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Higher Marginal Tax Rates Spur Economic Growth

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The article by Ken Morris provides a good explanation for why higher marginal tax rates (MTR) spur more economic growth.

During the period from 1951 through 1963, (MTR: 91 percent), the economy grew at the annual rate of 3.70 percent. By comparison, the growth rate these past seven years, with MTR at 35 percent, was 1.70 percent.

The article gives plausible reasons why the higher MTR was a cause not a just a coincidence.

Morris cites Ray Kroc’s founding of the McDonald’s restaurant chain as a case in point.  The high marginal tax rates encouraged Kroc to take very little salary and to reinvest the companies profits in growth of the company.  This was a way of avoiding paying lots of taxes, but it created a growing company, jobs, and wealth for many.

To make the case for lower MTR being bad for job growth he postulates that:

A billionaire making $100 million a year is unlikely to increase spending if given another $10 million. One can argue the point, but logically speaking, it’s hard to refute. Their windfall is likely to get socked away with all those other tens of millions in excess cash.

Another economist, Robert Frank, has made the point that all this extra cash doesn’t even lead to greater happiness for the wealthy.  As this economist pointed out, if a wealthy person wanted to make a lavish birthday party for his children, years ago he could hire a famous entertainer for tens of thousands of dollars.  With today’s excess wealth this same lavish party would cost millions to hire the same entertainer.   The cost of lavish things has just risen to meet the ability of the wealthy to pay without providing any extra benefit for the money. 

The number of jobs that could have been created for middle class people with the amount of money now needed to give a lavish party has risen because inflation for the middle class is not  nearly as bad as inflation for the wealthy.  More total happiness would be created with a more even distribution of wealth.

Some of the points from this video include:

“Because satisfaction depends more on relative consumption, most people will adapt quickly to an across-the-board reduction in consumption.”

“By simply changing what we tax, we can eliminate enough waste from our current system to pay down debt and provide a high level of public services.”

“A tax on any activity has two effects:

“1. It generates revenue.

“2. It discourages the activity.

“The current tax system taxes mostly useful activities, such as savings and job creation.

“If we instead taxed only harmful activities, we could raise all the revenue we needed without requiring any painful sacrifices.”

Real waste is in the private sector. Government waste in public sector trivial compared to waste in private sector.

“Private waste occurs not because consumers get overcharged, but because they get caught up in wasteful ‘positional arms races’.”

Passover Four Questions

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From The Pajama Diaries 2011/04/18

ElBaradei Suggests War Crimes Probe Of Bush Team

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Quotes from the AP report ElBaradei Suggests War Crimes Probe Of Bush Team.

The Iraq war taught him that “deliberate deception was not limited to small countries ruled by ruthless dictators,” ElBaradei writes in “The Age of Deception,” being published Tuesday by Henry Holt and Company.
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“I was aghast at what I was witnessing,” ElBaradei writes of the official U.S. attitude before the March 2003 invasion, which he calls “aggression where there was no imminent threat,” a war in which he accepts estimates that hundreds of thousands of Iraqi civilians were killed.

In such a case, he suggests, the World Court should be asked to rule on whether the war was illegal. And, if so, “should not the International Criminal Court investigate whether this constitutes a `war crime’ and determine who is accountable?”

Obama – Combating High Gasoline Prices

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In the video, Obama tries to explain the few available options to try to get gasoline prices under control.

I am trying to figure out if he could have recast this speech to take into account the prescription of my previous post about why we do not believe facts.

In other words, paradoxically, you don’t lead with the facts in order to convince. You lead with the values—so as to give the facts a fighting chance.

He did start out with the values of family and religion. At least Obama is recognizing his most important role as President – educating the voters

The Science of Why We Don’t Believe Science

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The article The Science of Why We Don’t Believe Science by Chris Mooney could have the subtitle, “Why Steve’s Politics Blog is completely ineffective.”  Perhaps the solution is to follow the prescription at the end of the article:

You can follow the logic to its conclusion: Conservatives are more likely to embrace climate science if it comes to them via a business or religious leader, who can set the issue in the context of different values than those from which environmentalists or scientists often argue. Doing so is, effectively, to signal a détente in what Kahan has called a “culture war of fact.” In other words, paradoxically, you don’t lead with the facts in order to convince. You lead with the values—so as to give the facts a fighting chance.

Paul Ryan Already Benefited From The Social Security Fund He Now Wants To Gut

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According to RawStory in the article Paul Ryan Already Benefited From The Social Security Fund He Now Wants To Gut,

Ryan’s congressional ascent, all the way to the top spot on the Budget Committee, began with his Social Security-funded college education.

I don’t know whether to file this story under “No good deed goes unpunished” or “I got mine, to heck with you.”

Rep. Paul Ryan Booed For Supporting Upper Income Tax Cuts

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Are the people in this video a sign that the public is awakening from its long hypnotic trance?

We Make Money The Old Fashioned Way, We Steal It

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The Columbia-Journalism Review quotes Senator Tom Coburn from the Levin-Coburn report on the financial disaster.

The subcommittee’s findings show “without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers,” said Coburn. “When that happens, no country can survive and neither can their financial institutions.”

Remember that Senator Tom Coburn is the conservative Republican member of the subcommittee.

According to the Huffington Post coverage of the story

Carl Levin, chair of the Senate Permanent Subcommittee on Investigations, will recommend that Goldman executives who testified before his panel, including chairman and chief executive Lloyd Blankfein, be referred to the Justice Department for possible criminal prosecution, the Michigan Democrat announced Wednesday. Members of the subcommittee will now deliberate Levin’s proposal.

Childish Economics Versus Adult Economics

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If Obama were really trying, he would make the case that the Republican’s understanding of economics is only at a very childish level.  It may be true that the Republicans have plans that came make a few people very wealthy, but it is at the expense of everybody else.

The adult economic plan makes almost all of us better off.  That improved outlook for us all is for the long term.  The Republicans can only focus on the short term profit of a few.

The adult plan would repeal the Bush tax cuts as one of many ways to start bringing the budget into balance. A tax plan that favors manufacturing and other useful work over excessive money manipulation and the creation of asset bubbles shows a mature understanding of economics and tax policy.

Other parts of an adult plan are stated in the Congressional Progressive Caucus prescription.

Individual income tax policies

  1. Extend marriage relief, credits, and incentives for children, families, and education, but
    let the upper-income tax cuts expire and let tax brackets revert to Clinton-era rates
  2. Index the AMT for inflation for a decade (AMT patch paid for)
  3. Rescind the upper-income tax cuts in the tax deal
  4. Schakowsky millionaire tax rates proposal (adding 45%, 46%, and 47% top rates)
  5. Progressive estate tax (Sanders estate tax, repeal of Kyl-Lincoln)
  6. Tax capital gains and qualified dividends as ordinary income

Corporate tax reform

  1. Tax U.S. corporate foreign income as it is earned
  2. Eliminate corporate welfare for oil, gas, and coal companies
  3. Enact a financial crisis responsibility fee
  4. Financial speculation tax (derivatives, foreign exchange)

If the Obama team were really trying, they would embrace this progressive plan. It is not so much that Obama and his team are failing. What really irks me is that they don’t seem to be trying.

Has Obama and his team’s association with the University of Chicago (where Milton Friedman promoted his wacky economic ideas) so poisoned their minds with regard to economics that they have lost the ability to think straight?

Monopoly and Competition in Twenty-First Century Capitalism

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Monopoly and Competition in Twenty-First Century Capitalism by Robert McChesney provides more evidence of how modern economic thought has concerned itself more with an idealistic view of the world than one based on reality.

For all economists, mainstream and left, the assumption of competitive markets being the order of the day also has a striking impact on how growth is assessed in capitalist economies. Under competitive conditions, investment will, as a rule, be greater than under conditions of monopoly, where the dominant firms generally seek to slow down and carefully regulate the expansion of output and investment so as to maintain high prices and profit margins-and have considerable power to do so. Hence, monopoly can be a strong force contributing to economic stagnation, everything else being equal. With the United States and most of the world economy (notwithstanding the economic rise of Asia) stuck in an era of secular stagnation and crisis unlike anything seen since the 1930s-while U.S. corporations are sitting on around $2 trillion in cash-the issue of monopoly power naturally returns to the surface.

Compare this understanding with what has happened to economic study in the last 30 years.

In the early 1980s, an unquestioning belief in the ubiquitous influence of competitive markets took hold in economics and in capitalist culture writ large, to an extent that would have been inconceivable only ten years earlier. Concern with monopoly was never dominant in mainstream economics, but it had a distinguished and respected place at the table well into the century. For some authors, including Monthly Review editors Sweezy and Harry Magdoff, as well as Paul Baran, the prevalence and importance of monopoly justified calling the system monopoly capitalism. But by the Reagan era, the giant corporation at the apex of the economic system wielding considerable monopoly power over price, output, investment, and employment had simply fallen out of the economic picture, almost as if by fiat. As John Kenneth Galbraith noted in 2004 in The Economics of Innocent Fraud: “The phrase ‘monopoly capitalism,’ once in common use, has been dropped from the academic and political lexicon.”4 For the neoliberal ideologues of today, there is only one issue: state versus market. Economic power (along with inequality) is no longer deemed relevant. Monopoly power, not to mention monopoly capital, is nonexistent or unimportant. Some on the left would in large part agree.

For a long time, I have been wondering why there is very little enforcement of laws against using monopoly power no matter which political party is control of the executive branch of the government.