Democrats & Liberals Archives

Multinational Tax Loopholes

One would think that big corporations would pay more taxes than smaller ones or most individuals. They do not because they have a slew of tax loopholes, among the most egregious of which are foreign tax havens and other offshore tax-avoiding scams. President Obama decided to rein in these inequities and Big Business is screaming it will hurt employment.

Obama's primary concern is fairness:

The U.S. has “a broken tax system” that is “full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share,” Obama said as he outlined his plan with Treasury Secretary Timothy Geithner at the White House. Obama called most of the breaks “unjustifiable” and likened some company practices to a “tax scam.”

What multinationals are doing is grossly unfair. Here are but 2 enlightening facts:

- Tax havens like the Cayman Islands have “helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government.” Companies lower their effective tax rate by more than 20 points thanks to stowing profits offshore.

- In 2004, the most recent year for which statistics are available, U.S. multinationals paid an effective U.S. tax rate of just 2.3 percent on $700 billion in foreign profits.

What do you think of this? Do you think this is fair? How would YOU like to pay a 2.3 % income tax? And Big Business is screaming this tax is too high. It's so high, they say, that multinationals will become uncompetitive and Americans will lose jobs if such a huge increase occurs.

What's most annoying to me is that members of Congress, including a few Democrats who don't want to lose election funds from top corporations, are echoing this ridiculous argument. Paying their fair share of taxes will not hurt these corporations.

Also, corporate foreign shenanigans may increase employment overseas at the expense of employment in the U.S. Yes, indeed, our current third-column tax policies encourage outsourcing. President Obama wants to bring these jobs back to the U.S. And this is the purpose of another part of his plan:

The argument against taxing corporations more is that it will damage their international competitiveness, and we’ll lose jobs and business to overseas firms. Color me skeptical. Of the $103.1 billion raised by cutting down on tax arbitrage, $74.5 billion will go to making a permanent tax credit for companies that invest in R&D in the U.S. That hardly sounds like a plan that will damage U.S. growth prospects.

NO. President Obama's plan would increase incentives for developing jobs for Americans at home. It is a win-win-win plan: good for business, good for workers, good for the economy.


Posted by Paul Siegel at May 5, 2009 8:11 PM
Comments
Comment #281354

America is tied for the highest corporate tax rate in the developed world. This is what drives firms out of the U.S. We can chase American firms and make them pay higher rates. This will just make foreign firms stronger.

Why not address the basic problem that the U.S. taxes are making our firms less competitive.

President Obama is looking for someone to blame when his policies do not produce the paradise some have promised. The problem is that if you beat up business too much, it goes away. It is great if you force smart people to work for government instead of business, but then somebody has to make stuff, don’t they?

Posted by: Christine at May 5, 2009 9:00 PM
Comment #281357

Politicians sell tax loopholes to the highest bidder everyday. It’s in their best interests to keep corporate taxes high so that they can get more for the loopholes.

Nothing new here except that other countries are out bidding our “friends” in Washington. You should listen to the India commercial playing on CNN International these days.

Posted by: George at May 5, 2009 9:27 PM
Comment #281362

Christine
Although corporate tax rates are high,personal tax rates for the owners are not. I am no big fan of corporate taxes but until we reach some sort of balance that makes it so that the owning class is better off keeping their money in the companies they own,thereby employing workers and re-investing, instead of accumulating obcene personal fortunes and creating dynastic wealth,at least we can look for fairness. At least we can try and cover the huge expense of maintainning the empire instead of shifting that burden to the very people being put out of work.


One of the most outrageous features of the policy we have been living with is that US companies that make overseas investments can deduct the cost off their US TAXES ! This DOES amount to subsidizing unemployment. The BHO proposals address this,finally.

Posted by: bills at May 6, 2009 12:31 AM
Comment #281375

what the working people need is a fair living wage, for they are taxed at a level that keep them with little hope making end meet much less of being able buy anything else like insureance for thier familys when they get sick.
the rich men send thier son collage and the working men son goes to war when they come back the rich son get a good job or start his own busness, when the working men son comes back (if) he comes back he will start to heal (if)he does not heal ends up hook on drugs and on the streets
those the worry about paying to much tax are ripping the rewards and the vatran are paying the price oh what a way to cry.

Posted by: avelino juarez at May 6, 2009 2:46 PM
Comment #281377

Umm, if they avoid taxes through shelters and loopholes, the tax rate can be as high as the moon. It makes no difference. Closing the loopholes and making the tax rate more fair for those employing US workers is what this is about. I guess you missed that part, which is the only part. 100% tax rate on zero dollars equals zero. -

Posted by: gergle at May 6, 2009 2:59 PM
Comment #281391

david
You have fallen victum to one of the basic fallacies often spouted by supply-siders. Businesses do not automatically pass on increased cost. There is no set ratio of product price to cost,barring illegal price fixing etc. Prices are set by what the market will bear. They charge what they can get in a competitive market. No less. No more.Thats it. The converse of your arguement is that if we removed all taxes businesses would automatically lower prices. How likely is that?The market sets the price.

Posted by: bills at May 6, 2009 11:19 PM
Comment #281392

Bills, many believe that Nixon’s failure to cut taxes in the early 1970s to be the cause of stagflation. I’m for jobs and growth. And equality like Smith professed how we going to Achieve it with all these unfair trade agreements and trade Imbalances.

Posted by: Rodney Brown at May 7, 2009 12:16 AM
Comment #281394

RB
The cause of stagflation was the Vietnam War. Those that believe otherwise are simply mistaken

Posted by: bills at May 7, 2009 7:57 AM
Comment #281396

david-
Yes, business pay no taxes by your rationale. Trouble is, that only works if they can’t be said to make money either, by the same logic!

Seriously, though, businesses are legal persons under the law, which means they can do what other people can: sue and be sued, have income, pay taxes. If they don’t pay their share, more comes out of the consumer’s pocket for the same tax dollar, so what real tax savings actually occur?

That is the problem with this logic. It’s not unlike the logic that has said, that if we have the rich pay less taxes, everybody’s income will go up. Well, the rich got more money, but funnily enough, they didn’t get irrationally altruistic and spread the wealth themselves!

It’s ironic that conservatives appeal to the free market principles of Adam Smith. They forget that Smith basically says that most people do business out of their self-interest. It’s silly to expect that the Rich will get more generous and trickle down their money, when the truth is, they’ll just accumulate the gains, as they have accumulated others. They’re not evil, necessarily, for following that course, they’re just human. But knowing that, it’s bad to shape policy which results in that, and support it by lying to people in order to manipulate their self-interest.

Posted by: Stephen Daugherty at May 7, 2009 8:28 AM
Comment #281397
Businesses do not automatically pass on increased cost.

Yes they do, I will provide a link later to some of the studies that have been done to prove to those that can’t accept rational thought about how this works, ie progressives.

There is no set ratio of product price to cost,barring illegal price fixing etc.

People who make products or provide services do so so that they can make a profit worth their time. If costs increase, then prices will increase so that they can continue to make that profit.

Prices are set by what the market will bear.

That is true as well, provided the market is truly free.

They charge what they can get in a competitive market. No less. No more.Thats it.

Yes, unless the profit they make in that competitive market is not enough for them to continue providing the good or service, then they will simply shut down.

The converse of your arguement is that if we removed all taxes businesses would automatically lower prices. How likely is that?

Very. In a true free market, with good competitive forces at work, people will purchase a good or service at the lowest cost provided service and quality are the same, so if the cost of taxes were taken away someone will drop their price to get a corner on the market, forcing everyone else to do the same…

Where did you learn economics again?

Posted by: Rhinehold at May 7, 2009 9:18 AM
Comment #281398
Well, the rich got more money, but funnily enough, they didn’t get irrationally altruistic and spread the wealth themselves!

Actually, they did. Unfortunately, the nature of the beast is that those who are rich usually got there by being smart with their money while those who aren’t rich are usually there because they aren’t as smart with their money as the rich people…

SO while everyone did better, the rich did better than the middle class and the middle class did better than the poor. It is kind of how it works in real life…

Posted by: Rhinehold at May 7, 2009 9:20 AM
Comment #281399

Rhinehold, that last comment is absurd and shares nothing with reality. It is not about smart or not smart. It is about access and insider information.

401K and pension plan investors were not LESS smart for having lost half or more of their savings. They lacked the access to information about what was happening on the books of major corporations.

Those who got rich off the financial and mortgage bubble were not smarter than those who lost when the bubble burst. They were just less than interested in ethical or responsible profits with sustainable but slower growth.

Your reference to Darwinian smarter and dumber investors as evidenced by whether they got or stayed rich during and after the bubble bears no relation to the reality and complexity and government-corporate participation and conspiracy in the creation of that bubble that so threatened our economy. It was not about smarts. It was about control and power to deceive, obfuscate, and hide the reality of the house of cards which leveraging beyond all reason created.

The public which did not profit was not less smart. They were victimized by years of failed trust in a government that touted itself as the champion of investors - and protector of consumers, a bald faced lie by the Republicans in power and many a Democrat as well.

Had nothing to do with survival of the fittest as you suggest. Anymore than a family victimized by home invasion in the middle of the night by armed gunmen, were less fit than their victimizers. They were caught off guard and unaware. That does not, in anyway, make them less smart, of less fit to compete if the family chose too, to become victimizing criminals.

Is the young innocent bystander struck by the first stray bullet in a hail of gang war bullets, less smart than those firing the weapons? Of course not. Investors who didn’t profit in 401K’s, stock markets, and pension plans, were not less smart. They were victimized by perpetrators of deceptive and hidden business practices which Cox and others in government had no interest in overseeing and regulating.

Posted by: David R. Remer at May 7, 2009 9:46 AM
Comment #281401

Oil shocks like in the early 1970s when oil quadrupled, sky high food prices , slow business growth, slow job growth, a war, sounds like a good Rx for stagflation , wages were a lot better though back then if i recall they grew higher than the cost increases. unlike today ,My Father really had to be innovative to get through the early 1970s-1979 his paychecks were smaller than the Journeyman’s no lie i used to hand them out and deliver them. :)

Posted by: Rodney Brown at May 7, 2009 10:04 AM
Comment #281402

Rhinehold said in response to Bills: ” Businesses do not automatically pass on increased cost.

“Yes they do, I will provide a link later to some of the studies that have been done to prove to those that can’t accept rational thought about how this works, ie progressives.”

Sorry, Rhinehold, but you are wrong on this one and your position on this reflects a basic lack of business education. Increasing costs reduces market share and competitive advantage. Therefore, companies whose first and foremost objective for a period of time is increasing market share, WILL NOT pass increasing costs on to the consumer in order to increase their market share. Failure to pass on increasing costs does NOT necessarily mean going in the red.

Many a business maintains reserves in order to weather increasing costs without having to increase pricing in order to maintain its market share, and are willing to see profits reduced by increasing costs, to remain a dominant market share seller during times of increasing costs of production.

As anyone who has taken business math or micro-economics or managerial statistics knows, there are no black and white principles and rules in business of the sort that you posit. Your statement is ideological, not practical. In your comment, business should pass on costs. But, in reality, there are many over riding and more important reasons they often won’t, and don’t.

Maximizing profitability is actually a very short sighted and often doomed to fail strategy for running a corporation or business, as evidenced by our largest financial institutions, and even GM and Chrysler who observed for so many years that large gas guzzling vehicles permitted them larger profit yields, which of course ultimately led to their loss of market share and eventually to bankrupt status. They kept pursuing those high profit margins even after the market place and consumer demand were well into major changes in consumer choice and preference for lower cost, greater reliability, and lower operating and maintenance costs.

Ford on the other hand, made crucially important decisions in anticipating the dearth of demand coming, made dramatic changes to its balance sheets, increasing cash reserves by converting and selling some assets, in order to better position itself for weathering a slumped business cycle and changes in consumer demand for its larger and largest vehicles at less profitable margins.

Ford’s growing inventories constituted an increased cost of doing business. FORD DID NOT even attempt to pass those costs on to consumers, recognizing an opportunity to maintain or perhaps even increase market share by avoiding the bankruptcy concerns now plaguing GM and Chrysler consumers.

Posted by: David R. Remer at May 7, 2009 10:10 AM
Comment #281411

Interesting David, because according to most economists, like Dale Jorgenson who studied this in the late 1990s, if we were to eliminate corporate taxes in the US, the price of each product and service would drop between 15% and 26% and, it turns out, an average of 23%. That is how much each product and service we buy in the US is going to pay for taxation.

http://linderfairtax.house.gov/index.cfm?FuseAction=Files.View&FileStore_id=18

However, I love how you contradict yourself though… By saying that there was no way the average middle class person could have ‘seen this coming’ (which isn’t true) and then tell a tale of how the smart businesses put themselves in positions to handle the market turndown that everyone saw was coming…

Yes, there are no complete black and white blanket statements that can be made, which is why you can’t accurately predict the market well enough to micromanage it as the government has been trying to do since Greenspan took over from Volker, but the overall trend is valid and while some businesses and individuals will increase or lose market standing within those cracks, the result will be as I describe because we know from history that this is the result.

Posted by: rhinehold at May 7, 2009 11:34 AM
Comment #281424

Rhinehold, they are wrong. There is the real world, and then their is the academic modeling world. They are often different. Example: The Financial institutions burdened by toxic assets were infused with government tax dollars, the opposite of taxation, which Jorgenson’s model would indicate should promote expansion of lending and lower product rates, fees and interest. The opposite has been the case, lending remains very constrained, fees and interest rates charged have been rising.


This following comment of yours is idiotic, and illogical as it results in extrapolating from the anecdotal to the general universe which every logic 101 books says is illogical: “By saying that there was no way the average middle class person could have ‘seen this coming’ (which isn’t true) and then tell a tale of how the smart businesses put themselves in positions to handle the market turndown that everyone saw was coming…”

It is not a contradiction that FORD CHOSE to act responsibly in the context of both differing circumstances from GM and Chrysler (look it up), and a different perspective resulting from better leadership foresight. One out of 3 is the exception to the rule, and not a contradiction at all.

Are you really trying to equate the CEO’s of corporations with at least MBA’s with the average working American with no college or some college, and no executive experience in forecasting business and economic trends? That is ridiculous. Smart and educated are two different concepts, which I recommend becoming familiar with. A person can be a very smart programmer and completely ignorant of neuro-surgery.

Not having relevant information does not make a person NOT SMART, unless they were offered the information and rejected it out of faulty reasoning or unwillingness to accept it if useful.

Making comments the more outrageous and illogical does not strengthen original faulty arguments.

We saw Reagan cut tax rates, and many business’ instead of lowering costs to consumers, increased their profit margins instead passing no cost savings or only token cost savings to their customers. Reality vs. ideological modeling. They often contradict each other, which is why economics is a social and probablistic statistical science, and not a hard science like chemistry.

One can predict trends with some degree of reliability and accuracy, in the social sciences, but, one cannot predict the individual, whether that individual be a person, corporation, or industry group, even sometimes.

Posted by: David R. Remer at May 7, 2009 2:59 PM
Comment #281427
Example: The Financial institutions burdened by toxic assets were infused with government tax dollars, the opposite of taxation, which Jorgenson’s model would indicate should promote expansion of lending and lower product rates, fees and interest. The opposite has been the case, lending remains very constrained, fees and interest rates charged have been rising.

There are many other things at play, David, that is preventing the lending from occuring, including knowing that future governmental regulation is coming but not knowing what that will be and learning later what kind of manipulation is being used by accepting the money is causing many banks to want to return it and focus on their balance sheet, not try to increase their wealth.

These actions are a direct result of government interaction into their business. Had they just been given tax breaks and were assured that they weren’t going to be the next AIG with their executives ‘on the block’, they would have been more open to doing such a thing.

Trying to equate that complex issue to the simple reality of businesses responding to additional external costs on their products is ludicrious. It’s also the exact thinking that got us to further the depression of the 1930s, a lesson our ‘rulers’ today refuse to learn.

And David, you still make my point. Yes, these ‘rich’ people and businesses had the training and knowledge to know how to maneuver around the financial industry, most average middle class individuals do not have this knowledge. Which is why they don’t get as rich during the good times. Are you suggesting that people who don’t have that knowledge SHOULD be able to increase their wealth as much as those that do have that knowledge, most often paid for out of their own pockets to achieve and time spent to acqiure? Getitng an MBA is not a trivial task, shouldn’t that person have incentive for going through all of that, meaning a greater return on that investment than a middle class auto mechanic who is just trying to save for retirement would on their investing dollar?

I’m not saying that they are INCAPABLE, necessarily, of learning that information, but the fact is that they are not knowledgeable. Is that the sticking point you have, that you think I was calling middle class people stupid? You don’t see the difference between saying someone was smart with their money (FORD clearly was) and saying that someone isn’t smart at all?

Posted by: rhinehold at May 7, 2009 4:44 PM
Comment #281432

Rhinehold-
You know, you can pile on all the academic studies and theorizing you want to, but laissez faire economics still depends mostly on the naive assumption that by itself, a market will behavior rationally, and that the people who run major parts of the market would not destroy or let be destroyed the engines of their wealth’s creation.

We recall what a free market means, in the scheme of things, when we recall that its a term used in the light of Soviet Communism, where the economy was not built on people being able to buy and sell, for the most part, as they pleased. The Free Market wasn’t considered free in the absolutist, dead-literal way folks speak of it now.

The fact of the matter is, Americans have been stampeded to a bizarre extreme of laissez faire economics, where the freedom most sought is freedom from regulation of behavior destructive to health and prosperity.

Every market depends on the exchange of value, with each side attempting to gain something of greater value from the other guy. With the laws the way they are now, though, many of the incentives and safeguards that keep people providing and creating real value in the exchange are thrown away or made toothlessly voluntary; honesty and honest work, the things that leads the market to deal with economic phenomena in a responsible, ethical, and productive way, become the province of the naive and uncompetitive, as others go all out to win the game by whatever means necessary.

The people who run the companies aren’t necessarily smarter than the people working for them. This is not a matter of characteristic determination by personality. We’ve seen the MBA’s act foolishly, lead irresponsibly, and throw down everybody else’s interests to see to their own. I’m not saying everybody’s like this, but I am saying that it is fully naive to believe that the skills and talent in this department is high, or has to be high. Sometimes vicious competitive streaks and great salesmanship skills can get people to that high level, without the benefit of real smarts or wisdom to reinforce their authority with ethical leadership qualities. These people can be idiots, can be monsters.

By your argument, we shouldn’t have murder laws or assault laws, because most people are law abiding, not criminals, not psychopaths. The trouble is, there are plenty of people who are bastards, and there’s not much use for depriving yourself of your means to fight them, and fight back against their behavior.

Posted by: Stephen Daugherty at May 7, 2009 5:45 PM
Comment #281437
with each side attempting to gain something of greater value from the other guy.

No, this isn’t true as a fact. Some people may see it that way and attempt to utilize the market for that reason, but the market itself is simply an exchange of goods or services for other goods and services by an amount freely agreed upon by both parties. Many, if not most, transactions are NOT one party trying to ‘get over’ on another. That view of the market, though, is interesting and a prime example of why it is attacked so much by the left, as if the market itself is somehow with a mind, much like a gun is… It’s the market that’s bad, it’s the gun that’s bad, etc. The market is simply a tool for people to exchange goods and services. And yes, government is needed to regulate to ensure that the free exchange of those goods and services take place without fraud, unfair advantage, etc.

It should NOT, however, be manipulating the market to act in a certain way or another or little blips in the market will be snowballed into a big bubble that would have normally not been there or regulated out if one side was found to have an unfair competitive advantage in the marketplace.

The people who run the companies aren’t necessarily smarter than the people working for them.

Never said that where and I’m not sure why you think I did…

By your argument, we shouldn’t have murder laws or assault laws, because most people are law abiding, not criminals, not psychopaths. The trouble is, there are plenty of people who are bastards, and there’s not much use for depriving yourself of your means to fight them, and fight back against their behavior.

If you think that is my argument, you need to read again.

Posted by: Rhinehold at May 7, 2009 11:35 PM
Comment #281438

Why blame laissez faire economics for getting us into the current financial woes when you can blame the barter system, the “real” killer who OJ Simpson is still looking for, or alien robots from Planet Zoltar? Or anything else that doesn’t exist?

This repeated absurdity that that we had or have an “unregulated” credit market is just, well, so absurd that anybody who says such a thing is permanently discredited.

The fact of the matter is, Americans have been stampeded to a bizarre extreme of laissez faire economics, where the freedom most sought is freedom from regulation of behavior destructive to health and prosperity.

We have a winner!

What is truly miraculous is that even when liberals correctly point out mistakes or malfeasances that have led to problems, they completely fail to offer any solutions which are not ideological fantasies. Ideological fantasies that would be worthy only of laughter if the radical leaders who have hijacked the US goverenment didn’t actually have the power to implement them.

It’s as if your mechanic looked at your car and told you that your water pump was leaking and you had a broken fan belt. So far so good. But then he told you that the only way to fix it was to sprinkle magic fairy dust on your car under a full moon. You might buy the diagnosis, but unless you’re an Obama follower, you’ll probably balk at the solution.

So it is with these eternal demands for ever more intrusive programs of government regulation, be that in the credit market, energy, health care, or anything else.

Anyone who is seriously paying any mind to left wing ideas proposed by the likes of the current group of extremist radicals who have taken over the Democratic party need to ask themselves a basic question.

How much do you enjoy going to your local DMV or Post Office? Are these the people you want running the entire country? After all, when you’re at the post office or the the DMV, you always get incredibly attentive and professional service at the highest level, don’t you? After all, these folks know that if they don’t give you the highest level of service and attention possible, you’ll just take your business somewhere else. Stop and think about it.

We have been using an economic model for generations now which has delivered us the highest level of prosperity and standard of living the world has ever seen. We’ve had a downturn lately, but that doesn’t mean that we should throw out the baby with the bathwater and embrace the “amazing” and “wonderful” economic models that have made Cuba, Venezuela and North Korea such wonderful places to live.

Posted by: Loyal Opposition at May 8, 2009 12:22 AM
Comment #281440

Most people that lost money in their 401k’s were most likely similar to the anecdotal cases I was privy to: they hired financial consultants to guide them in their investments.

Unfortunately, many of those so-called experts, give one type of advice to people of moderate means, and another to wealthier folks. Then there are those feeder funds…

It should NOT, however, be manipulating the market to act in a certain way or another or little blips in the market will be snowballed into a big bubble that would have normally not been there or regulated out if one side was found to have an unfair competitive advantage in the marketplace.

Of course, that worked out quite well in the 18th and 19th centuries. Nope, no bubbles or dips back then. But, of course, in a idealized “good ole days” regulation and oversight was perfect, too.

This is the problem with modern conservatives. They prey upon the poor understanding of history to foist the disproved theories of long ago rather than using what has actually been learned. Sort of reminds me of Muslims. If it was good enough for the 14th century, it’ll be great for the 21st century. That’s REALLY our problem, things were MUCH better long ago. ;/ Well, maybe not.

Posted by: gergle at May 8, 2009 1:20 AM
Comment #281441
They prey upon the poor understanding of history to foist the disproved theories of long ago rather than using what has actually been learned.

And here I thought you were talking about progressives… Which would explain the recreation of the failed theories that made the great depression as long and deep as it was. Or the stagflation of the late 1970s. Or the Internet/Stock Market bubble of the late 1990s. Or …

You know, we had laws against murder in the 1800s, but apparently since they were around that long ago it isn’t a valid idea anymore. What a great argument…. *rolls eyes*

Posted by: Rhinehold at May 8, 2009 2:14 AM
Comment #281444

LO
“the highest level of prosperity and living standard the world has ever see.”

Wrong. According to Legatum prosperity ranking we are #4 as of 2008.http://www.prosperity.com/ranking.aspx ,Out of 104 countries thats not bad,not bad at all, but not the highest. The countries ahead of us all have some form of national healthcare as do all the countries in the top 20 except the US.

” the current group of extremist radicals who have taken over the Democratic party …”

The leader of the Democratic Party is BHO. He is not an extremist radical.Thats comming from an extremist radical. Its BHO thats dragging his feet about nationalizing the zombie banks for example. His health care reform package does not even include the more radical “single payer” option.His proposed tax increases on the upper brackets comes nowhere near the 80-90% range we had under Eisenhower, hardly a radical. He has not moved to nationalize any oil companies or started massive closures of the 500 some military bases we have overseas. Hes an incrementalist if anything.Too bad,IMO
I have noticed you often rely on platitudes and assumptions that are not supported by facts. Thats an easy trap to fall into for those of us concerned with public policy, but none the less, your positions would gain credence if you were to research the facts behind such blanket statments.

Posted by: bills at May 8, 2009 7:12 AM
Comment #281445

“We have been using an economic model for generations now which has delivered us the highest level of prosperity and standard of living the world has ever seen. We’ve had a downturn lately, but that doesn’t mean that we should throw out the baby with the bathwater and embrace the “amazing” and “wonderful” economic models that have made Cuba, Venezuela and North Korea such wonderful places to live.”

LO yes until the rise of Reagan conservatism in the 1980’s we did have an economic model that worked. Since the return to the pre-depression version of supply side economics it has been boom and bust, boom and bigger bust and an ever growing wealth disparity due in part to “jobless recoveries”. It was the radical extremist/fascist wing of the far right that instituted this economic model and only when we realize it for the quackery that it is will we be able to correct this problem.

Posted by: j2t2 at May 8, 2009 9:39 AM
Comment #281446

Rhinehold:

And here I thought you were talking about progressives… Which would explain the recreation of the failed theories that made the great depression as long and deep as it was. Or the stagflation of the late 1970s. Or the Internet/Stock Market bubble of the late 1990s. Or …

I guess that explains the recovery; Damn Fed.
:rolls eyes,too, while wondering what trade policy issues he is refering to:):

Yes, lynching Blacks really cleaned the place up.

:double rolls eyes and winks while noting equally completely irrelevant strawman:.

:sticks out tongue and thumbs nose to complete the gestures:


So no bubbles or panics existed in the 1800’s or 1700’s?

: Rereads history book, and is completely confused by Rhinehold’s “spitball slider” signals, so holds at 3rd base:

Posted by: gergle at May 8, 2009 9:44 AM
Comment #281449

L Opp said: “This repeated absurdity that that we had or have an “unregulated” credit market is just, well, so absurd that anybody who says such a thing is permanently discredited.”

This comment discredits itself. There was no regulation of the Credit Default System of insurance nor the Hedge Fund Industry, nor the valuation and non-reassessment of the secuitized mortgage bundling process. Hell, not even the rating agencies were regulated. Regulation means BOTH having authority to oversee and investigate AND exercising that authority.

Neither existed under Republican rule in these particular areas. Your own statement discredits itself in its attempt to mock the reality and truth of the situation. To give your statement credibility, you would have to provide the legislation and record of enforcement since 2002 when these markets began taking off. You can’t, because they don’t exist.

Nuff said. Being loyal in opposition without rhyme or reason is precisely why the GOP is now monikered as the party of NO, an acronym for NO OBJECTIVITY. :-)

Posted by: David R. Remer at May 8, 2009 1:59 PM
Comment #281450

Rhinehold replied to:

Example: The Financial institutions burdened by toxic assets were infused with government tax dollars, the opposite of taxation, which Jorgenson’s model would indicate should promote expansion of lending and lower product rates, fees and interest. The opposite has been the case, lending remains very constrained, fees and interest rates charged have been rising.
There are many other things at play, David, that is preventing the lending from occuring,…

Thank you for making my argument. Your and Jorgenson’s hard and fast theoretical rule and why the real world doesn’t follow it, is answered by you in your reply above. Like I said, there is often a grand canyon between the ideological and theoretical, and the practical real world of how things play out. I rest my case on your reply.

As I explained, this is the reason Economics is a probablistic statistical science, precisely because there is no laboratory in which one can hold the universe of variables constant while altering only one for its consequential changes. There are infinite variables at play in the world of economics, and reality often, refuses to follow theoretical or ideological constructs of one to one causality and prediction. Which makes ideological statements like “Cutting taxes will stimulate economic growth” absurd. Such ideology completely fails to address the plethora of other real world variables that are in play at any given time.

We are now in a position where one can reasonably argue that cutting taxes across the board will deepen deficits and increase national debt, the very things that now threaten our government’s and nation’s future.

Yet, one hears this mantra from elected Republicans who must be speaking to the least educated or most loyal of GOP Americans, because anyone with half a wit now knows cutting taxes in this environment will only increase deficit spending, interest on that debt, and the total national debt growing forward, with our without spending cuts.

The lack of capital is not what is holding this recession together. It is a lack of consumption and demand, and cutting taxes, even a lot, will not stimulate demand and consumption a lot, because people are going to pay down debt or save such tax cuts for when they may become unemployed them self. Which makes Obama’s tax cuts to the working Americans a political maneuver, not an economic stimulant. That said, the checks he is sending out to the unemployed and too poor to have had income last year, will stimulate demand because that money will be spent on basic necessities like food, rent, utilities, clothing, etc. for the most part. We know this because we saw this occur with the tax rebate checks last year, and there were a lot less unemployed then, than there are now.

15% is the current estimate of total unemployed, combining the recent unemployed and the long term unemployed who have run out of benefits and given up looking for a job.

Posted by: David R. Remer at May 8, 2009 2:19 PM
Comment #281453
There was no regulation of the Credit Default System of insurance nor the Hedge Fund Industry, nor the valuation and non-reassessment of the secuitized mortgage bundling process.

This is complete nonsense from beginning to end.

The simple fact that interest rates are set by the Fed completely blows away this baloney about a completely “unregulated” financial market.

In a true laissez faire economy there wouldn’t be a Federal Reserve. There wouldn’t be a treasury secretary. And there certainly wouldn’t a be a Community Reinvestment Act.

But I give up. You can’t argue with a position steeped in pure ideological partisanship that not only fails to take account of reality but actually denies it. Arguing with such a position is like arguing against flat earth theories or conspiracy theories about faked moon landings. Facts and reality will never make any impression.

Posted by: Loyal Opposition at May 8, 2009 2:51 PM
Comment #281457

L Opp, the nonsense is all yours. You equate the Fed’s regulation of interest rates with the unregulated transactions flowing through AIG?

Man, your comment is in dire need of a finance 101 course and PDQ. The total ignorance contained in that one sentence would counter-balance the weight of the $4 trillion (IMF) estimated losses caused by the mortgage backed securities industry and housing valuation bubble:

The simple fact that interest rates are set by the Fed completely blows away this baloney about a completely “unregulated” financial market.

You will be most displeased to learn of the Global Regulatory mechanisms being drafted as we speak to avert this kind of global calamity and threat in the future, based on oversight and regulation - the exact opposite of your laissez faire ideological precept that markets should be allowed to make paupers of whom it will to secure wealth beyond measure for the few captains of financial industry. Straight out of the 19th century robber baron era your ideological loyalty.

But, you know, it is perfectly understandable. There are quackers who loyally believe that ET aliens are in control of world governments, and anyone who doesn’t believe as they do is a slave to socialism, communist influences, and very likely ET alien brainwashing through the ET controlled MEDIA industry who find leftist owners such easy marks for taking over and Rupert Murdock impossible to budge. LOL!!!

Folks who believe an explanation is valid if it serves their motives, will always find themselves living in fringe minorities. Civilization was not built on frail explanations, but, on math, experience, and logical testing and elimination of ideas which fail to prove themselves in the real world, like laissez faire economics. It truly must appear to be a frightening world unfolding before Milton Freidman believers.

Laissez faire had its best shot under the GW Bush years. There is a new world order being built, and laissez faire has no place in it. The individual’s desires cannot be permitted to threaten the global economy. Those days are over, and there will be, no doubt as there always are, negative consequences to such ideological swings. But, they won’t be sufficient to turn the clock hands of the “world is flat” or the “Negroes by their nature can’t be educated”, back.

Human progress can be marked by its rejection of outdated and proven wrong ideas and beliefs. Laissez faire has been globally rejected as a prescription for progress. Even empiricism and rationalism are yielding to a more complex and multi-functional way of knowing, and their consensus of outcome becoming valid as knowledge.

Welcome to the age of technology and computers which extend not only our knowledge, but, our ways of knowing into far more probablistic statistical approaches, as opposed to fixed concrete truisms bombarded by exceptions which negate its truist rule.

Laissez Faire, literally, “let do”, or, “let it do what it will without intervention”, is a small, agrarian based nation’s perspective. When nations leave their agrarian base and grow in population and widespread industrialized employment, Laissez Faire yields of necessity, to a more human deterministic model of outcome.

“Let Do” is a matter of planting seed, and letting nature take its course on whether one will harvest that year or not. And this is likely the philosophical root of Hamilton’s perception of economics based on nature and a largely agricultural nation.

With the post Civil War era however, came the rise of the magnates, monopolism, slavery through the company store, child labor exploitation, sweat shops, and unmitigated unbridled pollution of human centers of living and industry. Laissez Faire could not, and was not ever again, to be the dominant economic view in America, nor for that matter, of any modern industrialized nation, ever again.

Your comment’s promotion of the Laissez Faire view is a resident of the past, which no longer exists, Loyal Opposition. And you have every legal right to hold to such a view if you wish. Just don’t brandish it about in public and expect to get a consensus of agreement in these modern times by people who have progressed from Hamiltion’s agrarian nation economy.

Posted by: David R. Remer at May 8, 2009 4:33 PM
Comment #281459
Laissez faire had its best shot under the GW Bush years.

You keep using those words. I do not think they mean what you think they mean.

Anyone suggesting that what George Bush was displaying was ‘laissez faire’ economy policy immediately disqualifies themselves from rational economic discussion, IMO.

Posted by: rhinehold at May 8, 2009 4:49 PM
Comment #281462
L Opp, the nonsense is all yours. You equate the Fed’s regulation of interest rates with the unregulated transactions flowing through AIG?t

No. I said that we do not nor have we had a “laissez faire’ economic system or anything resembling it. Nor was I advocating such a system. You can try to change the subject, obfuscate, or drag in numerous irrelevancies and accuse people of taking positions they never have taken, but that doesn’t change the fact that you’re wrong.

Just admit it for once without all these smokescreens.

Posted by: Loyal Opposition at May 8, 2009 5:49 PM
Comment #281463


If we had a true laissez fare economy we probably would not be talking about moon landings, real or immagined. The government would probably be the size of a postage stamp and powerless. Charity would replace the social safety net, there would be no protections for workers or the environment and education, as well as healthcare would only be for those who could afford it.

Without the massive government investments we would probably not have nearly as much of the high tech that we rely on nor many of the advances in medicine that we enjoy. Ten percent of the population would own nearly everything, the numbers of poor would be far greater and the average American would not be as well off.

Yes, we were closer to laissez fare in the good old days when slave owners could rightfully say that their slaves were better fed and healthier than the northern factory workers.

Our economy is the product of a joint venture between inventors, entrepreneurs, private capital, the government and highly productive workers. Removing one of these assets from the equation and our economy would probably not be as large and dynamic as it has been.

We were told that outsourcing our manufacturing jobs to China would create a great economic boom that would create huge employment opportunities. Where are all the jobs? How is our economy doing?

Obama says that corporate green jobs will do much the same. Don’t count on it.

IMO, our greates problem is huge corporations having their way with our government.

Posted by: jlw at May 8, 2009 6:08 PM
Comment #281464

“This is the problem with modern conservatives. They prey upon the poor understanding of history to foist the disproved theories of long ago rather than using what has actually been learned. “

True for more than just conservatives. Theoreticians of all stripes encourage ethnic, sexual, religious, and other groups to believe things that make them feel better about themselves.

What laissezfaire (Origin: 1815–25; F: lit., allow to act) or free markets would actually look like here and now, would be like bringing Blackwater home to shoot randoms here who get in the way of the people who would be able to hire them to protect their interests.

Posted by: ohrealy at May 8, 2009 7:32 PM
Comment #281465

Rhinehold,

Ah well, laissez faire has never existed and therefore is proven to be the best thing for an econmy.

Interesting theory.

Since you have yet to answer my question regarding the 19th century, and you avoid it everytime I ask it, I presume you have no answer, which was my point from the beginning.

Since we are in a unique position to place our cards on the table, what is the economy of 2010 going to be like in the US? Granted, no one has a crystal ball, but it seems now would be a great time to portend the dire effects of Obama’s horrid economic policy. Then we can laugh or cry about the accuracy of your economic theory’s predictive powers.

My guess is you won’t bite, because then it gets harder to wriggle out of reality.

My guess, based on Macroeconomics is we will begin to see recovery, and then the Fed will start fighting the inflation that will rise due to the deficit spending’s effect on money supply.

Of course, since Obama has made the same mistakes of the 30’s, per your theory, you would likely predict a deepening depression…right?

Posted by: gergle at May 8, 2009 8:07 PM
Comment #281466

Rhinehold said: “Anyone suggesting that what George Bush was displaying was ‘laissez faire’ economy policy immediately disqualifies themselves from rational economic discussion, IMO.”

Right. That is your opinion. But, you can NOT provide me with a single instance of the Bush administration acting as overseer or regulator of the Credit Default System, the Hedge Funds, or the leveraging of mortgage backed securities. And that constitutes Laissez Faire Economic policy, by Definition of Laissez Faire.

Nice try, no cigar.

Posted by: David R. Remer at May 8, 2009 8:15 PM
Comment #281467

Loyal Opp. you are losing track of, among other things, the thread of this discussion.

I said: “There was no regulation of the Credit Default System of insurance nor the Hedge Fund Industry, nor the valuation and non-reassessment of the secuitized mortgage bundling process.”

To which you replied: “This is complete nonsense from beginning to end.”

The nonsense is all yours, as I said, since my statement is demonstrably evident by the record of media coverage of these facts as I stated them. To call it nonsense and have it mean anything, you would have to provide evidence to the contrary, which you haven’t, and can’t. Making your nonsense claim entirely desperate and irrelevant to the thread of our conversation.

Posted by: David R. Remer at May 8, 2009 8:18 PM
Comment #281471
Loyal Opp. you are losing track of, among other things, the thread of this discussion.

I said: “There was no regulation of the Credit Default System of insurance nor the Hedge Fund Industry, nor the valuation and non-reassessment of the secuitized mortgage bundling process.”

To which you replied: “This is complete nonsense from beginning to end.”

I must say I’m shocked. Not only do you take my comments out of context and mischaracterize them, you take your OWN comments out of context and mischaracterize them. Your representation of the conversation conveniently leaves out that YOUR comment was in response to my claim that it’s nonsense to say that we have an unregulated financial market.

You respond to my claim with this complete non sequitur about the credit defaults and hedge funds (which are not, believe it or not, the entire credit market or anything close to it) and then say that your non sequitur has become “the thread of the discussion.” LOL, as they say on the internet.

Posted by: Loyal Opposition at May 9, 2009 12:24 AM
Comment #281472

Additionally, even your non sequitur is wrong. Laughably so.

Regulation means BOTH having authority to oversee and investigate AND exercising that authority.

Wrong. A word means what it means, and that’s not what regulation “means” at all. That’s like saying that if the umpire doesn’t call a strike, he doesn’t exist. If there are strikes being thrown and not called, what it should tell you is that there is something wrong with the umpire (government regulators) and that giving that incompetent entity even more power is not the solution to your problems.

Regulation wasn’t enforced because the regulators DIDN’T SEE WHAT WAS COMING. What this demonstrates is the limits of regulation and the imperfect knowledge of government.

The fact is that there WERE numerous agencies in place overseeing the issue but they didn’t do anything.

You can look at this video on Youtube and see Democratic members of the congressional oversight committees insisting that there was no problem and berating Republicans who were demanding more oversight.

As usual, the failures of liberals never get pinned on liberals—it simply becomes the job of everybody else to clean up after them until they fail again.

Posted by: Loyal Opposition at May 9, 2009 1:03 AM
Comment #281473

LO,

Regulation wasn’t enforced because the regulators DIDN’T SEE WHAT WAS COMING. What this demonstrates is the limits of regulation and the imperfect knowledge of government.

Huh?

OK, I’ll play. Let’s presume they saw what was coming for a moment. Since your statement hinges on presumed ignorance. What agency was supposed to do what exactly on CDS’s, and when? Since these were clearly regulated, please explain how they were regulated.

One more question. Assuming you believe a portion of the financial markets WERE regulated (which I agree with), please explain which agency is at fault for NOT SEEING WHAT WAS COMING.

If I regulate the gas pedal in my car, but fail to regulate the brake, do you think anything bad might happen, or would this be de facto laissez faire driving? Do you think anyone might predict something might go wrong?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGHQspwfjFS0&refer=home

http://blog.rdowens.net/2009/03/28/glass-steagall-act


Posted by: gergle at May 9, 2009 7:17 AM
Comment #281475

””“Bernanke’s future as Federal Reserve chairman became uncertain on November 21, 2008 when it was announced that President-elect Barack Obama would name Tim Geithner as Treasury Secretary over Larry Summers, leading to speculation that Obama was positioning Summers as Bernanke’s successor. Summers was picked to run the National Economic Council. Two Obama advisers said that Summers would be the leading candidate to become the next Federal Reserve chairman should President Obama choose not to reappoint Bernanke when his term ends January 31, 2010. [16] [17]”“” Keep Bernanke In.

Posted by: Rodney Brown at May 9, 2009 9:44 AM
Comment #281476
Keep Bernanke In.

Tough call, Bernanke is following in Greenspan’s footsteps, Greenspan being one of the people we can directly point to as the fault for our current mess thanks to his interventionist policies…

Posted by: rhinehold at May 9, 2009 11:52 AM
Comment #281479

Rhinehold-

No, this isn’t true as a fact. Some people may see it that way and attempt to utilize the market for that reason, but the market itself is simply an exchange of goods or services for other goods and services by an amount freely agreed upon by both parties.

You misunderstand my conception of value. First, To gain something of greater value to yourself is not mutually exclusive of the other guy getting something that would be of greater value to them.

But even if that’s not the nature of the interaction, people don’t engage in economic activity as a lark, but as a necessity first and foremost. Even the rich need it. As rich as they are, their wealth will always be the result of somebody else’s wealth flowing their way, and they only keep their big houses, their satisfied needs because others derive some benefit from it.

Haven’t you read Adam Smith? Some butchers might give you hamburger out of the goodness of their heart, but for most, it’s a living, something you pay them to do so you don’t have to do it yourself. In today’s society, everybody’s essentially doing something to save somebody else some trouble. (or at least they should be, for what we give up in terms of money).

Because so many people satisfy so many other folk’s interests, we have a nice complex society that can sustain a massive, high population civilization, with diverse interests, religions, and subculture.

You’d like to paint me as a vilifier, an opponent of the market, but that’s the last thing I am. What I am is a person who enjoys seeing things function well.

I have seen, in the course of my lifetime how well the Republican/Libertarian/Right Wing style of dealing with business has worked. That is to say, I’ve seen the stock market crater a two or three times, I’ve seen multiple overbubbled sectors collapse, I’ve seen investments made in a chronically over-risky man, and more and more crap shovelled onto the average person to try and make this wasteful, unsustainable version of capitalism works.

What’s happened to our economy?

I’ll boil it down to this: the golden boys of finance found a way to make lots of money by essentially turning millions of Americans into long-term debtors, and then selling off the debts (or rather the promise of the debt’s repayment to others) to other financial companies.

They pumped up the debt, encouraged people to overload their credit, and then basically laundered the fact that so much of their debt was risky, uncertain of repayment, so that the market could not correct for the riskiness of this debt by not buying it.

Folks make excuses for these people. They say they were required to give loans to minorities, and then encouraged to give loans to those with worse credit. The first charge doesn’t relate to what happened like the prejudiced assume. Loans made under CRA regulations outperformed the average in terms of avoiding default. Even if they weren’t, most of the banks that led the Subprime sector in the critical time during the middle of this decade barely fell under their authority. But what of the push for more loans from the subprime market?

The market might have resolved that if the risks and costs associated with such loans were made clear to those buying them up in the secondary market. Now was it the government that covered up how risky these loans were? Did the government design the elaborate systems of derivatives and poorly regulated quasi-bank lenders, peddling badly underregulated financial instruments?

No. Govenment’s problem here was how much of this behavior it made legal, and with the free market champions leading the charge, made it illegal to regulate the very market that allowed what would have mainly been a problem for the mortgage lending sector into a broad-based economic meltdown.

Those who consider such talk lunacy should step back and consider the fact that the losses were substantial among all the major banks, banks that were allowed to consolidate and breakdown the firewalls in the financial sector with the Republican Congress’s blessing, and which continued to behave much as they liked to under Bush.

At the end of the day, a market is part of society. It’s not a tool, it’s a daily, integrated interaction among millions here, and billions worldwide. It will never be as free as some will idealize it to be, and when it self-corrects, it’s usually after the fact, after the damage is already done.

There are some screw-ups nobody can see coming, but this shouldn’t have been one of them. In fact, its notable that so many of the practices we encounter here were once illegal, before the Republican lead Congress made it legal once more. Hell, this whole thing wouldn’t have been possible if ownership rules concerning market-share and the merging of different sides of the financial industries had not been made legal.

I can understand the impulse that lead people to put faith in this idea of the free market meaning essentially removing any barrier to the business folks doing what it takes to get ahead in business. I can understand the generalization that the governmen is simply not agile enough to micromanage the economy to perfection.

But I have seen time and time again that while some actions might be innocent or even beneficial when one person does it, while some practices might make huge amounts of money and put vim and vigor into the economy, with many of these practices comes inevitable breakdowns of the market as a whole, breakdowns that are avoidable.

We also must face the fact that not every captain of industry is quite so caring about where the ship is leading, nor quite so aware of the consequences of their actions. Some people are just cold, cynical bastards, or worse. What we have to realize, is that if we construct our system without taking this into account, we will only doom ourselves to further disasters and problems down the line. We cannot simply assume that all big problems will self-correct before they get to be catastrophic for the economy as a whole.

LO-
Magic Fairy Dust, right? Deregulate, and all will be well! Give big tax cuts, and good economic times will return! Stay the course, and things will get better on their own!

If you deigned to read the liberal blogs, you’d understand that magic fairy dust is the last thing most Democrats have faith in. Obama gets our vote, figuratively and literally, because the guy does not kid us about his solutions being a bolt from the blue magical solution.

To replace the magical solutions Republicans offered before, we know have the apocalyptic, mystical certainty that Obama’s taking the country into Communism. Bull. He could have just dropped everything and just nationalized the banks, and gotten it over with. Look at the people who are running things with him. These aren’t socialists. These are Wall Street Men, and his policy has essentially been shaped in such a way that leaves few of the capitalist pigs roasting on spits, if you catch my meaning.

The folks who are supposed to be up against the wall with cigarettes are still sitting in their offices smoking cigars. That alone should tell you what a barnstorming, redistributionist, socialist commie Obama ain’t. Obama has the public anger behind him, and he could just as easily dropkick the severed heads of Wall Street Titans as much as most people care, and he wouldn’t be blamed for it. Now you could tell me that this is just Obama being clever, or masking his true intent with window-dressing behavior. But I don’t buy it. Obama’s an accommodating moderate. His politics are more left of center than Democrats have been in a long time, but his restraint and his deliberation of action belie this notion of him being the left-wing Hugo Chavez impersonator the Republicans portray him as.

Besides, let me remind you of something: we spent most of the last century under the aegis of the rules whose reinstatement you would now call socialist madness. We didn’t become a Western Branch of the Soviet Union, or a bastion of even European socialism. We remained a free market, and that market was kept free by laws that discouraged the kind of cheating and predatory behavior that collapsed our economy not too long ago.

America can stand a little more regulation, a little more government. I don’t think that Obama’s policies will have us become russkies, turning the farms over to collective ownership, and nationalizing all the industries. America has forgotten how liberal this country once was, and how perfectly alright it got along despite that supposed disability!

That is the only reason why anybody takes seriously the concerns that Republicans give out now. For my part, things weren’t so terrible back then. We weren’t Cuba, Venezuela, or North Korea under New Deal liberalism. I highly doubt Obama’s going to be sending Republicans to Alaskan Gulags for re-education, if his recent behavior is any sign of things.

Posted by: Stephen Daugherty at May 9, 2009 9:32 PM
Comment #283194

Corporations don’t pay taxes, as many have already pointed out. Only individuals pay taxes. I own a business and taxes are a line item in the budget. Any business owner who tells you different is lying. It is a Catch 22. When I go out and buy goods and services, I pay the tax embedded in that product. So, if Corporate taxes are done away with, prices would fall. The Fair Tax is the best plan. That way everybody pays exactly the same as everyone else. It’s completely fair. You would think a liberal would like it.

Posted by: Paul at June 18, 2009 3:38 PM
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