Where is the US economy headed?

Okay, so tell me: exactly how is it different? Be specific. And it should be easy for you, because you say it's so simple. Go right ahead.

Cycloptichorn

Okay man. You tell me, then: what does the Laffer curve have to do with tax incentives that reward companies raising capital through the issuance of bonds, rather than through the issuance of stock? Specifically.

It's not about the total amount corporations pay at all. Changing this rule isn't about raising taxes.

Cycloptichorn

It doesn't; it's about your position on taxation on bonds.

What does the Laffer curve have to do with my position of tax incentives to raise capital using bonds?

I only ask, because you brought it up, and now I'm confused.

Cycloptichorn

Nothing. It's a reducto ad absurdum. It's not economics. It's a word game.

Except for any response from spendi, I'll let others explain it to you - if they want to.

You cut out the important part of my sentence. Please don't do that and represent it as something I wrote.

Cycloptichorn

It happens to me from time to time Cyclo.

If it has nothing to do with anything then it follows that it has nothing to do with your position on tax incentives to raise capital using bonds?

Yes, you were quite correct with your initial response to my statement. I didn't mean to imply otherwise and should have been clearer; you're correct that the Laffer curve is just a word game.

I just don't like when my posts are cut and presented differently without attribution of doing so. It comes back to bite ya later on if you don't say something about it.

Cycloptichorn

I've had "not" edited out so that I looked like I had said the opposite to what I had said. I cropped your statement to give my agreement with you more ooomph!

Wow, what a cad. I would be angry at that!

Cycloptichorn

Good afternoon.
Cyclo, I must admit I can't get my arms around common stock equity/dividends and corporate bonds/interest think and why the latter is "bad" in your mind.
Moving right along:
I read an article by Robert Reich, the former Secretary of Labor and liberal economist now at UC-Berkeley. He commented on the BLS numbers out Friday re unemployment. B-3 showed a decline from 9.0% to 8.9%, which, for several reasons is meaningless for reasons we have discussed.
Net new jobs created came in at 200K which continues a positive trend but he notes that if we want to get to "full" employment (6% is the typical measure used) by 2014, we need to create 300K net new jobs every month.
The meat of his piece talks about the wage/benefits of Americans-
^ Between Jan/2008 and Feb/2010, 8.4M jobs were lost paying wages and benefits largely to people earning $19-$31/hour;
^ After Feb/2010 through Feb/2011, 1.3M jobs have been created but paying between $9-$13/hour.
Reich claims that conservative economists argue that workers in the private and public sector need to sacrifice more in order for us to compete with other countries. The public sector in particular needs to have the unions busted (a la Wisconsin). Public sector employees earn more than private sector employees. He maintains that, if you factor in education levels, that may not be valid, particularly since the private sector was more adept at cutting benefits which fell off the cliff once the recession hit.
His punch line at the end of the article:
"The underlying problem regarding labor isn't that many Americans have priced themselves out of the global/high tech market. It's that they are getting a smaller and smaller share of the pie."
I am having a bit of a problem with the leap he took at the end. He could perhaps have written a couple of more paragraphs.

Do you not like that Robert Reich is experienced in his observations and that other economic professors have a similar point of view but then again maybe I have this all wrong!

I think their theory is that corporate financing through debt is inherently bad, and that allowing interest costs to be accepted as a real cost of doing business in the calcullation of taxable profits amounts to a government subsidy of inherently bad debt financing.

In the next breath progressives advocate substantial increases in the taxation of dividends and capital gains, so perhaps they oppose equity financing as well.

It is merely odd that many of those advocating this position have no problem with the allowability of mortgage interest deductions for individuals or any of the many other Federal subsidies for the home mortgage market. Indeed they generally deny that these things or the actions of Fannie Mae & Freddy Mac in pumping cheap capital into mortgage markets with their implied government guarantee (which turned out to be real), or the CRA had anything whatever to do with the financial collapse of late 2007.

It's only bad financing when it's applied only to corporations. Home buyers are able to write off interest on their tax returns. The same scrutiny applies to home buyers that it does to corporations. If they fail that, the debt is not secure, and any investment is risky - on both sides of the deal.

I guess if having tax rates the same as wages mean that progressives oppose equity financing, does that mean conservatives oppose labor because they want to tax it higher than dividends?

Clever ! However only "qualifying dividends" merit the lower rate - other interest income is taxed at the earned income rate. The logic of the equality of the rates on capital gains and qualified dividends is inherent in the valuation of companies - the two are, in effect fungible. You could however argue that the rate difference means that we subsidize investment relative to labor. There is truth in that, in that the general welfare is assumed to be promoted more by investment than by spending.

I for one do have a problem with the mortgage interest deduction and ALL federal subsidies for home ownership.

The problem with excessive debt for companies is, of course, the fact that so many of them have shown that they are willing to take on unsustainable loads of it; and then market shocks hammer them badly. It's the same reason I don't like using credit cards or having personal debt: debts don't go away when the money stream dries up, even temporarily.

Cycloptichorn

It's a complex issue - particularly for personal financial management - that involves lots of variables and guesses about future trends in interest rates; the value of our currency relative to core commodities; and the expected return on an investment in a home, business or any other property you may have in mind. Demographic trends are also significant. Perversely, "conventional wisdom", which is usually strongly influenced by the dominant trends of the last decade, is very often wrong in estimating coming trends precisely because it is usually shaped by the last cycle's dominant trends.

Corporate debt can be a good thing. Ford Motors, perhaps anticipating the credit crisis, loaded up on debt before it happened and found itself cash rich as the market collapsed. That enabled them to continue new vehicle development while their competitors were in the grip of crisis and restructuring. Afterwards with interest rates very low and sales & profits rising they ended up in a very strong position. Such capital intense industries generally have high debt/equity ratios .. up to 4 or 5, while service or research intensive companies generally have ratios less than 1. In periods of crisis with low business confidence, credit dries up and companies (those that survive) end up without credit or debt & hoarding cash. That's one factor that makes the rebound "bounce" after recessions often so strong. It is also a reason that the current administration's increasing regulatory stranglehold on the economy has contributed so much to continuing the recession and delaying the recovery. Corporations have lots of cash ready to invest, but in many industries they can't predict what an increasingly intrusive government will do - and therefore hold back.

Avoiding consumer debt is almost always wise. The interest rates are high and most such debt is built up buying depreciating consumer products with little lasting value - very dangerous, as you indicated, if income streams are interrupted. One needs only save enough once to buy an automobile for cash - that done, you can, in effect make, payments to yourself during the vehicle's life to replace it when the time comes. The alternative is a lifetime of interest payments.

And now for something completely different:


America is not broke.

Contrary to what those in power would like you to believe so that you'll
give up your pension, cut your wages, and settle for the life your
great-grandparents had, America is not broke. Not by a long shot. The
country is awash in wealth and cash. It's just that it's not in your
hands. It has been transferred, in the greatest heist in history, from the
workers and consumers to the banks and the portfolios of the uber-rich.

Today just 400 Americans have more wealth than half of all Americans
combined.

Let me say that again. 400 obscenely rich people, most of whom benefited
in some way from the multi-trillion dollar taxpayer "bailout" of 2008, now
have more loot, stock and property than the assets of 155 million
Americans combined. If you can't bring yourself to call that a financial
coup d'état, then you are simply not being honest about what you know in
your heart to be true.

And I can see why. For us to admit that we have let a small group of men
abscond with and hoard the bulk of the wealth that runs our economy, would
mean that we'd have to accept the humiliating acknowledgment that we have
indeed surrendered our precious Democracy to the moneyed elite. Wall
Street, the banks and the Fortune 500 now run this Republic -- and, until
this past month, the rest of us have felt completely helpless, unable to
find a way to do anything about it.

I have nothing more than a high school degree. But back when I was in
school, every student had to take one semester of economics in order to
graduate. And here's what I learned: Money doesn't grow on trees. It grows
when we make things. It grows when we have good jobs with good wages that
we use to buy the things we need and thus create more jobs. It grows when
we provide an outstanding educational system that then grows a new
generation of inventers, entrepreneurs, artists, scientists and thinkers
who come up with the next great idea for the planet. And that new idea
creates new jobs and that creates revenue for the state. But if those who
have the most money don't pay their fair share of taxes, the state can't
function. The schools can't produce the best and the brightest who will go
on to create those jobs. If the wealthy get to keep most of their money,
we have seen what they will do with it: recklessly gamble it on crazy Wall
Street schemes and crash our economy. The crash they created cost us
millions of jobs. That too caused a reduction in revenue. And the
population ended up suffering because they reduced their taxes, reduced
our jobs and took wealth out of the system, removing it from circulation.

The nation is not broke, my friends. Wisconsin is not broke. It's part of
the Big Lie. It's one of the three biggest lies of the decade:
America/Wisconsin is broke, Iraq has WMD, the Packers can't win the Super
Bowl without Brett Favre.

The truth is, there's lots of money to go around. LOTS. It's just that
those in charge have diverted that wealth into a deep well that sits on
their well-guarded estates. They know they have committed crimes to make
this happen and they know that someday you may want to see some of that
money that used to be yours. So they have bought and paid for hundreds of
politicians across the country to do their bidding for them. But just in
case that doesn't work, they've got their gated communities, and the
luxury jet is always fully fueled, the engines running, waiting for that
day they hope never comes. To help prevent that day when the people demand
their country back, the wealthy have done two very smart things:

1. They control the message. By owning most of the media they have
expertly convinced many Americans of few means to buy their version of the
American Dream and to vote for their politicians. Their version of the
Dream says that you, too, might be rich some day – this is America, where
anything can happen if you just apply yourself! They have conveniently
provided you with believable examples to show you how a poor boy can
become a rich man, how the child of a single mother in Hawaii can become
president, how a guy with a high school education can become a successful
filmmaker. They will play these stories for you over and over again all
day long so that the last thing you will want to do is upset the apple
cart -- because you -- yes, you, too! -- might be rich/president/an
Oscar-winner some day! The message is clear: keep you head down, your nose
to the grindstone, don't rock the boat and be sure to vote for the party
that protects the rich man that you might be some day.

2. They have created a poison pill that they know you will never want to
take. It is their version of mutually assured destruction. And when they
threatened to release this weapon of mass economic annihilation in
September of 2008, we blinked. As the economy and the stock market went
into a tailspin, and the banks were caught conducting a worldwide Ponzi
scheme, Wall Street issued this threat: Either hand over trillions of
dollars from the American taxpayers or we will crash this economy straight
into the ground. Fork it over or it's Goodbye savings accounts. Goodbye
pensions. Goodbye United States Treasury. Goodbye jobs and homes and
future. It was friggin' awesome and it scared the **** out of everyone.
"Here! Take our money! We don't care. We'll even print more for you! Just
take it! But, please, leave our lives alone, PLEASE!"

The executives in the board rooms and hedge funds could not contain their
laughter, their glee, and within three months they were writing each other
huge bonus checks and marveling at how perfectly they had played a nation
full of suckers. Millions lost their jobs anyway, and millions lost their
homes. But there was no revolt (see #1).

Until now. On Wisconsin! Never has a Michigander been more happy to share
a big, great lake with you! You have aroused the sleeping giant know as
the working people of the United States of America. Right now the earth is
shaking and the ground is shifting under the feet of those who are in
charge. Your message has inspired people in all 50 states and that message
is: WE HAVE HAD IT! We reject anyone tells us America is broke and broken.
It's just the opposite! We are rich with talent and ideas and hard work
and, yes, love. Love and compassion toward those who have, through no
fault of their own, ended up as the least among us. But they still crave
what we all crave: Our country back! Our democracy back! Our good name
back! The United States of America. NOT the Corporate States of America.
The United States of America!

So how do we get this? Well, we do it with a little bit of Egypt here, a
little bit of Madison there. And let us pause for a moment and remember
that it was a poor man with a fruit stand in Tunisia who gave his life so
that the world might focus its attention on how a government run by
billionaires for billionaires is an affront to freedom and morality and
humanity.

Thank you, Wisconsin. You have made people realize this was our last best
chance to grab the final thread of what was left of who we are as
Americans. For three weeks you have stood in the cold, slept on the floor,
skipped out of town to Illinois -- whatever it took, you have done it, and
one thing is for certain: Madison is only the beginning. The smug rich
have overplayed their hand. They couldn't have just been content with the
money they raided from the treasury. They couldn't be satiated by simply
removing millions of jobs and shipping them overseas to exploit the poor
elsewhere. No, they had to have more – something more than all the riches
in the world. They had to have our soul. They had to strip us of our
dignity. They had to shut us up and shut us down so that we could not even
sit at a table with them and bargain about simple things like classroom
size or bulletproof vests for everyone on the police force or letting a
pilot just get a few extra hours sleep so he or she can do their job --
their $19,000 a year job. That's how much some rookie pilots on commuter
airlines make, maybe even the rookie pilots flying people here to Madison.
But he's stopped trying to get better pay. All he asks is that he doesn't
have to sleep in his car between shifts at O'Hare airport. That's how
despicably low we have sunk. The wealthy couldn't be content with just
paying this man $19,000 a year. They wanted to take away his sleep. They
wanted to demean and dehumanize him. After all, he's just another slob.

And that, my friends, is Corporate America's fatal mistake. But trying to
destroy us they have given birth to a movement -- a movement that is
becoming a massive, nonviolent revolt across the country. We all knew
there had to be a breaking point some day, and that point is upon us. Many
people in the media don't understand this. They say they were caught off
guard about Egypt, never saw it coming. Now they act surprised and
flummoxed about why so many hundreds of thousands have come to Madison
over the last three weeks during brutal winter weather. "Why are they all
standing out there in the cold? I mean there was that election in November
and that was supposed to be that!

"There's something happening here, and you don't know what it is, do you
....?"

America ain't broke! The only thing that's broke is the moral compass of
the rulers. And we aim to fix that compass and steer the ship ourselves
from now on. Never forget, as long as that Constitution of ours still
stands, it's one person, one vote, and it's the thing the rich hate most
about America -- because even though they seem to hold all the money and
all the cards, they begrudgingly know this one unshakeable basic fact:
There are more of us than there are of them!

Madison, do not retreat. We are with you. We will win together.

--Michael Moore