Archive for October 2011

Picking On Cain

October 31, 2011

Over the weekend, Politico reported that Herman Cain had been accused by two women years ago of unwanted sexual advances.  Politico claimed that a settlement had been made with the two women for a 5 figure amounts in return for their departure and their silence.  Welcome to the clean world of GOP politics.

It is hard to say which candidate would have leaked this type of information to Politico.  The purpose of the leak is less hard to discern.  Cain is getting too close to leader Mit Romney and is crowding out the lesser candidates in the upcoming Iowa caucuses.

There is a charming irony in these charges.  In Iowa, the GOP candidates all seem willing to grovel for the evangelical vote.  There cannot be enough references to god or the evils of abortion for the GOP candidates to make.  Immigration, abortion, the USA is a christian country, and school vouchers all sell well in Iowa.

The charge of unwanted sexual advances, at this point, is just that.  A charge.  Even if true, there is a thin line between unwanted sexual advances and seeking a date.  Seduction is as old as the oldest profession.  So again, who threw the first stone?

There is always the chance that Cain’s staff is the source of these rumors.  The theory is that it would solidify his position with these same evangelicals who fear the gay and lesbian movement more than a seducer.  A seducer or a gay man, which one is the least bad?

If I had to guess, however, which candidate might have planted this “Lee Atwater” type rumor, I would go with Rick Perry.  The Perry campaign is eating a lot of dust languishing a distant third or fourth behind Perry and Cain, and sometimes Paul or Gingrich.

In the end, it will be how Herman Cain deals with these charges that will determine the degree of damage.  So far he has been very successful in shedding criticism.  We will see whether these charges fall off Cain’s back too.

The Earth Has Tilted

October 29, 2011

The GOP is very concerned about the “job creators”.  These mythical figures are just waiting out there, poised to provide every American with a job, providing members of Congress lower their taxes and reduce regulations designed to protect other Americans.  The fact that so many people seem to accept this reasoning is a clear sign the earth has tilted.

Data is often inconvenient.  The chart below should make Representative Paul Ryan and other GOP leaders uneasy.  Plotted is the ratio of CEO pay to that of the average worker’s pay.   From the 1960’s to the 1980’s, the ratio was around 30.  By the 1990’s, it was off to the races.  This data dovetails very well with Robert Reich’s chart showing how real wages have been flat for 40 years when compared to the increase in worker productive output.  Saying it another way, if you do not believe the divide between the wealthy and the middle class is not increasing, here is another proof.

To provide another perspective, look at this spread sheet display.

It shows that a worker who was making $15.00 per hour would have in the 60s and 70s have been likely working for a CEO who  was earning just under $1 million ($936,000).  If you check Forbes’ annual list of CEO pay (March 2011), you are more likely to find CEOs of the top 200 companies earning 300 to 1000 times that amount.  The top earner actually made more than 3000 times.

The question before the house is not whether these CEOs are worth their pay.  The question is what is the consequence of top executives earning so much more than those who actually perform the value adding steps?  Robert Reich says the consequence is a loss in Middle Class buying power.  In tern he says we should not expect the economy to bounce back anytime soon.  Sooner or later with this scenario, everyone loses.

Coddling the “job creators” is not the answer to our country’s economic sluggishness.  They should be taxed fairly and be subject to both regulations designed to safe guard all Americans and government policy that encourages growth while tying it better and fairer wages.

Creating Jobs, Growing the Economy, and Balancing the Budget

October 28, 2011

Creating jobs, growing the economy, and balancing the budget are like three balls in the air.  It is not so hard to toss one at a time and catch it.  For some, tossing two is feasible, but for only the best is juggling three balls possible.  Our Washington representatives (both houses) can not agree on how to toss one ball.

Representative Paul Ryan, a Republican from Wisconsin, told an NPR interviewer that he has talked to hundreds, maybe thousands of “job creators” in his home State on how to create jobs.  Ryan said they told him to lower their taxes and eliminate most of the regulations they face.  Seems pretty straight forward.

Of course this is a game of you lower my taxes and reduce these regulations first.  Then, (I will love you in the morning) I will hire more people.

For such an intelligent person as Ryan, to try and sell such a line belies his real belief in American citizens’ gullibility.  While I personally don’t think the solution lies in less regulations and lower taxes, I’d be willing to award both to those who created new jobs.

Of course the issue cannot be no regulations or no taxes, it should be about what is a reasonable level to protect all Americans and still provide a climate where business growth flourishes.  But where is that point?

The only regulations businessmen endorse are those that exclude competition and/or provide an unfair advantage to them.  This is human nature.  You do not put the fox in charge of guarding the chicken coop.

Rules that apply to everyone do not lead to lack of competitiveness unless they cause companies to price their products or services so high that customers choose to go without, or foreign sources are able to supply at a lower cost.  Taxes are an obvious example of where the playing field should be made as even as possible.  Corporate taxes at some lower rate, say 20% with no loopholes, exemptions, or deductions would make sense.

Representative Ryan explained his position quite clearly and sincerely.  The amazing part was he never hesitated when the NPR interviewer pointed to a recently released CBO study showed a three fold (275%) increase in the top 1%’s income over the past three decades.  Tell me again what’s so bad about these taxes and regulations, and why jobs are not hanging off every tree?

The most direct answer to the current jobs question is low demand.  Low demand, in turn, stems from reduced global economic strength (feel a circular argument underway?) and lack of US middle class buying power,  And why the lack of middle class buying power?  Well, the middle class is tapped out.  For the past 40 years middle class wages and salaries have not kept up with productivity gains.  They just don’t have the money, it has all gone to the top 1%.

Our country must be patient and not do anything foolish.  No sensible businessman will hire unless there is demand for his products or service regardless of what Representative Ryan says.

Regulations should be reviewed and frivolous ones eliminated,  The tax playing field should be leveled for all businesses while still producing important tax revenue.  Government stimulus, especially for education and infrastructure should be used in target areas but in moderate doses.  In short get ready for demand to return.

The most important changes that could be made today lie in reforming the income tax code and the corporate tax code.  In both cases, all loopholes and exemptions should be removed first.  For the income tax, new progressive rates should be selected that reflect the current income distribution realities (the 47% who pay no income tax and the enormous wealth of the top 1%).  For corporate taxes, first no exemptions or loopholes, then rates should be set (1) with the eye to global competition and (2) the goal of returning good wages to the middle class.  (For example, incentives could be envisioned that guides top executive’s remuneration to some maximum ratio of the average non-management employees.)

I am smiling as I write this.  If the GOP can’t juggle even one ball fairly and correctly, how could they juggle this one?






Why Eat Crumbs When the Wealthy Eat Steak?

October 27, 2011

The current rage of the GOP Presidential hopefuls is the flat tax.  They stand before us and say the current tax code is broken.  (Right they are.)  Then, they offer their flat proposal.  Bong!  Wrong they are.  Why?

First, their proposals are not genuine and are rather designed to attract primary votes.  The candidates have little belief any of their proposals will see actual law.  Why?  The country is broke.  It is true reduced government spending could allow for reduced tax collection.  Unfortunately there is no consensus in Congress or among the American people on what government spending is unnecessary.  If all reduced government spending went to reduced taxes, it is hard to see how the deficit or the debt gets lowered.

So these proposals alone are bogus and designed to appeal to small government, anti-tax voters during the primary.  They also carry the kicker that they may appeal to upper middle class voters in the general election.

Second, if you look at the benefits from each of the proposals, the greatest benefits accrue to the wealthiest.  Yes that upper 2% (and especially the top 1/2 of 1%) again!  This means the lower 98% (that includes the upper middle class) will shoulder more of the cost of government.

The current tax code is progressive in design yet contains exemptions and loopholes designed to advantage all sorts of groups.  In the end, the current code is hardly an example of complete fairness.  It certainly does deserve to be reformed.

A straight (no deductions, everyone pays) flat tax is patently unfair since all Americans do not earn the same amount of income.  The rich are not just wealthier, they are (per capita) also greater consumers or beneficiaries of the most costly government services.  The wealthy can afford to pay more and could while still maintaining a wonderful life style.

There are two assumptions behind this post.  (1) The US needs more tax revenue until its deficits are eliminated and its debt reduced to a more manageable level. (2) What ever tax code is selected must appear fair to the majority of Americans while raising sufficient revenue and not strangling the economy.

The GOP candidates seem to reject proposition (1) and instead tell Americans a smaller government is in their future.  When the dust settles we will learn whether a majority of Americans think a flat, 9-9-9 (Cain) or 20 (Perry), both with caveats, seem fair.

Cain’s introduction of a national sales tax, to his credit, does open up additional routes to increasing tax revenue without needing to raise income tax rates.  In fact, the Simpson-Bowles commission predicted rates could be lowered if all the current loopholes and exemptions were eliminated.

If we step back and view the flat tax propositions, one can see it is offering the upper middle class the equivalent of “crumbs” in proposed tax reductions.  It may sound attractive but these Americans should realize that these same tax propositions offer the wealthy steak.

Don’t Blame “W”

October 26, 2011

President Obama has been in office for almost three years.  Unemployment is above 9%.  The national debt stands at $14+ trillion and rising.  Deficits are projected as far as they are measured.  How can anyone blame that on President George W Bush?

Just as valid a question is “how can anyone blame these conditions on President Obama.

It is true that “W’s” fingerprints are on about a $4 trillion increase (a doubling) in the national debt through mainly unfunded programs, namely Medicare Part D, a tax reduction, and two wars.  While these contributed to the growth in the national debt, they do not really speak to the weak economy and unemployment rate.

With respect to the deficit, demographics (not the President) are an important driver.  The aging population combined with “out of control” health care cost increases account for the seemingly never ending increases in entitlement cost.  Tax revenues are arguably too low but increases alone will not fix this problem.

Looking at the 9% unemployment, Robert Reich, in his book “Aftershock” points out, current unemployment is largely the result of normal cyclical events (like adjusting to the post housing employment bubble), globalization, and automation.  What Americans thought were normal employment levels (below 5%) which we experienced in the “W” years were in fact inflated, the result of a strong economy fueled by the housing/credit bubble.  Once that bubble burst and the financial sector nearly imploded, business laid off thousands of workers fearing a recession.  What businesses found was that productivity and automation investments they had made in the past could really translate into labor savings.  Bottom line, those jobs are gone forever.

Oh, there is more.  Reich also points out one more important issue.  Real wages relative to productive output have remained flat for the past 40 years!  In other words, most of those working find their wages and salaries too low.  This means that their buying power has been squeezed.  They will also not possess the economic clout to fuel increased demand that would lead to employers hiring more workers.

You might ask if productivity has increased for 40 years and middle class workers have not benefited with increased real wages, where has all this profit gone?  It has been accumulating in the top 2% and especially so in the top 1/2 of 1%.

To be perfectly clear, today’s problems are not the result of the rich getting richer.  This is quite ok.  The problems with today’s economy are due to the fact that the middle class did not get richer at the same time.

So the issues are clear.  The solutions are not.  Here are three suggestions.

  • Health care must be overhauled, made available to everyone, and the national health care spend per capita must be reduced.  Healthcare costs are consuming far too much of  our GDP.  Healthcare is not free to be plucked off the nearest tree.  If Americans want health care they must pay for it.
  • The national debt must be reduced sensibly.  Only in exceptional times should the budget be unbalanced.  A plan that achieves that goal should be laid out and followed irrespective of which party governs.
  • A series of domestic policies must be laid out that encourages employers to pay their workers more, and over time, to increase their pay reflecting the companies productivity gains.  Employers should not be mandated nor should they be expected to do this voluntarily.  Tax surcharges on companies that look the other way coupled with tax incentives for those who participate might achieve this goal.

Looking forward, it is time to stop blaming President Bush.  It is also misguided and unhelpful to blame President Obama.  One might better look at Congress whose approval rating in the CBS/New York Times poll registered at 9%, and ask the questions “how could that be?”







How To Get It Wrong, Big Time

October 25, 2011

Reports are emerging that a potentially scheduled GOP debate to be held in January in Florida will not take place.  The reasons stated have nothing to do with campaign strategies between the candidates but rather about support for someone not running for President.  Free speech anyone?

The reports say that Marco Rubbio, hispanic Republican Senator from Florida has a beef with one of the potential debate organizers.  Surprisingly, the organizer is the fourth largest television network, Univision.  Oh, and Univision is a spanish language television network.

Mitt Romney, Rick Perry, and Michele Bachmann have already said that in deference to Rubio’s opinion, they would not participate in the debate.  The assumption is this will deny Univision national exposure (to so many non-spanish speaking Americans).

The GOP, of course, is trying to have its cake and eat it too. Here is the real rub.  It would be inconceivable to have a hispanic organizer who did not raise questions that were important to the hispanic community.  The GOP candidates know this and prefer to avoid having to parse their words about their non-immigration policy.

GOP candidates have followed the notion that a sealed boarder is the answer.  And under their watch there will be no one who cuts to the front of the citizenship line.  (Even if there are 11 million of them.)

The GOP party line flies in the face of fact and common sense.  For the most part, Mexicans represent the same core GOP values.  They are hard working, two parent family oriented, and faith holding people.  More to the point, Mexicans are willing to perform jobs most Americans do not want.  In the agricultural sector, guest laborers are essential to harvesting.

Common sense also brings to bear the simple question of how would you expel 11 million, and what would you do with the broken family units that would inevitably occur?

The real position of these GOP candidates lies much closer to “talk tough, look the other way”.  The Univision debate is just a little too close for their comfort.

It remains to be seen whether the rest of America will stand by and allow these candidates to stiff the first Amendment.  As the fourth largest network, Univision certainly has a right to both it news content (Fox does) and its turn to organize a nationally televised debate.

When you get it wrong, and don’t rethink, the path you follow only gets more convoluted.

What’s Wrong With A Free Lunch?

October 24, 2011

The Obama Administration’s Office of Government Ethics has proposed a limitation on some of the free lunches Federal employees currently enjoy.  What’s wrong with a free lunch anyways?

Forgetting that some people get the “free” lunch and others do not (fairness), the basic reason is that there is no such thing as a “free” lunch.  The offering of the lunch is done expressly to get something in return.  Most people would take offense to an offer like, “if I buy you lunch, you will do this for me.”  What if, however, you were invited to an informational conference where various sources would present “educational” materials applicable to the federal employee’s principle duties?  Does this sound more reasonable?

The American Hotel & Lodging Association thinks the proposed ethics rules that would prevent Federal employees from accepting “free” admission to conferences and other gatherings is unnecessary and will hurt their industry unjustly.

The Association does not see any problem with Federal employees attending these meetings free, receiving free lodging, free entertainment, free meals, and participating for free in conference activities like golf or gala celebrations.  Stop and think.  Why should a Federal employee receive any benefit not available to the rest of Americans?

I also forgot to mention that these conferences are also sponsored by, and highly populated with, special interests who do business with these Federal agencies.

My reaction is how could this type of business practices be considered ethical today?

Forget for a moment the blatant unfairness, the fundamental basic issue is do these “free lunches” influence Federal policies or decisions?

The Association argument will be that these Federal officials either are at a lower level so they do not make the big buying decisions, or they are men and women of such integrity that their judgement can not be swayed.  This maybe true but in fact hard to believe.

The cutting question might be if these conferences and meetings were so valuable, why could not the Federal agency pay for their employees attendance?  It might be eye opening to see the amounts of money spent, and who attended these conferences.   Then let the public decide if this was money well spent.

What say you Department of Defense with a budget of close to $700 billion per year?