Monumental change often occurs imperceptibly, and we don't know it's happened until sometime after it occurs.
It appears to me that racial and ethnic discrimination in employment compensation has come to an end. Not everywhere or with respect to everyone , but pretty clearly on a national statistical level. Personal prejudice and bias is impossible to completely eradicate. However things have changed and for the better, even though politicians and advocates will continue with the old narrative that discrimination is endemic and pervasive in the business world.
Anecdotally I've observed that discrimination in the workplace based on race, ethnicity and gender has all but disappeared. Consistent with a developing set of laws and principles, corporations and government have been vigilant in efforts to elimination racial discrimination in the workplace. It's working.
This view was statistically confirmed in a report I recently read by a University of Chicago Nobel Prize winning economist, James J. Heckman. While his report dealt with the importance of early childhood education, he concluded that more than overt discrimination now drives the achievement gap in the US between Whites, Blacks and Hispanics. He argues that skills now determine success. If you factor in skills (meaning "smarts" including conscientiousness, perseverance and sociability), the wage gap between Whites versus Blacks and Hispanics disappears.
For those who have similar skills ,wage discrimination no longer exist. Blacks and Hispanic men and women who have similar academic and personal skills make the same (or in the case of Black and Hispanic women more) than their White counterparts.
His 2011 study showed using all Black men, the wages for Blacks as a percentage of all White men's wages was 75%. However when adjusted for skills that gap closed to 94%. For Hispanic men, the percentage went from 85% unadjusted to 100% after adjustment. Interestingly , as to Black women, the percentage which was 83 % reversed to 112% after adjustment for skills ; and for Hispanic women from 93% to 117%, after adjustment. I wonder if anyone will start complaining about that "reverse" gap.
The struggle still remains to enhance those skills among minorities through education, parenting and mentoring. However, it is real progress that institutional discrimination in wages in the US apparently no longer exist based on race or ethnicity with respect to those with similar skills.
While I have expressed great skepticism over the politicized use of statistic to fit a political agenda, these figures came from a study which focused on early childhood education and not a study of wage discrimination. As such the author presumably had no particular political agenda in mind on this issue.
The conclusion I take away from this study is that educated Blacks and Hispanics who are conscientious and have good people skills will not be institutionally discriminated against based on their race or ethnicity.
While more needs to be done about those without skills, this is quite a positive societal accomplishment in this country and should be recognized as such, rather than just repeating the old litany of endemic and persistent institutional discrimination.
Eric
Friday, February 24, 2012
Thursday, January 5, 2012
Good Old Days?
Sure we are going through an economic crisis of monumental proportions; however, I'm tired about hearing how bad things are today, and how wonderful they were for the "Greatest Generation" who returned from World War II and lived in the America we all long for again.
Really? Consider the following and compare them to today:
1. Air & water quality- vastly improved environment-- remember choking smog and really polluted lakes and rivers. We now have a much greater emphasis on conservation and ecology than in the past. The whole US could have looked like Gary once did, if we hadn't paid attention to this problem.
2. Civil rights- tremendous advancements by any measure; politically, economically and socially. While discrimination hasn't been eliminated, and embedded poverty remains, a large Black and Hispanic middle class has arisen.
3. Women's rights- Advances made my women both economically and politically have been dramatic, including reproductive rights and employment and educational opportunities.
4. Gay rights-were they even mention at that time?
5. Social safety net in general much better- not only Social Security, but Medicare and Medicaid. Poverty remains but there are more services available for the poor, both from the government and the private sector.
6. Better access to elite colleges-- There no longer are same barriers based race, religion, gender,ethnicity, social class. Yes, costs are a barrier and the "greased skids" still exist, but there is more financial aid for the really disadvantaged and even well connected kids have to be really qualified to get into the top schools.
7. Auto safety- amazing improvements- safer cars, airbags, fuel efficiency etc.
8.Technology advances- just think about all the work savers and entertainment and recreational enhancements. Advances in electronics, mobile phones, PDAs, computers, the Internet and so on have significantly improved our quality of life.
9. Lower taxes- remember how high they were in the 50s and 60s?
10. Volunteer army- We don't worry about the draft now.
11. Cold War is over, along with threat of nuclear annihilation; albeit replaced by threat of terrorism.
12. Better quality housing-houses just seem to be better built than in the post war 50s,60s. Maybe not as well built as the pre-Depression era, but lots more amenities and space.
13. Crime has been dropping steadily for the last decade or more.
14. More open political process- No longer just for white protestant men. No more "smoke filled rooms", although I must confess I yearn for some of that some times. Money is a problem , but then it always was.
I'm sure I've left out other good examples so let me know.
My views are summed up in the words of the Carly Simon song, "These are the good old days".
It's the same thing in sports where they talk about how much better players were "back in the day" etc. Those players were no different then, and the old timers back then were complaining about them.
My thoughts are not all that original, just go see Woody Allen's movie "Midnight in Paris".
Maybe it's just age and memory as some have suggested, or just the way human nature is.
The point of this post is that if the positives were pointed out more often maybe people would feel a little better things than they do. Rather than dwelling on a steady diet of negativity and how bad things have gotten compared to how they used to be, let's not forget that in so many more respects things have actually gotten better; so enjoy them.
Eric
Really? Consider the following and compare them to today:
1. Air & water quality- vastly improved environment-- remember choking smog and really polluted lakes and rivers. We now have a much greater emphasis on conservation and ecology than in the past. The whole US could have looked like Gary once did, if we hadn't paid attention to this problem.
2. Civil rights- tremendous advancements by any measure; politically, economically and socially. While discrimination hasn't been eliminated, and embedded poverty remains, a large Black and Hispanic middle class has arisen.
3. Women's rights- Advances made my women both economically and politically have been dramatic, including reproductive rights and employment and educational opportunities.
4. Gay rights-were they even mention at that time?
5. Social safety net in general much better- not only Social Security, but Medicare and Medicaid. Poverty remains but there are more services available for the poor, both from the government and the private sector.
6. Better access to elite colleges-- There no longer are same barriers based race, religion, gender,ethnicity, social class. Yes, costs are a barrier and the "greased skids" still exist, but there is more financial aid for the really disadvantaged and even well connected kids have to be really qualified to get into the top schools.
7. Auto safety- amazing improvements- safer cars, airbags, fuel efficiency etc.
8.Technology advances- just think about all the work savers and entertainment and recreational enhancements. Advances in electronics, mobile phones, PDAs, computers, the Internet and so on have significantly improved our quality of life.
9. Lower taxes- remember how high they were in the 50s and 60s?
10. Volunteer army- We don't worry about the draft now.
11. Cold War is over, along with threat of nuclear annihilation; albeit replaced by threat of terrorism.
12. Better quality housing-houses just seem to be better built than in the post war 50s,60s. Maybe not as well built as the pre-Depression era, but lots more amenities and space.
13. Crime has been dropping steadily for the last decade or more.
14. More open political process- No longer just for white protestant men. No more "smoke filled rooms", although I must confess I yearn for some of that some times. Money is a problem , but then it always was.
I'm sure I've left out other good examples so let me know.
My views are summed up in the words of the Carly Simon song, "These are the good old days".
It's the same thing in sports where they talk about how much better players were "back in the day" etc. Those players were no different then, and the old timers back then were complaining about them.
My thoughts are not all that original, just go see Woody Allen's movie "Midnight in Paris".
Maybe it's just age and memory as some have suggested, or just the way human nature is.
The point of this post is that if the positives were pointed out more often maybe people would feel a little better things than they do. Rather than dwelling on a steady diet of negativity and how bad things have gotten compared to how they used to be, let's not forget that in so many more respects things have actually gotten better; so enjoy them.
Eric
Wednesday, January 4, 2012
Root Causes of the Great Recession- A Tragedy, Part I
The financial crisis which led to the Great Recession was caused by the combination of misguided good intentions and "honest" greed. It had all of the elements of a classic Greek Tragedy. A Hero who is brought low by Hubris and Flaws, aided and abetted both by Villains and Allies.
The misguided good intentions was the imperative for everyone to own a home. The American Dream -(HERO). Home ownership is viewed as a worthy goal which gives people a sense of pride, stability and opportunity to build wealth for the future.
Why shouldn't all Americans have that opportunity? Since home prices only went up (HUBRIS), once a person started on the home ownership path their futures were assured; their kids went to better schools, they lived in more stable neighborhoods and they were a able to build equity for their future and perhaps for the their children. Essentially it was a way out of lower income status; that's why it was called the American Dream.
The problem was that buying a house is such a large expenditure that almost no one is able to do it with all cash.(FLAW) Therefore borrowing through conventional mortgage financing (ALLY) was usually the only way, and in all events the best way, to go. The Government (ALLY) long encouraged mortgage financing by among other things, allowing tax deductions for home loan interest payments, even after dropping tax deductions for all other non- business interest payments. Yes, older readers will remember a time when all interest was deductible; however that was eliminated for everything other than home loans when tax rates were reduced in the 70s.
Also, as I have told my law school finance class, buying a home using mortgage financing was the most common way ,and usually only way, for the average person to utilize the benefit (along with risks) from the customary business technique of leveraging. (FLAW)
A simple example of the benefits of leverage is as follows:
1. If you bought a house for $100,000 with all cash and sold it for $120,000, your return on investment was 20% - not bad, but not great.
2. However,if you bought the same house, but only put down $20,000 in cash (the prudent "old fashion " way), and got an $80,000 mortgage, when you sold it for $120,000, you just paid the bank back it's $80,000 loan ( which likely was less due to monthly amortization payments), and your return on your $20,0000 investment was 100%-- that's great. You then used that profit to trade up for a more expensive house. And so it goes - or I should say "went". (HUBRIS)
The "dark side" of leverage surfaced when home values dropped giving rise to the notion of "being under water" (the value of the home being worth less than what is owed under the mortgage).
The problem of course is many low income people didn't qualify for most of the mortgages they were seeking. (FLAW) That became a serious problem when a disproportionate number of low income mortgage seekers were minorities. The Banks (ALLIES/VILLAINS), rightly or wrongly, were accused of discrimination, either outright or through use of techniques called red-lining. The result was the Government (THIS TIME A VILLAIN) put pressure on the Banks to make loans which they normally would be reluctant to make from a pure credit perspective. The Banks continued to resist making what they viewed as risky loans, except for a relatively small number of Community Reinvestment Act loans
Enter the subprime lenders (VILLAINS),along with their friends and abettors the mortgage brokers.(VILLAINS) For the most part subprime lenders were not conventional commercial banks. As such they were not as highly regulated as Banks, and with the help of mortgage brokers, were willing to make riskier loan for a higher return. They quickly dropped the conventional underwriting criteria of a substantial down payment, good credit history and sustainable income to service the debt.(HUGH FLAW) Many, if not most, low income borrowers could meet few or none of these customary underwriting requirements.
Nevertheless the Government, urged on by community activists (APPARENT ALLIES, BUT REALLY VILLAINS) were willing to allow these subprime lenders to operate with impunity and little or no supervision. Essentially the Government looked the other way or as Barney Frank so famously said , "let's roll the dice". Because, once again, they believed home prices never go down. And no, I'm not pinning the blame on Fannie and Freddie; they were more of big enablers who came relatively late to the game; no matter what some Republicans say.
I'll never forgot a New York Times article I read where community leaders were criticizing a belated crack down on subprime lending. In the article a civil rights leader in supporting subprime lending said, "you may think a 30% default rate is high ( it's actually astronomical and got even higher), but I see the 70% as my constituents who now own a home".
Subprime lenders funding sources were not so much from depositors or federal reserve borrowings like banks, but rather from Wall St. securitization houses (VILLAINS) who were in the business of taking high return risks. (HUBRIS) They knew there was risk in making these loans, but thought that home prices only go up, and that through the technique of tranching (AAA,AA,A,B etc.) the priority of debt repayment, each tranche sold in the securitization would be priced according to its risk. (HUBRIS/FLAW)
The theory was securitization would diversify the risk over many investors with different risk appetites, and therefore was safe, or at least priced for the risk taken. (ULTIMATE HUBRIS AND FLAW). Of course Wall St would make big fees and profits in the securitization process.
The irony is that securitization rather than spreading and diversifying the risk, and by that I mean reducing its impact after loan defaults, actually spread the contagion and amplified the fall out when loans started to go into default. Investors panicked and the downward spiral began, leading to the Great Recession, the impact from which is still being acutely felt.
Remember, however, that those same Wall St. houses and Banks actually bought those now toxic AAA and AA rated mortgage backed securities. They thought they were safe, but they became toxic when defaults on the underlying subprime mortgage began. As the chairman of Morgan Stanley so inelegantly put it, "we ate our own cooking and it choked us".
Recall as well that the Government strongly encouraged the Banks to buy those securities by given them bonus capital credits under the Basel I Accords. (VILLAIN) They were super safe because of the AAA ratings given by the rating agencies (VILLAINS) and the fact that home prices never go down. It's easy to say now "what were they thinking",but there were not many who sounded the alarm.
Were those who operated these securitization greedy? Of course they were. Were they dishonest in a criminal way; apparently not. Remember greed is not illegal, only dishonest greed is illegal. So far the government (and fortunately it's the Obama administration) hasn't found actual criminal behavior, yet. Our legal system places a very high threshold of proof when it comes to criminal prosecutions. Sadly many erstwhile liberals appear to have forgotten that (did they leave their ACLU cards behind?) in their zeal to attack Wall St and the Banks.
Fortunately we are still a country of laws, and not lynch mobs, witch burners, human sacrifices or McCarthyites. To date the Obama administration, try as I'm sure they might, have not found greedy behavior which rose to the level of dishonesty, and therefore criminality.
If anyone was really at fault it was the Government. Many others were greedy and irresponsible, but it was the Government's policy of pushing home ownership for everyone, including those who were not credit worthy, and its Regulators' failure to rein in subprime lending by requiring (as it was authorized to do) customary underwriting compliance, which were the root causes of the housing mortgage crisis.
The subprime mortgage crisis set off the panic which lead to the broader financial melt down, which ultimately resulted in the Great Recession. Would we have an economic downturn anyway without subprime lending? Probably, but it would have been more of a correction than a collapse in home prices. Take a look at Canada which prohibited subprime lending. They fared pretty well through this crisis.
Subprime lending was a relatively new industry which arose to satisfy an agenda of those who felt that credit was not widely available enough and took advantage of our misguided goal of the American dream of homes for all-- whose prices never go down- alas.
EVERYONE DIES--CURTAIN
The misguided good intentions was the imperative for everyone to own a home. The American Dream -(HERO). Home ownership is viewed as a worthy goal which gives people a sense of pride, stability and opportunity to build wealth for the future.
Why shouldn't all Americans have that opportunity? Since home prices only went up (HUBRIS), once a person started on the home ownership path their futures were assured; their kids went to better schools, they lived in more stable neighborhoods and they were a able to build equity for their future and perhaps for the their children. Essentially it was a way out of lower income status; that's why it was called the American Dream.
The problem was that buying a house is such a large expenditure that almost no one is able to do it with all cash.(FLAW) Therefore borrowing through conventional mortgage financing (ALLY) was usually the only way, and in all events the best way, to go. The Government (ALLY) long encouraged mortgage financing by among other things, allowing tax deductions for home loan interest payments, even after dropping tax deductions for all other non- business interest payments. Yes, older readers will remember a time when all interest was deductible; however that was eliminated for everything other than home loans when tax rates were reduced in the 70s.
Also, as I have told my law school finance class, buying a home using mortgage financing was the most common way ,and usually only way, for the average person to utilize the benefit (along with risks) from the customary business technique of leveraging. (FLAW)
A simple example of the benefits of leverage is as follows:
1. If you bought a house for $100,000 with all cash and sold it for $120,000, your return on investment was 20% - not bad, but not great.
2. However,if you bought the same house, but only put down $20,000 in cash (the prudent "old fashion " way), and got an $80,000 mortgage, when you sold it for $120,000, you just paid the bank back it's $80,000 loan ( which likely was less due to monthly amortization payments), and your return on your $20,0000 investment was 100%-- that's great. You then used that profit to trade up for a more expensive house. And so it goes - or I should say "went". (HUBRIS)
The "dark side" of leverage surfaced when home values dropped giving rise to the notion of "being under water" (the value of the home being worth less than what is owed under the mortgage).
The problem of course is many low income people didn't qualify for most of the mortgages they were seeking. (FLAW) That became a serious problem when a disproportionate number of low income mortgage seekers were minorities. The Banks (ALLIES/VILLAINS), rightly or wrongly, were accused of discrimination, either outright or through use of techniques called red-lining. The result was the Government (THIS TIME A VILLAIN) put pressure on the Banks to make loans which they normally would be reluctant to make from a pure credit perspective. The Banks continued to resist making what they viewed as risky loans, except for a relatively small number of Community Reinvestment Act loans
Enter the subprime lenders (VILLAINS),along with their friends and abettors the mortgage brokers.(VILLAINS) For the most part subprime lenders were not conventional commercial banks. As such they were not as highly regulated as Banks, and with the help of mortgage brokers, were willing to make riskier loan for a higher return. They quickly dropped the conventional underwriting criteria of a substantial down payment, good credit history and sustainable income to service the debt.(HUGH FLAW) Many, if not most, low income borrowers could meet few or none of these customary underwriting requirements.
Nevertheless the Government, urged on by community activists (APPARENT ALLIES, BUT REALLY VILLAINS) were willing to allow these subprime lenders to operate with impunity and little or no supervision. Essentially the Government looked the other way or as Barney Frank so famously said , "let's roll the dice". Because, once again, they believed home prices never go down. And no, I'm not pinning the blame on Fannie and Freddie; they were more of big enablers who came relatively late to the game; no matter what some Republicans say.
I'll never forgot a New York Times article I read where community leaders were criticizing a belated crack down on subprime lending. In the article a civil rights leader in supporting subprime lending said, "you may think a 30% default rate is high ( it's actually astronomical and got even higher), but I see the 70% as my constituents who now own a home".
Subprime lenders funding sources were not so much from depositors or federal reserve borrowings like banks, but rather from Wall St. securitization houses (VILLAINS) who were in the business of taking high return risks. (HUBRIS) They knew there was risk in making these loans, but thought that home prices only go up, and that through the technique of tranching (AAA,AA,A,B etc.) the priority of debt repayment, each tranche sold in the securitization would be priced according to its risk. (HUBRIS/FLAW)
The theory was securitization would diversify the risk over many investors with different risk appetites, and therefore was safe, or at least priced for the risk taken. (ULTIMATE HUBRIS AND FLAW). Of course Wall St would make big fees and profits in the securitization process.
The irony is that securitization rather than spreading and diversifying the risk, and by that I mean reducing its impact after loan defaults, actually spread the contagion and amplified the fall out when loans started to go into default. Investors panicked and the downward spiral began, leading to the Great Recession, the impact from which is still being acutely felt.
Remember, however, that those same Wall St. houses and Banks actually bought those now toxic AAA and AA rated mortgage backed securities. They thought they were safe, but they became toxic when defaults on the underlying subprime mortgage began. As the chairman of Morgan Stanley so inelegantly put it, "we ate our own cooking and it choked us".
Recall as well that the Government strongly encouraged the Banks to buy those securities by given them bonus capital credits under the Basel I Accords. (VILLAIN) They were super safe because of the AAA ratings given by the rating agencies (VILLAINS) and the fact that home prices never go down. It's easy to say now "what were they thinking",but there were not many who sounded the alarm.
Were those who operated these securitization greedy? Of course they were. Were they dishonest in a criminal way; apparently not. Remember greed is not illegal, only dishonest greed is illegal. So far the government (and fortunately it's the Obama administration) hasn't found actual criminal behavior, yet. Our legal system places a very high threshold of proof when it comes to criminal prosecutions. Sadly many erstwhile liberals appear to have forgotten that (did they leave their ACLU cards behind?) in their zeal to attack Wall St and the Banks.
Fortunately we are still a country of laws, and not lynch mobs, witch burners, human sacrifices or McCarthyites. To date the Obama administration, try as I'm sure they might, have not found greedy behavior which rose to the level of dishonesty, and therefore criminality.
If anyone was really at fault it was the Government. Many others were greedy and irresponsible, but it was the Government's policy of pushing home ownership for everyone, including those who were not credit worthy, and its Regulators' failure to rein in subprime lending by requiring (as it was authorized to do) customary underwriting compliance, which were the root causes of the housing mortgage crisis.
The subprime mortgage crisis set off the panic which lead to the broader financial melt down, which ultimately resulted in the Great Recession. Would we have an economic downturn anyway without subprime lending? Probably, but it would have been more of a correction than a collapse in home prices. Take a look at Canada which prohibited subprime lending. They fared pretty well through this crisis.
Subprime lending was a relatively new industry which arose to satisfy an agenda of those who felt that credit was not widely available enough and took advantage of our misguided goal of the American dream of homes for all-- whose prices never go down- alas.
EVERYONE DIES--CURTAIN
Wednesday, December 7, 2011
Shrinking Middle Class-- Two Directions
As we are constantly reminded the Middle Class has been shrinking significantly. True enough and it is a real problem, but what is the complete consequences of the skrinkage?
I read an article buried on page 15 of the Wednesday, November 16th, New York Times. The headline was "Middle -Class Areas Shrink as Income Gap Grows".
The article told a very interesting story beyond the headline. Based on a study done by Stanford University, the percentage of neighborhoods that were middle class had dropped from 65% to 44% since 1970.
We've heard similar things like that a lot before. I assumed that a shrinking middle class meant that those in the middle class were dropping out of the middle class, and by "out" , I assumed "down". By the way, I conducted a little informal poll, and those who I asked about what is meant by the middle class shrinking all said that people had drop out of it by going down in income.
As it turns out not everyone who left the Middle Class went down.
Roughly 50% of those no longer in the middle class had actually gone "up" and were no longer middle class because their incomes increased, and they moved "up" not "down".
Unfortunately more than 50% who left the middle class did move down.
Based on that report from Stanford, the percentage of affluent Americans actually rose from 7% to 14% since 1970; while the percentage of lower income Americans also increased from 8% to 17%. Both essentially doubled. Clearly the gap between the "haves" and "have nots" is growing more acute, but it's growing both ways.
Now I understand where much of the apparent growing affluence came from in the midst of otherwise economic decline.
Make no mistake about it, the growing income inequality gap is a serious and potentially dangerous problem. It is not healthy to be a society sharply divided betweeen "haves" and "have nots".
I have addressed solutions in a previous post, but at least the reasons for the shrinking middle class are not all negative, as I, and I assume most, have been lead to believe.
Eric
I read an article buried on page 15 of the Wednesday, November 16th, New York Times. The headline was "Middle -Class Areas Shrink as Income Gap Grows".
The article told a very interesting story beyond the headline. Based on a study done by Stanford University, the percentage of neighborhoods that were middle class had dropped from 65% to 44% since 1970.
We've heard similar things like that a lot before. I assumed that a shrinking middle class meant that those in the middle class were dropping out of the middle class, and by "out" , I assumed "down". By the way, I conducted a little informal poll, and those who I asked about what is meant by the middle class shrinking all said that people had drop out of it by going down in income.
As it turns out not everyone who left the Middle Class went down.
Roughly 50% of those no longer in the middle class had actually gone "up" and were no longer middle class because their incomes increased, and they moved "up" not "down".
Unfortunately more than 50% who left the middle class did move down.
Based on that report from Stanford, the percentage of affluent Americans actually rose from 7% to 14% since 1970; while the percentage of lower income Americans also increased from 8% to 17%. Both essentially doubled. Clearly the gap between the "haves" and "have nots" is growing more acute, but it's growing both ways.
Now I understand where much of the apparent growing affluence came from in the midst of otherwise economic decline.
Make no mistake about it, the growing income inequality gap is a serious and potentially dangerous problem. It is not healthy to be a society sharply divided betweeen "haves" and "have nots".
I have addressed solutions in a previous post, but at least the reasons for the shrinking middle class are not all negative, as I, and I assume most, have been lead to believe.
Eric
Friday, November 25, 2011
Deficit Reduction
Why don't we let the the Bush tax cuts expire for everyone? That would raise a whopping $4 Trillion, which is 2 1/2 times what the Super Committee was trying to cut the deficit. Why limit the expiration of the Bush tax cuts to those making more than $250,000 a year; that only raises a comparatively much smaller $800 Billion? Adding $4 Trillion to the $1.2 Trillion of automatic domestic and defense cuts, now set to take effect in 2013, would make a significant impact on our deficit and debt.
Frankly I didn't think taxes were so crushing for everyone under Clinton and the Bush's early years. The country prospered during those years.
Some agree, but think that letting the tax cuts expire for everyone will exacerbates the income gap problem, which may be a problem even more serious and dangerous than the debt problem. I have been very concerned about growing income gap for a quite while; long before OWS. I'm still waiting for solutions (in addition to the ones I offered in my last post) other than taxing the rich. Just taxing the rich won't solve that problem.
Also, I don't completely understand the "tax the rich" solution reasoning since all statistics on the growing income gap are stated in gross income; not net after tax income.
While it may not make complete sense to use gross income comparisons, that is the way it's done; presumably because that way makes the gap bigger. The reason why using gross income rather than net income makes the gap appear bigger is that, notwithstanding what most believe, the rich do pay a lot of taxes.
Therefore by calculating the gap using gross income, raising taxes on someone who makes $1,000,000 a year gross does not reduce his income for purposes of making an impact on the income gap. Tax him all you want, he still makes $1,000,000 ( maybe more since he'll say he needs more to pay his taxes). Therefore that won't narrow the income gap.
Also raising taxes on the rich doesn't raise the income of the middle class . My guess is rolling back the Bush tax cuts for everyone won't raise taxes for the poor, period.
As to our deficit and debt problems, it's amazing to me how relatively easy it would be to really go a good long way towards solving these problems simply by going back to 2001 tax rates. Our tax rates today are near historic lows . I bet Europe wished it had problems that could be solved that easily. That's why I get so upset with Republicans for their "no new taxes" mantra .
Both parties agree, to a lesser or greater extent, that the defense budget needs to be cut significantly; especially with our two wars winding down.
Democrats need to compromise as well by cutting ineffective domestic spending and simply raising ( beginning years down the road) the eligibility age for Social Security and Medicare a couple of years, slightly adjusting cost of living indexes, and implementing other comparatively painless entitlement tweaks.
Because many Americans seem to be healthier and living longer, adjusting entitlements shouldn't be much of a practical problem. The trend towards a longer and healthier life is hopefully only likely to continue. What's so magical about 65 for Medicare anyway? Means testing is another solution. I would personally forgo receiving Social Security payments beyond the amounts I paid in.
Letting the Bush tax cuts expire for everybody, making meaningful cuts in general and defense spending, and rationally adjusting entitlements would actually result in the goal we, and the markets, have had for our government -- "putting our fiscal house in order"
Let's do all of this now, and insure our children and grandchildren's financial future before it gets much tougher to do.
Eric
Frankly I didn't think taxes were so crushing for everyone under Clinton and the Bush's early years. The country prospered during those years.
Some agree, but think that letting the tax cuts expire for everyone will exacerbates the income gap problem, which may be a problem even more serious and dangerous than the debt problem. I have been very concerned about growing income gap for a quite while; long before OWS. I'm still waiting for solutions (in addition to the ones I offered in my last post) other than taxing the rich. Just taxing the rich won't solve that problem.
Also, I don't completely understand the "tax the rich" solution reasoning since all statistics on the growing income gap are stated in gross income; not net after tax income.
While it may not make complete sense to use gross income comparisons, that is the way it's done; presumably because that way makes the gap bigger. The reason why using gross income rather than net income makes the gap appear bigger is that, notwithstanding what most believe, the rich do pay a lot of taxes.
Therefore by calculating the gap using gross income, raising taxes on someone who makes $1,000,000 a year gross does not reduce his income for purposes of making an impact on the income gap. Tax him all you want, he still makes $1,000,000 ( maybe more since he'll say he needs more to pay his taxes). Therefore that won't narrow the income gap.
Also raising taxes on the rich doesn't raise the income of the middle class . My guess is rolling back the Bush tax cuts for everyone won't raise taxes for the poor, period.
As to our deficit and debt problems, it's amazing to me how relatively easy it would be to really go a good long way towards solving these problems simply by going back to 2001 tax rates. Our tax rates today are near historic lows . I bet Europe wished it had problems that could be solved that easily. That's why I get so upset with Republicans for their "no new taxes" mantra .
Both parties agree, to a lesser or greater extent, that the defense budget needs to be cut significantly; especially with our two wars winding down.
Democrats need to compromise as well by cutting ineffective domestic spending and simply raising ( beginning years down the road) the eligibility age for Social Security and Medicare a couple of years, slightly adjusting cost of living indexes, and implementing other comparatively painless entitlement tweaks.
Because many Americans seem to be healthier and living longer, adjusting entitlements shouldn't be much of a practical problem. The trend towards a longer and healthier life is hopefully only likely to continue. What's so magical about 65 for Medicare anyway? Means testing is another solution. I would personally forgo receiving Social Security payments beyond the amounts I paid in.
Letting the Bush tax cuts expire for everybody, making meaningful cuts in general and defense spending, and rationally adjusting entitlements would actually result in the goal we, and the markets, have had for our government -- "putting our fiscal house in order"
Let's do all of this now, and insure our children and grandchildren's financial future before it gets much tougher to do.
Eric
Tuesday, November 15, 2011
Occupy Wall St. Action Plan
It's time to do more than "occupying" and start coming up with ideas to narrow the growing income gap. That issue seems to be the one that most supporting OWS concerns seem to agree needs to be addressed.
The best way to begin to narrow income gap is through (i) a reformed corporate governance system which reins in runaway executive compensation and compensates executives based on actual merit and value added and (ii) a reenergized and reformed union movement to enhance middle class wages.
>
>1. Reformed corporate governance.
The current system is not effectively dealing with excessive executive compensation. We need a system that appropriately rewards actual value.
This principle also applies to entertainers and professional athletes.
> Shareholders need a much greater and effective voice; after all it's their money that being used to pay these sky high salaries and bonuses.
Over 60% of Amereicans, directly or indirectly, own stock in the market and some of the largest shareholder are union and employee pension funds.
Directors need complete independence from executives, and they need to exercise that independence in the best interest of the shareholders.
> Consultants who advise on compensation shouldn't base recommendations on comparables ( it becomes self fullfilling and circular), but rather develop a metric for determining actual value. They should be hired by the independent directors.
All this can be accomplished within the confines of our current legal system.
2. Reenergized and Reformed Union Movement.
>
> A. Private sector unions need to be strengthen by being more pro growth and less obstructionist. Union employees should in some way share in enhanced profitability.
Unions need to focus on their primary goal of protecting workers wages and benefits and preventing ownership from unfairly increasing ownership's profits at the workers expense.
However to be more effective, and garner general public support, unions need to reform in order to shed the image much of the public has of them.
Most of the public seems to view unions as self-serving obstructionists, with seemingly silly and unproductive work rules, whose leaders all too often unfairly enrich themselves in a variety of ways, and sometimes are outright corrupt.
Work rule must make sense and enhance, rather than retard profitability; while legitimately protecting workers health and safety.
Unions also need to be more responsive to competitive pressures from lower cost foreign labor. Leadership compensation and benefits need to be more transparent.
Unfortunately unions give their critics ample ammunition to attack them which results in discrediting much of the whole movement.
By being more pro growth, and working with, instead of against, management, the union movement can become a driver for increasing middle class income. By operating in a way that enhances the success of the companies for whom their members work, they can better insure the employees share fairly in that success.
B. As to the public sector, where the taxpayers are the owners, State and Local public employees should all be handled the same way the Federal government and the military are.
Maybe most people are not aware, but the Federal government employee unions have very limited rights. Pretty close to what the Governor of the State of Wisconsin would like. Pay and benefits are not negotiated by the union. Why no public outcry here?
First of all, let's remember that government is not in the business of making a profit, unlike the private sector. Therefore the concept of exploiting the workers to enrich the owners simply doesn't apply to the public sector.
Yes, we need State and Local employee unions to protect employees rights, but they should operate the same way as Federal government employee unions.
There is too much room for undue influence and abuse through political contributions, union leadership featherbedding and pension abuses. As we read in the newspapers almost every day, this kind of abuse occurs often on the state and local levels.
Another principle concern is that with government officials (it's not their money) negotiating with the unions (who make political contributions to those officials), there really is no one looking out for the interests of the taxpayers.
This differs from private industry where management is closely aligned with ownership in negotiations against unions and the concept of making contributions to the guys setting your salary doesn't exist.
As another example, retirement age should be same as private sector. Why the difference, except for police and fire?
As to police and fire, perhaps, they should be handled the same way as our all volunteer military. They are way too important to be affected by politics and union actions. However, given the nature of their work, they should be entitled to retire earlier than ordinary employees.
Finally, unlike the private sector, pubic sector costs are paid by taxpayers and therefore are a big part of our financial and debt crises, especially at the state and local levels.
>
> All that being said, I believe a revitalized union movement is crucial to narrowing the income gap. Reform is critical to making that happen.
In summary , these are areas where OWS or other activists should get involved to get actual results. Demonstrating is all well and good, but it's time to do something.
By raising workers wages through responsible union action and lowering executive compensation through increased shareholder participation and director independence, we can narrow the income gap within the parameters of a free and open democratic society.
Eric
>
The best way to begin to narrow income gap is through (i) a reformed corporate governance system which reins in runaway executive compensation and compensates executives based on actual merit and value added and (ii) a reenergized and reformed union movement to enhance middle class wages.
>
>1. Reformed corporate governance.
The current system is not effectively dealing with excessive executive compensation. We need a system that appropriately rewards actual value.
This principle also applies to entertainers and professional athletes.
> Shareholders need a much greater and effective voice; after all it's their money that being used to pay these sky high salaries and bonuses.
Over 60% of Amereicans, directly or indirectly, own stock in the market and some of the largest shareholder are union and employee pension funds.
Directors need complete independence from executives, and they need to exercise that independence in the best interest of the shareholders.
> Consultants who advise on compensation shouldn't base recommendations on comparables ( it becomes self fullfilling and circular), but rather develop a metric for determining actual value. They should be hired by the independent directors.
All this can be accomplished within the confines of our current legal system.
2. Reenergized and Reformed Union Movement.
>
> A. Private sector unions need to be strengthen by being more pro growth and less obstructionist. Union employees should in some way share in enhanced profitability.
Unions need to focus on their primary goal of protecting workers wages and benefits and preventing ownership from unfairly increasing ownership's profits at the workers expense.
However to be more effective, and garner general public support, unions need to reform in order to shed the image much of the public has of them.
Most of the public seems to view unions as self-serving obstructionists, with seemingly silly and unproductive work rules, whose leaders all too often unfairly enrich themselves in a variety of ways, and sometimes are outright corrupt.
Work rule must make sense and enhance, rather than retard profitability; while legitimately protecting workers health and safety.
Unions also need to be more responsive to competitive pressures from lower cost foreign labor. Leadership compensation and benefits need to be more transparent.
Unfortunately unions give their critics ample ammunition to attack them which results in discrediting much of the whole movement.
By being more pro growth, and working with, instead of against, management, the union movement can become a driver for increasing middle class income. By operating in a way that enhances the success of the companies for whom their members work, they can better insure the employees share fairly in that success.
B. As to the public sector, where the taxpayers are the owners, State and Local public employees should all be handled the same way the Federal government and the military are.
Maybe most people are not aware, but the Federal government employee unions have very limited rights. Pretty close to what the Governor of the State of Wisconsin would like. Pay and benefits are not negotiated by the union. Why no public outcry here?
First of all, let's remember that government is not in the business of making a profit, unlike the private sector. Therefore the concept of exploiting the workers to enrich the owners simply doesn't apply to the public sector.
Yes, we need State and Local employee unions to protect employees rights, but they should operate the same way as Federal government employee unions.
There is too much room for undue influence and abuse through political contributions, union leadership featherbedding and pension abuses. As we read in the newspapers almost every day, this kind of abuse occurs often on the state and local levels.
Another principle concern is that with government officials (it's not their money) negotiating with the unions (who make political contributions to those officials), there really is no one looking out for the interests of the taxpayers.
This differs from private industry where management is closely aligned with ownership in negotiations against unions and the concept of making contributions to the guys setting your salary doesn't exist.
As another example, retirement age should be same as private sector. Why the difference, except for police and fire?
As to police and fire, perhaps, they should be handled the same way as our all volunteer military. They are way too important to be affected by politics and union actions. However, given the nature of their work, they should be entitled to retire earlier than ordinary employees.
Finally, unlike the private sector, pubic sector costs are paid by taxpayers and therefore are a big part of our financial and debt crises, especially at the state and local levels.
>
> All that being said, I believe a revitalized union movement is crucial to narrowing the income gap. Reform is critical to making that happen.
In summary , these are areas where OWS or other activists should get involved to get actual results. Demonstrating is all well and good, but it's time to do something.
By raising workers wages through responsible union action and lowering executive compensation through increased shareholder participation and director independence, we can narrow the income gap within the parameters of a free and open democratic society.
Eric
>
Thursday, October 13, 2011
Taxes v. Income
I recently read a survey from the IRS which showed the percentage of federal income taxes paid, and adjusted gross income earned, by the top 1%, 5% and 25% of American taxpayers. If correct, the finding were pretty surprising to me.
The top 1% paid 38% of Federal Income Taxes ( "FIT"), but only earned 20% of Adjusted Gross Income("AGI") .
Likewise the top 5% paid 59% of FIT, but earned 35% of AGI .
The top 25% paid 86% of FIT .
Finally almost 50% of tax filers pay no FIT.
While the top 1% do make 20% of all income, they pay 38% of federal income taxes.
So much I guess for the 1% - 99% Occupy Wall St. mantra.
It is now widely recognized (although not well known) that almost half of American taxpayers pay no federal income taxes. While this doesn't cover social security and medicare taxes, those taxes are narrowly focused and people essentially get them paid back when they retire or get sick. They are not the same as federal income taxes which are used for most of our government expenditures.
The retort is that they do pay other taxes and that if they pay no federal income taxes, it is because they are not rich enough, too old or have big families.
By the way, I suspect a good portion of Tea Party folks are among those who pay very little or no federal income taxes.
Nonetheless there has to be concern from a societal point of view, when half of our citizens do not share in the burden of the cost of running our government. For that reason some conservatives are in favor of some kind of consumption tax at the federal level to insure that everyone pays some federal taxes. See Cain's 9-9-9 plan.
However what really surprised me is that while I always knew the "rich" paid most of the federal income taxes, I thought they made an even higher percentage of the income. Apparently they don't.
I'm not against raising taxes if needed to solve our fiscal problems, I just think it's important that people be aware that taxes are more fairly distributed than we are told. The rich, and the kind of rich, do pay their fair share and the less well off pay very little or none.
Perhaps if that were more widely known it would take some of the steam out of the class warfare frenzy and we can get down to solving our problems in a rational productive way.
Eric
The top 1% paid 38% of Federal Income Taxes ( "FIT"), but only earned 20% of Adjusted Gross Income("AGI") .
Likewise the top 5% paid 59% of FIT, but earned 35% of AGI .
The top 25% paid 86% of FIT .
Finally almost 50% of tax filers pay no FIT.
While the top 1% do make 20% of all income, they pay 38% of federal income taxes.
So much I guess for the 1% - 99% Occupy Wall St. mantra.
It is now widely recognized (although not well known) that almost half of American taxpayers pay no federal income taxes. While this doesn't cover social security and medicare taxes, those taxes are narrowly focused and people essentially get them paid back when they retire or get sick. They are not the same as federal income taxes which are used for most of our government expenditures.
The retort is that they do pay other taxes and that if they pay no federal income taxes, it is because they are not rich enough, too old or have big families.
By the way, I suspect a good portion of Tea Party folks are among those who pay very little or no federal income taxes.
Nonetheless there has to be concern from a societal point of view, when half of our citizens do not share in the burden of the cost of running our government. For that reason some conservatives are in favor of some kind of consumption tax at the federal level to insure that everyone pays some federal taxes. See Cain's 9-9-9 plan.
However what really surprised me is that while I always knew the "rich" paid most of the federal income taxes, I thought they made an even higher percentage of the income. Apparently they don't.
I'm not against raising taxes if needed to solve our fiscal problems, I just think it's important that people be aware that taxes are more fairly distributed than we are told. The rich, and the kind of rich, do pay their fair share and the less well off pay very little or none.
Perhaps if that were more widely known it would take some of the steam out of the class warfare frenzy and we can get down to solving our problems in a rational productive way.
Eric
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