Thursday, February 09, 2012

Are Taxes Historically High or Low? Chilling Secrecy, Clint Eastwood and the Rise of Common Sense

Okay, so it's 2012 and you can expect a regular rhythm of postings that are... well... political.


To listen to Republicans, you would think we have the most oppressive tax rates ever, with the federal government hogging ever larger portions of the national economy.  Ever hear of Orwellian anti-truth?  That is where you repeat the exact opposite of the truth and people start believing it.

Top Federal Marginal Income Tax Rate from 1913 to 2011
But drop by and look at the actual facts. See this compilation of income tax rates.. Tax rates are at historic lows. And  this is for earned income. Rates for dividends and capital gains are even lower - by half - than what you see in the figure!

In the 99 years that we have had the income tax, rates for top earners were lower than they are today only twice: 

1)  during the 5 years before the US entry into the First World War in 1917, and

2) during the brief stretch from 1925 through 1930... when a massive asset value bubble pumped the economy into the Great Depression.

Also note this. They are LOWER for the middle class, under Obama, than they were under Bush. The "Obama tax hikes" are purely mythical.

That’s it. Today’s top rates are currently lower than at any time since 1930... and ironically that includes half of the HOOVER Administration preceding FDR. In other words, the hiking upward was first done by the same 1930 Republican Congress that brought us the Smoot-Hawley Tariffs!

Just to make this clear, so you rub it in your crazy-as-Fox uncle, income tax rates are lower than at any time in 80 years.
The other big fact is the fraction of U.S. national GDP taken by the federal government.  Fox’s uncles swear that this is at an all-time high. In fact, the federal share of GDP is at its lowest since 1950.

Be entrepreneurial.  Make Adam Smith proud and use all this to make money. Seriously. Lure your nearest Tea Partier to make grand declarations about the oppressiveness of recent tax rates and the growing federal share of the economy and then demand a wager!  Only... get it in writing.

== Chilling Effects ==

What exactly are your online rights? What protections are offered under the First Amendment and intellectual property laws? Here are details expanding on last time:  Chilling Effects offers an extensive database of info about copyright and trademark infringement, fan fiction, cease and desist notices, issues of anonymity and freedom of expression. A joint project of the Electronic Frontier Foundation and Law Schools at Harvard, Stanford, ...Berkeley and the George Washington School of Law, Chilling Effects is a first stop to determine your legal rights in the on hot issues in the ever-evolving online world. 

I’ve been known to differ over matters of emphasis with my friends at EFF. I am far less worried about what governments and the mighty “see” about me -- and history shows little hope of stopping them -- while I am more vexed and angry over government and the mighty hiding from citizen supervision. Still this is a good and important move and I am glad these folks are doing things like this!

9780199890262_p0_v2_s260x420Most civil servants... and even a lot of politicians... are sincere. They believe they are protecting us and/or defending freedom. The problem (for now) is that they can be counted on - via human nature - to have the inherent reflex of rationalizing how they must wield power for the greater good and must evade (some) accountability of the kind that might hamper them in doing their jobs.

1) They (and we) must be convinced that what's important is to defend and promote... the secular trend toward a more open world. The reason is clear and it goes beyond mere "goodness" of openness. It is the simple fact that our type of society is invigorated by the effects of transparency (though individual leaders are often severely inconvenienced) while all the cultures that oppose our way suffer from severe-to-lethal damage when washed in light. That is too great an advantage to ignore, even if you are a realpolitik-cynic.

2) Given that this secular trend is essential... and that human nature works against it... are there forms of sousveillance - or shining light upward - that can be applied to our own elites that will still leave them unimpeded in the practical fulfilling of their duties? Short term tactical secrecy is still vital for the effectiveness of military, police and Homeland Security functions, among others.
In EARTH I portray the legal sequestration of information being limited to short, 5 year terms unless a longer term is purchased at considerable dollar cost. In other words, there is a built-in bite and disincentive to claiming longer periods of secrecy, and with most secrets kept at the shorter, 5 year term, you have a reflex to say "I'd better behave generally well... or at least well enough to be forgiven... since this will all come out."

3) As it happens, there are some lovely potential innovations that could increase our confidence in supervision while ensuring minimal interference in day-to-day operations. I talk about some of them elsewhere

== Clint Eastwood... Democrat? Or American? ==

Has there begun a jobs renaissance in America, especially in manufacturing?  There are definite signs of “in-sourcing” taking place.

Oh but that segues into Clint Eastwood's Superbowl Chrysler commercial... and the subsequent Republican fire storm against him, by Karl Rove and others, for daring to suggest that the "bailout" of Detroit was actually a resounding success. 

Rove sniped "... Chicago-style politics, and the President of the United States and his political minions are, in essence, using our tax dollars to buy corporate advertising and the best-wishes of the management which is benefited by getting a bunch of our money that they'll never pay back."

Say what? Except that we're getting every single penny back. Plus many millions more in taxes on now-profitable American companies that Rove and his ilk wanted to let go belly up? (After they did urge much bigger bailouts for their Wall Street friends.) Refusal to admit that the automaker loans were anything other than a towering, spectacular, 200% success is the act of a deranged mind.

Oh... BTW. Clint has said "I don't recall ever voting for a democrat." If a man like that has switched sides, it is because he has sanely realized that the GOP has "left him."

== Some Fascinating Political Miscellany ==

LARGE_book_after_music_stoppedHere's a fascinating one: "The lesson of the Great Crash was that unequal enrichment provokes asset bubbles, excessive demand for debt and, finally, economic failure. Now we are painfully learning that again."  Read the whole article by Stewart Lansley.  But a key point.  The massive wealth that has been redistributed upward to a thousand or so billionaires and top corporations is not generating jobs or economic activity at anywhere near the same pace as the same wealth would have, if it remained with the middle class. Those “job creators are mostly sitting on mountains of cash.  Banks, flush with reserves, are lending very little. Cash-rich companies are neither building productive capital (supply-side’s justification) nor doing much hiring.

Sign the petition offered by Senator Bernie Sanders, for a Constitutional Amendment that declares that Corporations are not the same as people and can be regulated by Congress and the States.  I also recommend Kent Pitman’s blog on this topic.  

On the lighter side.... In New Hampshire there was an event carried on C-Span... the "lesser candidates' forum" featuring 13 Democrats running against President Obama (all it takes is $1000 in NH) and 25 or so lesser known Republicans. See an article... but it pales next to the videos, including one of the "very silly party" candidate wearing a boot on his head, named "Vermin" who promises every American a pony.

Look at how a transparency (and tech-empowered) citizen hero caught villains with his flying drone. Snapping aerial photos of an illegal river of blood pouring from a slaughterhouse into a river.   Exactly what I spoke of in The Transparent Society  and especially the citizen action smart mobs I portray in my next novel!  

Recall my earlier blog urging the establishment -- or rather RE-establishment -- of the 90 year old transaction fee for financial trades?  At 0.1% per trade, this would scarcely be noticed by you or I, but would lessen the huge advantage grabbed by giant Wall Street houses through massive computerized trading systems.  Well, things are moving fast.  The French are now siding with the Germans in enacting such a fee.  The British conservative government, protecting the “City” bankers who got western civilization into this fine mess, are balking hard.

Okay, I admit this is beneath me.  But does anyone remember the 1971 creepy rat movie “Willard”... or the even-creepier 2003 remake with Crispin Glover? Okay, so, now we’re supposed to elect a guy named Willard to be President?  Okay, I admit “Obama” was creepy too, in the context of 9/11.  So what does it all mean?  That “fate” is giggling and poking at us from behind the curtain? It gets weirder. But enough about that.

An interesting - if biased in-favor - article about President Obama does clarify matters as to whether he has either been a “socialist” or “betrayed liberals.” 

And again.... Nehemia Scudder supporters! Order your bumper sticker!  Seriously, get people talking. It is a meme worth spreading. 

== Finally... housekeeping ==

A quick check.  Folks have lately reported problems receiving RSS feed from this web-log. If you feel that’s been the case, go ahead and leaf through the last few entries to see what you’ve missed.  If you fall into that category... but the problem has been fixed, feel free to let me know (or that there’s still a problem) by making a comment, below.

==For more on the Economy: Past, Present and Future


Micteu said...

Erm... Could you clarify the information you put alongside the graph? I am afraid I have little knowledge of economic terms, so the graph looks like it disagrees somewhat with the text near it. First, it looks like it dipped lower than present day in three spots, not two. Second, it almost looks like the tax rate immediately dipped after Bush came into office in 2000, but it then remained steady. Were you referring to something different from the graph in these two situations?

Anonymous said...

David: There is a portrait of you near the top of your blog, apparently a computer blur-up of a photo. Unfortunately, it looks as if there is a penny on your left eye.

David Brin said...

Certainly there are quibbles if you dig deep into the details.

1) taxes did go up a little under Clinton... leading to not only the huge 1990s boom but the only budget surplus since Eisenhower, when the US actually started paying down its debt. Nevertheless, it wasn't much of an increase.

2) Yes Bush and the GOP then cut tax rates. What the figure doesn't show is the magnitude of the cuts, since these are the rates of tax on EARNED INCOME. That rate was cut only a little bit.

What Bush slashed was the rate on dividends and capital gains and Romney's "carried interest" on corporate raids. These dropped to 15%... HALF of what you see in the chart, and the top inheritance tax rate was cut to.... zero right now. All to benefit the top oligarchy.

3) The chart shows the TOP earned income rate. It does not show how Obama cut the MIDDLE CLASS tax rate by a healthy amount. But that's the fact.

Are we done quibbling? The fact is that the GOP has never been a friend to the middle class. It is all oligarchy, all the way. And Tea Partiers who march to the drumbeat of Rupert Murdoch are like the million sincere and brave southern poor whites who marched off, in 1861, to die defending the "rights" of the plantation lords to own human beings.

Wake up man.

Frank W. Summers III said...

Admittedly what I am bringing up has very little to do with what most politicians are discussing. But there is the Whiskey Rebellion effect and indicia. The evidence suggests that in one of the earliest armed rebellions against the American Governments Scotch-Irish Whiskey makers would have been willing to pay a fee in whiskey but not in cash. Whiskey was used as a medium of exchange and cash was scarce. They had a history of such rebellions in the British Isles when not allowed to pay in Whiskey by indulgent collectors (some scholars argue). This trouble between the monetized and non-monetized economies joined to the tensions between taxed and untaxed economies colors many great strains such as mortgages on freed slaves, many issues during Prohibition, illegal immigration and the war on drugs. The role of the Frontier in the West and in places like the online world today also deal with some of these tensions. People today are more insecure about childcare, social networks in the old sense and other forms of non-monetized wealth. They see a society which has large grey and black markets in drugs, labor, online gaming and other forms of irregular wealth. They see a Congress producing huge bills which ignore these economies that affect lives around them. They see companies fleeing American tax and labor obligations.

None of this determines the right tax structure but it affects the mood of the electorate.

rewinn said...

I'm trying to figure out what a "Fepublican" is ... other than a typo. "Fee-Publican" perhaps?

David Brin said...

Misprint, I think. But, looking at it, I smile and wonder what folks will come up with in their imaginations!

Interesting insight on the Whiskey Rebellion! Perhaps the unemployed poor should be taxed with hours put in cleaning up neighborhoods or doing other work "in-kind."

Oh... oh... but people look at this:

Taran said...

Frank, the federal government does quite a bit to maintain our standard of living. And our standard of living is so high that we will never again have a labor market competitive with other countries. To assume it's Congress's fault is a misapportionment of blame. We could have an incredible service industry, but we don't, because capital is in the hands of the very few, who have no reason to accept risk.

Walid said...

Since you mentioned your new book, it's only fair to ask: will it be on Kindle?

David Brin said...

Existence will be on Kindle.... in June. Good luck!


LarryHart said...

Dr Brin in the main post:

Okay, I admit “Obama” was creepy too, in the context of 9/11. So what does it all mean? That “fate” is giggling and poking at us from behind the curtain? It gets weirder. But enough about that.

Back in 2008, I think his middle name of "Hussein" was creepier than "Obama".

But you touch on something I've been coming to feel more as I get older. I'm pretty much a secular humanist and a complete skeptic about religion, but there does seem to be some evidence that the universe has, if not exactly an omnipotent Creator, then at least a Writer. And if God is the Writer of the Universe, He certainly has a sense of humor.

Also, that Andrew Sullivan article you link to is the best assessment of our current president that I've seen in four years. Finally, someone "gets" Obama!

David Brin said...

LarryHart do NOT get me started! Anybody know the name of the sci fi story that "proved" we live fictitious history?


Adolf the "wolf" attacks the "Church on the Hill... who appeals west to the "Field of Roses"...

...who asks his "Marshall" to send a "Man of Arthur" to fight foes in the far-east while the "Iron Hewer" heads for the Olde Realm to fight the wolf...

... assisted by the grouchy, French anti-dwarf called "Man of Gaul"...

... while the wolf breaks a tooth trying to bite the "Man of Steel." And it goes on. Eeeeeeeek!

David Brin said...

Can anyone make anything of names like Nimitz, Tojo, Chaing, Mao, Montgomery, Rommel, Oppenheimer, Teller, ...

duncan cairncross said...

Hi Taran
"Frank, the federal government does quite a bit to maintain our standard of living. And our standard of living is so high that we will never again have a labor market competitive with other countries."

If you are talking about basic "factory labor force" - then you have got to be kidding!-
In most of the industrialized world workers have a higher living standard than the USA.
(even if they don't actually realize it)

As an engineer/manager I was on the cusp -
Ten years ago I decided I would be better off here in New Zealand than in America - in hindsight I think I was right, largely due to medical issues with my wife and son

America CAN compete - but you should not be racing India to the bottom
Try chasing Germany to the top instead!
(and Germany is in that position despite absorbing a much poorer East Germany in the 90's)

David Brin said...

It may be...

Letter from a Higher Critic, by Stewart Robb Analog Nov. 1966

Anyone have access to the story?

Carl M. said...

Figure in FICA taxes, and the people who pay the highest taxes are those with about 100K in income and low deductions. Ever since Reagan, FICA taxes have been big. (Not that it is exactly Reagan's fault on this one. It's the fault of people living longer. Need more SS taxes to feed the old.)

I suspect that a large number of your Tea Partiers are people up around $100K income and so they are seeing this high rate. Those who are self-employed in this range see the whole tax as they pay FICA as self-employment taxes.

The lower rate for dividends was an attempt to deal with the incentive for corporations to leverage excessively, since interest was deductible from corporate income taxes. A better solution would have been to make dividends deductible from corporate income (but perhaps only in years where a corporate had income. No creating losses by issuing unaffordable dividends).

Or the easier solution would be to cut the corporate rate down to 20% and treat dividends and capital gains as ordinary income. This allows funneling more income to grandma.

Then, there is my evil play to have a 30% flat tax coupled with a citizen dividend. The flat tax would replace income, Medicare, FICA and unemployment insurance. The numbers here:

Rob said...

The argument that taxes have never been lower doesn't play with the Foxicans in my circles.

They just add in state, local, business taxes, and then treat every government fee as a tax, fail to compile that into a complete percentage picture, and then declare victory.

I've had the conversation many times.

Frank W. Summers III said...


There are many things which determine the accessibility of a labor force in this country. Germany has a dynamic labor force and many very poor countries do not. My point was that when an American businessman, professional, college student or housewife see new revenue bills of great complexity which do not address the money their cousin makes selling pot, the wasted labor of millions of the idle jailed, the underemployed alien cash labor market, the tax shelters of the rich abroad and other matters around them --- then they are likely to say Ron Paul is right or to say something other than lets reform the tax policy carefully. Taxes are most respected when they are broad and supplemented by fines and tariffs that show how tough the government is. They are less respected when everything reminds the people who pay them that large economies do not pay taxes and where the percentage of money they are spending on food preparation, childcare and eldercare compared to the portion provided by extended family is constantly increasing. If my life is increasingly taxed by a power not able to tax a lot of its economy then I will tend to resent it. This is as strong as any fluctuation in percentage of monetized income and wealth which is taxed.

Tacitus said...

A couple of thoughts.

First I agree that tax rates are low by (recent) historic standards. It is not fair to go back a century or two, that does not reflect a modern state.

I have in the past expressed a willingness to pay more, and I think most Americans would be willing with certain stipulations. More presently.

I do wonder a bit about the combined burden of direct and indirect taxes. On one of the few subject that I can address without ignorance-health care-there is an argument to be made that governmental action/inaction is driving up the costs of health care substantially without putting it in the form of direct tax. (but still shekels out of pocket).
Mandating certain procedures be covered. Extending family coverage to adult children. Ignoring malpractice reform. Paying medicare at lowball rates so that providers jack up the costs to others as compensation. And just plain not giving a damn about health care costs. These crank up the costs for one of the big ticket items for most families. (not that these are all bad moves...but some are).
I think there are indirect costs in other areas. Did government support of home loans drive up prices? Does government involvement in student loans drive up everyone's tuition rates (sorry David!)?

Also, I strongly suspect that our current unfunded obligations are so out of control that a 100% tax rate...not just tax the rich but eat 'em! would not dig us out of our hole.

It will take some substanitive effort at entitlement reform to make people agree that higher taxes are a common good. Otherwise it just feels like pouring more water into a bucket full of holes.


work verifictation sticyto "Let's sticyto the billionaires".

Rob said...

I wouldn't mind entitlement reform. I don't mind needing to work until (pulling a number out of thin air) age 70 or disability, whichever comes first.

I do mind having to wait that long if a laissez-faire society can only affirm that I'll have the opportunity to work until age 55 or so, after which de-facto agism denies me any opportunities beyond asking someone if they want fries with that.

That would be a problem.

David Brin said...

Carl, very interesting contribution tonight.

I do feel that companies should have some incentives to invest in R&D (top priority) then plants and equipment (domestic) before dividends.

My own tax simplification plan some of you have seen before at:

It has a huge advantage over ALL other plans for two simple reasons. It is inherently apolitical AND it would have a chance of passing. WHich is why it never will.

Tacitus, all thru the Clinton years it was the Middle Class that polled as willing to maintain the taxes needed to buy down the deficit. It was the Murdochian oligarchy that pushed for tax cuts with supply side as the excuse.

Clearly demographic factors are demons here. People living vastly longerbut social security ages climbing slowly... should be a function of PERCENT of the population...

... but re health care, when 5% of the patients drive 50% of costs, you simply need some kind of rationing. The european approach of cold-blooded "life value" committees... or our insane policy of letting insurance companies cull the helpless. Do you have a third approach? The insane part of Obamacare is that it foregoes any type of rationing at all.

The euros aren't always right. Greece doesn't need the kind of austerity that fires lots of people. That creates a depression, ruins growth and makes budgets More in the red! What they need is austerity that removes paid vacations, lengthens work days, exposes the hidden untaxed economy and keeps people on the job doing more at the same wage.

duncan cairncross said...

Hi Tacitus

You said
Also, I strongly suspect that our current unfunded obligations are so out of control that a 100% tax rate...not just tax the rich but eat 'em! would not dig us out of our hole.

Back 30 years ago in the UK there was a band called 7-84
back then 7% of the population owned 84% of the wealth
I suspect that now in the USA it's more extreme
The point is that dividing that wealth equally would not have - made everybody equally poor but would have made everybody into millionaires!

Back then over 7% of Brits were Dollar millionaires, - that's 1 in 14 of the population or 20 million people in the USA
Take a million dollars off 20 million people that is 20 trillion dollars!
That is comfortably more than even the most pessimistic estimates of the American potential debt

Anonymous said...

Your RSS feed is working again. Thanks for fixing it.

Ian said...

I was caught up with work for a coupel of days so I hope if peopel will pardon me if I raise a point from the last thread;

doc B: "Given their own towering history of outrageous indigenous mis-governance, and the fact that America tried to do right by them many many times, it is quite acceptable to reject current Chinese claims that they have a right to prey upon the US as mercantilist predators - especially rapaciously grabbing IP - in compensation for past crimes. It is malarkey. "

David, can you cite a single exmaple of such claims?

I'd also be interested in any objective measures of China's "rapacious grabbing of IP" and how it compares to that of other countries, developing or otherwise.

next door Laura said...


On my way out the door, but here is a depressing number and link:

It is from a USAToday article that suggests federal unfunded debts are 61 trillion. Lets also add on state unfunded debts. And whatever private pension debts we will be expected to eat. Hell, just the official National Debt is currently at 15.6 trillion and rising.

No, you can't patch this over by a surtax on the rich, nor by simply printing Magic Unicorn Dollars.

There are a lot of politicians who are holding burnt matches.

Must run.


LarryHart said...

Carl M:

Figure in FICA taxes, and the people who pay the highest taxes are those with about 100K in income and low deductions. Ever since Reagan, FICA taxes have been big. (Not that it is exactly Reagan's fault on this one. It's the fault of people living longer. Need more SS taxes to feed the old.)

Maybe indirectly that has something to do with it. But the reason Reagan and Tip O'Neill agreed to double the FICA tax was to finance the retirement of the baby boomers. Up until that time, the smaller elderly population was supported by the huge bubble of work-age boomers, but it was recognized that when boomers began retiring, the system would be top heavy. So boomers became the first generation to finance their parents' social security AND their own.

That is why there is a 2 to 3 TRILLION dollar surplus owned by Social Security now. That's also why it's not a "crisis" that that surplus has to be drawn down to pay for boomer retirements. That was the plan all along.

LarryHart said...

Carl M (again):

Or the easier solution would be to cut the corporate rate down to 20% and treat dividends and capital gains as ordinary income. This allows funneling more income to grandma.

We've got to stop talking about taxes on "dividends and capital gains" as if the two were the same thing.

When Mitt Romney claims he's paying taxes on dividends which the company has already paid taxes on, he has a defensible point.

When he claims the same about capital gains, he's talking out his you-know-what. If he buys 1000 shares of Apple stock for $25 each, and then later sells them for $50 each, he makes a profit of $25k on which he pays tax at the capital gains rate. That profit does not come out of the company at all; it comes from whoever purchased the stock from him. And that buyer uses the new (higher) price as his basis when HE in turn sells the stock. So in what manner can it be claimed that the capital gain was "already taxed"?

Anonymous said...

David, unless you keep your savings as dollar bills stuffed into a mattress, you'd notice the FTT in its compounding effect on lowering interest rates (you don't think there's a magic machine that just pumps the money into your account, do you?) because of the friction on all the trades carried by your account provider; and in higher management costs in a managed fund.

Actually, scratch that, we can look at history to see what you'd notice first. In the 1980s, Sweden thought an FTT was a cute idea. And within months most of their bourse had decamped to the City. Now that France and Germany are about to make the same mistake, it would be time to invest in property in and around London.

If the US did it too, you'd notice Wall Street off-shoring at speed. We in England would be equally happy to welcome our colonial cousins as well as the Continentals; but I suspect Asia-Pac might benefit more from the US economic suicide..

Anonymous said...

According to the available German dictionary, Oppenheimer means something like opposite number.

rewinn said...

"Existence will be on Kindle"

I didn't appreciate how very ambitious Amazon is!


@next door Laura - don't panic.
David Cauchin's methodology is to imply all future obligations are due immediately and not offset by future earnings.

That's just silly.

An illustration may help. If you're 20 years old and can reasonably expect to live 50 years, spending $100,000 a year, then by Caucin's logic, you have an unfunded obligation of FIFTY MILLION DOLLARS!

Certainly higher taxes alone won't solve all problems and no-one is arguing that simply raising taxes is the solution to anything; it's merely a requirement to a vigorous economy because low tax rates on the rich encourage them to take income out of their businesses. While wasteful government spending, e.g. bombing peasants back to the stone age, accomplishes nothing, smart investment, e.g. building bridges, schools and healthy citizens, grows our economy in real terms and THAT, my friend, is how we will flourish.


On the very positive side, the Order of the Stick's Kickstarter is making a mockery of the investment class. Rich Burlew had an idea for a book, and needed $50k capital;instead of begging an investor, Kickstarter let him go to the Market directly. Freely competing with thousands of other ideas, he's overcapitalized by more than half a million bucks!
True freemarketers should applaud ... and ponder!

Tacitus said...


NextDoorLaura is me posting off of my wife's computer. So don't go getting too friendly.

As I said I was posting on the fly and only attempting to make the point that the sum of our unfunded obligations and debt is huge. I suspect nobody really knows how big, and that the number is too large to comprehend anyway.

In no significant way do we disagree. I concur regards raising taxes. And in trying to pummel the crony clauses out of our tax code. I think some government spending is worse than neutral (i.e. more harmful than setting it on fire), but that is another discussion.

I return to my point...until some realistic entitlement reform is undertaken you will not win the confidence of the taxpaying public.


David Brin said...

Larryhart. You are right about Capital Gains. There, the rationalization for low rates is inflation. But some form of indexing might fix that and it is never mentioned because - after all - it is just a polemical rationalization.

Ian, companies who do business in China are routinely extorted to hand over all rights to IP or be excluded from the market. I have seen articles crowing that that is the key advantage of state mercantilism vs open capitalism because our companies cut each others' throats... and then their own, in order to chase mythical market share.

Mind you, the biggest IP thieves of the 19th century were Americans. My point was simply this... while we negotiate and figure out ways to move ahead in this centurey, drop any pretense that there is some moral recompense that excuses predatory self-interest.

That moral standing does not exist. Especially since most Chinese mercantilist development happened because Pax Americana ENCOURAGED it to happen with Marshallian pocicies.

Anonymous, obviously a transaction fee would have to be accompanied by aggressive negotiation to make it universal and internationally uniform.

David Brin said...

Tacitus, many of our processes should be handled by percentages. A PERCENT of elderly should get social security, and if we live longer that will automatically raise the retirement age. Part time work past age 70 should be encouraged and half-taxed.

Likewise... gasoline taxes should be a percentage and go up as the price goes up.

LarryHart said...

News from the outsourcing front...

Even before the outsourcing of IT at my company takes place, they just announced a major re-organization. One result of this is that the manager of my old department--who presumably signed off on the outsourcing of his people--is in a completely different role and will not feel the departmental pain inflicted by the outsourcing.

This is a dysfunctioal system, in the same way that it is dysfunctional to allow professional sports players to engage in gambling against their own team, or to allow financial institutions to take a short position on securities that they themselves are promoting and selling to customers.

To the "anonymous" conservative above who equates a STET tax with the US economy "committing suicide", sometimes suicide is a preferable alternative to torture, which is what we're under now. That may be a tragic choice, but it's not the fault of the victim.

Carl M. said...

Larry, capital gains (on stock) and dividends share some properties. Capital gains differs in that you can defer paying the tax, and that the person collecting capital gains may be collecting someone else's estimate of future corporate earnings. But in most respects both capital gains and dividend taxes double tax corporate profits.

Consider a business owned by one person, and the business is hard to sell as a going concern. It does accumulate assets, however: tools, real estate, intellectual property, inventory, etc. which could be sold upon closing down the business. The value of these assets (minus accumulated liabilities) is the sum of retained earnings plus initial capital by definition.

In other words, in the ideal, total profits of a business = total dividends + capital gains.

Outside the ideal world, we have enormous uncertainty of actual profits. How much good will and expertise was accumulated this quarter? What was the true depreciation of assets? The declared profits are based on accounting conventions, which are just rough hacks. This is why we have stock markets and analysts.

As for the inflation issue: inflation affects dividends and interest income as well. Consider a simple one year CD. If it has an interst rate of 2% and the inflation rate is 3%, the holder of the CD has lost 1% of his savings -- but still has to pay taxes on the nominal gain. Similarly, if grandma collects a 2% dividend on a stock which stays flat in value, she has taken a loss.

David Brin said...

interesting as usual Carl. But I don't swallow it.

Perhaps cap gains from casino trading of old stock shares should be treated differently than s small business owner selling the actual business. But the rest doesn't wash.

The limited liability corporation... or "body"... was created specifically and entirely in order for investors to be able to say "I am a different entity than this autonomous thing." The huge advantages all stem from declaring that the company is NOT the same as the investor!

This business of insisting on interpreting profits as privatized and liabilities as public has got to stop.

Carl M. said...

David I am in complete agreement with you about the publicizing liabilities. I have an extensive essay on the subject fermenting in the back of my brain, waiting for time to transfer to keyboard.

But this issue does not change the underlying nature of capital gains.
The purpose of the market is to value what has been created. Just what is the value of an assembly line? It is not a consumer product! It is a means of producing future consumer products. The value of said products won't be fully known until the line has run through its lifetime.

The markets do involve gamesmanship, just as our highways involve motorcyclists popping wheelies and teenagers racing their hot rods. But that is not the purpose of the markets. (I would favor rules which cut down on the wheelie popping and hot rodding in the markets: by clamping down on margin use and uncovered derivatives, not by imposing a transaction tax. Once again, a subject for multiple articles on a new site I am working on. Stay tuned.)

LarryHart said...

Carl M, you make what I consider a common fallacy but a fallacy nonetheless concerning investments vs inflation.

If a stock pays a 2% dividend or a savings account pays 2% interest, but inflation is 5%, you assert that the investor has taken a loss. But in fact, the 2% payout is income. It may be 3% under the inflation rate, but it is still 2% MORE than the investor would have if he had buried the money in the back yard or stuffed his mattress with it.

Your argument is one that I've often heard defending why interest and dividends should not be taxed, because it is somehow just the original money "growing". In fact, "growing" is only a metaphor. The original investment is "capital", which is not in fact taxed as income, but the gains that one receives through payments is INCOME. It deserves to be taxed just as much as wages paid in exchange for labor does.

rewinn said...

@Anonymous' comments on STET/FTT:

"...friction on all the trades carried by your account provider"

Increasing the friction is a feature, not a bug; it is INTENDED to reduce the volume of trade.

...higher management costs in a managed fund...

1. If your cost of calculating taxes is non-trivial, you're charging excessive management costs and deserve to lose in the marketplace

2. Managed funds don't outperform the market, except for ...

3. ... programmed trading which outperform the market only by destroying the market's function as an efficient allocator of capital. So let the management costs soar!

"...Wall Street off-shoring at speed"

They shouldn't let the door hit them on the way out. It may have escaped your notice that Wall Street nearly shattered our American economy in 2008, but you Brits were looking pretty scared when Iceland's financial markets went rogue.

The Helvetians promote the idea that stock trading so necessary for capitalizing business that we dare not cross them, but since they ALREADY shot one bunch of hostages, the threat isn't going to work much longer.

Friends, take another look at kickstarter and ask yourself: let us say Boeing wanted $1 Billion to capitalize a new jet, the 797. What sort of premiums would prompt you to put up a little cash (and note that no money changes hands if they don't meet their goal?) In the long run, would those premiums cost Boeing any more than the fees they already pay for capitalization through the stock market ... and the costs of the tyranny of quarterly profit reports?

rewinn said...

@Tacitus -
Sharing a spouse's computer can be an enterprise fraught with peril ... or at least comparable to sharing a toothbrush. Gang warily!

As for "entitlement reform" I suppose it's all in what you call an "entitlement". Certainly the oil depletion allowance is a poor investment of scarce tax dollars, since the money is mostly taken in profits and not spent back into our economy. International Big Oil is sitting on huge piles of cash, part of the enormous pool of money that inflated the housing bubble so disasterously.

In contrast, our economy needs "entitlements" that are immediately spent back into our economy to be increased, not diminished, because they are spent immediately within our economy, not hoarded ('s very hard to hoard visits to the doctor!) In general, a reduction in demand necessarily results in a reduction in supply, so cutting entitlements such as social security results in a reduction in economic activity. And THAT is what makes it hard to fund outstanding obligations; the absolute size of the obligations is not as relevant as whether satisfying one round of payments generates enough economic fuel to power the next round.

Perhaps the biggest problem here is not the math problem, but the political problem: not all persons, and indeed not even all Americans, believe that an increase in economic activity generally is a good thing for them. To the contrary, the Lords are economically rational (albeit unpatriotic) to advocate the skewing of income in their direction even if it results in a reduced level of activity. Lord Rawmoney of Bain is the perfect example.

Anonymous said...

More on the insanity of the FTT here:

Money quote:

"Well, I don't know about you matey but I, when confronted with a thorny question like this, tend to go and seek the opinions of the experts in the point at hand. Perhaps Mirrlees and Diamond, you know, the blokes who got their Nobels for exploring this very point, the various forms of taxation and the elements that make up an optimal taxation system? The blokes who were writing papers on this while you were having Soviet economics drummed into you in Vilnius? The blokes who point out that transaction taxes are entirely contra-indicated for the way that they cascade through the economy makes them vastly more expensive in effects as against revenues than taxing capital, corporations, income or consumption?

You know, the experts who say that an FTT is a very bad idea indeed?"

Fredrik Coulter said...

Looking at tax rates by themselves is overly simplistic. There are two other factors that heavily affect the analysis. First, you need to look at "loopholes" or legitimate deductions. (Depends on your viewpoint.) If the rate is high and you can deduct most of your income, the effective rate is much lower.

An example of this took place during the Reagan years, when rates were lowered as well as a large number of loopholes. The end result was not a reduction in revenue.

The second factor is where each of the rates happen. If we had a flat tax, looking at tax rates would be more meaningful. But we have different rates for different levels of income and for different income sources.

All of this adds up to the fact that looking at rates is overly simplistic.

A better way would be to look at tax revenue as a percentage of the economy. You would still have evidence that our taxes are currently lower than they've been recently, just not as far back as Hoover. (From memory, recently may go back to LBJ. However, I'm getting old so my memory may be less than perfect.)

BTW, just finished the Transparent Society. While I'm not convinced, it does make me doubt conventional wisdom on privacy.

Tacitus said...


Regards "hoarding doctors visits" I am beginning another shift where I will with surety see more months old aches and pains and asymptomatic rashes. In general they called the worthless Nurse Call lines who, in terror of your Lodge Brothers, seem always to say "go to the Emergency Room".

Regards those blaggards who would hoard cash rather than keep the money circulating...

No doubt Big Oil has a fair stash gripped in their oily mitts. But it seems like the politically correct, warm-n-fuzzy Apple is an offender too. They pretty much do all their productive work in China, and to boot are making a product I consider less crucial to modern society than fuel.

Ah but Exxon, Apple and their miserly ilk are Pikers....Tyros, Profligate Grasshoppers among Ants compared to my own personal frugality.

I denounce myself before the People's Economic Tribunal.

Of course one man's Grandchild of the Depression frugality is another man's skinflint austerity.


Anonymous of England said...

David, there are times when your economic naiveté would be touching, were it not playing with matches naive.

On the managed fund thing -- it's not that your managed fund would be salami sliced for each dividend reinvestment or portfolio adjustment : it's the dead-weight costs of tax compliance, recording, reporting and auditing that the salami slicing has taken place that would up the management costs.

Also in chasing the bee in your bonnet about high-frequency trading, and comparing it with monthly or less frequent personal transactions, you overlook an important unintended consequence of your tax on liquidity. At a stroke the 0.1% per transaction has pushed overnight lending rates north of 40% annualised -- i.e. you've killed inter-bank liquidity. Given that only the presence of deep inter-bank liquidity held things together back in autumn '08, you've just destroyed the financial system.

And talking of unintended consequences, don't just blame "Wall Street" : blame the perverse incentives of anti-redlining laws and artificially low central bank interest rates in mid-decade that inflated the whole sub-prime bubble in the first place. When that all went pear-shaped, the system had, as intended, dispersed the risk -- the problem was that there was rather a lot of it.

Oh, and more naive thinking here:
>They shouldn't let the door hit them on the way out.

Well, that means they won't be paying any taxes, federal, state or local; they won't be consuming in NY, so good-bye to a whole raft of service jobs -- cleaners, caterers, baristas...

Do think these things through -- and when you do, always remember to think "and how will this screw us all over", because if it can, it will.

David Brin said...

One "anonymous" cites "experts."

What experts? The bribed and suborned "experts" who are bought-out whores, paid to rationalize anything that benefits their paymasters?

Or the "experts" who guided us into a bona fide depression?

Or who ignore the fact that FTTs are routinely used in Hong Kong and SIngapore, voted the most "capitalism friendly" places in the world and centers of vibrant industrial finance?

Or the fact that the US had an FTT for 50 years, back when the markets were stable and judicious and trades had time to adjust to actual corporate health metrics and not millisecond parasitical leaps to steal value gradient from human investors?

Likewise the immaturely rude "anonymous of England" who starts ad hominem while hiding behind anonymity. Railing about "liquidity" and insisting that money needs to slosh back and forth between backs a zillion times per day in order to be "efficient". (That's what it takes for a 0.1% fee to become 40%.

Dig it... that sloching is UNHEALTHY! You bow and kowtow before god-words concocted by finance industry priests. Incantations like "liquidity"... when the kind of "efficiency" that you talk about does NOT help the entrepreneur, the businessman, the industrialist, the small investor.

It has another word. "churn." That multiplier effect from a zillion trades is the predatory source of vast commission wealth accruing to the insiders and the objections to the FTT are mostly that churn would go away.

These are the howls of parasites, whose track record at "enhancing the efficiency" of capital markets is negative in every conceivable metric. These are the incantations of religious fanatics, howling their idolatry in order to make subjective fantasies outweigh real world facts.

Bruce said...

"the "very silly party" candidate wearing a boot on his head, named "Vermin" who promises every American a pony."

Alas, the Very Silly party isn't what it used to be. Today's Very Silly is yesterday's Silly.

Now, back in the day, we had TRULY Very Silly candidates.

(3:36 into the video)

LarryHart said...


Regards those blaggards who would hoard cash rather than keep the money circulating...

No doubt Big Oil has a fair stash gripped in their oily mitts. But it seems like the politically correct, warm-n-fuzzy Apple is an offender too. They pretty much do all their productive work in China, and to boot are making a product I consider less crucial to modern society than fuel.

My own position on this issue is not that either company is doing anything illegal or anything by hoarding cash. But it does put the lie to the supply-side notion that giving them more money would cause them to create more jobs. If that's not what they're doing with the trillions they're already sitting on, what makes anyone think they'd do it with additional cash.

This is not an argument against saving piles of money. It's an argument against the notion that given enough cash, companies will grow tired of saving it and trickle it down instead.

LarryHart said...

Anonymous of England:

And talking of unintended consequences, don't just blame "Wall Street" : blame the perverse incentives of anti-redlining laws and artificially low central bank interest rates in mid-decade that inflated the whole sub-prime bubble in the first place.

The tired cliche that the banking crisis was caused by government regulation in general and "forcing banks to lend to poor people" in particular is a pretty convincing tell that you're simply regurgitating right-wing talking points from the Heritage Foundation and FOX, or their British equivalents.

At a stroke the 0.1% per transaction has pushed overnight lending rates north of 40% annualised -- i.e. you've killed inter-bank liquidity. Given that only the presence of deep inter-bank liquidity held things together back in autumn '08, you've just destroyed the financial system.

If only we COULD be put out of that misery so easily.

David Brin said...

The "forcing banks to lend to poor people" was top Republican priority around 2002, when George W Bush pushed "the ownership society" and pursued MAJOR relaxations in mortgage-lending... all to benefit the poor, of course.

David Brin said...


Any movie stars or other characters or actors whom you can envision playing various roles in THE PRACTICE EFFECT? I need to offer suggestions to the fellow who will do the audio-book. He suggests Princess Linorra played by Gwynneth Paltrow. Yum But who as Dennis? Arth?

Paul451 said...

"News from the outsourcing front... This is a dysfunctioal system ...'

And then from the same post:

"sometimes suicide is a preferable alternative to torture, which is what we're under now."

I wondered if you were also subconsciously giving yourself advice. Stop waiting to be pushed. Leave on your own terms. To quote a wiser man:

"That may be a tragic choice, but it's not the fault of the victim."

Paul451 said...

Errr, I meant quit, not kill yourself.

rewinn said...

@Dr Brin:
"...roles in THE PRACTICE EFFECT?"

Depending on how you envision (?enlisten?) the roles, would you consider someone like Adam Levine of Maroon 5 or Anthony Kiedis of the Red Hot Chili Peppers? They have really interesting mastery of their voices. I dunno if vocal artists would get into that sort of thing but who knows?


You would go farther in life if you didn't assume that people with whom you disagree are therefore stupid.
Contrary to your assertions of "naivete", most or all of us here have thought long and hard on these matters, and are informed by decades of practical life experience in highly competitive environments.
If you are want successfully to promote your ideas, you will attack the ideas but not the persons offering them; OTOH if you are merely jerking off to the keyboard, then you are wasting your time ... and is your life worth so little?

Consider @Tactitus - often wrong (in my analysis) but always courteous and therefore his ideas are usually well-studied ... and therefore he sometimes actually changes a mind.

Tony Fisk said...

Touching naivety.

Bill McKibben recently stated that his new year's resolution was to be seen as naive: dangerously naive.

You'll understand if you realise that the most subversive question to ask is 'Why?'

No help here on TPE: it's been too long since I read it and can't recall any of the characters.

Unknown said...

One of the books on my reading shelf is Colin Woodard's "American Nations", he has an interesting take on the whole regional and historical aspects connecting things like the Whiskey Rebellion to today's Tea Party.

It's not a be all history of the US, and he seems to spend way too much effort relating current events in his articles to his premise in that book, but it does add something to the discussion.

Just to add, I've been reading your stuff on and off since your Uplift Saga in the 80s, but these days it's hard for us casual fans to even be aware of new books coming out.

LarryHart said...


I wondered if you were also subconsciously giving yourself advice. Stop waiting to be pushed. Leave on your own terms.

Oh, believe me, I am.

I'm the king of inertia, so I haven't taken as many affirmative steps toward job hunting as I should have, hoping someone would come to their senses. But the first of my outsourced colleagues has just now taken a new job, so the decay is irrevocable. There's no way this can get better now.

It's hard to watch the effort of the past ten years be casually destroyed, not by accident but by decisions from above. But it's been made abundantly clear that that is no longer my concern.

Despite the anxiety over job insecurity, I no longer have to worry myself over "emergencies" at work, which means that I've ironically slept better since the layoff notices than I have in years.

In any case, I hear you. And thanks.

LarryHart said...


"News from the outsourcing front... This is a dysfunctioal system ..."

Perhaps lost in my rant about my specific situation is the fact that my original post was meant to make a larger point.

We're often told that government makes bad economic decisions because it isn't constrained by market forces, whereas business by experience knows how to weigh decisions correctly. I'm calling BS on that notion.

When a manager or director is allowed to sign off on a "bold new direction" for a company and then escape to a different internal position which will not take the hit when that decision proves disastrous...the system itself is dysfunctional. My point was well beyond "They done me wrong."

Also meant to add when I said I was sleeping better now despite the job anxiety, it is of course because "A man without hope is a man without fear."

Paul451 said...

Things are getting interesting in the Middle East. The Arab League has called for a joint UN-Arab peacekeeping force for Syria; called on member nations to sever diplomatic ties with Syria; promised to pressure Russia and China to stop vetoing UN Security Council action; and recommended opening communications with Syrian opposition groups to supply the opposition with political and "material" support.

Tunisia wants to host a "Friends of Syria" international group of Western and Arab nations to bypass the stalled UN Security Council.

And al Qaeda in Iraq is trying to glom onto the issue.

David Brin said...

Ze'manel thanks and you are welcome here.

Good luck LarryHart!

And onward...

Paul451 said...

"A man without hope is a man without fear."

Hamza Kashgari must be utterly fearless. Because he certainly has no hope.

Saudi journalist arrested on an Interpol warrant who is going to be executed over three tweets pretending to talk to Muhammad, mainly due to this: "I have loved things about you and I have hated things about you and there is a lot I don't understand about you. I will not pray for you".

Frank W. Summers III said...

David Brin,
I cannot give an exhastive history and it is not all that terrible -- but I have had a number of seemingly unrelated problems reaching and hearing from this site since the start. I saw you mention the RSS so I am mentioning this. It may not mean much since I have quirks in my cyber array I never have time to corrct and anomalies are not that anomalous.

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