Detailed Abstractions

Representative Weiner (D-NY) on estate taxes (here):

WEINER: You aren’t paying anything in that case because you’ll be dead.

Which while heartless, actually seems logical at quick glance.

In critical thinking however, one must always think about context.  To use a very basic example, take numbers.  If I say, 1.8 trillion dolloars spent on federal government in one year.  Seems meaningful, but it’s really meaningless without additional information.

For instance -

1.8 trillion dollars spent on federal government in 2010.  We got off cheap.

1.8 trillion dollars spent on federal government in 1950.  Well… we probably would’ve collapsed by now.

& lastly, for Mr. Weiner and the government in general, they as using the tax code to incentivize certain behaviors.  Tax breaks for small businesses, helps spark business creation.  Tax breaks for home ownership, helps home sales. 

So if you work your whole life, make a decent amount of money yearly, but live furgally, and retire after 30 years with 10 million dollars, this tax is an incentive.

Just not sure what kind of society you want to build when the incentive is blow all your money before you die instead of leaving it to your family

Not that I expect much out of press unwilling to engage in critical thought on even the smallest of issues, but this tax debate and almost every press outlet’s discussion of it refuses to acknowledge even basic points in a logical way.

Fact – the real discussion is about extending the tax cuts passed in 2001 & 2003 during the Bush Administration (here); I.E. maintaining the status quo. 

The press?  [all emphasis added]

The AP reports  (here) :

WASHINGTON (AP) — The tax deal struck by President Barack Obama and congressional Republicans essentially gives Americans a pay raise.

WSJ (here):

Tax-cut optimism fueled a rise in short-term U.S. Treasury yields…

Kansas City Star (here):

This week’s tax-cut compromise would contribute almost $1 trillion to the nation’s federal budget deficit over the next two years and add sharply to the mounting national debt…

CNN (here):

News of a high-cost tax-cut deal between President Obama and the Republicans…

DesMoines Register (here):

Forget federal deficit: Tax cuts all around!

& these are just five examples in a long line of examples.  I could honestly publish ten more articles today alone about “tax-cut” idiocy, but won’t (maybe two more though).

Truth is, it’s frustrating to see professional writers who are unable to use language in any way consistent with reality, which I don’t think is asking too much.   

I’m certainly not asking for all writers to agree with me (that in itself might freak me out a little).  It’s their right, at the discretion of their employers, to write what they wish.  So they can and should write articles against the compromise or the extension of the tax cut policy in general if that’s what they believe.

I’ll still argue they’re wrong of course due solely to the economics of the situation, but here I’m wondering why we can’t at least expect the press to use terms like “cut” only when a true “cut” actually exists.

The logic is beyond simple – there are no tax cut proposals on the table.  None.   This is not about cutting anyone’s taxes.

Secondarily, this cannot increase the debt at all.  As logic dictates by not giving money to the government which they do not now have nor have they requested, you have in effect done absolutely nothing.

Makes me want to rob them, turn around later and give only half their stuff back…  When they looked frustrated and confused and finally asked with anger, “Where’s the rest?”

I’m simply reply, “It would cost me way too much to give you everything” and calmly walk away.

A DA Post earlier this week (here) wondered if the level of rhetoric during the tax debate, like calling for pitchforked mobs or referring to the GOP as terrorists, seems a little odd now that we have President Obama’s compromise which includes continuing the same tax basis for all.

The President has even argued in that no so distant past (2009) that raising taxes during a recession was bad policy, but apparently he is now against the policy he was sort of for, but then again against….

Speaking on Monday he explains what really, really, might, sort of be true, depending upon whether he’s for it or against it… (whole thing here):

…A few minutes later, Chuck Todd of NBC News asked the president what he had to say to fellow Democrats. That prompted a different analogy – that he was trying to prevent harm to the American people, who were essentially being held hostage in the tax debate.

Quick side bar – I wonder how the voters who just sent this group of legislators to Washington DC feel about being associated with hostage takers?  Meh, probably nothing.  Continuing:

“I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed,” Mr. Obama said. “Then people will question the wisdom of that strategy.”

With all due respect, I think people should be questioning the wisdom of a sitting President who seems to be so insecure about a recent decision, that he feels the need to use inflamatory rhetoric in order to distance himself.

Though seen through this light, the Democrats’ prior inflamatory statements probably fits into the overall strategy for re-election.  When the President can “trumpet” the tax deal, while other top Democrats talk about the inevitable “screwing” without the deal, then you can see a basic strategy to take credit for the deal most Americans agree with, while simultaneously distancing himself from the deal his backers don’t like (poll info here).

But the best part of the President’s discussion on this issue has to be this:

“I don’t think there’s a single Democrat out there, who if they looked at where we started when I came into office and look at where we are now, would say that somehow we have not moved in the direction that I promised,” he said. “Take a tally. Look at what I promised during the campaign. There’s not a single thing that I’ve said that I would do that I have not either done or tried to do. And if I haven’t gotten it done yet, I’m still trying to do it.”

Which for those playing the home game means, “I know I haven’t done everything I said, but my intentions are in a good place.”

Just like the world’s worst surgeon saying something like, “I know I keep killing patients, but honestly I’m trying desperately not to”, the President is telling us directly, all that matters are his intentions.

If only it were that easy.

In the current political landscape which is America, with admissions from Senator Dodd for not reading the financial regulation he helped author (here), or Senator Baacus admitting he hadn’t read the health care reform bill he helped craft (here), you would be hard pressed to find a situation in which any politician seemingly cares about going overboard with their rhetoric, but the tax debate seemed to spark rhetoric like that only seen during war time.

Senator Menendez thinks things are sooooo bad, he calls the dealing with the GOP similar to dealing with terrorists (here):

Sen. Robert Menendez (D-N.J.) on Friday compared the tax-cut fight with Republicans to negotiating with terrorists…

& not to be outdone, Senator McCaskill thinks pitchforks and violence are needed (continued):

…while Sen. Claire McCaskill of Missouri suggested Americans might need to “take up pitchforks” if Congress renews tax breaks for the wealthy….

& let’s not forget, Senator Brown… who thinks paying people to stay home is the beginning of job growth (here):

….extending unemployment benefits that creates economic activity that creates jobs, not giving a millionaire an extra ten or twenty or $30,000 in tax cuts that they likely won’t spend,” Brown said….

No worries that Sen. Sherrod et al are wrong on the facts (here):

After the dividend tax rate came down, average dividends among the top 1% surged to $52,814 in 2004 and $83,072 by 2007. Reported dividends of the top 1% in 2007 were twice as large as the previous peak in 2000….

&

Average capital gains among the top 1% rose from $145,433 in 2002 (in 2008 dollars) to a record $427,930 in 2007….

But it does make one wonder where you go from there with their party leader has made a deal with terrorists & those deserving of pitchforks? (here):

It the state of MO, like other states with large cities, St. Louis & Kansas City both have local earnings taxes.  Meaning, in St. Louis at least, by merely working inside the city limits of St. Louis, you have an additional 1% income tax.

Enter the voter initiative (whole thing here via ):

…Proposition A wouldn’t repeal the tax, but it would give residents in the two cities a chance to vote every five years starting in 2011 on whether to continue the tax. If voters approved a repeal of the tax, it would be phased out over 10 years, at one-tenth of a percent each year.

The measure also bans any other cities from enacting an earnings tax….

Seems pretty benign, though I’m sure legal challenges will surface if Prop A passes…. assuming of course Missourians are allowed to vote at all.

Enter Kansas City government with union backing:

KANSAS CITY (AP) — Kansas City’s city attorney has filed a lawsuit seeking to block a November ballot measure that would allow residents of Kansas City and St. Louis decide whether to keep their cities’ earnings tax….

A group called Let Voters Decide submitted the ballot measure after the petition drive. The suit was filed on behalf of acting Kansas City city manager Troy Schulte and Pat Dujakovich, president of the Greater Kansas City AFL-CIO, both as private citizens….

What’s their main complaint?

…The lawsuit argues that the required elections would cost both St. Louis and Kansas City about $500,000, and neither city would be compensated for the cost.

According to the suit, Proposition A “becomes a de facto appropriation by voters statewide on Kansas City funds for the purpose of this (local) election.”…

But…

…Let Voters Decide spokesman Marc Ellinger said the measure wouldn’t require either city to pay for a local election if they just wanted to skip the vote and let the tax phase out automatically….

Please don’t get me wrong here, Kansas City might have a good legal basis for their arguments, but I’m unsure we should be living in a government which chooses to sue the state in order to specifically prevent voters from casting their ballots.

Maybe I’m off here, but I always thought for a law to be challenged it had to exist first, then harm would have to exist to give any client standing.

Of course don’t tell that to the President or Arizona either, but I’m digressing.

The point is only that when the government seeks to actively prevent your voice from being heard through ballot initiatives, people should be concerned.

One of the more frustrating things I find when engaging others in political discussions, is that some people seemingly have either an unwillingness or inability to contemplate how too much of a good thing can still be bad.

I say frustrating, because it’s intuitive to understand this.  As Paracelsus was quoted saying centuries ago:

“Poison is in everything, and no thing is without poison. The dosage makes it either a poison or a remedy.”

But even without that thought, it seems as if examples are around us daily.  The easiest one to spot is the current tax code.  Looking at individual deductions, it’s easy to see why most exist.  Deductions for raising children or owning a home or small business tax cuts for those hiring or charitable deductions…..etc, etc, etc – They all seem innocuous by themselves.  Even if you disagree with some specifics, the arguments seem valid.

Yet you transition from this basic idea of rewarding people for certain actions through the tax code, to today and you end up with (here):

…the current tax code is 60K pages of government sponsored corruption where the normal citizen or even the IRS agent has little idea exactly what all 60K pages means together, but special interests, nonprofits, businesses, and others all work to make the code a little better for themselves. (Freedomworks – Top Ten Reasons to Scrape the Code here)….

The criminal & regulatory codes are no better.  Their infinite complexity and shear volume, promotes the same corrupt, rent seeking behavior (ever wonder why health care reform is 1600 pages?).

This complexity inherent in all these laws and regulations creates not only rent seeking behavior, but also makes it easier for those in power who wish to abuse others through the system to be able to do so.  You see, once the system has become so complex, then even the average citizen runs the very real risk of unintentionally being on the other side of the law.  When enough people are on the other side of the law, then you get selective enforcement.

But when you’re a Senator and there are potential political points to score…. the trees are just too pretty to worry about that whole forest thingy, so you add more to it by introducing legislation to ban a specific crib because of 32 infant deaths since 2000.

Even on the merits, this law isn’t needed as the 32 deaths weren’t all by the same failure in the drop-down crib (via government’s own report) and no one has yet made any claim that the design itself is the reason for the deaths:

…CPSC has also received reports of 20 other drop side incidents, 12 of which involved the drop side detaching in a corner of the crib. In two of these incidents, a child became entrapped. One child suffered bruising from the entrapment. There are five reports of children falling out of the cribs due to drop side detachment. One child suffered a broken arm as a result of the fall.

In addition, CPSC has received 8 reports of mattress support detachment in these cribs. Due to the space created by the detachment, three children became entrapped between the crib frame and the sagging mattress and four children crawled out of the crib. There was one report of cuts and bruises….

What they found was this was actually the products from one single manufacturer which  is now out of business.  The report goes further to note:

…Due to the fact that Generation 2 went out of business in 2005, CPSC has limited information about the cribs. Although CPSC does not know the total number of units distributed or the years of production, it is believed that there were more than 500,000 of these cribs sold to consumers…..

Which means, that even out of the number of products sold by this one company, the government doesn’t have any real information on such things as failure rates.  32 out of 500K is a small failure rate (assuming all failures can be attributed to product failure versus other causes like improper installation).  Combine that with the knowledge that these numbers are guesses and only include one single company, our Senator should think of herself as being on shaky ground.

The calculus for any potential opponents however is obvious:  lots of potential downside when being labeled as pro-infant death and very little upside as few people seem to care.

So for now, while the trees might know the forest exists and vice versa, until voters are able and willing to contemplate the difference, we will simply continue to lose sight of one in favor of the other.

Being reported @ Politico, there’s once again some new polling data out that is both semi-understandable and interminably frustrating (here):

…The Quinnipiac polls, conducted in three states across the past month, all find likely voters to have complex and contradictory views on these repeal lawsuits as well as health care reform itself.

By a slight majority, likely voters tend to oppose the health care reform law. But they also tend to oppose the repeal lawsuits as a “bad idea” that would, for a sizeable portion of voters, make them “less likely” to support a given candidate….

Which seems roughly equivalent to wanting to win the football game, but not really wanting to deal with scoring points…. or as Politico reports:

…In short, voters simultaneously don’t want to [sic] health care reform but don’t want to challenge it either…

There is a scientific explanation for this called cognitive dissonance (DA posts here).  There’s also some logical evidence that helps explain why we as humans seek to reduce anything seen as contentious by the rest of society.

It’s frustrating because time and time again it seems the majority does understand that government is not some Utopian solution.  For instance, they seem to understand that the current tax code is 60K pages of government sponsored corruption where the normal citizen or even the IRS agent has little idea exactly what all 60K pages means together, but special interests, nonprofits, businesses, and others all work to make the code a little better for themselves. (Freedomworks – Top Ten Reasons to Scrape the Code here).

Yet polls showing voter disgust, such as the dismally low congressional approval ratings, only show feelings.  The reality is even with rates of congressional approval as low as 16%, the rate for the election of incumbents is well over 90%.

There’s a Japanese Proverb that begins with “Vision without action is daydream.”  Well, here we are, proving, that some truths are universal.  Proving that believing in something strongly or knowing something real well is meaningless if never acted upon.

Use a simple analogy to prove this true – what good is the best doctor in the world without patients or students?  What good would have come out of Newton’s genius, or Salk’s genius, if their abilities were followed up by only inaction?

The only good thing that can really be said about genius without action, is that it doesn’t directly harm anyone.  You can make a moral argument that Salk had some level of obligation to help since he could, but inactive genius shouldn’t be the main concern as the real problems will come from people acting without understanding.

& there’s where the second 1/2 of the proverb comes “Action without vision is nightmare. ”

Too bad we’re seemingly in a society today where both are true depending only upon the group in question.

Via Buzz.Yahoo.com (because I refuse to send people to the Huffington Post), the Huffington Post reports (here):

President Obama will unveil on Thursday a proposed levy on the nation’s biggest financial firms structured not just to repay taxpayers for the bank bailout, but to recoup some of the public subsidy that “too big to fail” banks have enjoyed on account of their implicit government backstop, a senior administration official tells the Huffington Post….

First, I honestly have a problem with senior administration officials lending their knowledge to such a highly partisan propaganda site as the Huffington Post.   They long ago stop pretending to care about being news or even being accurate and moved straight into MoveOn.org territory.

Now, I’m not saying the President or his staff must chose the outlets I would prefer, but they could definitely send out press statements or use seemingly “real” and more honest news organizations.  It’s not like the NY Times isn’t on the President’s side – why go to Huffington?

Either way – regardless of the merits (or lack thereof0) for this specific  marketing strategy – it seems quite obvious that Mr. Obama and his team lacks a fundamental understanding of economics.  Their continued reliance on government solutions to all economic problems, demonstrates a misunderstanding of the dynamics needed to keep this economic engine and society moving forward.

It seems they have an idea that they can model the economic behavior of institutions they define as “Too big to fail” as if this equilibrium is: A) possible to spot & B) static enough to allow the slow moving government the ability to legislate in a helpful way.

Indeed the current economic crisis itself lends credibility to the idea that the government is in no position to grasp the complexities that exist when dealing with so many interconnected businesses (here):

…”We are here to examine what happened in the public sector, what happened in regulatory agencies, what happened in enforcement agencies,” said Phil Angelides, the chairman of the Financial Crisis Inquiry Commission….

While investigating the public portion of the failure:

…Questions focused on failures around regulatory decisions to loosen bank leverage and capital limits, faulty credit rating agencies, a warning about epidemic of mortgage fraud and a decision by Congress and the FDIC to stop collecting vital insurance fees from ‘well capitalized” banks between 1996 and 2006….

They grilled DOJ:

…Panel members asked Attorney General Eric Holder to conduct an investigation into what, if anything the agency did after the Federal Bureau of Investigation in 2004 warned that mortgage fraud was so rampant that it was a potential “epidemic.”…

& the SEC:

…SEC Chairwoman Mary Schapiro was inundated with questions about the agency’s failure to oversee credit rating agencies, which provided overly rosy debt ratings for problematic mortgage securities….

The FDIC & Congress:

…Meanwhile, the FDIC and Congress were criticized for its decision not to collect deposit insurance premiums from well capitalized banks for roughly a decade between 1996 and 2006….

But it’s ok, because the FDIC agrees with them:

…Both Schapiro and FDIC Chairwoman Sheila Bair agreed that an SEC decision in 2004, under its chairman at the time, William Donaldson, to allow banks to identify how much capital and leverage they must have on hand, based on their own model-based formula, was a mistake that allowed banks to expand their leverage to problematic levels….

Where the lead to the obvious conclusion they were searching for the entire time – government help:

…Bair said. “I think the only place to tackle that on a system-wide basis for both banks and non-banks was through consumer protection rules that gave the Fed the authority to apply rules against abusive lending across the board to both banks and non-banks.”…

Now it might just be me, but thinking federal regulators with new powers over banks and abusive lending standards will get it right next time seems a tad optimistic…. you know, especially considering their massive failure with the current crisis.

Which is of course only a portion of the story.  The government, through various GSE’s, exacerbated the problems with global capital flows, by giving banks incentives to make riskier and riskier loans (here):

…The actual causes of our financial troubles were unusual monetary policy moves and novel federal regulatory interventions. Regulatory distortions intensified in the 1990s. Poorly chosen public policies distorted interest rates and asset prices, diverted loanable funds into the wrong investments, and twisted normally robust financial institutions into unsustainable positions.

We can group most of the unfortunate policies under two main headings: (1) Federal Reserve credit expansion that provided the means for unsustainable mortgage financing, and (2) mandates and subsidies to write riskier mortgages….

Please don’t misunderstand me – just because someone leaves their keys in their car doesn’t mean you should take it – so immoral actions on behalf of lenders, home buyers, and an inaccurate understanding of the true risks were also present in the prelude to this tragedy:

…There is no doubt that private miscalculation and imprudence made matters worse for more than a few lending institutions and individual borrowers….

& therein lies the true rub.  This imprudence is something for which the market should bear the price of their mistakes.  Only through bearing the true cost will their incentives ever line up with true moral behavior.  If you think a local bank or lender wasn’t able to sell every single loan to a GSE, they would’ve continued to allow bad loans to be made which they knew would sink themselves… well, that’s just not very likely and not very rational.

But don’t worry – I’m sure with these new and smarter people, this time they’ll figure out which banks are too big to fail, do it right, and only tax them in the amount they need to insure against the risk.