The Good Ol' Days: Interesting article

Steven Malanga is a senior fellow at the Manhattan Institute, which I am not familiar with but found, thanks to Wikipedia, that sorta-conservatives William Kristol and Peggy Noonan are on the board, so I guess that would put it right of center on most issues. No big deal, but I try to learn a little about the authors to see where they are come ig from. In any event, Malanga asks an interesting question, Can Free Markets Survive In a Secularized World?

It begins:

The 18th Century English cleric and theologian John Wesley was troubled by a paradox that emerged as his teaching spread. He, like other Protestant thinkers stretching back to Calvin, taught that one could honor God through hard work and thrift. The subsequent burst of industry and frugality generated by Wesley’s message improved the lot of many of his working-class followers and helped advance capitalism in England. But, “wherever riches have increased, the essence of religion has decreased in the same proportion,” Wesley observed, and subsequently pride and greed are growing more common, he complained.

In order to survive and thrive, Malanga poses, capitalism needs restraint, and that restraint has historically been the virtues preached in the Protestant work ethic. But success has largely changed America from a country of work to a country of consumption, and thrift has been replaced with debt. He concludes:

People instinctively know something is missing, just not what. A religious revival in America seems unlikely. Is it equally as unlikely that our institutions, most especially our schools, would once again promote the virtues that made capitalism thrive and Western societies prosper--not just hard work, but thrift and integrity, or what we once called the Protestant ethic?

Let me see if I figure out how to embed a video:

More on Taxes

I love it when I find people who agree with me. Of course, it would be more accurate to say I agree with them, but this is my blog so I am allowed to have illusions of grandeur. Anyways, just after I finished the last post, look what I find: Masonomist Russel Roberts speaks up in Forbes:

I'm proposing today a radical re-imagining of our tax system. I am recommending the elimination of the payroll tax. The payroll tax is a regressive tax that falls harshly on the poor. And it is deceptive, an unacceptable characteristic of a tax in a democracy.

Half of the payroll tax appears to be paid by employers. In fact, studies of the payroll tax show that the employer merely lowers worker compensation in response to the tax burden. So workers pay virtually the entire 15%.

Worse, the payroll tax gives the illusion that taxes are "contributions" toward future social security payments.

It's like he was in my head or something. He continues with a list of government spending prescriptions:

--Eliminating all corporate welfare. Corporate welfare rewards those corporations that excel at lobbying rather than serving their customers. Eliminating it will save $100 billion annually.

--Implementing spending reductions in all departments of 10%, saving over $250 billion. Such cuts in a federal budget heading toward $3 trillion are hardly draconian. They merely return spending to the level of a year or two ago.

--Making small across-the-board increases in the income tax rate, yielding $350 billion. The poorest workers will in fact see a significant improvement in their after-tax income because the elimination of the payroll tax will overwhelm the increase in income taxes. The richest Americans will see a slightly larger increase because their payroll tax contributions are currently capped.

Rock on.

Risk & Profits

Economist Arnold Kling speaks on Minsky-nomics:

Minsky's key insight is that risk tolerance is cyclical. Investors will be risk averse for a while, and then gradually they will loosen up. Eventually, they become more and more complacent, until euphoria sets in, leading to bubbles and manias. This continues until a crash takes place, after which investors revert to being highly risk averse.

Minsky described this risk tolerance cycle in terms of three phases: hedge finance; speculative finance; and ponzi finance. During the hedge finance phase, investors are allergic to risk. You can say, "Here is a project that is probably going to offer some really nice returns," and the investors reply, "No, I don't want to touch it. I'm not buying anything that has a down side."

During the speculative finance phase, investors make reasonable trade-offs between risk and return. During the ponzi finance phase, investors ignore risks. Giving subprime borrowers option ARM mortgages was ponzi finance in every sense of the word.

Minsky's cyclical risk theory explains why the billions pumped into banks mostly failed to unfreeze the credit markets. Even with huge amounts of capital to loan, banks are unwilling to do it if they don't trust the borrowers. It is also why "tax-rebate" checks won't work since smarter people use the money THE WAY THEY SHOULD and pay off debt or put it into savings. Kling then gives his opinion on how to escape the current hedge finance phase we find ourselves in:

Under the circumstances of hedge finance, the only way that businesses are comfortable expanding is by financing investment out of profits. Another element of Minsky's thinking is that profits are the key to escaping a recession. Government deficits can contribute to this process by raising profits.

Makes sense to me. If companies had more money left over at the end of each day, they would be both psychologically prepared and financially motivated to put profits to use by way of hiring, investing, and purchasing.

The pro-profit measures being discussed center mostly on corporate taxes and corporate contributions to the payroll tax. I think corporations should be tolled or taxed in some way, but I won't get into that right now. However, I do say get rid of FICA altogether. It would not only raise profits for corporations, but it would eliminate a most regressive tax on the low and middle class.

Who are we kidding? There is no magical vault with all the FICA contributions stashed in them, waiting for disbursement in Social Security payments. The money collected from FICA goes into general revenue to be wasted spent without distinction. Replace it with a single progressive income tax that is highly tiered, like 1% for every additional $10k in income, and at non-bailout/stimulus spending levels, we could come out ahead with a top tax bracket around 35% for people making $350k or more a year. Not ideal, but better.

The good ol' days

I have been reading Life: The Movie by Neal Gabler, which is a book that covers the history of Entertainment in America. What can I say, I was a sucker for the $1 book sale at the public library. Anyways, it has reconfirmed that the "Good ol' Days," where everyone was virtuous and lived without a sensationalist media and wicked entertainment corrupting their minds, well, it never really existed. People have always been pretty much the same, the media has always loved a good story first and facts second, and entertainment of dubious moral value has always been way too easy to find. One thing that has changed dramatically, however, is the strength of the institutions that have historically counterbalance individual desire. Per David Brooks in his recent NYT editorial:

In this way of living, to borrow an old phrase, we are not defined by what we ask of life. We are defined by what life asks of us. As we go through life, we travel through institutions — first family and school, then the institutions of a profession or a craft.

Each of these institutions comes with certain rules and obligations that tell us how to do what we’re supposed to do.

Families. schools, work. Looks like America is striking out at the moment.

How in a conversation on institutions does Brooks not mention church? Does an oblique reference to charities count?

Now, I have some very dear friends that are not a part of any church or organized religion. They are great people full of love, and will remain great, caring, productive members of society wherever their exploration of faith takes them. They are philosophers. They contemplate right and wrong, seek meaning in life, and want to leave the world a better place. But as my marriage has taught me (I love you, honey), not everyone is a philosopher. Most people seek the structure and comfort of institutions. After all, that is what Brooks is writing about.

As tonight's The Office highlights, no one likes the morality police. Yet, even the harshest critics of religions will admit the ability of faith to mold behavior. So any nostalgia of institutions without even considering faith rings a little hollow to me. Still, this is an important topic, and Brooks makes several good points. Institutions, at their best, can indeed save and bring a purpose to life.

Truth in Black and White

Republicans are proud of the House Republicans, and Democrats are disgusted by them. Me, on the outside of both parties, find cold comfort in the words of Richard Spencer:

The GOPers have essentially gone into “principled opposition” mode in which they’ll start voting against the kind of Big Government legislation they know will pass anyway—and which they would have undoubtedly supported had a Republican been in the White House and their party been in control of Congress. Such stalwarts of limited government would have also voted “nay” last night if Obama had proposed, say, a trillion-dollar prescription drug plan, a proposal for the greater federalization of public schools, or a 700 billion fund for the “troubled assets” of the Wall Street bankstas.

Ahh, reality.

When Terrorists Make Sense

In a recent Op-Ed, Muammar Qaddafi provides important non-western insight concerning the Isreal/Palestine crisis.

Now, as Gaza still smolders, calls for a two-state solution or partition persist. But neither will work.

The problem with the UN's partition of the Palestine region was that legislation is not sufficient to bring a country into being, at least without repercussions. Throughout history, the preferred method has been total conquest and subjugation, or at least the threat thereof. To no great surprise, the neighbor Arab states did not want to accept the UN's mandate, and war soon broke out. Isreal actually conquered additional lands from it original borders, but in my humble opinion, did not go far enough. It should have conquered the now disputed Gaza strip and West Bank. If it had, the people living there could have assimilated into Isreal, regardless of their religous and ethinc backgrounds. As Qaddafi poits out:

Assimilation is already a fact of life in Israel. There are more than one million Muslim Arabs in Israel; they possess Israeli nationality and take part in political life with the Jews, forming political parties. On the other side, there are Israeli settlements in the West Bank. Israeli factories depend on Palestinian labor, and goods and services are exchanged. This successful assimilation can be a model for Isratine.

Sixty years later, the solution remains a single state. Muslims, Christians, and Jews should all be allowed to live within a secular Israel, share the holy lands, and participate in the political process together. How this happens may not be pretty, and it is likely that even then the fighting would not end forever, but it certainly has a better historical track record than outside government intervention.

On Not Blogging.

Busy. Overwhelmed. Distracted. Annoyed. Those are just a few of the reasons I have not posted in over a week. So I'll try to make up for lost time a little bit. But before I begin, let me give perhaps a more honest reason.

I don't know what to make of the new President.

For all my liberal and/or Democratic friends that may read this, please continue to love me, be my friend, and understand it may be a personal flaw I am working through. The fact is, I just never caught Obama-mania.

That said, I am glad Obama won instead of McCain. Conservative/Republican friends, please continue reading.

Honestly, I didn't see enough difference between them in their actual politics, so I figure it would be best to let the Democrat enact Democratic Party policies instead of a Republican. That, and I hold out a shred of hope that the Presidency can at some point in our near future revert to more of a constitutionally limited position, in which case it would be great to have a charismatic, diplomatic, and youthful leader giving brilliant speaches as opposed to an old, ailing curmudgeon.

In any event, I do wish President Obama well. All the media genuflection over Obama was entirely predicatable given the current era of extreme sensationalism and dead-horse flogging, but Obama can't really be blamed for that. Still, one of the main reasons I didn't post is that almost everthing I was reading was Obama-related, and I am 1) over it and 2) taking a wait and see approach.

Really, the more I read history, philosophy, religous texts, and current news/views, the more convinced I am that the best government systems will not work if its people are morally bankrupt and the best economic policies will not work if people refuse to play by the rules and consider the common good. So while I enjoy, and will continue, posting on government and economics, I will try to keep the human element center stage in my mind, if not in my posts.

Thank you MSM & Thrift as a Virtue

It's not often I can say this, but when both of my blog posts come courtesy of CNN (see below) and Newsweek, I have to give props to the much derided main stream media.

Joseph Epstein's article on prudence as a virtue again hits it on the head. If I was a narcissist, or was blind to the reality that only 3-4 people have visited this little corner of the internet, I would think the guy read my blog posts on Keynes and virtues. But while my hopes for originality have perhaps been dashed, I am much the happier to know that there is a growing recognition of the value of virtues that our modern society until so recently considered outdated and irrelevant.

The brief article is worth a read in its entirety, but a couple nuggets:

If the old game plan for American ambition entailed the slow but steady accretion of wealth, the new plan called for getting it now, lots of it, and as soon as possible.

This spirit is distinctly not the spirit of thrift. At a lower level of ambition, neither of course was the spirit of thrift to be found in the millions of Americans who allowed themselves to lapse into heavy credit-card debt or bought houses they couldn't afford, thinking, hope against hope, that they could somehow swing it, that something, surely, would turn up that would allow them to live beyond their means in perpetuity.

Preach. And on the current situation:

The recent global economic meltdown has put paid to unfettered financial optimism. But will it restore the spirit of thrift to Americans in their economic behavior? Hard to predict, of course, especially when government financing, backed into the corner of the present crisis, is far from being able to practice thrift. Quite the reverse. Balanced budgets, we have been told, are a thing of the past, and not likely to be part of the immediate future. The necessary thing, we are also told, is to get credit flowing again, to trigger people's spending, so that the economy can swing back into action. In all this, the practice of thrift doesn't really come into the conversation. Thrift is at its base anti-Keynesian. Lord Keynes, after all, said that "in the long run we are all dead." He also said, "The engine which drives enterprise is not thrift, but profit."

Is it possible to spend and yet not be spendthrift? It once was and had better be again, or we may all have had the course. (The name of the course is Western Civilization, Decline and Fall.)

Right on Joe, but can I maybe get a little mention next time?

My Man Wynton

As a trumpet player, Wynton Marsalis was one of my first musical heroes. He did a cd signing at my local Best Buy way back in the day, and I stood in line with a couple hundred other people to meet him. When I finally got to the table, I sheepishly handing him my CDs. He smiled and looked right at me, asking if I was a musician. When I answered in the affirmative, he got wanted to know everything - how long I had been playing, what solo I was working on, and problems I was facing. As a high school band geek, this was all very exciting to me. When I told him about my problems mastering the F-G trills in a trumpet concerto, he smirked in knowing agreement. Then, to my surprise (and to everyone else at Best Buy also), he pulls his trumpet case out from under the table. He cooly explained his method of approaching and playing trills as I was mesmerized by the wild appearance of his horn. Then, making it look as easy as only a master can, he produced an f-g trill the likes of which I have never been able to replicate. In total, he gave me 3-4 minutes of his time, but he treated me like I was the only person in the store, and I had his full attention. I'll never forget how engaging Wynton was, and he earned my permanent respect.

I say all this because his most recent article for CNN gives a great bit of insight as he retells his own experience meeting jazz legend Roy Eldridge when he was in high school.

But the quote I want to highlight here is

The most natural revolutionary requires a conservative establishment to rebel against. The most stilted tradition must have some new vivifying energy and imagination.

Indeed. With this, Wynton again nails it on the head with as much understanding and mastery as playing a perfect f-g trill.

More Sweatshops, Please

As I said in a post below, I find myself agreeing with Kristof's articles, including the most recent on foreign sweatshop factories:

But while it shocks Americans to hear it, the central challenge in the poorest countries is not that sweatshops exploit too many people, but that they don’t exploit enough.Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children.

...

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.

My views on sweatshops are shaped by years living in East Asia, watching as living standards soared — including those in my wife’s ancestral village in southern China — because of sweatshop jobs.

As in most instances, personal experience shows that reality is messier than our ideals would like.

I mentioned a while back that I had an idea about how tariffs would work if I were made king, and while I am not ready to present a coherent explanation, the basic idea is as follows: Tariffs levels would be applied for each trading partner of the US based on a checklist of comparative regulations.

Before I begin, however, I will reiterate that I am mostly a deregulation type guy with respect to smaller, private, and non-financial companies. On the other hand, while there is good regulation (FDIC insurance) and bad (SOX), financial companies, publicly traded companies, and large multinationals do require more strict regulation in return for the special (often government-granted) privileges they receive.

In manufacturing specifically, I would like to see a steep reduction in many regulations, but find them necessary for Air/Water Safety, Worker Safety, and Product Safety.

To use an example, the plan would look something like this: If OSHA is considered essential regulation, and if meeting OSHA standards adds 10% to the cost of a toilet made in the US, and no OSHA equivalent exists in India, slap a 10% tariff on toilet bowls coming from India. Same with Clean Air Act, Clean Water Act, CPSC, food safety, etc. If the trade partner has equivalent regulations, then no tariff.

Of course, I don't advocate a per product breakdown, but a scale could easily be developed for most industries, data already exists on regulatory "burden" costs. Here is the twist, however. While half or more of the tariffs collected would go to however government decides to spend it, a certain percentage would be reserved and made available to help developing countries institute these safety programs on their own. In the process, it:

- Helps level the playing field for American manufacturers
- Allows continued foreign development without too large a burden
- Provides incentive for individuals & companies work for local safety reform
- Provides funds to help governments initiate such reform
- Leads to more fair and free trade as tariffs are lowered as a reward for safety reform
- Will help improve the quality and safety of imported products
- Provide a pathway from fair trade to free trade that benefits most

I would apply an additional set of tariffs to industries that have a national security interest, such as agriculture and autos.

I have to think about it more, but that is where I'm at for now.