Corporations: A Little History

I came across this post today which included this quote from Justice Marshall:

A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.

Trustees of Dartmouth Coll. v. Woodward, 17 U.S. (4 Wheat.) 518 (1819), p. 636.

Here's a link to that decision.

Given this statement of what a corporation is, it always struck me as strange that the legislature is not empowered to state, as one of its "properties," that it cannot make contributions to political campaigns.

But, interestingly, the Dartmouth College case held that the legislature (in that case, of the state of New Hampshire) could not make changes to the corporate charter.  The Supreme Court in that case treated a corporate charter as a contract between the state and the corporation.  The Constitution, Article 1, Section 10, clause 1 provides:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

abridged to: "No State shall...pass any...Law impairing the Obligation of Contracts...."

The Court in Dartmouth College concluded that, by attempting to make changes in the corporate charter, it was impairing a contract between the state and the corporation, which was unconstitutional.  But in his long and very interesting concurrence, Justice Story concluded as follows:

In my judgment, it is perfectly clear that any act of a legislature which takes away any powers or franchises vested by its charter in a private corporation, or its corporate officers, or which restrains or controls the legitimate exercise of them, or transfers them to other persons without its assent is a violation of the obligations of that charter. If the legislature mean to claim such an authority, it must be reserved in the grant. The charter of Dartmouth College contains no such reservation, and I am therefore bound to declare that the acts of the Legislature of New Hampshire now in question do impair the obligations of that charter, and are consequently unconstitutional and void.

The italics are mine.

Many states took Justice Story's hint, and began adding as a clause in their charters, a reservation of rights to make changes.  Later, as business corporations proliferated in the late 19th Century, these reservations were built into the corporation laws of the states.  These restrictions were later upheld by the Supreme Court in the Pennsylvania College Cases and Greenwood v. Freight Company, thereby giving state legislatures the power to impose new regulations on corporations.

These provisions continue in state laws today.  For example, New York's Business Corporation Law (Section 110) provides as follows:

The legislature reserves the right, at pleasure, to alter, amend, suspend or repeal in whole or in part this chapter, or any certificate of incorporation or any authority to do business in this state, of any domestic or foreign corporation, whether or not existing or authorized on the effective date of this chapter.

Here's a similar provision under Delaware General Corporation Law (Section 393), where most public corporations are incorporated:

This chapter may be amended or repealed, at the pleasure of the General Assembly, but any amendment or repeal shall not take away or impair any remedy under this chapter against any corporation or its officers for any liability which shall have been previously incurred. This chapter and all amendments thereof shall be a part of the charter or certificate of incorporation of every corporation except so far as the same are inapplicable and inappropriate to the objects of the corporation.

Frankly, based on this history, state legislatures clearly can pass legislation that restricts the political rights of corporations.  I really don't know how one can reach any other conclusion.

Best Wishes!

Hope everyone had a great holiday!

Happiness

Just a couple of quick links to articles that are food of thought this holiday season.  They cover two aspects of modern life that I think it behooves us to reflect upon.

From the foundation document of the United States: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."

So how well are we doing?

First, one of the more interesting books to come out this year is The Political Economy of Human Happiness. From an interview with the author, Banjamin Radcliff:

Now, to be sure, the market economy absolutely contributes to human well-being in other ways — no one can deny that — but we have a macro- vs. micro-problem. At the macro level, capitalism works well. I would agree with Brooks that the market society is one of humanity’s greatest achievements. But at the micro level it depends at the very core of its logic, as even Adam Smith was at pains to point out, on the idea of using other people (employees) as a means to making profits for oneself. The people we hire to do work are just mere commodities in the profit-loss calculations, no more worthy of special concern than barrels of oil or bushels of grain. The last chapter of my book discusses these moral tensions that capitalism creates. My conclusion is that the social safety net, labor market regulations and labor unions all limit the degree to which people become mere commodities, and thus are more likely to lead fulfilling lives.

Second, Corey Robin had a great post a week or so ago about Obamacare and how it reflects the increasing complexity of modern life.  Forget the "what the left wants" language, and just reflect on what he says about what life is becoming, and whether it is something that we should, as a society, desire:

Aside from the numbers, what I’m always struck by in these discussions is just how complicated Obamacare is. Even if we accept all the premises of its defenders, the number of steps, details, caveats, and qualifications that are required to defend it, is in itself a massive political problem. As we’re now seeing.

More important than the politics, that byzantine complexity is a symptom of what the ordinary citizen has to confront when she tries to get health insurance for herself or her family. As anyone who has even good insurance knows, navigating that world of numbers and forms and phone calls can be a daunting proposition. It requires inordinate time, doggedness, savvy, intelligence, and manipulative charm (lest you find yourself on the wrong end of a disgruntled telephone operator). Obamacare fits right in with that world and multiplies it.

I’m not interested in arguing here over what was possible with health care reform and what wasn’t; we’ve had that debate a thousand times. But I thought it might be useful to re-up part of this post I did, when I first started blogging, on how much time and energy our capitalist world requires us to waste, and what a left approach to the economy might have to say about all that. It is this world of everyday experience—what it’s like to try and get basic goods for yourself and/or your family—that I wish the left (both liberals and leftists) was more in touch with.

The post is in keeping with an idea I’ve had about socialism and the welfare state for several years now. Cribbing from Freud, and drawing from my own anti-utopian utopianism, I think the point of socialism is to convert hysterical misery into ordinary unhappiness. God, that would be so great.

• • • • • •

There is a deeper, more substantive, case to be made for a left approach to the economy. In the neoliberal utopia, all of us are forced to spend an inordinate amount of time keeping track of each and every facet of our economic lives. That, in fact, is the openly declared goal: once we are made more cognizant of our money, where it comes from and where it goes, neoliberals believe we’ll be more responsible in spending and investing it. Of course, rich people have accountants, lawyers, personal assistants, and others to do this for them, so the argument doesn’t apply to them, but that’s another story for another day.

The dream is that we’d all have our gazillion individual accounts—one for retirement, one for sickness, one for unemployment, one for the kids, and so on, each connected to our employment, so that we understand that everything good in life depends upon our boss (and not the government)—and every day we’d check in to see how they’re doing, what needs attending to, what can be better invested elsewhere. It’s as if, in the neoliberal dream, we’re all retirees in Boca, with nothing better to do than to check in with our broker, except of course that we’re not. Indeed, if Republicans (and some Democrats) had their way, we’d never retire at all.

In real (or at least our preferred) life, we do have other, better things to do. We have books to read, children to raise, friends to meet, loved ones to care for, amusements to enjoy, drinks to drink, walks to take, webs to surf, couches to lie on, games to play, movies to see, protests to make, movements to build, marches to march, and more. Most days, we don’t have time to do any of that. We’re working way too many hours for too little pay, and in the remaining few hours (minutes) we have, after the kids are asleep, the dishes are washed, and the laundry is done, we have to haggle with insurance companies about doctor’s bills, deal with school officials needing forms signed, and more.

What’s so astounding about Romney’s proposal—and the neoliberal worldview more generally—is that it would just add to this immense, and incredibly shitty, hassle of everyday life. One more account to keep track of, one more bell to answer. Why would anyone want to live like that? I sure as hell don’t know, but I think that’s the goal of the neoliberals: not just so that we’re more responsible with our money, but also so that we’re more consumed by it: so that we don’t have time for anything else. Especially anything, like politics, that would upset the social order as it is.

…We saw a version of it during the debate on Obama’s healthcare plan. I distinctly remember, though now I can’t find it, one of those healthcare whiz kids—maybe it was Ezra Klein—tittering on about the nifty economics and cool visuals of Obama’s plan: how you could go to the web, check out the exchange, compare this little interstice of one plan with that little interstice of another, and how great it all was because it was just so fucking complicated.

I thought to myself: you’re either very young or an academic. And since I’m an academic, and could only experience vertigo upon looking at all those blasted graphs and charts, I decided whoever it was, was very young. Only someone in their 20s—whipsmart enough to master an inordinately complicated law without having to make real use of it—could look up at that Everest of words and numbers and say: Yes! There’s freedom!

That’s what the neoliberal view reduces us to: men and women so confronted by the hassle of everyday life that we’re either forced to master it, like the wunderkinder of the blogosphere, or become its slaves. We’re either athletes of the market or the support staff who tend to the race.

That’s not what the left wants. We want to give people the chance to do something else with their lives, something besides merely tending to it, without having to take a 30-year detour on Wall Street to get there. The way to do that is not to immerse people even more in the ways and means of the market, but to give them time and space to get out of it. That’s what a good welfare state, real social democracy, does: rather than being consumed by life, it allows you to make your life. Freely. One less bell to answer, not one more.

Reading about Economics

I've been pretty quiet on this blog lately, mostly because I've been doing a lot of reading, particularly about the economy.  There seems to be growing interest in a new "school" of economic thought known as Modern Monetary Theory (MMT), which I have learned about from reading Yves Smith's blog Naked Capitalism (Yves' blog is one of my daily "must reads").  Just today there is a post from Vincent Huang on The Nature of Money which is is a fascinating read.

I get a bit disheartened reading this stuff, however, because it demonstrates to me just how little the average American understands about the economy and how it works.  I recently commented on this blog post by Paul Krugman, saying the following:

The sum total of my economics education was basic Macro from Samuelson some 35 years ago. It was transformational to me, in the sense that it gave me an understanding of the way that the economy functions and the government's role in making sure it functions smoothly. Last year, when I heard that my son's high school was, for the first time, going to offer AP Macroeconomics, I urged him to enroll in the course.

There is so much that is counter-intuitive about macro-economics. Just try explaining to the average American the paradox of thrift. When the President says that the government must tighten its belt like individuals do, anyone with a basic sense of macroeconomics knows what a foolish statement that is. But most Americans just nod their heads in agreement.

To me it is essential that the average American understand these basic concepts. Frankly, I think we should focus on developing a basic course at the high school level that should be part of the core curriculum that everyone should take.

So I continue to try and understand what's going on....and MMT has given me an understanding that I really didn't have before.

If you're as interested, many of the major players on this front are at the University of Missouri Kansas City, and blog at the website New Economic Perspectives.  The series of blog posts at the MMT Primer on that site can give you the basics.

I want to describe one of the concepts that I never really thought about.  I'm sure I'm going to blow something as I write this, so anyone who can add to my understanding please chime in.

Time to Bury the Clinton Legacy? Agreed!

Dean Baker has a column with that title, and I agree with what he has to say:

The story told by Democrats is that Clinton took the tough steps to bring down the budget deficit and balance the budget. He raised taxes and cut spending, even at the risk of alienating his base. The move toward a balanced budget caused the economy to boom, giving us the low unemployment and budget surpluses of the late 1990s.

In this story, everything went haywire when George W. Bush arrived in the White House and squandered the surplus with his big tax cuts. Making matters worse, he fought the wars in Afghanistan and Iraq without paying for them. The wars and tax cuts shifted the budget from large surpluses to large deficits, resulting in slower growth and eventually the financial crisis in 2008.

This story is fundamentally wrong, starting with the most basic point: The tax increases and spending cuts put in place by Clinton would not have balanced the budget, much less led to a large surplus. The Congressional Budget Office’s 1996 projections for the year 2000, still showed a deficit in 2000 equal to 2.5 percent of GDP ($400 billion in today’s economy). These projections were made after all the Clinton-era tax increases and spending cuts were passed into law.

The reason we had a surplus of 2.5 percent of GDP in 2000 instead of a deficit was that the economy was propelled by a stock bubble. The bubble led to a boom in consumption, which caused the saving rate to hit a record low. There was also a surge in investment as overhyped dotcom companies were able to raise billions on the stock market even if it was entirely unclear how exactly they could make a profit.

I would go a little further here, and say that the Clinton tax increase in 1993 probably acted to limit the size of the bubble, although the cut in the capital gains rate from 28% to 20% in 1998 clearly operated to inflate it further. And I agree that the Bush tax cuts and deficit spending helped limit the damage caused by the bursting of the dot-com bubble.  However, I think the stimulus would have been much more effective if it had consisted in New Deal type infrastructure spending rather than tax cuts skewed highly to the wealthy.

More on this later....

What's Going On in Italy

This story is actually kind of scary:

Events in Italy are turning serious. President Giorgio Napolitano has warned of “widespread social tension and unrest” in 2014 as the Long Slump drags on.

Those living on the margins are being drawn into “indiscriminate and violent protest, a sterile lurch towards total opposition”.

His latest speech is a veritable Jeremiad. Thousands of companies are on the “brink of collapse”. Great masses of the working people are on the dole or at risk of losing their jobs. Very high rates of youth unemployment (41pc) are leading to dangerous alienation.

“The recession is still biting hard, and there is a pervasive sense that it will be difficult to escape, to find a way back to full growth,” he said.

Now why might that be? Might it not have something to do with the central overriding fact that Italy has a currency overvalued by 20pc or more within EMU: that it is trapped in a 1930s fixed-exchange system run a 1930s central bank that is standing idly by (for political reasons) as M3 growth stalls, credit contracts, and deflation looms?

Mr Napolitano offers no answer. A former Stalinist who applauded the Soviet invasion of Hungary in 1956 (a youthful indiscretion), he has long since switched his ideological fervour to the EU project. He is by nature incapable of questioning the premises of monetary union, so don’t expect any useful insights from the Quirinale on how to break out of this impasse.

He does concede that the eurozone crisis “has put a severe strain on social cohesion” but leaves the matter hanging, his argument unfinished, more descriptive than analytical.

Without going as far as to warn that the Italian state itself is at risk, he said the growing threat from insurrectional forces must be confronted. The law must be upheld strictly. The country must continue to be governed. “Europe is watching us,” he said.

Mr Napolitano is alarmed, and so he should be. The “forconi” pitchfork revolt has taken a disturbing turn for Italy’s elites. Police took off their helmets in sympathy at the latest mass demo in Turin.

This is becoming an anti-EU movement. One of the Forconi leaders has just been arrested for climbing up the EU offices in Rome and ripping down Europe’s blue and gold flag.

ht/ Yves Smith

God I Hate Morning Joe

One of the things I have always liked to do as I get ready to leave for work in the morning is to flip on the TV and listen to the news.  Every once in a while I actually watch it, but for the most part I just listen so I have a basic idea of what's going on in the world.  But it gets more and more difficult to listen to some of the crap I hear.

Up until now, I've basically listened to Morning Joe, because there's nothing better that actually reflects what the VSPs are talking about it Washington.

But at this point, I'm sick of hearing the VSPs.

Yesterday a federal judge ruled that the NSAs program of collecting all cell phone metadata was declared unconstitutional.  So who did Morning Joe have on hand to discuss the implications of this ruling?

Michael Hayden...

...and...

Alberto Gonzalez.

Seriously?  These are the only people you could find that would be willing to talk about the implications of this ruling?

But the real topper was the discussion of Chris Christie and the growing GW Bridge scandal.

Already, the Beltway media is turning this into a Democratic v. Republican political fight.  And Jim Vanderhei's opinion of the matter, reflecting the VSPs no doubt, was really just mind-bogglingly bad.

This is not just a political fight.  This was a mind-bogglingly bad abuse of power that could have easily turned horribly wrong.  Yet these guys just pooh-pooh it.

Horrible.

So please - is everything else on morning news this bad?  Anybody have any suggestions for alternatives?

Another Headshaker

I have a fascination for economics - if you check out my blogroll you'll see that a lot of the blogs I read are economics blogs.  My fascination for the topic is really political: I believe that there is a direct correlation between the amount of freedom a person has and the amount of economic resources the person has at their disposal [this may not always have been the case, but it certainly is in today's post-industrial America].  I don't claim to have any particular expertise in the area - my "education" such as it is consists of one semester of basic macro in college and close to 30 years working as a tax lawyer in New York City.  So I've been very interested over the last several weeks - since I read this post by Paul Krugman and saw the talk by Larry Summers that he links to - in the discussion of "secular stagnation" which has been all the rage since then.

One of the factors that is viewed as important in this analysis is the increase in household debt over the 20-some-odd-year period preceding the 2008 financial crisis, a point discussed by Krugman here.  Via Mark Thoma, I read this post today by Antonia Fatas saying he's not really sure that the increase in household debt has much to do with the secular stagnation dilemma:

In summary, increasing debt ratios area unsustainable and the adjustment can have a negative effect on growth. The argument is probably right but when it comes to assessing the real impact on growth I think we need to do a more careful analysis before reaching that conclusion.

Here is where I think the reading of the previous chart becomes more complicated: Why was debt going up? For some this is simply a reflection of excessive spending that directly feeds into demand. The fact that it is excessive leads to the need to reverse the trend in the years that follow and, using the same logic but now going back, it will lead to a reduction in demand. But to reach that conclusion we first need to do a more careful analysis of the balance sheet of US households by looking not only at their liabilities but also at their assets.

He then posts a number of charts that show, lo and behold, that household wealth has been going up and down, more or less in tandem with household debt.  He then concludes with this statement:

What these charts suggest is that the analysis of debt is a complex one and it requires a careful look at both sides of the balance sheet. And unless I am missing some relevant academic research, we do not have a good framework to think about these trends. And things can get a lot more complicated if we start adding other issues, such as the distribution of holdings of assets and liabilities. It could be that the households that are holding the assets are not be the same as the ones holding the debt, and this can change the way we think about the implications of these trends.

After reading this I had to rub my eyes, shake my head and look again.  "It could be" that the households holding the assets are not the same as those holding the debt?

Seriously, is this a question? I would have thought it was axiomatic.

Of course, there are people that think that the distribution of household assets and debt is very relevant to our current economic woes.  Like this guy, I think they have a damn good argument.

WTF?

Via Atrios, I read this article about the Bloomberg Administration sprinting to get a deal in place to build a new soccer stadium for the New York City Football Club, which is organizing a new expansion franchise set to begin play in 2015.  I was especially struck by this statement from Bloomberg's spokesperson on the deal:

"We remain committed to working with our partners on the plan that will make New York City FC the country's preeminent Major League Soccer franchise, which includes a world-class stadium they can one day call home."

Um, excuse me, but is it really the policy of the government of the City of New York to ensure that sports franchises in the city win championships?  Seriously?

I'm so glad Bloomberg is leaving.

Where Do They Get This Stuff?

I had the unfortunate experience today of clicking from this post by Charlie Pierce to this "manifesto" of Dr. Milton Wolf, who apparently is the Tea Party candidate that will challenge Senator Pat Roberts (R-Kansas) in 2014.  Now I could take exception with just about every paragraph set out by Wolf, but there is one thing he said that particularly irks me and I just have to get it off my chest:

The first step is to recognize that the IRS has become irretrievably corrupted and the 75,000-page tax code has become an anathema to civil society.

Listen, I am a tax lawyer by trade.  I've have a copy of the Internal Revenue Code sitting on my desk for over 29 years (and a second copy at home too just in case I'm in the mood for some entertaining reading). My copy of the Code is 3,029 pages long.  And just to make clear, my copy of the Code includes notes on every amendment made to every section of the Code since it was first enacted in 1954.  So Code as enacted with all amendments for the last 60 years?  3,029 pages.

Not 75,000.

And let me just say in passing that, in my experience, the increasing length and complexity of the Internal Revenue Code is generally caused by law changes made by Republicans.  If you look at the history of major tax acts since 1954, most of them occur during Republican Administrations.  The Conservative patron St. Ronald actually had 5 major tax overhaul bills during his 8 years in office, more or less doubling the size of the Code during his term. Funny how Republicans complain about how businesses need certainty so that they can plan for the future, but when they get into office they end up changing things dramatically.

Who Are We Really Subsidizing?

Over the last year we have seen more and more of these kinds of reports:

Almost a third of the country’s half-million bank tellers rely on some form of public assistance to get by, according to a report due out Wednesday.

Researchers say taxpayers are doling out nearly $900 million a year to supplement the wages of bank tellers, which amounts to a public subsidy for multibillion-dollar banks. The workers collect $105 million in food stamps, $250 million through the earned income tax credit and $534 million by way of Medicaid and the Children’s Health Insurance Program, according to the University of California at Berkeley’s Labor Center.

The center provided the data to the Committee for Better Banks, a coalition of labor advocacy groups that published the broader study, to be released Wednesday, on the conditions of bank workers in the heart of the financial industry, New York. In the that state alone, 39 percent of tellers and their family members are enrolled in some form of public assistance program, the data show.

We are seeing them more and more in all kinds of industries, most especially in fast food and retail.  The government itself is in on the game.  Many companies having contracts with the federal government are paying their workers barely subsistence wages.

The message of these stories is really a twist from what we have seen for so many decades.  In the past programs like foodstamps, medicaid, housing assistance, child care assistance and others we viewed as lazy people, moochers who were unwilling to work hard enough to provide for themselves and their families.  Stories like this one are changing the narrative.

The fact is, if an employee works full time and relies on these programs, the programs are subsidizing the employer just as much as they are subsidizing the employee.

And most people on these programs are working people, not unemployed people.

It seems like this message is starting to get through.  Programs that allow employers to pay less than a living wage subsidize employers, not employees.

What this meme means for policy, though, remains an open question.  It seems to me there are two ways you can go with this.

One route is to require employers to pay a living wage: increase the minimum wage to a level that anyone working 40 hours a week can make enough money so that they don't have to rely on public assistance.  This should apply equally if the individual is working two or more part time jobs or one full time job.  If they work 40 hours, they should be able to survive with no public assistance.

The second route is to recognize that these are simply necessary programs in an economy that provides market-based wages.  In other words, there has to be a recognition on the part of employers that they are benefitting from these programs, and because of that they should be willing to pay some of the portion of the additional profits they enjoy as a result of low wages to support these programs.

Personally, I'm sympathetic to the view that profitable businesses should not be subsidized in this manner - that companies that make hundreds of millions of dollars a year should pay their employees a living wage. But I also recognize that a lot of small business employers really would be squeezed if the minimum wage was lifted to $15 per hour.  I am concerned that if the only businesses that can operate were those that pay a living wage, then only very large business will be able to operate, making inequality even worse than it already is.

I'm perfectly happy to have a programs that supplement wages on the assumption that the are fundamental to the operation of our 21st century economy.  But if that's the case, then we have to stop vilifying the people whose wages are supplemented by these programs. And we have to be willing to fund them with out tax dollars.

Kennedy, the Primaries, the Elites and Self-Government

I have been vacillating about posting on the Kennedy assassination.  I've wanted to, but it's been difficult getting my thoughts together on this one.

I read with interest the "where they were" posts by Digby and Charlie Pierce on this.  Both were in grade school.  I was four.  I don't remember hearing about the assassination itself.  I only remember the funeral - and even from that, the part I remember most is Black Jack:

It is one of those images that can sear itself into the mind of a 4-year-old and remain there for the rest of his life, no?

One of the themes of these posts (and many other) is the general sense that we really don't know what happened: the conspiracy theories are legion.

I remember in school when a professor I admired who had spent a lot of time in Europe said that nobody there believed the conclusions reached by the Warren Commission, and that the assassinations of the 1960s - he spoke of them collectively - were generally viewed as acts by powerful forces to prevent the government from moving further to the left.  I was actually kind of stunned when I heard this,

The Afghanistan Deal: Inquiring Minds Want to Know

Last week Robert Bateman had an excellent post on how the American Armed Forces are falling flat on their face:

There are four levels of war: tactical, operational, strategic (military and grand), and political. Although for very prudent reasons the US military only discusses the first three, as a historian I can definitively confirm the existence of the obvious fourth. 

 ... 

And at these last two levels is where America is falling flat on its face right now. 

He then goes on to cite several recent articles to illustrate the point he is making. Really excellent. Read the whole thing as they say.

But I responded in a comment by saying he really doesn't go far enough. My comment:

There is one more level - even higher - that you don't mention. And that is:
What are the "national interests" of the United States of America? How are they defined? What principles guide our relations with other nations? Who are our friends and who are our enemies, and why?

We consider ourselves champions of democracy yet, from Mossadegh to Allende to Chavez (not to mention the Palestinian elections in 2006), think nothing of ignoring them.

We consistently engage in human rights abuses that we condemn in others.

We arm islamic militants in some countries while waging war on them in others.

If there is some grand design in all of this, I can't fathom what it is.

You cannot set a rational military strategy without answering these questions, and in my entire lifetime I have never heard a coherent answer to any of them.

So now our government is considering entering into a 10-year status of forces agreement with Afghanistan.

Can somebody, please, explain to me what our national interests are, and how this agreement furthers them?

The Question Nobody Asks the Republicans on Health Care

I'm here watching Scott Walker talking on Morning Joe who mentioned, once again, the argument about letting people buy their insurance over state lines.  This has been a recurring meme now for awhile. Just google "buy health insurance over state lines" and you'll come up with literally hundreds of articles on the topic.

I found myself wishing somebody on the show would ask the most relevant question that arises in this context: would you support repealing the McCarron-Ferguson Act?

The main reason we have the state line problem is this Act.

Ask the question. Please.

The Destruction of our Public Schools Continues

Here we go again:

Obama Launches Competition to Revamp High Schools

This program was designed by IBM and is being run through the Department of Labor, which tells you all you need to know. It's about having the government train workers so businesses don't have to.

By the way, I hadn't really noticed until I read this article that the committee in the House of Representatives that deals with education matters is called the Education and Workforce Committee.

Again, this tells you all you need to know about how our government views education.....

Great: Another Energy Tax Incentive

An item that just came across the tax wires states that the Joint Committee on Taxation has just come out with their estimate of the revenue cost of the so-called "Master Limited Partnership Parity Act."  The cost is $1.3 billion over 10 years, according to the JCT.

The purpose of the act is to extend a tax break reserved for the fossil fuel industry to renewable energy as well.

I have a better idea.  Repeal the fossil fuel tax break.

Seriously, if you want to pursue an energy policy, fine.  If you want to spend money or renewable fuels, fine.

But there are better ways to encouraging this activity.

Stop doing it by cutting rich people's taxes.

Secular Stagnation: What the Real Problem Is

On Saturday Paul Krugman had a post where he discusses a talk given by Larry Summers on what is being called "secular stagnation."  It's generated an awful lot of buzz.  Here is Dean Baker's take on it.  And here is Yves Smith's take as well.

I honestly didn't read Krugman the way the Yves did - as in fact "celebrating" our current state of affairs.  I actually read his column as lamenting that state rather than celebrating it.

But I can see how she gets there, because PK dances around the real issue.  Dean Baker says very succinctly what Krugman (and Summers) won't say:  "The long and short of the matter is that secular stagnation is really a story of too much wealth."

I've actually believed this state of affairs has existed for quite some time.  I can remember when, during the tech bubble, I thought it was insane that stock prices were rising so rapidly, in a manner that was so disconnected to our economic conditions.  The only explanation I could come up with was that there was a huge demand for stocks, fed by large pools of capital that were being created through vehicles that allowed wealth to build up with no tax liability: pension plans, 401Ks, IRAs, tax-exempt organizations, and the like.

Am I crazy to think that negative real interest rates are simply a function of supply and demand?  That the reason why the returns on accumulated capital are so low is that the supply of that capital is so high?

Too much wealth.  The logical result of 30 years of supply-side economics dominating the landscape.

Keeping the Door Shut

Dan Crawford relates a John Steinbeck quote I had never heard before, but which is no doubt true: “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”

Which for some reason reminds me of this article I read yesterday in Business Insider.  The key point:

Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits. Most of those in the bottom half of the top 1% lack power and global flexibility and are essentially well-compensated workhorses for the top 0.5%, just like the bottom 99%. In my view, the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.

You know, I spent the vast bulk of my 30 year career as part of that cadre of well-compensated workhorses.  It was only in the last 10 or so of those years that I realized how destructive those top 0.5% are, and how I was aiding and abetting that destruction.

Every once in a while an opportunity drops into my lap and I have to consider whether or not I want to pursue it.  And there are many people in my life who think I should do so.  Certainly my life is a gigantic mess right now and, on the surface, it looks like vaulting myself back into the role of well-compensated workhorse would go a long way toward helping to clean it up. But I wonder how much of the mess I am in derives from my prior role as well-compensated workhorse to begin with.  But even further, why would I want to be a workhorse for a bunch of sociopaths who seem bent on destroying everything good in the world if that's what it takes to keep their hold on their wealth and power?

Read the whole Business Insider article. The writer's experience, and description of people who are in the power elite, is extraordinarily similar to mine. But I do wonder how that investment manager can continue to participate in what can only be described as a gigantic con on his fellow citizens.

Driftglass Nails It on the 60 Minutes Benghazi Matter (UPDATED)

An excerpt:

Lara Logan's contribution to the Great Wingnut Cause was finding them another Curveball -- another means of jumping their paranoid fantasies past the WorldNetDaily/FoxNews/Brietbart blood-brain barrier and into the American media mainstream, where it could stop being just one more chapter of cheap, wingnut stroke-mag fiction and finally start doing some real, impeachable damage to the Kenyan Usurper.

And as such, the real parallel here is not with Dan Rather, but with the coverage of the Iraq War.
You might remember it -- it was in all the papers.

For many years, Dubya's Excellent Iraqi Adventure gave the Right and the Center a free pass to do what they both love doing more than anything else: bashing the shit out of Liberals.  It was a free-fire zone where it was absolutely okey-dokey to slander Liberals anytime, anywhere as America-hating, terrorist-loving traitors and surrender monkeys.

This was the era during which screechy, basement-dwelling lunatics like Michele Malkin were allowed to blossom into Credible Media Pundits ...where even the most talentless grubworms could grab some fast cash and respectability publishing trash like "The Party of Death: The Democrats, the Media, the Courts, and the Disregard for Human Life"...and where David Brooks clawed his way up from his gig at Bill Kristol's "Weekly Standard" and into a job-for-life at the New York Times by gleefully pistol-whipping Liberals for insufficient patriotism.

....

And then it all went tits-up, so horribly that eventually all Cheney's horses and all Cheney's men working at peak efficiency could not continue to sell Operation Endless Clusterfuck as Mission Accomplished.

After which ... [what] happened is what always happens:

1. The Right got away with murder right up until their lies collapsed.
2. There was suddenly a real danger of people noticing that Liberals had been right all along.
3. The Center, which had been only too happy to go along with all the Hippie Punching, suddenly got very worried about Both Sides being so mean and shrill.

Read the whole thing.

UPDATE: Jeez, CBS is really giving Fox a run for its money.  Charlie Pierce on its latest screw-up.

Hoocoodanode, indeed.

Tax Reform Redux

Here's the latest out of Washington on the prospects for tax reform:

House Republican leaders are worried about political damage if the party’s top tax writer releases a plan to revise the U.S. tax code and limit popular breaks, four House Republican aides said.

House Ways and Means Committee Chairman Dave Camp wants to push legislation through his panel this year. The biggest changes since 1986 would raise taxes for many Americans while lowering them for others, creating a challenge for Republicans who don’t want a distraction from their attacks on the flawed rollout of President Barack Obama’s health-care law.

Camp, who wants to curtail tax breaks and lower rates, is scheduled to meet on Nov. 14 with House Majority Leader Eric Cantor, a Virginia Republican. Other committee members, House Speaker John Boehner and Majority Whip Kevin McCarthy also will be at the meeting, one of the aides said.

....

That aide said a potential worry is opposition from lawmakers outside the Ways and Means panel who are generally supportive of the concept without being steeped in the details and might object to ending specific tax breaks.

This is just another one of those things the Republicans just can't seem to do.  They say they want to cut spending but they don't want to specify any particular spending cuts.

Now they say they want to end tax breaks, but they don't want to say which ones.

I seriously doubt anything is going to come of this.

Another Obamacare Rant, With a Twist

There's been a lot of buzz today about Lori Gottlieb's rant in the NY Times, which is basically just another one of those rants by someone complaining that their insurance company cancelled their health insurance policy without actually checking whether or not they can actually get a better one under the ACA.  For a taste, here's Booman, Paul Waldman, and Dean Baker.

But my favorite has got to be Scott Lemieux, who notes this paragraph from Gottlieb's rant:

Like Bridget Jones’s “smug marrieds,” the “smug insureds” — friends who were covered through their own or spouses’ employers or who were grandfathered into their plans — asked why I didn’t “just” switch all of our long-term doctors, suck it up and pay an extra $200 a month for a restrictive network on the exchange, or marry the guy I’m dating. How romantic: “I didn’t marry you just to save money, honey. I married you for your provider network.”

 and points out that Gottlieb is best known as the author of this book:

I kid you not.

I still can't stop laughing.

The Stupidest F*cking Thing I've Read in Quite Awhile....

Digby has a post up on the latest rationale for allowing the NSA to continue sweeping up all of our personal information:

They argue that having the companies hold on to all our data instead of storing it in a huge government data base means that local and state authorities could use it more easily and that it would be accessed by shyster divorce lawyers and the like.

Patrick Kelley, the acting general counsel of the FBI, said the phone company data could be made available to "other levels of law enforcement enforcement from local, state and federal who want it for whatever law enforcement purposes they're authorized to obtain it." He also raised a frightening prospect: "Civil litigation could also seek to obtain it for such things as relatively mundane as divorce actions," he said. "Who's calling who with your spouse ... So if the data is kept only by the companies than I think the privacy considerations certainly warrants scrutiny."

 First, local law enforcement has to go through certain procedures to obtain this information.  They can't simple request it and boom it's there.  And local law enforcement certainly can't just tap into the phone conmpany's computers to get the info like the NSA can.

Second, civil litigation?  Are you kidding me?  I thought all financial records would be relevant in a divorce action, and phone records fall within this.  If I'm a party to a divorce action and I want to see my spouse's phone records, I can't imagine a set of circumstances where my spouse could withhold them from me.  And if they tried, yes I suppose I could subpoena the phone company, but seriously, there would be no basis for them to be kept secret from me.

If you don't want your spouse to know who you're on the phone with, don't get married.

But the real mind-blowing thing is that this guy somehow thinks that if the NSA scoops this stuff up, that means nobody else has access to it.  How the hell does that work?   Does the NSA erase it from the phone company's computers when they copy it?

WTF is this guy talking about?

Making My Blood Boil

I swear, when I read things like this it makes my blood boil:

Former US Comptroller General David Walker appeared on 60 Minutes back in July 2007. His message? Our country is suffering from a fiscal cancer far more dangerous than any external threat. The federal government is broke. It has promised entitlement benefits—health care in particular—that it cannot afford. While few economists disagreed with Walker's projections, politicians were unwilling to actually address the problem. From their standpoint, it's always better to push the problem off to a later date in the vain hope (or delusion) that it will simply disappear.

Walker eventually gave up trying to educate politicians and took his message straight to the people. The Wall Street Journal ;referred to him as "Chicken Little," and no one in Washington wanted to hear his doom-and-gloom message. After all, the economy was fine (remember, this was 2007). They either could not or would not see the problem. Walker was ignored.

Since then, the fiscal cancer Walker warned of has continued to grow. In July 2007, our national debt was $8.9 trillion. Six years later, it has nearly doubled to $16.7 trillion. The cancer has metastasized.

Look, the federal government is not broke.  It can always raise taxes to keep its promises.  The problem is that it refuses to do so.

In the 9 years prior to Ronald Reagan, federal income taxes (individual and corporate) averaged 10.8% of GDP.  In the last 9 years (through 2012), they averaged 9.2% of GDP.

That 1.6% difference would go a long way towards letting the government keep its promises.

It's not that the government can't keeps its promises.  It's that it won't.  The powers that be won't let it.

Just another tidbit:  for the same periods, payroll taxes - which are funded solely by taxes on wages (and for the most part don't apply to high wages (above $110,000 in 2012)) - averaged 5.5% of GDP in the pre-Reagan era, and 6.1% of GDP in the 9 years ending in 2012.  And wouldn't you know it, during that same period the share of GDP comprising wages and salaries - you know, the share going to working men and women - has shrunk by more than 48% to under 43%.

So working men and women are paying more in tax while their share of the pie has shrunk.  Which means, of course, that the affluent among us have seen their share of the economy grow while their share of the tax burden has shrunk.

And the affluent are the ones saying we can't afford to keep our promises.

I say BS.

Justin Fox on Corporations and Economists

Brad DeLong links to a very interesting article by Justin Fox in the Harvard Business Review:  What We've Learned from the Financial Crisis, which I heartily recommend.

I just want to comment on his discussion near the end, in the section entitled: "Economists Start Losing Control of the Corporation":

[O]ne narrow way of looking at the world can’t be the only valid path toward understanding its workings. There’s also a risk that emphasizing individual self-interest above all else may even discourage some of the behaviors and attitudes that make markets work in the first place—because markets need norms and limits to function smoothly. These concerns are relevant in many fields, but in recent years they have probably been placed in starkest relief in the study of corporate governance.

The current popular conception of the corporation is of an organization that exists to maximize returns to shareholders. This is very much the work of economists. Milton Friedman made the case rhetorically with his 1970 argument in the New York Times magazine that the social responsibility of business is to increase its profits. His former students Michael Jensen and William Meckling elaborated in a widely cited 1976 academic article that described the great challenge of corporate governance as getting the “agents” (managers) to act in the interest of the “principals” (shareholders).

Friedman, Jensen, and Meckling were out to counteract what they saw as a disturbing tendency among CEOs to view themselves as responsible not just to shareholders but to customers, communities, and other stakeholders—an attitude that has continued to hold sway in Japan and parts of Europe. Such diffuse accountability, the thinking went, could bring confusion, be an excuse for complacency, or enable self-dealing. As leading U.S. firms began to confront overseas competition in a big way in the 1970s, this wasn’t an idle concern.

But the doctrine that came to be known as shareholder value, although it seemed to offer straightforward marching orders for managers, often did nothing of the sort. If the stock price was in fact an accurate reflection at all times of a corporation’s current condition and future prospects—as was believed by most finance scholars and a lot of economists from the 1960s through the 1980s—the job of a manager was simply to do whatever made the price go up. The technology stock bubble of 1999 and 2000, however, disabused all but a handful of diehards of the notion that stock prices are fundamentally efficient. And as Jensen himself wrote in 2004, overpriced stock “sets in motion a set of organizational forces...that almost inevitably lead to destruction of part or all of the core value of the firm.”

Ever since, a battle has been waged over what this means for corporations. Some argue that if only the principals had more power over their agents, everything would work better. Others, while agreeing that in the end corporations should be judged according to investment returns, point out that high-turnover professional investors often push for short-term-oriented behavior that destroys value. Finally, a motley crew of sociologists, historians, management scholars, corporate reformers, and even a few dissident economists think it was simply wrong to apply the principal-agent model to corporations in the first place.

Now I'm an attorney, not an economist, so I approach this more from a legal perspective than from a economic one.  From that perspective, I have never really had a problem with the notion that a corporation exists to maximize shareholder value.  It seems to me that this is, as Fox says, a good guide for driving corporate decision-making.

The problem is how do you enforce the norms and limits that, as Fox notes in his first paragraph above, are necessary for markets to function smoothly.  Fundamentally, we are talking about the norms most ancient and easy to understand: thou shalt not lie, and thou shalt not steal.

The stock price bubble of 1999 and 2000 was not a failure of corporate governance.  Stocks and securities were being sold at prices that were based on widely unrealistic representations about the future prospects of the companies whose stock was being sold.  

The same thing happened in the run up to the financial crisis. Mortgages of poor credit quality were sold as AAA securities. 

Stated simply, the people who organized the corporations and other investment vehicles that issued the stock ans securities lied, and made a lot of money by doing so.

Making money on the basis of false representations is fraud.  It is larceny.  It is the kind of thing that people should go to jail for.  And despite Enron and WorldCom and Arthur Andersen, in fact very few people were held accountable for the massive frauds that were perpetrated during 1999 and 2000.

I think we go way too far in saying that there is something fundamentally wrong with the corporation as an entity.  

I am reminded of Alan Greenspan's famous testimony to Congress almost five years ago to the day:

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms....[T]hose of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief...."

When I read Fox's piece, I get the impression that what he wants is some entity that can function according to the rules without the need for outside oversight - without the need for external mechanisms to keep the various constituencies in line. 

I don't know how anyone can be shocked as Greenspan was. If a person can profit by breaking the rules knowing that the rules won't be enforced, he or she will break the rules. Nobody should be shocked by this. 

We have norms.  We have rules, We have laws.  They aren't being enforced. 

And that's why the system failed - and continues to do so.

Is This What They Mean By "the Good Old Days"?

So I was perusing some old tax rulings for a paper I'm working on about partnership taxation.

When you have a progressive income tax, you can reduce your tax by "splitting" your income.  This is because the more money you make, the higher the rate of tax.  For example, under current law, a single person with taxable income of $50,000 pays income tax of $11,127 (assuming no credits), while a single person with taxable income of $100,000 pays tax of $26,522.  Thus, one person making $100,000 pays about $4,200 more in tax than two people making $50,000.

So if you could split your income - say between husband and wife or between parents and children - you could reduce your tax.

In the old days, there were no joint returns or special rates for married couples (I haven't bothered to find out when that changed, but I think it was in the 1950s). So a common way businessmen would try to split income was to have the business owned by a partnership - the other partner being the businessman's wife.

But I learned the IRS found a way to combat this.  You see, in those days (the 1910s and 1920s), the common law still ruled in many states, and a wife was not legal able to enter into contracts - only the husband could. So, the IRS said, since a partnership is a contract between people and a wife couldn't legal enter into the contract, there could be no such thing as a partnership between husband and wife!  And yes, when litigated, the IRS won.

Is this what they mean by the good old days?

  

Massively Wrong

It is amazing how a person can be so massively wrong and cause so much harm and yet still be respected by our elite media.

Case in Point:  Alan Greenspan

Here is Dday's take on how he is being feted over his new book:

It’s impossible to change the channel this week without coming upon the grinning face of Alan Greenspan. The former Federal Reserve chairman’s new book, The Map and the Territory, releases this week, and he’s spending it on a grand tour through media green rooms across the country, from CBS to NPR to the BBC. Even Jon Stewart treated him with kid gloves. By Friday he’ll have a Food Network show.

So far, he’s gone virtually unchallenged. He has said the 2008 financial crisis “was the first time ever that markets were broken and could not fix themselves” (ever hear of the Depression?), and that he “ could have caught a number of different crises” during his tenure at the Fed (which begs the question of why he didn’t). Journalists have asked such penetrating questions as, "You were knighted. Does that come with a title or anything?" Even the tough-minded Binyamin Applebaum called Greenspan "one of the nation’s most astute economic observers." Overall, the media has presented Greenspan's book as part of a soul-searching quest for why he missed the greatest economic collapse in decades—a frame that is needlessly obsequious and suggests he was a bystander to the disaster, not a central actor.

And here's Matthew Iglesias:

I'm a little surprised to find myself saying this, but I think David Dayen's managed to be too soft on Alan Greenspan in his take on Greenspan's new book, The Map and the Territory. It's true that Greenspan's 2004-vintage pimping for adjustable-rate mortgages was bizarre and shameful, but I actually think we've seen plenty of evidence over the past five years that good old-fashioned imprudence and thin regulation can produce endless financial mischief even without unorthodox financial products. It's on the "thin regulation" front where Greenspan's new media push is driving me nuts. He's out essentially preaching the Gospel According to John Cochrane in which the actually existing Dodd-Frank financial regulation overhaul is a pointless increase in the regulatory burden, and really the entire crisis could and should have been avoided by imposing stiffer capital requirements (i.e., less borrowing) on the financial sector.

This rather conveniently ignores the period in history—a period that began in 1987 and didn't end until 2006—when Alan Greenspan was the most important bank regulator in America.

Who was letting banks lever up so much? Greenspan! Who was happy to see the growth of a "shadow banking" sector outside the ambit of traditional regulation? Greenspan! It's as if Richard Nixon wrote a book about how tougher security at the Watergate Hotel could have avoided a lot of problems for America.

Again, I am reminded of this great cartoon by Tom Tomorrow:

That cartoon was six years ago.  Funny thing is, our elites are still trying to cut social security benefits.

This guy is a monster, but he is still treated by our elites as one of the wisest of our wise men.

About that JP Morgan Settlement

Felix Salmon explains that the "record $13 billion settlement" really doesn't hurt JP Morgan at all:

If you have any doubt about this, just look at the accounting. WaMu had shareholders’ equity of some $40 billion, before it was bought, which JP Morgan paid $1.9 billion for. JPM valued that equity at $3.9 billion, so it booked a $2 billion gain the minute that the acquisition closed; it then said that WaMu would contribute about $2.5 billion per year in extra profits going forwards.

The point here is that JPM fully expected that legacy WaMu assets would generate some $36.1 billion in losses. Now that those losses are starting to appear, all that we’re seeing is the arrival of something which was expected and priced in all along.

Read that again.  JP Morgan paid $1.9 billion for WaMu, immediately booked $2 billion in profit, and said that the investment would generate an additional $2.5 billion in profit per year from its investment.

The better way to look at this is as follows:  JP Morgan bought an asset worth $40 billion, paying $1.9 billion up front and assuming a liability to pay $38.1 billion in the future.  The same as you buying a house for $400,000, putting $19,000 down and taking out a mortgage for $381,000.  All JP Morgan is doing here is paying down a piece of the debt.


The only difference here is that a lot of the WaMu debts were contingent - in litigation.  They could very well be settled for a lot less than $38.1 billion.  And if they do settle for less than that amount, the difference is profit for them.  A Reuters article points out that JP Morgan "stockpiled $23 billion in reserves for settlements and other legal expenses to help cover the myriad investigations into its conduct before and after the financial crisis."  What this means is that if they end up paying less than that amount, the difference is profit to the company.

In fact, the $13 billion covers more than just WaMu - it also covers contingent liabilities they assumed when they purchased Bear Stearns.  JP Morgan paid $1.5 billion for that company, which at the time had shareholders' equity of $12.6 billion.  Again, a settlement of those liabilities will more likely than not mean profit, not loss for JP Morgan.

And a small piece of the settlement - $2 billion - relates to JP Morgan's own wrong doing.  A slap on the wrist.

Trust me, JP Morgan is not suffering at all as a result of this settlement.  To use an old saying, they're laughing all the way to the bank.

Booman has the Better Argument Here, But....

Paul Rosenberg writes:

The false balance fallacy lay at the heart of the media’s deep reluctance to blame conservative Republicans for the recent government shutdown. As I recently wrote for Al Jazeera English, the media had to ignore nine bodies of evidence that clearly showed it was Republicans, not Democrats, who caused the shutdown. Thus, instead of reporting as much context and as many perspectives as possible, the media’s embrace of false balance severely constricts the range of facts and viewpoints it explores—the exact opposite of what it’s supposedly trying to achieve.

President Obama is a walking embodiment of this fallacy. He is so eager to embrace Republican ideas—Bush’s TARP, tax cuts in his stimulus bill, the Heritage Foundation’s individual mandate, “cap and trade,” austerity, making permanent the vast majority of Bush’s tax cuts,etc.—that he embraces objectively bad ideas, divides his own base, and doesn’t even get any political benefit from it.  For one thing, he doesn’t give Republicans an opportunity to fight for their own ideas—to demonstrate to their own base that they stand for something that is in dispute.  Rather than make them more willing to compromise with him, this increases the pressure on them to fight. We’ve seen this over and over again throughout the Obama presidency, but Obama never seems to learn. His very zeal in seeking compromise only makes it that much harder for Republicans who need to fight him. So it’s really not all that surprising when they turn around and accuse him of being “unwilling to negotiate,” however misleading that may be.

To which Booman replies:

Rosenberg comes closer to hitting on something important when he notes that Obama has forced the Republicans to abandon some of their substantive policy ideas simply by being willing to adopt them himself. This is certainly the case with cap and trade and the individual mandate. But, it should be remembered that cap and trade and the individual mandate were never really sincere Republicans positions. They were positions they adopted to give themselves an excuse for not supporting Democratic proposals for tackling climate change and the millions of people who lack health insurance. By adopting those policies for the Democratic Party, Obama called their bluff. If they had been sincere about offering those ideas, the Republicans would have agreed to turn them into law rather than relabeling them tyrannical socialism.

What Rosenberg sees as some kind of pathological desire to find compromise, I see as a diabolical plan to destroy the Republican Party simply by being reasonable and offering them what they say they want. "You think everyone should be personally responsible enough to get their own health insurance? Okay, let's do that."

I think Booman has the better argument here.  But note that Heritage's individual mandate was implemented at the state level by a Republican governor, and worked quite well and is very popular in that state.  So I'm not so keen to argue they didn't really believe in it.

Of course, this only makes it more difficult to explain why the Republicans so radically changed their tune on the individual mandate.  At least, it makes it more difficult to come up with an explanation other than the real one - you know, the one that our elite media, so far, has been unwilling to  mention.

Which is, of course, that our President is a dark-skinned man with a funny name....

Specialization in High School

This morning Jonathan Berstein linked to this article in San Francisco Chronicle about the increasing demands for high school students to specialize, especially when it comes to sports. This is a topic on which I have a lot of interest in several respects: as a former member of a local school board, as a father of teenage sons, and from my own experience when I was in high school. And I must say that it is something that, as I've watched my sons grow up, has always bothered me.

I actually attended two high schools - my first two years in Massachusetts and my last two in Southern California. My sophomore year in Massachusetts, I was in the band and orchestra, sang in the church choir (also was an instrumental accompanist from time to time), played sports all year round (varsity football and golf, JV basketball and Babe Ruth league baseball in the summertime), was in the community service group Key Club, and held down a part-time job, all the while maintaining my grades. When we moved to California, there was a noticeable difference in the attitude of the community toward sports - it was already much more specialized than anything I had seen in Massachusetts, and the time demands were much greater (I will also say that the school I attended in California had a student body that was twice as large as that in Massachusetts). We arrived there the first week of August and I did attend football workouts for a couple of weeks - but there was also a well-organized junior golf tournament circuit there that I wanted to compete in, and there was just no way I was going to be able to do both. Since it was clear to me that I was way behind my classmates on the football front but could compete in golf, I dropped football after a couple of weeks. And as for basketball, well, there was a higher proportion of kids that were much taller than me than we had in Massachusetts (can I say that Irish and Italians are not known for their height?), and it was pretty clear that that was out of the cards as well.  Who knows - maybe if I was willing to give everything else up and focus on just one activity I would have been able to succeed in one of the big-time sports. But I just wasn't willing to do that.

Instead, I picked up a new activity - drama - and during my remaining years got more and more active there. I did have problems at first - golf, of course, is also time consuming and there were a lot of conflicts between the two during spring of my junior year - but I managed. And I did some community things as well.

And besides, none of these things was ever going to be a career of mine. My freshman year (1973-74) was the year of Watergate. I knew enough about what was going on that this was a huge event. And I knew that all the major players were lawyers. By the summer of 1974 I wanted to be a lawyer, too, and that's what I became.

My impression is that, in this day and age, it takes an extraordinary kid to be involved in such a broad swath of activities as I was.  And that's especially true when it comes to athletics.  If, for example, you have a particular talent for one sport,  there is an enormous amount of pressure to participate in that activity and that activity only, to the exclusion of all others.  And that pressure gets exerted at an earlier and earlier age.  And this, I think, is a terrible trend.

We are now in the midst of the baseball playoffs, and there have been a number of games this year that have been absolutely mesmerizing.  But I can just as easily be mesmerized almost childlike by a touching movie, a Bach concerto or a fast-paced mystery novel. Just last week as I was reading an article online I found myself transfixed by a chess game of Bobby Fischer from the 1960s, wondering "how the hell did he do that?"

I think that this capacity to be awed by so many different things is a product of the fact that I was able to participate in so many different things as I was growing up.  And I wonder if our kids today will be able to appreciate all the various wonderful things that life has to offer, when their ability to experience them as a child is increasingly limited.

Martin Wolf on Have the Conservative Won?

This morning Yves Smith linked to this interview between Bill Moyers and Martin Wolf, who is Wolf is the lead economics commentator for the Financial Times.  I heartily recommend watching the whole thing, but I though this bit at the end was very interesting (note: I created this transcript myself):

Bill Moyers: Would you agree that, despite what happened this week, in the political victory that President Obama seems to have won, would you agree that the conservatives have really won the argument about government?

Martin Wolf:  I think that is true.  What has surprised me it how little pushback there has been from the Democrat side in arguing that the government really did have a very strong role in supporting the economy during the post-crisis recession, almost depression, that the stimulus argument was completely lost, though the economics of it were quite clearly right - they needed a bigger stimulus not a smaller one, it helped but it didn't help enough because it wasn't big enough.  And they're not making the argument that government has essential functions which everybody needs in the short run - we can see that with the National Parks - but also in the long run.

The strength of America has been built, from my perspective particularly in the post-war period since the Second World War, on the way that actually the public and private sectors have worked together, with the government providing enormous support for research and development. It's been the basic support of Americas unique position in scientific research - you look at the National Institutes of Health, which are the most important medical research institutions in the world. These are all products of the willingness of the United States to invest in the long-term interest. Then there's the infrastructure, think of the highway program, which was the most important infrastructure project - under Republicans interestingly.

And those arguments seem to have been lost. So I am concerned that the government, that I think Grover Norquist once said he that wants to drown in the bath - if you drown the government in the bath in the modern world, we don't live in the early19th century, it's a different world - that the long-term health of the United States will be very badly affected. It's strange to me that a government that has obviously achieved very important things - think of the role of the Defense Department in the internet,  this is just one of many examples - it should be now regarded as nothing more than a complete nuisance, and the only thing you need to do is to cut it back to nothing.

And it does seem to me that the Democrats have, for reasons I don't fully understand, basically given up on making this argument. And so in a way the extreme conservative position has won, because nobody is actually combatting it. It's only a question of how much you cut and how you cut it, rather than, well what do we want government for?  What are the good things about it? What are the bad things about it?  How do we make it effective?  And how do we insure that it's properly financed?

There's a lot of meat in here, but essentially I agree with what Wolf is saying.  

The Social Security Disability "Problem"

Sixty Minutes - a program I stopped watching years - apparently had a story last night about the "rampant fraud" in the social security disability program.

Many have already jumped on CBS for its one-sided treatment of this topic.  This post on Media Matters has a good rundown of the responses. The basis of these claims is that all reputable studies show that fraud and abuse amount to about 1% of all disability payments made by the Social Security Administration.

In the fiscal year ending September 2012 - the most recent year for which figures are available - the system.paid out some $137 billion in social security disability benefits. A 1% error rate amounts to approximately $1.4 billion.

Admittedly, this is a big number.  But it looks big because the program is big.  I've said before, most private businesses would kill for an error rate of 1%.  This is a sign of unusually good efficiency and effectiveness.

And of course, this pales in comparison to other areas where fraud is rampant.

For example, a report issued in 2011 showed that the Department of Defense lost some $285 billion in contractor fraud over the three year period 2007-2009.  Just so you know, total defense spending over this period was about $2 trillion, meaning the error rate was about 14%.

And of course, who knows how much "abuse" there is in our domestic surveillance programs.  Given the small number of times it has actually worked to prevent terrorist attacks from happening, one could argue that the mere existence of the program is an "abuse."

But of course, nothing costs the government as much as tax fraud and evasion.

The IRS from time to time comes out with its report on the "tax gap," which is the difference between taxes people owe and the amount actually paid.  The most recent report was issued last year for FY 2006.  For that year the IRS estimated that the tax gap was $450 billion, out of a total estimated tax liability of about $2.7 trillion.  This is an "error rate" of 16.9%.  From the IRS webpage:

The tax gap can be divided into three components: non-filing, underreporting and underpayment.

As was the case in 2001, the underreporting of income remained the biggest contributing factor to the tax gap in 2006. Under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap in 2006, up from $285 billion in 2001. Tax non-filing accounted for $28 billion in 2006, up from $27 billion in 2001. Underpayment of tax increased to $46 billion, up from $33 billion in the previous study.

Overall, compliance is highest where there is third-party information reporting and/or withholding. For example, most wages and salaries are reported by employers to the IRS on Forms W-2 and are subject to withholding. As a result, a net of only 1 percent of wage and salary income was misreported. But amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.

Gee, I wonder what kinds of income are subject to "little or no information reporting."  Seems they have no problem collecting taxes from working people.

Of course, one of the big reasons for the tax gap is that Congress refuses to provide the IRS with the resources needed to close the gap. And the Republicans have proposed a 24% cut in the  IRS budget for the coming fiscal year.  I'm sure that's going to help.

Our media, like our Congress, seems intent on focusing how the little people are gaming the system.  But this is peanuts compared to the way the big boys are screwing us.

Keeping the Oil Flowing: a Hypothetical Question

I must say when I heard this I was kind of shocked:

“We will ensure the free flow of energy from the region to the world. Although America is steadily reducing our own dependence on imported oil, the world still depends upon the region’s energy supply, and a severe disruption could destabilize the entire global economy,” Obama said in a speech to the United Nations.

I just have one question - a hypothetical question - that I would like the President or someone in the administration to answer:  Suppose some oil-producing country in the Middle East makes the following announcement:

We are utter shocked at the announcements made at the meeting of the Intergovernmental Panel on Climate Change.  It is apparent to us that the continued consumption of fossil fuels is going to result a global calamity.  We will no longer participate in this self-destructive course.  Henceforth, this country will no longer extract or export oil from anywhere within our territory, and it will be illegal for any private party, foreign or domestic, to extract or export oil from anywhere within our territory.

How, exactly, would the United States respond to such an announcement?

"Anonymous" Employee Surveys

I just finished completing an employee survey of my company which was presented as an anonymous survey. The survey was voluntary, so we could refuse to participate if we wanted to.  And I gave some thought to not participating after I read this privacy disclaimer:

Personal data that you submit, and other data about you, will be compiled and aggregated and may be transmitted in anonymous, aggregate form to other [Employer] departments, companies, or third parties for the purposes of the administration, evaluation and management of [Employer] human resources. Some of these departments, companies, or third parties may be situated outside of your country of residence.

Now recognize that this doesn't tell me the most essential question I have when I participate in these surveys.  I don't want to know how you're going to use the information.  I want to know how you're not going to use the information. Note that it says they will do X with the information and they may do Y with the information.  But it doesn't say they won't do A through W with the information.

Also note that my employer used an outside consultant to conduct this survey.  So they have possession of this information as well, and there appears to be no restriction on their use of the information either.  No doubt there is something about the use of the data collected in the agreement between my employer and the consultant.  But I don't know what that agreement says.

So recognize that when you participate in a survey like this one, chances are nothing you say is secret.

The Levin Bill: Repealing the "Check-the-Box" Rule, Part 1

One of the provisions of the Levin bill changes the rules for determining whether a foreign business entity is to be treated as a corporation.  This is something I have touched upon in prior posts - it's one of the "deficiencies" raised by Herman Bouma that I discuss here, and something I get into a bit here.  

Looking back I'm not so sure I've really explained the issue being addressed by the bill.  And I'm going to take a little time to do this, because being a tax geek I find the whole thing rather amusing in a cynical sort of way. So in this post I'll tell the story of how we got to where we are (which is the amusing part), and I'll follow up  another post explaining what the bill does.

There are basically two kinds of taxpayers - individuals and corporations. Section 1 of the Internal Revenue Code taxes individuals, estates and trusts, and section 11 taxes corporations. That's it. Now I say there are only two kinds of taxpayers, because an estate is really just a continuation of the individual after he dies and until his property has been distributed to his heirs, and a trust is...well, a trust is a special animal that collects income and distributes it to beneficiaries, and unlike a corporation it's income isn't taxed twice (so it's really the beneficiaries - which are usually individuals - that pay the tax). So for now let's just focus on the two - individuals and corporations.  

As I noted here, the income of a corporation is taxed twice - once when earned by the corporation, and a second time when dividends are paid to shareholders or the shareholders dispose of their stock.  An individual is only taxed once when the income is earned.

So what is a corporation?