The 6 Pack Economist

Apparently no body sent Jon Voight the memo about speaking out against Obama in hollywood.   Although some of the things Obama has been doing are not my favorite, most of it is politics as usual.  What will cause the civil war is this crap my Representative Eric Massa. “I will vote for it even if my constituents are against it”

I know that many politicians feel that the people that vote for them are ignorant morons but it is very rare and rather refreshing, if being hit the face with bucket shit is refreshing, for them to actually state it to their constituents faces.  As Massa states so clearly “I will vote adamantly against the interests of my district if I actually think what I am doing is going to be helpful.”  If we were talking about funding for a bridge that would be great for the district but wasteful, then he has a point.  But we are talking about riping the whole health-care industry apart and starting a new government entitlement program during a severe recession and increasing debt.

One last thing, Jon I will miss seeing you in movies and biting the occasional TV star.

p.s.  Jon Voight has not annouced his retirement as far as I know.  It is just satire.

If you ever hear someone tell you that “everybody makes money with ‘something’ ”.  This is a clue that the bubble that is “something” is going to burst.  Some common examples and the time periods of this are the following:

1.       Late 1920’s “Everybody makes money with stocks!” 

2.       Late 1990’s “Everybody makes money with tech-stocks!”

3.       Mid 2000’s “Everybody makes money with real-estate!”

Granted most of this is hind sight but I did warn those around me in late 2006 that this whole housing thing was getting out of control.  I know that I am freaking genius (sarcasm). Many people lose their head when it comes to the purchase of investments.  What people should look to when it comes to any investment be it a house that your live in (not really an investment) or a share of a business is what is it really worth. 

In the case of house, are the mortgage payment and other expenses, worth the joy and security you get by living in it?  How much is it really worth to stay dry when it rains. How much is it worth to have all your friends envy your place of residence?  How much is it worth to not hear the whore in the apartment next to you?

Is the business you are becoming part of worth the initial investment?  Will the business turn a profit quickly or will it take years to turn a profit?  Will the business be such a thorn in the side of another business it will be bought out (which was a viable tactic in the dot.com days)?  Or finally can you convince some other fool that it is worth more then what you paid for it (this is the case of just about every tech stock in the late 90’s)?

I just wanted to put something out there because I am getting tired of the argument that the “public option” would just add much needed competition to the healthcare market.  For those liberals who now, after deriding competition in every other portion of their lives, have found a love for competition.  Then again when you are playing for the team that that referees bet on before the game, competition seems great.

Do these people really think that the public option will compete on a level playing field? Of course it will not.  The public plan will be able to run at a severe loss and just ask for more tax payer money.  The private plans will not be able to do this.  Ironically the profits the private companies will be making will be taxed, and this tax will go to help the public plan undercut the profits for the private company.  In addition, because current private insurance will be taxed as income, the private insurance companies will have to drop the prices of their plans to account for increased cost of the plans. 

I think many of the regular Joe’s pushing for the public opinion are primarily looking at this through hate filled eyes.  Much of this is probably warranted as the private insurance companies have pulled some very dirty tricks on people.  Issues from pre-existing conditions, dropping people for minor infractions, and just charging too much are all valid reasons.  I think in this case the cure is worse than the sickness.

I know that it makes people feel so much better when they can go after the rich corporate fat cats.  Of course it all turns to tears when they realize the rich fat cat was the one who was paying their salaries.  Even microsoft is threatening to move jobs overseas.

When are people going to learn that if you eat the golden goose it won’t lay any more eggs.  But it makes a bunch of short-sighted people feel better.  Everyone who works for corporations please raise your hand.  Ok that is just about everyone who still has a job.  And everyone who works at a school raise your hands too.  The corporations give educational institutions a lot of money.  So in a way you too work for the corporations.

I believe that corporate income taxes are simply counter productive.  The reason being is simple, when you have corporation the corporation has to employ people.  When people are employed by a private company then the state does not need to pay them to not come after the government with pitchforks. 

Employment for the average person has a lot of advantages both for the person but also for the government.  When a person is working they are less likely commit crime, protest in the street, and in general are just so much less annoying for the government.  After all if someone is home all day watching TV, surfing the internet, or just hanging around they so much more likely to start causing trouble.  This just requires more police, fireman, and morgue employees.

Employment is not just good for the government either it is also good for the person doing the work.  Let us assume the person doing the work at least believes that what they are doing is meaningful to someone (which is one the failures of communism more on this in a later post).  So the person has a job that they believe is doing some type of good, they don’t have wake up in the morning thinking they have the greatest job in the world for this to work either.  Said person has a purpose to their life.  They feel that they have some form of control.  In addition they have a strong separation between free time and work time.  This is very important as someone who either works all the time is burden to themselves, and a person who plays all the time is burden to everyone else.

Now that we have established that employment of people is a good thing we can also establish that we need something to employ them.  Well that is where corporations come into play.  Unlike small businesses (which are just smaller corporations), corporations have to employ a lot of low skilled specialists, in addition the usual skilled specialists.  These types of low skilled specialists must be drawn from the local population.  These are positions like mail room clerks,  janitors, the random copy and printer lady, computer helpdesk people (these are little more skilled), and we can’t forget the random hottie that always ends up at the front desk to greet people.  We all know that she is not going to be climbing the corporate ladder, maybe the corporate pole, but not the ladder.

See all these positions must be filled by the local population of the corporate office.  And when the government makes it very hard to do business and make a profit the corporation will move its offices.  There are plenty of countries in the world who would be more than happy to have these corporations put their shell headquarters in their country. 

Given all the bonuses I have outlined about the employment opportunities of keeping corporations happy why piss them off with higher taxes?  Because some left wing nut bags who can’t see the end result of their own jealously leads them to?

Obama blessed be his name has decided that he will close the tax shelters used by corporations and individuals.  In other news new tax shelters have been opened in other places.  In thirty years they will clamp down on those shelters too.  Of course the first shelters would have been forgotten about and will be reopened.

Unfortunately for Obama blessed be his name did not get his memo that many of the people who put their money down in the shelters are the same people who put him in office.  Either that or his supporters got the memo a few weeks ago and have since switched to other forms of tax shelters.

I have a memo for them.  People hide their money in off shore accounts because the price to hide the tax is less then the tax to be paid.  A i thing happened to england back in the colonial days.  Although this was a tariff and not an income tax but the principle stands.  The short story is as follows.  The english government in trying to raise revenue for some bridge to nowhere or invasion, decided to increase the import taxes.  The taxes were so high that rich people would pay a smuggler money to avoid the taxes.  To combat the smugglers the english government hired police to watch the shore line for smugglers sneaking ashore.  For those who fell asleep during geography class the british isles have a rather long coast line.  So anyway the English government saw a net lose in tax revenue.  After they lowered the import tax to something reasonable, it no longer paid to avoid the tax.  Smugglers had to find meaningful work as tax collectors and the government saw more tax revenue.

What lesson can be learned from the above story.  Most likly not a goddamn thing, this is the internet after all.  But don’t make is so good to hide money and people won’t do it as often. 

On the bright side some spam engine just had something interesting to read.

Well it seems that there is a report out that the TARP program could be mismanaged and is open to corruption.  In other news water is wet and Lindsey Lohan is unstable. 

Did anyone seriously think that when the 700 billion dollar number came out that is was going to be spent wisely?   I thought it was joke when I first heard it, a bad one but still a joke.  It turned out that it was a joke on us.  To top it off a few months later we get a gigantic stimulus bill that will also have to be paid for.  Then the regular budget of the government will run into numbers unthinkable.  Who the hell is going to pay for all this?  We are.  The rich will pay for it directly while the poor will pay by inflation.

This whole debacle is just another in a long list of examples of government mismanagement of money.  This not just an American problem, all governments have the same problem.  It has to do with a combination of human conditions.  Greed and Sloth are the most prevalent.  Greed in that the various representatives want to get the money to pay back constituents and their own pockets.  Sloth in the bureaucrats and the elected reps in ensuring the money is spent after due diligence.  The reason they can do all of this is that it is not their money, it is ours.

I really thought I had more to write on this, but so much of it is too obvious.

The current financial crisis is a big example of how nature will always equalize a system.  When the consequences of an action are eliminated the rate of the action will increase.  Eliminate the hangovers and people will drink more.  I would at least.

All things in nature will eventually equalize themselves, because a system imbalance cannot exist for long.  For instance if you eliminate the wolves; the deer will eventually over populate the area and start committing suicide by jumping in front of your car.  I think they miss the wolves too much.  So the system self equalizes. 

Another example of risk and reward system we should all me familiar with is our sex lives.   What do you think would happen if a bunch of 20 something’s were kept on college campus but were told that pregnancy could not happen and STDs could not be caught?   In three months half the campus would be pregnant and the other half would be scratching themselves wondering what is wrong with their pubes.  I am not condemning them.  I would have taken part in such an experiment too (I would have been a whore but nobody wanted to be a whore with me).  So much for memories, either way you should have gotten my point.

The current crisis can be tracked to who ever let Fannie Mae and Freddie Mac to buy very crappy mortgages.  The rest of the funny financials like collateralized debt securities and derivatives were simply the mold that grew from the cesspool of Fannie and Freddie taking risks no one in their right mind would take.   Normally when a private corporation would take unneeded risk it would burn out and die or outside investors would refuse to underwrite the endeavor.  What made Fannie and Freddie different was that they were tacitly guaranteed by the government.  This means that the underwriters had less risk of failure because if worst came to worst the government would take care of everything.  These underwriters, investors or gamblers saw rewards that were better than the risks of underwriting the companies. 

For period of time the imbalance of the system was balanced periodically without crashing the system because the gains and leverage were not great enough to cause the system to collapse.  Housing prices went up and went down for all of eternity.  What made this different was the timing.  Stocks were tanking after the dot bomb debacle (another example people not using their heads) and the Fed was trying to get the economy moving again.  The Fed lowered interest rates making money very cheap.  In any boom and bust cycle there are still winners.  These winners began investing in real-estate. 

Shortly before this time Herb Moses an executive a Fannie Mae was playing hide the salami with Barney Frank.  Barney Frank at this time was in charge of making sure Fannie Mae was doing good business.  He opposed the transferring of Fannie and Freddie oversight from the Department of Urban and Housing development to the Treasury Department.  Granted either one is still a government run.  It seems that a government department whose job is to get people into housing would have a conflict of interest with a company who provides financing for homes.  So if said company will provide additional financing for the department’s projects they would overlook the horrible risks they were taking.  I have no proof that this is what happened.  But it is not too much of stretch to think this is what was going on.  Especially since the ramifications became so clear a few years later. 

Without anyone to watch over Fannie and Freddie and many investors willing to take extra risks because the government would back any risks these organizations ran rampant.  The CEO’s of the companies and the attendant executives began writing bonus rules that had nothing to do with long term viability of the organization.  So the bonuses that were given were for the amount of assets in management (or mortgages owned).  There bonus had nothing to do with the quality of the assets.  Who here can see what is about to happen next?  Raise your hand.

Fannie began taking all the mortgages they could get from the private companies in the market.  These were sold as all kinds of securities and what not.  Investors not knowing what fannie was doing but believing the government would come to the rescue were willing to write checks to fannie.  The private companies realized that they would not hold the mortgage more than a few months to a year would sell the mortgages to Fannie.  The risk was off the private company but they still had the reward of the first year’s mortgage payments and other service fees. 

The price of homes began to sky rocket.  Soon few people could afford a home with traditional methods.  But the private company could make up crazy mortgages that started off with smaller payments.  The buyer could afford these teaser rates in the beginning but by the time the real rates came the mortgage would be owned by another company (usually Fannie or Freddie).  These artificial buyers could only maintain this growth for so long.  Soon the market collapsed. 

In this game of hot potato Fannie and Freddie were left holding the potato.  Which means that the we the American tax payer was actually holding the hot potato.

What fascinates the hell out of me is that some very smart people do not understand that not everyone can be rich.  Nor can everyone be poor either.  We are rich or we are poor based on the people around us.  Both Ted Rall and Cynthia Tucker do not understand how basic everyday economics work.

Although both are correct in criticizing the executive pay of these failing institutions, what they fail to recognize is aside from pulling back a little bit on the pay for CEO’s there will always be both wealthy, rich, poor, and a bunch of levels in the middle.  I also made a very conscience decision putting in both wealthy and rich as different levels. 

To the primary reason I wanted to post about tonight.  The amount of middle class people has not changed in percentage of the population.   The primary reason has nothing to do with economic policies or anything that complicated.  The middle class are the people who make more than the lower class but less than the rich.  The factory workers were never really middle class.  The manager at the plant was middle class and the diner owner was middle class.  Could the factory worker live comfortably with the two point five kids and a white picket fence?  Maybe it really depended on the supply of houses with white picket fences.  But that is my point.  What does the average person today have in comparison to thirty years ago?

Today the average household owns two cars (with reliability and features Mercedes Benz did not have), a HDTV in one or two rooms, air conditioning in almost every room, cell phones, cable TV with 100 plus channels, a computer with internet, some type of game system, and health care that those in the 1970s could only dream of (even if it’s expensive).   

Mean while in the 1970s when according to Cynthia Tucker all was great, the average American made car was complete junk, went 0-60 in 3.4 months, got about 15mpg, and were good for about 80K miles.  Air conditioning was something only the rich people in the neighborhood had.  A house might have two TVs only one worked.  Cable was something for rich people also, if they even had it all.  There were no cells phones.  Ok that last one is bonus.  The personal computer was just a series of blinking lights.  Geeks really were geeks.  The internet was for even bigger geeks.  And healthcare although cheap was abysmal by today’s standards. 

So where did all the productivity gains that the rich people ran away with go? It came back to the “poor people” in the form of better stuff for “poor people”.   One can argue that all the stuff is not worth it, but when it comes to economics the stuff and the services that people can have does matter.  Also if someone did not want the stuff they do not need to purchase the items.  

The second point I want to make is directly related to the statistic mentioned in Cynthia’s editorial.  I don’t think there is anything wrong with it.  I think it actually shows exactly what it should show.

A few years ago, Earl Wysong of Indiana University and two colleagues published a study on social mobility in this country. As outlined in the Economist, a right-leaning British news magazine, they “compared the incomes of 2,749 father-and-son pairs from 1979 to 1998 and found that few sons had moved up the class ladder. Nearly 70 percent of the sons in 1998 had remained at the same level or were doing worse than their fathers in 1979. The greatest social mobility occurred in those families already at the top of the income ladder,” the magazine reported.

So 70 percent of the study did not move up the income ladder?  No kidding.  Not everyone can move up the income ladder since they have to move past someone else and then that person would move down the income ladder.   I would bet the statistics would come out that 1/3 moved up, 1/3 stayed the same and 1/3 went down.  Also 66% is really close to “almost 70%”. 

The second part of the statement deals with that most of the social mobility was in the upper income brackets.  This too can be easily explained without it coming down to something evil republicans did by reducing taxes.  In 1979 a college degree was still a premium and those with them came from more affluent backgrounds.  While a high school education pre 1979 may have been good enough, after that is simply was not good enough.  One needed to have something besides a high school education.  So simply showing that those who were affluent made better gains was primarily because they had access to a college education and valued it earlier.  In addition it tends to the children of the rich that become the wealthy.  The grandchildren become drug addicts and home move porn stars.  So it sort of works out in the end.

Did some people become obscenely rich, while others were brushed to the wayside?  Yes.  Do I wish that people could live in a minimal of comfort even when they are on the lowest rungs of the economic ladder?  Yes.  And they do, but in comparison to the truly poor in this world they are doing pretty damn good, even if everyone else around them is doing better.

Insulting CEOs (while letting them keep their perquisites) may be fun. But it doesn’t begin to address what’s killing the U.S. economy: the rancid notion that one person’s hard day’s work deserves more pay than another’s.

Ted Rall for those who don’t know is a writer who is left of, well everybody come to think of it.  The primary premise for this editorial is that the CEOs of these failed banks should be tarred and feathered and that is something we agree on.  But after that we differ on just about everything else.

I don’t like CEOs who get paid enormous amounts of money and run the company into the ground.  I believe in rewarding success and not failure.  But I firmly believe that some people should have more than others, if they deserve it because of their efforts.   I also think that the only person who can get someone out of crappy financial situation is themselves. 

First we must recognize people are not poor because of the money they have or don’t have.  They are poor because someone else has more money.  Poor and Rich are both relative.  Always remember that.  Even in the height of communist Russia there was still rich and poor. 

“In 1980, according to a Forbes magazine study, executive compensation was 40 times the average worker’s pay; by 2007, that had soared to more than 400 times,” CBS News reported on February 25^th. Now that the companies those ridiculously compensated executives were charged with running are tanking, CEO pay is coming under attack by pundits and politicians.

So what does this mean to the average employee?  Let’s say the average employee makes 50K a year and that there are 100000 employees in the company.  How much would it matter to each employee if the difference between 40 and 400 times was distributed evenly between those employees?  50K a year multiplied by 40 is 2 million.  Then 50K multiplied by 400 is 20million.  This yields a difference of 18million.  But what does that mean to the 100K employees; about 180 bucks a piece.  What would this have done to the average employee’s bills, something between diddly and squat. 

I want people to know that I do not think they deserve to get paid if the company goes down the toilet.  They should be the last ones paid but when they do well they should be richly compensated.  But the current compensation scheme is out of whack.  I would like to see a limit on salaries.  Before you call me a hypocrite I think there should be additional types of compensation.  Their money should come from bonuses and shares of stock in the company.  The bonuses would be paid at the end of the fiscal year based on the net profit of the company while the stock would be rewarded to the CEOs but it could not be sold for 2 years. 

This brings me back to my primary purpose of my post.  People should get paid what their days worth of work is worth.  I am sorry that the best someone can do is ask “do you want fries with that” but why should that person get the same as someone repairing an electrical circuit on the top of telephone pole.  A job that is both hard and dangerous.  Or perhaps someone guy making a decision that could destroy or rejuvenate the company.  I know that most left wingers believe that the CEOs of many companies are heartless pricks but in actuality they are human beings who care about their employees.  They might not be as caring as we would like but very few of them don’t sweat over laying people off. 

Although there are still too many pricks out there.

In today’s America dual incomes are the norm.  But are they really worth it?  I am not going to look into the value that someone places on going out and earning an income but I am just going to look at it from the stand point of supply and demand.

 I believe that the first people that went out and began the dual income lifestyle were the only ones to truly see a bonus.  This is because they were able to take advantage of the market before it adjusted to the increased supply of labor.  When the two income household began to be the norm it increased the labor force.  And given supply and demand this would have decreased the price of this labor.  The market soon adjusted to this increased supply of labor and soon made dual incomes almost mandatory. 

 This of course was not all bad.  Sure one hours of work pre-dual income was not the same but it also brought down prices because it increased the amount of goods and services.  And I am not talking about the services offered at the Caesar’s of Atlantic city by the friendly women out of you league that talked to you.  They are usually single income households unless she lives with her pimp.  I am talking about the fact that there are more doctors, lawyers, factory workers, etc. that are in the workforce creating things you want or services you need.

 The one thing that I believe that did get out-of-whack was real estate.  This is primarly because no amount of extra labor can make more land.  Well it can but its very expensive and environmentalist don’t like filling in swamps.  The amount of land to put a house on has not increased but the money available for people to spend has.  So if there is more money going after the same amount of resources the price will increase.  And it has.

 I will speak about the other costs and bonuses of dual incomes from a day to day life in a later post.