Saturday, July 10, 2010

Ignorant Politics of Envy, Still More

Respected Gentle Reader JB in CA posts significant questions about our assertions in our recent post "Ignorant Politics of Envy on a Rampage." In response, we offer this rambling answer, too long to post as a comment on his comment and too likely to provide massive insight to all Gentle Readers to be consigned to a series of comments only:

First, we find the so-called "better for democracy" argument for redistributive taxes on the wealthy to be at best of marginal importance and at worst (and closer to the reality) an example of the kind of idea that, if acted upon, creates a worse situation in its solution that in the so-called problem.

That's maybe the worst sentence we've ever written, so we'll try to clarify. Sure the money of the rich is influential in politics, but it tends to cancel itself out inasmuch as the rich don't have a singular political point of view. Soros is an example deliberately chosen, as he bankrolls the far left presently. His kind is always around. Why do Democrats spend so much time raising money in Henry Waxman's congressional district?

But stipulating that the problem is real, the solution is worse, because it then invests power in gatekeepers who decide who does and doesn't get to spend money on political speech or who decide how little money people get to keep to curtail their power. The answer to the latter, of course, falls broadly at levels that no one seriously contemplates putting into practice, as they require confiscation that would utterly destroy economic activity. Lesser practical tax rates simply don't reduces the wealthy to anything resembling parity. They'll still shell out, probably to get their taxes reduced!

Third, we don't think that voters are so stupid that they can be utterly manipulated all the time. See the famous quotation widely attributed to Lincoln, about fooling some or all people some or all of the time. Yes, money influences politics, but the very fact that the body politic, pummeled with political speech underwritten by the rich, moves first to the left and then to the right demonstrates that no one is managing to manipulate consistently. So if rich people want to spend their fortunes arguing with each other about politics, let them. We'll all listen and then vote more or less as we probably would've otherwise.

We even doubt that money makes the debate toxic. It makes it loud and ubiquitous, maybe. But as to toxicity, we think that has nothing to do with money. Before politicians raised huge sums, they still talked nasty.

Now to the specifics of tax cuts, we take issue with an assertion or two. First, we doubt that businesses are sitting on $1.7 trillion in cash right now (correlative fact to lack of hiring, of course) merely because they fear a double-dip but because they fear the need for massive liquidity. That's a consequence of three things, two of which could be addressed by our government. The one that's fixed is the recent liquidity crisis, which makes cash king for all who lived through it. The second is the constant chatter about higher taxes for corporations or for carbon emissions or other presently stylish villains. The third is the awful financial bill presently before Congress, which would stupidly require the same capital margins for real-economy businesses buying derivatives to hedge their losses as for banks that buy them as speculative investments.

So if tomorrow the governing party said, no we won't raise taxes on anything presently, and we won't legislate capital requirements for derivatives used as a hedge against losses in direct investments, we'd see a positive move on the capital markets. That it turn would lead to higher employment, as all that money would begin to move into something that would spur activity (it always does, and global money looking for a home doubtless fueled the just-ended housing boom, at least in part).

Now, please don't assume that by talking about higher or lower taxes on the rich we are speaking about tax policies in their entirety. We speak only in response to the present administration's and others' call for higher taxes on the so-called rich, as if doing so somehow benefited the not-rich. Inasmuch as economic theory and history show otherwise, it's simply a bad idea that we think indicates bad faith on the part of politicians who have to know that they're simply appealing to people's envy.

If we were to pick a tax to lower, it'd be corporate income, inasmuch as our Republic's rate is higher than everyone's in the world except Japan's. We've got some generous deductions to soften the blow, like accelerated depreciation schedules and the like, but the rate is just astronomical. People live with the comforting illusion that by taxing corporations, they're putting money in The People's hands, when in fact they're making prices higher, exports less competitive, businesses harder to keep afloat, capital harder to raise, and dividends (which get paid out to lots of people who aren't rich, like retirees with mutual funds in their IRAs and 401[k]s) lower.

So lower the corporate rate, maybe reduce or eliminate some corporate deductions to offset a part, and watch what happens.

If we're talking about a tax cut for individuals, sure, make it across the board. Of course, that's effectively a tax cut for the rich in the jargon of Jackson's party, even if it benefits just one rich person. We pointed out to some folks in the early part of the previous decade that the awful Bush tax cuts for the rich temporarily reduced the SWNIDish federal income tax to zero, apparently affirming that SWNID was temporarily rich. So yes, across the board tax cuts.

But note well that with the present structure of taxes, cuts to federal personal income taxes will benefit only the little more than half of households who actually pay federal income tax. So if such are proposed, expect Jackson's party yet again to say that if a tax cut is to benefit everyone, it has to mean a redistributive tax refund to people who don't even pay income taxes. The rhetoric on this subject has been so out of kilter as to defy the boundaries of good will and common sense.

So to be effective for the present economic purposes, the tax cut will have to benefit the wealthiest tax payers disproportionately, primarily because that's where most of the tax dollars are coming from to begin with.

Put more simply, our progressive tax system is presently too progressive. We aren't impressed by arguments that at times in the postwar era taxes rates on the wealthy were much higher. Those were different times--when the postwar lack of capital abroad left American manufacturing without competition, but also when wealthy people simply redirected what could have been productive capital to tax-avoidance maneuvers. The deleterious effect of the latter was ameliorated by the former. Today it would not be so.

Anticipating a question or rejoinder, we also aren't impressed by those who insist that more citizens should pay federal income taxes. All wage earners pay Social Security and Medicare taxes, so they're all taxed by the feds. That's enough to answer the argument that representation without taxation is tyranny.

As to deficit worries, Friedman was utterly right in the 1970s when he said that the problem is not government deficits but government spending. Whether the government takes a dollar out of a taxpayer's pocket by taxing it our takes a dollar out of the capital markets by borrowing it, the government has moved the dollar from what is on balance a more productive economic activity ("No one takes better care of your stuff than you") to a less productive one. Now's the time for BHO and company to renounce their use of so-called emergency stimulus spending to establish a new baseline for future federal budgets, returning spending to levels commensurate with pre-recession times. Reducing federal spending as a percentage of GDP is way more important than reducing federal borrowing as a percentage of GDP, though doing the former will inevitably do the latter, even with tax cuts, because tax cuts spur growth that boosts tax revenues.

Really, simply extending the Bush tax cuts for another decade would be nice, and maybe sufficient to the moment. The Dems painted themselves in a corner on this one, demagogueing the Bush cuts for a decade. Now they really can't afford economically to let them expire, but they'll be exposed as hypocrites if they extend them. THAT's where the politics of envy have got us.


JB in CA said...

Well, first off, I didn't mean to leave the impression "that voters are so stupid that they can be utterly manipulated all the time." Nor would I accept—with apologies to Lincoln—that the wealthy can "utterly manipulate" all of the people some of the time, and some of the people all of the time. I do think, however, that their ability to manipulate and, thus, distort our social institutions is strong and persistent—and the greater the wealth, the stronger and more persistent the distortion.

To my mind, it's not simply the manipulation of voters that distorts democracy. Most of the manipulation, I suspect, is directed toward members of the population at large in their various roles as citizens, politicians, employees, parents, volunteers, etc., rather than as members of the electorate (i.e., those whose votes might be swayed), although I admit there’s a lot of that going on, too. Large sums of money allow those who control it to put pressure on people to act in ways that they would otherwise resist, for fear of losing their jobs, having their reputations tarnished, not fitting in with the crowd, etc.

One example: age-compression marketing to prepubescent girls. Had it not been for the wealthy patrons behind those marketing campaigns, the chances that so many young girls would strive to look like Paris Hilton would be close to nil. The major reason that society as a whole, in spite of it moral reservations, allows pre-teens to look and act that way, is that those in control of the media are able to make it look like everyone else approves of such things, and anyone who doesn’t is prudish. The result is that people start thinking that everyone else can’t be wrong, while they alone are right, and to resist such "lifestyle" decisions would be oppressive. No votes are cast in such circumstances, but the majority is clearly not ruling—not ruling as it would, that is, had it not been manipulated by the kind of marketing that only the wealthy have access to.

True, the wealthy often cancel each other out on certain issues, but I think you’re overlooking the fact that because of their vast wealth, they are the ones who get to frame the discussion of those issues and, by so doing, recast that discussion in a way that protects their own interests, rather than the interests of the public at large. Even when a grass-roots movement manages to introduce an issue into the public square, the debates surrounding that issue are invariably hijacked by those with the means (and motives) to do so and skewed in such a way as to misdirect the public away from its real concerns.

Some examples: the debate over the skyrocketing costs of health care is redefined as a debate over universal coverage; the debate over the ineffectiveness of our current immigration policy is redefined as a debate over the economic value of illegal immigrants; the debate over how best to reduce toxins in the environment is redefined as a debate over global warming; the debate over embryonic stem-cell research is redefined as a debate over stem-cell research in general; the debate over easy access to pornography is redefined as a debate over the responsibility of parents to monitor what their children see; the debate over whether the pharmaceutical lobby is too powerful is redefined as a debate over the integrity of science. And on and on and on.

Such maneuvering on the part of those who have the financial means to do so has the effect of distorting any real discussion of the issues that the general public is interested in. In essence, those who can afford it become the gatekeepers—not the “gatekeepers who decide who does and doesn't get to spend money on political speech or who decide how little money people get to keep to curtail their power” but the gatekeepers of what we as a people get to talk about for the purpose of self-determination. And that is bad for democracy.

JB in CA said...

The debate over why the top 500 largest non-financial corporations are sitting on 1.7 trillion dollars in cash reserves when so many qualified people could use a job is a case in point. (Actually, I heard it was 1.8 trillion, but why bicker over a measly 100 million?) The attempt on the part of the owners and executives of those companies to reframe that debate as a debate over whether the government needs to extend the Bush-era tax breaks is a ruse. If 3.4 to 3.6 billion dollars in liquid assets per company isn’t enough to motivate the top 500 largest non-financial corporations in the country to invest in the very country that has made their success possible, another hundred million or so in tax breaks isn’t going to help. What they’re trying to do is milk us for all they can. They’ve detected a certain weakness on our part, and now they’re holding out for even more. It reminds me of all those poor, destitute sports-franchise owners who just can’t afford to stay in city X (Cincinnati, Seattle, Miami, whatever), unless the public foots the bill for a brand new stadium, because the one they have is already 20 years old.

Isn’t this exactly the sort of thing that the largest investment banks have already gotten away with? Take Goldman Sachs (please). First, they needed the government to deregulate, because all those regulations were just costing too much money. Next, they needed a government bailout, because the lack of proper government oversight pushed them to the brink of a financial meltdown. Then, they needed no-interest loans from the government, because they could no longer afford to loan money to others. And finally, rather than loaning that money to others, they took the bulk of it and bought up treasury bonds so they could milk even more money out of the government—free of charge—at around 3% interest, without contributing anything of value to the economy. In the meantime, they continued to downsize their workforce, while handing out billions of dollars in bonuses to their top executives. And, oh yes, now they too need the government to extend the Bush-era tax breaks, or else they won’t be able to rebuild their workforce beyond the 600 or so employees they’ve just hired overseas.

So, yes, I agree that the largest corporations are not holding back on hiring for fear of a double-dip recession. They’re holding back on hiring because they stand to gain by putting pressure on Congress to extend the Bush-era tax breaks. But I still think that small- to medium-size businesses are holding back—at least in part—precisely because of that fear. I’ve heard a number of their owners/CEOs say so on the news. To them, laying off employees is not a happy experience, and they’ve had to do too much of it already. So before they run out and hire new workers, they want to make sure that they won’t have to turn around and lay them off anytime soon. And before they can be sure of that, they have to be sure that the economy is stable. The prospect of a tax cut sending the country even further into debt is not the kind of thing that boosts one’s confidence on that front.

Jon A. Alfred E. Michael J. Wile E. SWNID said...

We respectfully are having a highly difficult time blaming mass marketing of nastiness on the concentration of wealth in the hands of a few individuals. Commercial markets are competitive, the aim of business is to make money, and if there were a market for modesty, someone would exploit it. We doubt very much that marketing drives demand in exactly the nefarious way you seem to allege.

But what level of taxation would be necessary to make such influences substantially less powerful, if they do exist? And what's to keep the wealthy from simply redirecting their wealth into "tax shelters," a phrase common in American English until the Reagan administration, from which platform they launch their nefarious influences all over again?

Further, if tax rates are aimed at cutting the rich down to size, what's to keep the less rich from banding together to do the same nefariousness? That, of course, is the corporation, and our discussion seems to have moved from taxing wealthy individuals to restraining the socially unhealthy actions of corporations. Those may be two plays in the populist playbook, but they aren't the same and deserve separate discussion.

In any case, we think the undue-influence argument for confiscatory taxation simply ignores the demand side for the influences you allege, not to mention the competition of voices that we discussed above. Your argument hinges on a more or less monolithic set of interests and point of view of the rich, and ironically enough many of the richest (Soros and such) seem to be the advocates of the your anti-rich position.

To tax cuts again, and briefly. Castigating the patriotism and moral fiber of CEOs is but the latest way of beating up business for responding to the uncertainty created by the present government's aggressive legislative agenda and out-of-control spending, presaging historically unprecedented levels of taxation. It's not just the Bush cuts, which are relatively small potatoes, but the prospect of VAT, still higher corporate rates, higher capital gains and dividend rates and various windfall taxes on special kinds of profits. When proposals for such are routinely leaked from the halls of power to the press, businesses rightly wonder what legislated expenses in addition to ObamaCare and the financial regulatory bill will be added to their costs.

That uncertainty breeds fears of further economic sluggishness or a second recession, absolutely yes. But the question is then what can be done in fiscal policy to restore confidence. And there's no better answer than a cut in the cost of doing business, specifically in taxes. We note for the eleventy-fourth time: our Republic taxes corporate profits at a higher rate than any country save Japan. Germany, France, the UK, China, Russia, Brazil, even Venezuela have lower corporate rates.

In sum, the present government is doing about what FDR's did, which prolonged the uncertainty of the Depression until Roosevelt needed to mobilize and had to make nice with business. When Obama is daily issuing new recipes for eating the rich, the investment climate will remain chilly.

Finally, why, we ask in all sincerity, do we think we are all being violated when a corporation makes a lot of money? What good does it do us if they don't make money? What good does it do us if Uncle Sugar taxes it away? What real harm does another's wealth do to me? If I don't like what he does with it, I can ignore him. This is precisely what we mean by the politics of envy. If Goldman Sachs makes a legal profit, bully for them. Instead of taxing them, let's all buy their stock.

JB in CA said...

I'm not quite sure how to reply to the first paragraph of your response. You seem to be assuming that markets for specific products are already there to be exploited by the Madison Avenue advertising agencies. That strikes me as a very old-fashioned view of how marketing works, one that hasn't been around at least since Reagan introduced us supply-side economics.

Marketing agencies don't hire armies of psychologists and spend billions of dollars to convince people to buy products that they already want. They're out there trying to entice us against our better judgment to buy things that we really don't want (or, for that matter, need). They play on our temptations and exploit our weaknesses in order to get us to buy their products. A steady diet of their subtle, powerful, and ubiquitous enticements are likely to wear down even the most resolute dissenter. And when it does, the result is not a self-directed customer but a psychologically manipulated consumer. And that’s not a recipe for self-determination, which is what democracy is supposed to be all about.

With respect to the rest of your response, I was careful, in my comments above, not to say anything about raising taxes on the wealthy, because I don’t, as a matter of fact, think we should. (There are, after all, other ways of addressing the problems I mentioned.) In particular, I was careful not to suggest that we raise their taxes as a way to ameliorate what I take to be the unhealthy influence of extreme wealth on democracy. I think that doing so would create more problems than it would solve. (Other approaches, I believe, would work better.) Nor did I advocate a tax hike on the wealthy in my earlier post. There, I simply questioned whether the tax rates had already been lowered to the point of marginal utility. Nowhere in any of my replies did I propose increasing taxes on the wealthy for any reason at all. So I can't figure out why you think I am presenting an “undue-influence argument for confiscatory taxation.”

Finally, my claim that extreme wealth distorts democracy seems to me to be independent of your claim that it's good for capitalism. The first claim (mine) is political; the second (yours) is economic. I can accept everything you say about the positive effects of extreme wealth on the economy, without agreeing that it has correspondingly positive effects on democracy. That’s not to deny any connection between the two. It’s simply to deny that the former is a sufficient condition of the latter.

Jon A. Alfred E. Michael J. Wile E. SWNID said...

Then you complain about something for which you have no solution, which we gladly acknowledge as a corrective to our previous rants but confess puzzles us. If the point is simply that wealth can amplify the evils of people who are wealthy, then we hold these truths to be self-evident but entirely irrelevant to the present economic and fiscal--hence, political--debate.

We'd argue further that in an imaginary world in which wealth was distributed equally, other inequalities--intelligence, physical strength--would also amplify the evils of some. Again, the issue is inherent and intractable at its core. We recall our reading from Hugo a couple of nights ago, who explicitly writes that the French ideal of "Equalite" is of rights and opportunities, not outcomes where "blades of grass stand as tall as trees."

On the marketing thing, all you say is true, but it's irrelevant to our point, which is that no one's independent will is bypassed by marketing. Our point about competition canceling any one marketing message that the public disfavors depends on the obvious point that marketing belongs to the larger matter of commerce in which clever people devise products to compete and address unaddressed needs and desires. To take your example, if someone markets skanky clothes to pre-teens, it hardly takes massive R&D for someone else to market modest clothes as an alternative. It does take demand from the public for such a venture to succeed, however, and powerful demand to overcome the other venture. Marketing doesn't exist independently of product development, so the point is reinforced, no evacuated.

Anonymous said...

SWNID: "What real harm does another's wealth do to me? If I don't like what he does with it, I can ignore him."

Maybe I can ignore him, but my kids can’t. And when my kids are harmed, I am harmed.

When my kids were young, I wouldn’t let them watch a certain TV show. I wanted them to ignore it. But they came home from school using the language and the fighting techniques of that very show. The influence of the media found its way to my kids, even without them watching the show.

Yes, the kids outgrew it, they didn’t hurt anyone with their roundabout kicks, and they didn’t become gangsters. The point of the illustration is that big businesses, who work together as much as compete against each other, wield a lot of power on our society, and we can’t go about our lives as if they don’t. We can’t ignore them. And we are kidding ourselves when we assume that businesses’ efforts to make more money (which is the point, right?) hasn’t harmed our children, which harms us personally, and it harms the future of our country.

Jon A. Alfred E. Michael J. Wile E. SWNID said...

Right! It's for the children.

Anon, where reside the angels to whom you exclusively expose your offspring? On their adulthood, whither do you expect them to retreat to escape the greed for which their sheltered upbringing has not prepared them to cope?

And are you prepared for your offspring to be consigned to penury to eradicate the rewarding of greed, leaving them in a world where all are poor, and greed, ever rampant, is channeled not into providing useful things for others to buy but into gaining advantage over others by means of fraud and intimidation?