0% in September, and off 13.0% from a year ago, but the level has to be judged relative to the sales rate. There is also still quite a bit of “shadow inventory” out there as well. That is homes where the owner is extremely delinquent in his mortgage payments and unlikely ever to make up the difference, but that the bank has not yet foreclosed on or foreclosed houses that have not yet been listed for sale. It also includes all those people who think that the decline in housing prices is just temporary, and are waiting for a better time to sell. The “new and improved” plan for refinancing underwater homes held or backed by Fannie and Freddie may indeed but a significant dent in the shadow inventory problem, but will not by itself solve it. The original HARP program was far less effective than everyone had hoped, reaching less than 25% of its stated objectives. Those that tried to take advantage of it were mired in endless paperwork and foot dragging on the part of the banks. The new program significantly streamlines the process, but only applies if your mortgage is held or backed by one of the GSE’s. Still that is a lot of houses, and should (provided it is executed well) make significant progress on keeping people who have stayed current on their mortgages in their homes.

I had been thinking that the decline would last through the end of the year, but that the size of the declines from this point would be limited. After that I expect a prolonged period of essentially flat prices for existing homes, not a sharp rebound. The flat period may well be coming sooner than I expected, but it is still to early to be sure. Prices have been edging up in recent months, but that is entirely due to seasonal factors, they have been flat at best on a seasonally adjusted basis. Given that there is significant seasonality to home prices, the adjusted numbers are the ones you should be focused on, even if the vast majority of the reporting will be based on the somewhat deceptive non seasonally adjusted numbers.

We are unlikely to have a decline anything like the first downdraft in housing prices. The reason is in data from graphs such as this. People need a place to live, but they do not have to own a house. They have the option of renting. A house is a capital asset, and the cash flow from owning that asset is in the form of rent you do not have to pay. One of the clearest signs that we were in a housing bubble was that the prices of houses got way out for line with rental prices. While on this basis, houses are not yet “cheap” on a national basis, neither are they absurdly expensive the way they were a few years ago. If prices fall too far from here, it will become cheaper to own than rent, and lots of people who are now in apartments will start to buy. Fortunately relative to the level of incomes and to the level of rents, housing prices are now in line with their long term historical averages, not way above them as they were last year. In other words, houses are fairly priced, not exactly cheap by historical standards, but not way overvalued either. That will probably limit how much price fall and I don’t think they will go down more than about 3% from current levels. That, however, is more than enough of a decline to do some serious damage. Housing is of course highly location dependent, and in many areas of the country it has already become cheaper to own than to buy. This graph also includes the CoreLogic housing price data which is similar to the C-20. Rental vacancy rates have started to fall significantly and in many areas of the country rents are rising, not falling. The price to rent ratio is already at the high end of normal based on the Case Schiller index, and in the middle of the normal range based on the CoreLogic index. Rising rents will move the ratio toward the middle or even low end of the range without more weakness in housing prices. The apartment oriented REITS such as Equity Residential (EQR) should benefit from this.

Existing home prices are vital. Home equity is, or at least was, the most important store of wealth for the vast majority of families. Houses are generally a very leveraged asset, much more so than stocks. Using your full margin in the stock market still means you are putting 50% down. In housing, putting 20% down is considered conservative, and during the bubble was considered hopelessly old fashioned. As a result, as housing prices declined, wealth declined by a lot more. For the most part we are not talking vast fortunes here, but rather the sort of wealth that was going to finance the kids college educations and a comfortable retirement. With that wealth gone, people have to put away more of their income to rebuild their savings if they still want to be able to send the kids to college or to retire. A dollar saved is a dollar not spent. If everyone starts to spend less at the same time, the economy will inevitably slow. While thrift may be a virtue on an individual level, it can be a vice at the macro level. Or to be more precise, the change in the attitude towards more thrift can be a vice at a macro level.

The decline in housing wealth is a very big reason why the recovery has been so weak. From the peak, about $7 Trillion in home equity has evaporated. With everyone trying to save, aggregate demand from the private sector is way down. If customers are not going to spend and buy products, employers have no reason to invest to expand capacity. They have no reason to hire more workers. To the extent businesses invest, it will be on projects that cut their costs, more often than not by replacing labor with capital. Investment in equipment and software has been quite strong in this recovery. Investment in equipment can be either a complement to increased employment, or a substitute for employment. If a business buys an additional truck, presumably it will need an additional driver. If they buy a factory robot, that robot might replace a factory worker. The evidence seems to suggest that lately there has been more substitution investment than complementary investment.

People pulling money out of their houses was a big force behind what growth we had during the previous expansion. Mortgage equity withdrawal, also known as the housing ATM, often accounted for more than 5% of Disposable Personal Income during the bubble, thus greatly lifting consumer spending. Since the bubble popped, people have been on balance paying off their homes (or defaulting on them through foreclosures). The comparison of charts from this report shows how important housing wealth is to the middle class. Unfortunately the two graphs are for two different years, and have different brackets in the pie slices, but they still illustrate the point. The first graph includes home equity wealth, the second looks only at stocks and mutual funds. The bottom 80% of the country has 12.8% of the total wealth in the country (including home equity), but just 8.9% of the stock market wealth in 2007. While large numbers of people have some exposure to the stock market, having 100 shares of Microsoft (MSFT) in your IRA does not make you Bill Gates. The top 1% own 38.2% of all the stock market wealth, and the top 10% own 81.2%. Even those numbers understate the disparity. The members of the Forbes 400 collectively have more wealth than the bottom half of the country combined. The Forbes 400 is overwhelmingly stock market based (or privately held corporations, which is effectively holding 100% of the shares outstanding of that firm). That disparity is a big part of the reason for the Occupy Wall Street Movement.

- Posted by Dirk van Dijk, Chief Equity Strategist at Zacks Investment Research of Chicago. Follow Dirk on Twitter @DirkHvanDijk

Nine Things The Rich Don’t Want You To Know About Taxes

November 22nd, 2011 by Andy in Taxes, The Commons & The Social Contract

Interesting insights from David Cay Johnston, one of America’s more knowledgeable sources on our political/economic/financial system, and how the system is gamed by the few at the expense of the many.

For three decades we have conducted a massive economic experiment, testing a theory known as supply-side economics. The theory goes like this: Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity?so much so that tax revenues will go up, despite lower rates. The late Milton Friedman, the libertarian economist who wanted to shut down public parks because he considered them socialism, promoted this strategy. Ronald Reagan embraced Friedman’s ideas and made them into policy when he was elected president in 1980.

For the past decade, we have doubled down on this theory of supply-side economics with the tax cuts sponsored by President George W. Bush in 2001 and 2003, which President Obama has agreed to continue for two years.

You would think that whether this grand experiment worked would be settled after three decades. You would think the practitioners of the dismal science of economics would look at their demand curves and the data on incomes and taxes and pronounce a verdict, the way Galileo and Copernicus did when they showed that geocentrism was a fantasy because Earth revolves around the sun (known as heliocentrism). But economics is not like that. It is not like physics with its laws and arithmetic with its absolute values.

Tax policy is something the framers left to politics. And in politics, the facts often matter less than who has the biggest bullhorn.

The Mad Men who once ran campaigns featuring doctors extolling the health benefits of smoking are now busy marketing the dogma that tax cuts mean broad prosperity, no matter what the facts show.

1. Poor Americans do pay taxes.
2. The wealthiest Americans don’t carry the burden.
3. In fact, the wealthy are paying less taxes.
4. Many of the very richest pay no current income taxes at all.
5. Since Reagan, only the wealthy have gained significant income.
6. When it comes to corporations, the story is much the same - less taxes.
7. Some corporate tax breaks destroy jobs.
8. Republicans like taxes, too.
9. Other countries do it better.

Read the analysis on each of these points Here.

Occupy Wall Street and Income Inequality

November 13th, 2011 by Andy in Taxes, The Commons & The Social Contract

The growing level of income inequality in this country is one of the major reasons behind the Occupy Wall Street (OWS) Movement. The non-partisan Congressional Budget Office (CBO) just released a major study of the long term trends. It basically confirmed what the OWS people have been saying, the rich are getting richer, and the middle class is vanishing. Virtually all of the real after tax income growth in the country went to the top 1%. Specifically:

“CBO finds that, between 1979 and 2007, income grew by:
275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent,
and 18 percent for the bottom 20 percent.”

As a result the share of income going to the top of the income distribution has soared, especially for the top 1%. The next 19% more or less saw their share of the total income in the country stay the same, and the bottom 80% saw a shrinkage in the size of their slice of the pie. This is shown in the graph below (from the report). The data is after taxes, and all federal transfer payments such as Social Security and Food Stamps. Both 1979 and 2007 represented the tops of the business cycle. However, it is important to keep in mind that the study looked at the average incomes in each period for each group. Not everyone that was in the top quintile in 1979 was still in that group in 2007.

The basic cause was due to market based incomes (i.e. income before transfer payments and taxes). All market based incomes grew, but the more concentrated types of income, such as capital gains and dividends, grew much more quickly than the more broad based income sources, such as wages and salaries. Within each source of market based income, the distribution was less equal in 2007 than in 1979. The change attributable to the two different sources evolved over the period studied, with increasing concentration within income categories being the predominate reason early in the period and the shifting composition of total income by category being more of the cause in more recent years. The share of total market income received by the top 1% of the population more than doubled between 1979 and 2007, growing from about 10% to more than 20%.

Government policy has done very little to lean against the wind. Yes those policies do tend to reduce income inequality, by about 20% in 2007 relative to what they would have been absent any taxes or transfers, but the amount of leveling impact from government policies has declined since 1979. In other words, government policy has contributed to the increase in income inequality over the period looked at. The very poor have done the worst, and government policy has been consistently working against them, or at least working for them less than it used to. The distribution of transfers shifted, however, moving away from households in the lower part of the income scale. In 1979, households in the bottom quintile received more than 50% of transfer payments. In 2007, similar households received about 35% of transfers. That is because more of the transfer payments were from programs that are not limited to the poor, such as Social Security and Medicare. Tax policy also exacerbated the growth in inequality. Over the 1979–2007 period, the overall average federal tax rate fell slightly, but the composition of federal revenues shifted away from progressive income taxes to less progressive payroll taxes. Relative to what market based incomes alone would produce, Government policy does help the poor. The bottom 20% of the population got just 2% of the market based income, but 4% of the after tax/after transfer income. It is not until you get to the 95th percentile (i.e. the highest income 5%) that the after tax/after transfer income is less than the share of market based income.

The Social Security Payroll tax was increased in 1982 to prepare the system for the eventual retirement of the baby boomers, which is now upon us. In the process the Social Security system built up a cumulative surplus of over $2.7 Trillion. Those funds were invested in the safest investment around, U.S. Treasury securities. In effect however that meant that the poor and the middle class, who pay the bulk of payroll taxes (they apply on the first dollar of income, but not after you have earned more than $106,700), were “subsidizing” the rest of the government, which we tend to think of as being paid for through income taxes, which tend to be much more progressive. The share of after tax, after transfer income going to the top one percent more than doubled, growing from 8% to 17%. The share going to the poorest 20% fell to 5% from 7%. In 1979, the top 1% received about the same share of after tax, after transfer income as the lowest income quintile; by 2007, the top 1% received more than the lowest 40% combined.

While there are some obvious political implications to this report, there are also some important investment implications as well. If you think that these trends will continue, or at least the income shares will not reverse course, then the place to put your investment dollars to work is in firms that cater to the wealthy. In retail, that would mean preferring Saks (SKS) over say Family Dollar (FDO). It means that wealth management firms such as Legg Mason (LM) are well positioned to prosper in the future. Overall, it is a net negative for most consumer products firms, particularly in durable goods. After all, how many washing machines is Whirlpool (WHR) going to sell Warren Buffet? It is a vibrant middle class that provides the bulk of the demand for such firms. If the middle class is being hollowed out, and all the income (or at least the growth in after tax income) is flowing to the very top of the income distribution, then there will not be much growth in the demand for such products. However, a firm like Brunswick (BC) which makes yachts would see smooth sailing. On the other hand, if you think that the trend will reverse (one of the objectives of the OWS crowd) then companies that sell to the masses might be well positioned to prosper.

Which direction things go will greatly depend on the outcome of the 2012 elections. Obama has proposed some policies that would, at the margin reverse the trend, particularly on an after tax/after transfer basis. For example, letting the Bush tax cuts on those earning over $250,000 would be a step towards reversing those trends. Most of the GOP candidates on the other hand have proposed policies that would extend and even accelerate the trend. Most have called for the elimination of the inheritance tax (a.k.a. the death tax) which only falls in the very wealthy. Several have called for also getting rid of taxes on Dividends and Capital Gains, which overwhelmingly flow to the very top of the income distribution. Assuming that the stock market actually tries to discount future earnings (a pretty good assumption), then the shifting polls next year on who is likely to win the 2012 election will provide some clues as to the relative performance of those firms that cater to the rich, and those that cater to the bottom 80% of the population.

- Posted by Dirk van Dijk, Chief Equity Strategist at Zacks Investment Research of Chicago. Follow Dirk on Twitter @DirkHvanDijk

A Real-Market Alternative

September 27th, 2011 by Andy in Taxes, The Commons & The Social Contract

David Korten lays it out pretty succinctly Here. This is especially recommended for all of my ‘free market’ espousing compatriots.

The economic choice we face is no longer between capitalism and communism, but rather between Wall Street and Main Street.

The Wall Street economy is centrally planned and managed by big banks and corporations for which money is both means and end. The primary goal is monopoly control of markets, physical resources, and technology to maximize profits and bonuses.

Main Street economy is comprised of local businesses and working people who self-organize to provide livelihoods for themselves, their families, and their communities producing real goods and services in response to community needs. Main Street exemplifies the market economy envisioned by Adam Smith; Wall Street is the antithesis.


[Adam] Smith believed that people have a natural and appropriate concern for the well-being of others and a duty not to do them harm. He also believed that government has a responsibility to restrain those who fail in this duty.


Capitalism is a term originally coined to refer to an economic and political regime in which the ownership and benefits of capital are appropriated by the few to the exclusion of the many who through their labor make capital productive. It describes Wall Street perfectly.

The “free market,” a code word for an unregulated market, is a contradiction. A market without rules facilitates and encourages the unlimited concentration and abuse of corporate power unconstrained by market discipline and democratic accountability.

Market fundamentalists selectively cull bits and pieces of market theory to argue that the public interest is best served when economic power is concentrated in unregulated globe-spanning mega-corporations engaged in monopolizing resources and externalizing costs for short-term financial gain. They distort market theory beyond recognition.

Like cancer cells that attempt to hide from the body’s immune system by masking themselves as healthy cells, Wall Street institutions attempt to conceal themselves from society’s immune system by masquerading as agents of a healthy market economy.

Read The Full Article

Time For An Economic Reality Check

May 17th, 2011 by Andy in Taxes, The Commons & The Social Contract, Video

Tim Jackson lays out the case for the need for a whole new frame of how we view the role of economics in a society, and how we measure what is valuable in human life within that society. If we lived in a just world, there would be people like Jackson in positions of political decision making power.

The Wall Street Journal: Plutocracy Now!

April 16th, 2011 by Andy in Taxes, The Commons & The Social Contract

The editorial board of the Wall Street Journal has weighed in quite clearly regarding its position on the current controversies over the federal budget, and Obama’s public address concerning it…

Mr. Obama then packaged his poison in the rhetoric of bipartisanship-which ’starts,’ he said, ‘by being honest about what’s causing our deficit.’ The speech he chose to deliver was dishonest even by modern political standards.

Here, the editorial staff of the Wall Street Journal choose to deliver commentary astonishing in its dishonesty and disingenuousness, “even by modern political standards.” It is shameless in its promotion of a neo-liberal economic ideology, the implementation of which has been a “package” of “poison” for the large majority of the American body politic for decades now. It is a piece absent of accountability for the real world effects of those policies, and is removed from the corresponding empirical reality as that which is experienced by the large majority of citizens in this country. It is a piece saturated in hypocrisy, particularly of the moral kind.

Always reliable as one of the prime mouthpieces for the promotion of plutocracy, the WSJ outdoes itself with this one in its inversion of reality in order to maintain a political status quo designed to benefit its true patrons, the constituency that it really serves (hint: that constituency and its operative agenda has little to nothing to do with the protection and promotion of a democratic society). The paper’s editorial allegiance is towards promoting a form of governance the elite few have always craved since the founding of this country, that being one which is designed for maintaining a structure of governance that James Madison described (supportively, as a matter of fact) as one to “protect the opulent minority against the majority.”

The editors of the WSJ seem to be celebrating a system which results in 400 Americans possessing more wealth than the bottom 50% of over 150 million Americans combined, and seems to find nothing wrong with the idea that dozens of hedge fund managers (people who produce nothing but new methods of rearranging the flow of money in the economy in order for them to get more of it), earn more in one hour than a normal middle class household makes in over 47 years.

Rep. Paul Ryan, who is playing point man for the GOP’s hit squad on the social contract, and whom the WSJ lavishes with admiration for, isn’t a principled defender of fiscal responsibility, as he lauded by many to be. He’s simply a coward. If he had any real courage, and if the plutocratic elites driving this policy were serious “deficit hawks,” they would be going after the principle policies and the real players responsible for those policies which have created this dire crisis in the first place, instead of further rewarding those same people and the institutions which they operate from which have driven our nation, and our world, to this point. as the evangelical theologian Rev. Jim Wallis has so aptly described them, Ryan and his sort are simply spoiled “bullies.”

Wallis points out, as do a large contingent of other moral and religious leaders in our country, including the United States Conference of Catholic Bishops, “a budget is a moral document,” and is a statement of choices. As the USCCB stated regarding the proposed budget:

A central moral measure of any budget proposal is how it affects “the least of these” (Matthew 25). The needs of those who are hungry and homeless, without work or in poverty should come first. Government and other institutions have a shared responsibility to promote the common good of all, especially ordinary workers and families who struggle to live in dignity in difficult economic times.

Wallis himself is currently engaged in a hunger fast to bring focus on the real dimensions, the real issues being raised by this whole budget issue…

We’re on the 18th day now of this hunger fast, because I think the issues around this budget are that serious. And so, about 40,000 people joined this fast, even about 29 members of Congress. And the message is very clear. A budget, whether at a kitchen table or in Washington, D.C., a budget is always a matter of choices. The framework in this debate is just wrong….

They were talking about cutting $8.5 billion from low-income housing, but keeping the same amount of money, $8.4 billion, for deductions on second vacation homes-a different kind of housing. Those are choices. $2.5 billion for cutting home heating oil for poor people, and yet $2.5 billion for offshore drilling subsidies for oil companies-those are choices. Amy, they want to cut, in this budget, 10 million malaria bed nets that keep kids from dying, and yet not one line item of military spending. And so, this is really not scarcity; it’s choices.

In reference to Rep. Ryan’s assertions that continued support of a social safety net is creating “a hammock, which lulls able-bodied people into lives of complacency and dependency,” and that this is about “depending on bureaucracy to foster innovation, competitiveness and wise consumer choices” is, to borrow a descriptive term from the well-compensated scribes of the WSJ, “ludicrous.” As Wallis points out…

To suggest the safety net has become a hammock shows me Paul Ryan has never been around poor people. I’d like to take him on a journey into the inner cities of his own state and around the world. Paul Ryan is acting like a bully. You know, bullies pick on people who have no clout. He’s not picking on the people who have the real money. He’s not asking his rich friends to sacrifice. He’s acting like a bully. And so, this has to be-this has to be said out loud. You know, if you don’t understand the struggles of ordinary people in this country, and you call their life a hammock, you’ve never been any place where there are poor people.

You know, the faith community, all the time-my brother in Detroit runs an organization that takes care of vulnerable people. His budget is being cut every day by the governor there. He’s losing staff every day. In my hometown of Detroit, the river of pain is rising. He goes home at night to a house, his own house. It’s under water and where the police don’t even come ’til the next day if there’s a burglar alarm. So, men with guns are stripping houses, drinking their Budweiser, while the alarm goes off, and people like my brother live in fear. Paul Ryan doesn’t even know that world. He lives with rich people. You know, bullies pick on poor people. If he’s a budget hawk, he should go to where the money is. But he won’t, because he doesn’t have any courage.

You can read and watch the full interview roundtable discussion on the Obama budget plan and the state of the U.S. economy with Rev. Wallis, along with author Thomas Frank, and activist/philosopher Grace Lee Boggs.

The fact is the Wall Street Journal editorialists and their allies of concentrated wealth and power are not series about “waste and abuse” in our nation’s budget, at least as most Americans would understand the what the term “waste and abuse” denotes. After all, some of the most enthusiastic patrons of the WSJ ideological line are the biggest beneficiaries of that “waste and abuse.” Through vast levels of unaccountable and uncontrollable corporate welfare, these entities are recipients of often staggering quantities of appropriated wealth, accomplished through the manipulation of the government as a tool of leverage for financial and political advantage and gain.

The corporate welfare queens, for which the WSJ serves as a standard bearer for, talk about the need for budget restraint, yet they adamantly refuse to allow for any discussion within the budget process regarding such things as the nearly $40 billion dollars a year in public welfare subsidies to oil and gas corporations, or that of the tax breaks given to corporations that move domestic jobs to overseas locations to be performed in near slave-labor conditions. There is no discussion regarding the billions passed along in subsidies to corporations for a whole range of things, including the private commodification of products and research originally developed through tax payer funded research and development (including the internet, or prescription drugs which are sold for private profit, after being developed from federal research, and so forth).

There is, of course, no reference to these corporation’s free use of the public airwaves for their own private profit without any return to the public, nor to the the tax write-offs they are granted for advertising expenditures, often the same advertising they use to propagandize for yet more tax breaks. No mention is made in regards to the subsidies for huge multi-national agribusiness firms in the name of supporting “the family farm,”and on and on. There simply are no proposed cuts to taxpayer-funded programs which are on the table that lobbyists and corporations do not allow to go on that table.

Of particular note regarding both Ryan’s GOP budget plans as well as that of Obama administration, is that there is no mention within any proposal to reduce military spending by even a single dollar. Arguments coming from Rep. Ryan and his supporters, as well as lawmakers from the Democratic party, that somehow the military budget is sacrosanct, due to the inviolable need for American “national security,” is laughable on its face. Obama, Ryan, and their cohorts represent the same interests that have been promoting and benefiting from the ongoing litany of so-called economic “free trade” policies. These are the same policies which have led to the infrastructure of American financial and industrial security being transferred from the U.S. and placed into the hands of foreign interests.

Most notable among these foreign parties is China, whom as the location for the present bulk of American industrial capacity, and the largest direct investor in the U.S., is currently propping up our economy through its possession of over 2 trillion dollars of foreign exchange assets, of which 1.6 trillion of that is in U.S. dollars. American politicians, and Republicans in particular, like to talk tough about the sanctity of spending untold billions upon billions in the name “American freedom,” yet totalitarian China would simply need to put those 2 trillion dollars it holds onto the international market, and the U.S. economy would collapse overnight. No million-dollar-a-piece Tomahawk cruise missile, or billion dollar B-2 bomber would be able to do a thing about it.

As for serious budgetary alternatives to our Tweedledee and Tweedledum debates taking place between the GOP and the Obama administration, there is the (somewhat unfortunately named) “People’s Budget” proposal from the congressional progressive caucus, the largest caucus in congress. It addresses much more thoroughly the marked and ethically-challenged discrepancies currently incorporated (no pun intended) into the GOP and Obama administration’s budgetary priorities.

This is an explanatory editorial on the proposal from the budget’s co-sponsor Rep. Keith Ellison, referencing how it “shuts down corporate giveaways that put small businesses and workers on an uneven playing field.”

You can also Read and watch and interview with the budget’s co-sponsor Rep. Raúl Grijalva regarding this proposal.

Here is another piece by Rep. Mike Honda and Rep. Grijalva on A Real Democratic Budget that Serves the Interests of the American People.

One thing that does resonate as an intellectually honest statement from the WSJ, however, is their concern regarding different spending priorities bringing about “a fundamentally different America than the one we’ve known throughout most of our history.” The history of this nation has always been marked by struggle between the rule of “the opulent minority over the majority” and the dynamics of class control, which the good “Marxists” that the scions of the WSJ truly are. And yes, they are adherents of a Marxist world view, in that they continually reiterate their belief in the tenets of dialectic materialism and the class dynamics of economic theory that Marx proposed, though simply in a thoroughly inverted way. It is rather analogous to that of a Satanist being an inverted Christian, buying into the ontological premise of the Christian faith, but simply asserting allegiance for a different side in the struggle. Thus, to claim that the ideology of Marxism is bunk, which so many on the spectrum of the Greenspan-Friedman laissez fairyland right like to so passionately do, is to also claim that the ideology promoted by the likes of the editors of the Wall Street Journal and their cheerleaders is also bunk. But we digress.

The “fundamentally different America” that the scions of the Wall Street Journal are afraid of seeing is one in which real, meaningful democratic accountability and control comes to the fore in the governance of American society. One in which truly democratic structures are enabled, in which people are free and equal participants in controlling the institutions in which they live and work. A society in which they are meaningful participants, where they can decide on real policy priorities, and not just on what personal qualities they prefer in their rulers. It is a system where political activity isn’t simply an arm of the public relations wings of corporate power, organized in order to keep people distracted enough so that the “ignorant and meddlesome outsiders” (to use the description of the populace by the American liberal intellectual and public relations pioneer Walter Lippmann ), won’t get involved in any real decision making. Go ahead and give them power to make individual consumer choice (and brand it as “democracy”), but keep their involvement as marginalized as possible from effective organized impact upon the actual realm of social and civic policy.

The historical America that the WSJ wants to preserve is the one in which power is accrued by the “opulent minority,” particularly through the financial sectors of the American economy. This is an America replete with the layers of legal protections, bound up within the history of American jurisprudence and insulated with a protective layer of stare decisis, developed in order to prevent real challenge to the validity of these precedents from just and logically coherent arguments. These layers of law, often formulated simply by the actions of a few judicial interpretations, are designed to protect that process of unaccountable accumulation of power and wealth (read: political control, since wealth converts to political influence, thus concentrated wealth converts to concentrated political power). This is the vision of American governance which stands upon the bedrock principle underlying the ideology promoted by the Wall Street Journal, and which was proclaimed by America’s first chief justice of the Supreme Court John Jay: “Those who own the country ought to govern it.”

This goes to the heart of truly understanding what the issue really is and what the stakes really are regarding the current battles now raging around the America’s economic crisis. The arguments have effectively little to do with the mechanics of fiscal restraint and responsibility, and pretty much everything to do with want kind of country this is, and what kind of country (and world) this is going to be.

One thing that most everyone can agree on, though, is that things are not sustainable as they are, and that change is essential (if not inevitable). The question is what will the nature of that change be? What kind of society are we collectively interested in seeing sustained within which we all must live? And do we want to see democratic structures governance be the governing platform for creating a civic society of responsible accountability? Or should we cede effective decision making power to oligarchic of control?

Perhaps we will promote a structure of governance that believes in the absolute primacy of the individual, where the notion of society itself is treated as an abstract that can only serve as a source of oppression and control? Margaret Thatcher’s proposition that there is no such thing as society, only individuals acting in that society, comes to mind. In such a society, we pretend that we are wholly independent actors, and that our actions and the results of them are all individually and independently earned. This view limits the recognition the role that the existing societal structures have enabled these individual accomplishments to flourish.

In such a society, protection from the most devastating effects of old age, poverty, or unforeseen illness and depravation from circumstances beyond our control, are our individual responsibility to address and compensate for, regardless of how much responsibility for them may lie within factors resulting from conditions within the society in which the individual lives. Conditions for which is asserted that there is no collective responsibility for. In essence, this is living by a code which says, “I’ve got mine, sorry about your luck.”

Or are we going to collectively organize how we live with and amongst each other upon the principles of mutual understanding and the provision of justice, equality and human dignity? Will our actions be animated by such principles as those asserted by the likes of Jesus and so many of the great spiritual teachers throughout the ages, who reiterated again and again about how our moral and spiritual character is defined by how we treat and care for the least among us, not by how materially successful we are.

Bill Moyers, in a speech from 2003 and one well-worth recalling today ( ), brought to succinct clarity what the deep-rooted, shared principles of the large majority of Americans are…

“That a Social Security card is not a private portfolio statement but a membership ticket in a society where we all contribute to a common treasury so that none need face the indignities of poverty in old age without that help. That tax evasion is not a form of conserving investment capital but a brazen abandonment of responsibility to the country. That income inequality is not a sign of freedom-of-opportunity at work, because if it persists and grows, then unless you believe that some people are naturally born to ride and some to wear saddles, it’s a sign that opportunity is less than equal. That self-interest is a great motivator for production and progress, but is amoral unless contained within the framework of community. That the rich have the right to buy more cars than anyone else, more homes, vacations, gadgets and gizmos, but they do not have the right to buy more democracy than anyone else. That public services, when privatized, serve only those who can afford them and weaken the sense that we all rise and fall together as “one nation, indivisible.” That concentration in the production of goods may sometimes be useful and efficient, but monopoly over the dissemination of ideas is evil. That prosperity requires good wages and benefits for workers. And that our nation can no more survive as half democracy and half oligarchy than it could survive ‘half slave and half free…’ ”

Are we going to organize the processes of governance upon the foundational principles laid out in our original Declaration of Independence, which asserted the right of the people to organize government in such a form as to most likely “effect their Safety and Happiness”? Or are we going to allow for a government that is, in the words of the Nobel prize winning economist Joseph Stigliz, of the 1%, by the 1%, for the 1%?

Who will it be that will decide this? Those who want to see themselves as an elite class of decision makers, a oligarchic society of what are effectively plutocrats, whose prime directive is the ensure that those who govern society are the ones who own it? Or will these decisions be made by the demos, the people collectively, in a process of true demokratia, where we insist on a society that provides for the social, economic, and cultural conditions which are essential for a truly free and just practice of living lives of authentic self-determination?

That is what we have to decide.

- Andy Valeri; USTV Media

What Would Jefferson Do? How The Concept of ‘Limited Government’ Got Turned Upside Down

April 7th, 2011 by Andy in Taxes, The Commons & The Social Contract

An essential read on how the very notion of “limited government”, originally designed to protect the principles of republican government, have been turned inside out by elite wealth and power, turning what was a philosophy to be used as an “anti-aristocratic sword into a shield for concentrated wealth.”

This is a must read particularly for those ascribing to what are referred to as “Tea Party” principles, and consider them to be a manifestation of original American founding principles.

For the “New Right” movement inspired by Goldwater and Reagan after 1964, attacking the welfare state was a political reenactment of the American founding—a revival, they claimed, of “Jeffersonian democracy.” When they cut taxes, they talked about the Boston Tea Party. When they opposed campaign finance reform, they argued that giving money to politicians is a form of protected speech under the First Amendment: limiting such money is no better than shutting down newspapers or throwing people in jail for calling King George III a tyrant. Even Milton Friedman joined the “founding principles” crusade, arguing in his 1980 bestseller Free to Choose that the modern Democratic Party is the “greatest threat” to everything Thomas Jefferson believed in….

Such thinking sounds right to many people because it is rarely challenged on its own historical merits.


The new laissez-faire of the Reagan-Bush era was not a revival of the founders’ vision of limited government; nor did the New Deal liberalism so despised today tear up the roots of our country in expanding the role of government, as conservatives argue. To the contrary, the kind of society the founders envisioned had no hope of survival without such innovations in government.

The New Right’s “Jeffersonian philosophy” of limited government ignores the most basic historical element of laissez-faire thinking in early America: the direct, radical purpose of disabling the political power of the aristocracy. As historian James L. Huston writes, it was against the “political economy of aristocracy,” government organized by and for a small, wealthy elite, that supporters of the American revolution embraced the “egalitarian promise of the negative state.” The ideal, simply, was a system that restricted the legal and political power of the wealthy, in order to prevent them from combining against independent smallholders and those without property. Limited government, in other words, was a “populist” ideal, a doctrine of the many versus the few. As a group of North Carolina democrats petitioned in 1776, when “fixing the fundamental principles of Government,” the goal should be to “oppose everything that leans to aristocracy or power in the hands of the rich and chief men exercised to the oppression of the poor.”

Beneath this fear of oppression, popular demand for limited government was shaped by two basic assumptions: first, that building a genuine republic depended on a broad, equitable distribution of productive property and second, that inequitable distributions of property were caused primarily by government actions that favored the rich—thus the need for limited government.


Noah Webster expressed this view in his 1787 tract “An Examination into the Leading Principles of the Federal Constitution.” As he wrote, “A general and tolerably equal distribution of landed property is the whole basis of national freedom . . . the very soul of a republic.” When this equality holds, “the people will inevitably possess both power and freedom….” As one regulator theorist argued in the Cumberland Gazette of Falmouth, Maine, in 1786: “Equality of property is the life of a Republican government; destroy that equality and the principles of the government will be wholly corrupted, while the form remains a cloak for oppression and tyranny.”


“Wealth, like suffrage,” Taylor wrote in his Inquiry Into the Principles and Policy of the Government of the United States, “must be considerably distributed, to sustain a democratick republic; and hence, whatever draws a considerable proportion of either into a few hands, will destroy it. As power follows wealth, the majority must have wealth or lose power.”


Set against this historical backdrop, the last three decades of resurgent laissez-faire can only be described as a betrayal of Jeffersonian ideals: the New Right’s attack on government has been accompanied, not by growing economic equality, but by record levels of inequality. In fact, wealth is more concentrated today than it was at the time of independence. Those in the richest 1 percent today hold about three times the share held by their counterparts in the late eighteenth century.


In the middle and late decades of the nineteenth century, the laissez-faire advocates of old turned against limited government as an egalitarian strategy, and instead sought political power, collective bargaining, and social protections. The new political approach, as FDR would later explain so powerfully, retained the egalitarian vision of laissez-faire while necessarily rejecting its applicability to contemporary realities, where the threat of a new aristocracy had already long been realized. Limited government was no Jeffersonian answer to the robber barons or the modern corporation.

However, as central government absorbed and adjusted to these democratic pressures, laissez-faire theory was revived in a mutant form that divorced it from egalitarian goals. Essentially, the whole idea was turned on its head, becoming a doctrine of elite self-defense.


As legislatures began to inject new public standards into the private economy, elite laissez-faire found its last redoubt in an activist Supreme Court. Lochner v. New York (1905), casting down a state law limiting bakery workers’ hours as an infringement of “liberty of contract” under the Fourteenth Amendment, was the flagship of this new “laissez-faire constitutionalism,” which stymied social reforms for three decades thereafter.


The new laissez-faire detached limited government from egalitarian goals and actively dismantled relative equality through tax changes, spending cuts, and regulatory retreat on labor and civil rights. As the economist Robert Solow described it, the New Right platform amounted to little more than elite plunder—“the redistribution of wealth in favor of the wealthy and of power in favor of the powerful.” It succeeded: nearly all of the wealth America created over the last twenty-five years was captured by the top 20 percent of households, who now pay only a penny more on the dollar in total taxes than the poorest 20 percent.


Furthermore, leading policies of the free-market right directly violate the founders’ expressed policy principles. The “flat tax” promoted by Cato and other libertarian groups is perhaps the most blatant of these. As Jefferson himself wrote, in a letter to Madison, “[a]nother means of silently lessening the inequality of property . . . is to tax the higher portions of property in geometrical progression as they rise.” In contrast, the Hall-Rabushka-type flat tax Cato pushes (developed by two Hoover Institution economists in the 1980s) would tax all labor earnings (including fringe benefits) and corporate profits at a single low rate, while entirely excluding capital gains and wealth from taxation. This will be a “tremendous boon to the economic elite,” Hall and Rabushka state in their book The Flat Tax, first published in 1983.


Indeed, as a proponent of public works and social investment, Jefferson openly celebrated the collective benefits of taxing the rich. In an 1811 letter to Pierre Samuel du Pont de Nemours, he wrote, “Our revenues once liberated by the discharge of the public debt, and its surplus applied to canals, roads, schools, &c., and the farmer will see his government supported, his children educated, and the face of his country made a paradise by the contributions of the rich alone, without his being called on to spend a cent from his earnings.” Today such a view is called “class warfare.” Jefferson called it democracy.

Read The Complete Essay

The Real Story of How Our Economy Has Reached This Bleak Point

April 3rd, 2011 by Andy in Taxes, The Commons & The Social Contract

This is an informative overview of the historical path and the policies created during it which have led us directly to our current economic predicament. Highly recommended, and well worth passing along to others.

For more than a quarter century after WWII the fruits of America’s productivity were shared with average working people, year in and year out. Not anymore.


This upwardly mobile economy changed during the 1970s, and it wasn’t an accident. That’s when our nation’s leaders embarked on a series of policies that were supposed to break down stagflation and rebuild our economic miracle. We now call it neo-liberalism. That’s when we decided to unleash innovation through deregulation, especially financial deregulation. That’s when we lowered taxes on the wealthy. That’s when we pushed forward globalization. That’s when we stopped raising the minimum wage. That’s when we undercut the labor movement. All this was supposed to make the economy boom and reignite the post-WWII economic miracle.

These policies, not the blind actions of markets, broke open the cookie jar of productivity. And there was plenty in there to take: Since 1975, productivity increased by nearly 180 percent – meaning that we almost tripled what we could produce per hour of labor. But unlike the post-WWII period, it wasn’t shared. Here are the brutal facts:

* The average real wage of the non-supervisory production workers (which comprise 82.4 percent of total private non-farm employees) actually declined by 9 percent between 1975 and 2010.

* Meanwhile the top 1 percent saw their share of national income rise from 8 percent in 1975 to 23.5 percent in 2005

* More amazing still, the wage gap between the top 100 CEOs and the average worker jumped from $45 to $1 in 1970 to an unbelievable $1,723 to $1 in 2006

* Today after the crash, financial incomes are so enormous that in 2010, John Paulson, the top hedge fund manager, earned $2.4 million an HOUR (not a misprint), and his tax rate is less than yours


It’s not just that theft of society’s productivity is unfair. It’s also incredibly dangerous. We learned both in 1929 and in 2008 that when you combine financial deregulation with too much money in the hands of the few you get a casino, a bubble, and then a crash. In the most recent crash, the super-rich had so much capital they ran out of real investments in goods and services. So Wall Street came up with new exotic bets on subprime loans to soak up the excess capital. But the fundamental cause was that the super-rich walked off with years and years of productivity gains that should have gone to working people in the form of higher wages and benefits. Show me a worker who invests in synthetic CDOs.


First of all, there would be no state and local budget gaps were it not for the fact that the Wall Street crash destroyed more than 8 million jobs in a matter of months. In any rational world, the Wall Street gamblers would be paying reparations for the damage they’ve caused, rather setting record profits based on our bailouts.

Second, the richest hedge fund honchos are the glorious beneficiaries of a tax loophole that allows them to pay a maximum federal rate of 15 percent instead of 35 percent. Closing that loophole on just the 25 richest hedge fund managers produces twice the revenue as does Obama’s wage freeze on two million federal employees.

So join me in waving Chairman Ike’s little red book. Close the hedge fund loophole and jack up the top income tax rates – way up to where they belong. Raise the minimum wage and index it permanently to inflation. Invest in infrastructure and education to put our people back to work. And stop wasting our resources on war and weapons that no one needs, or on wasteful arguments about how many teachers and cops to fire.

Ike was a staunch capitalist and usually believed in the invisible hand of the market. But he wouldn’t be letting it give us the finger.

Read The Complete Article

Losing Our Way

March 26th, 2011 by Andy in Taxes, The Commons & The Social Contract

Bob Herbert concludes his tenure at The New York Times with this strikingly spot on piece. America - losing its way and its wealth to the very, very top echelon of society. Like a malignancy, where a few cells consume all of the vital nutrients of the body, including the other cells of the body itself until death brings the process to a terminal end, the assimilation of practically all of the nation’s productive wealth by the very few portends a terminal future for what is left of the republic. This isn’t scaremongering, this is simply pointing out a historical eventuality. For every society in history which has seen these same conditions of wealth division between the rich and poor, between the haves and the have nots, become wider and wider and deeper and deeper, will inevitably implode. The longer the disease manifests, the more disturbing the conditions of collapse (and often revolutionary turmoil). That process may also pass through an era of full fledged totalitarian repression, which adds to the misery as well.

The U.S. has not just misplaced its priorities. When the most powerful country ever to inhabit the earth finds it so easy to plunge into the horror of warfare but almost impossible to find adequate work for its people or to properly educate its young, it has lost its way entirely.


There is plenty of economic activity in the U.S., and plenty of wealth. But like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007 [that is a moral obscenity for which there is no reasonable excuse - USTV Media ed.], the most recent extended period of economic expansion.

Americans behave as if this is somehow normal or acceptable. It shouldn’t be, and didn’t used to be. Through much of the post-World War II era, income distribution was far more equitable, with the top 10 percent of families accounting for just a third of average income growth, and the bottom 90 percent receiving two-thirds. That seems like ancient history now.

The current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation’s wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent.

This inequality, in which an enormous segment of the population struggles while the fortunate few ride the gravy train, is a world-class recipe for social unrest. Downward mobility is an ever-shortening fuse leading to profound consequences.

A stark example of the fundamental unfairness that is now so widespread was in The New York Times on Friday under the headline: “G.E.’s Strategies Let It Avoid Taxes Altogether.? Despite profits of $14.2 billion - $5.1 billion from its operations in the United States - General Electric did not have to pay any U.S. taxes last year.

Didn’t hear about that on the news? Perhaps the fact that GE owns one of the largest corporate media conglomerations on the planet might have something to do with that. And now with GE CEO Jeffrey Immelt on leading Obama’s Council on Jobs and Competitiveness, you can kiss any serious attempt at addressing the systemic conditions causing this whole situation goodbye.

Overwhelming imbalances in wealth and income inevitably result in enormous imbalances of political power. So the corporations and the very wealthy continue to do well. The employment crisis never gets addressed. The wars never end. And nation-building never gets a foothold here at home.

New ideas and new leadership have seldom been more urgently needed.

Read the full text of Bob Herbert’s final column for the New York Times Here.

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