The Tax Fairy

Ha!

The Tax fairy won't visit us this Christmas because "Tax cuts always pay for themselves [John Kyl]" except, perhaps, when tax cuts are exclusively for working-class income peoples [sic].  Too bad it's provable that adding working class income increases GDP more than for those of 'job-creators' ...

The great Mr Smithy Smoot

Lets say I have $300M in assets, and I earn about $34M / year.  I'm a top 0.001%er here.  This means a 3% tax-break nets me an extra $1M / year in income.  That's real money I can invest.  Note, this discussion doesn't apply to corporations, because we're only talking about tax breaks for individuals in congress right now.  So what can I, Mr. Smithy Smoot, do with that extra money to help employ that sad little unemployed 9%? (oh, I'm getting chills)

Well firstly, I got my $34M / year salary because, well, I'm Mr Smithy Smoot - come on, the name just eeks with royalties... But really, being that I'm a Smithy, I actually make about $50M / year and have a REALLY good accountant.  I'm able to convert $16M of my income into non-taxable entities - municipal bonds, off-shore accounts, corporate-owned assets (like cars, jets, NYC appartments, etc).  There's some charitable deductions there too, you know, base-ball-fields are great marketing tools (because giving is the greatest gift, especially when it has ROI).
 
So, I've acrued $300M over the past 6 years, not because I'm generous, but because I'm smart with my investments.  I have short-term/long-term and low-risk/high-risk investments.  Plus, I'm a high-roller, so I have the secret harvard handshake that gets me into private-hedge-funds.  I own lots of gluttonous inflation-hedging assets like real-estate (that could only ever be sold to another high-roller) and high-end-art.  My hedge funds do a lot of day-trading and corporate-life-ruining ventures (short-trading, stock rumor posting (via subtle stock price manipulation techniques), high-speed-trading, etc) - so that's most of my 3rd party common-stock (meaning the ROI of a company is meaningless to me, only the rumor-mill for day-trading purposes).  SOME of my money, however, I directly invest.. because.. well, patting my evil kitty Mr. Cotton Willow just gets old after a while.

So now we get to the Republican talking point.. That if I, Mr Smithy Smoot, had that extra $1M tax-break, I MIGHT invest, fostering jobs.  But wait.. First, I need to diversify it (don't want to risk it all on one basket - grandmaw wouldn't be proud).. So first, to the art shop.. Then an extra statue for my garden.. My offshore account doesn't get an extra deposit because that was already maxed out in my $16M untaxed portion, but I do add an extra digit to my monthly hedge-fund contribution.  So what do we have left for the high risk, long term category.. err.. Maybe $100K. (Remember the US treasury will spend 2.5 times the budget shortfall in long term interest payments for that $1M, so $3.5M of US debt (present value of more like $1.5M) provides $100k of potential direct investment).  So one of my 3 businesses gets an extra $100k investment (maybe my mustache waxing widget factory).. Perhaps to the sales, marketing or some good-will portion.. Sure as hell NOT to the manufacturing, engineering, or overhead, because there is no short term projected growth in customer-base.. Why innovate when it's pure overhead.  BUT a dollar spent on marketing/sales/good-will does increase the future outlook, all else being equal.  Sadly, sales oriented growth is a zero-sum-game.. My 'stolen' customer from bob's mustach-a-roma doesn't end up helping society as a whole. :(

So MAYBE we hire an extra marketing, sales, good-willer employee.. BUT, more than likely, I just offer it as a bonus for extra sales to existing employees (why hire when I can dangle carrots to already overworked employees - that's honestly called efficiency).

We are literally talking about a man that has nothing better to do with an extra dollar, and he wants to gamble.. But AFTER Vegas, and AFTER some stock gambling, he feels what's left over might be entertaining through private-enterprise market-base-growth. (NOT making more widgets for an otherwise constant sized consumer pool).

Note, if I, Mr Smoot saw my inventory approach zero and my laborers were already working 16 hour 6-day weeks, then, I'd kiss the ground and BORROW money to make the capital and labor investments - because I'd LOSE MONEY otherwise.. The cost to borrow now is DAMN cheap.  And I, with $300M in assets am the banker's soggy dream.  By hiring 1 extra employee that can produce/facilitate 100 extra widgets at $1,000 each (this his high end face-cream people!!), I can both pay for his salary and pay back the measily $3,000 interest I'd have paid to front his $50,000 salary.  Why the hell WOULDN'T I borrow?  Because I'm over-extended?  Hmm.. If that were the case, then I'd take out a personal loan against my Gauguin painting and directly invest.. I'd be able to pay off my loan within a year.  Crazy you say?  Why risk my snooty painting (err, Smooty painting) when that guy might turn out to be a drug-addict (he has been out of work for 2 years after all).  Or what if the market sours?  What if I can't sell all 100 of those EXTRA widgets?  Well.. Hmm, that is true.. That is kind of scarry.. I mean, if ooonly that $100k came from somewhere like the government..  You know, someone that wouldn't think twice about spending $3.5M in order for me to feel comfortable throwing away as much as $100k.  Even though it's a pretty sure deal, or I wouldn't even bother with this thought exercize.

Thank you Republican party for bringing Regan Era supply side genious to us.

What what whaaa?

But.. But, what about common stock?  I mean, those hedge funds managing my medium-to-low risk investments - they're buying common-stock usually aren't they.  And that helps America right?  Common stock is supposed to give liquidity to corporations to raise cash when they need it right?

Well.. So that company's board-of-directors is supposed to minimize how much common-stock is issued so it doesn't dilute existing stock-holder-value.  So it can only do so when it's in the interest of stock holders - namely if there is perceived future ROI.  So, issuing $500K (my hedge-fund extra contribution) in extra common-stock to throw at the sales department during a resession may or may not be the wisest use of funds.  Further, if the hedge fund only owns 15% of total common stock for a corp.. And if the rest is in 401k-funds or trust-funds who were NOT given a 3% corresponding tax-break. Then the corporation may see no material rise in market-capitalization and thus would have no 'free cash' from which to cash-out in terms of stock-issuance.  So that 3% tax-break is pebbles in an ocean so far as capital-investment goes.

So, in short, I Mr Smithy Smooth GREATLY thank may grand congressmen, willing to spend $3.5M in US debt so I can employ 1, 2 MAYBE even 3 people (but most likely just pay out bonuses).

And now for crodgy old people

Now, lets look at the 2% S.S. tax cut also on the table.  That's approximately $1k per working head.  Note this is even better than a general-tax reduction - because this is 2% of PRE-TAX, so your clever deductions or low-income near-zero-effective-tax don't detract from your real take-home from this tax-reduction.  It also is better than a lump-sum payment of $300 because you don't blow it all at once (avoiding changing long term spending habits).

MOST of it would go towards debt repayment :(.  So that kind of sucks. Pay down 36% credit-card debt..  Buut. that does guard slightly against future insolvency which would have taken the family out of the consumer pool. ($1k @ 36%/year is $6k in less than 6 years - that's MUCH better ROI than a 401k.. even with taxes).  So for the heavily debt-burdened, this is like a massive multiplier on S.S.

Ok, not everybody is in CreditCard super-suck-mode.  Some are merely at 10% interest rates. That would take 19 years to turn into $6k.. Still better ROI than S.S. or 401k.  What about people with only 5% car loans or mortgages (converted to 4.7% after tax deductions)?  Well, 4.7% is better than CDs and the 3% S.S. standard growth, so we're still doing O.K.

But lets assume some small percentage of the population DOESN'T put every penny into debt-repayment.  Lets be conservative and call it $52.. Or $1 each week.  Namely $2 each pay-check.  So of the $38 in each paycheck, you throw $36 into debt and feel free to 'burn' an extra $2.  Actually, freedom has nothing to do with it.. You look at your ATM and see $142 (instead of $140) and so you mentally only take the account down to $100 (your breath-holding minimum), and thus have an extra $2 in your pocket.. And just before the wallet is empty, you've burned an extra $2 on stupid little US-central impulse purchases (that ironically makes our economy thrive).

That might just be an extra cup of starbucks.  An extra muffin.  An extra gum-ball (the big juicy ones).. An extra DVD rental at red-box.  An extra dollar-meal cheese burger.  An extra 1/2 gallon of gas (meaning maybe an extra trip to the park with the kids).

Multiply this by 250,000,000 and you have real domestic spending on directly employable items (maybe not so much the gas).

This employment spurs demand for more burger making billable hours.. An extra table-buffer or two.  Maybe 1 or 2 more truck deliveries of gum-balls.  Maybe 3 or 4 more shipments of pseudo-meat.  Small potatoes, to be sure.  But notice the TYPE of employment that's being encouraged.. We have MAYBE an extra marketing / sales person being employed by  supply-side tax-breaks.. And maybe some burger flippers / truck-drivers getting more employement in wage-oriented tax-breaks direction (low-skilled labor).

Now look at the unemployed - they can't find work, because house-flipping and business-plan-web-site jobs just aren't comming back anytime soon.  But straight-out-of-college wanna-be actors NEED burger flipping jobs.

To be sure, NEITHER top-down nor bottom-up tax cuts are getting the government much immediate ROI.  Though arguably, the long term return of social-well-being is better when alleviating lower-class debt.

Honestly, neither tax-cut is really any good. But the point here is that the classical Republican argument of supply-side-economics is complete rubbish.

And now for something completely different...
If, instead, EVERYBODY paid an extra 2% in local taxes, here's what we COULD get:

• extra electric rail/busses, providing greater availability of 'cheap' commute costs (could reduce the number of cars per household and MASSIVELY reduce national foreign account-trade imbalance due to energy related purchases).  Reduced car-overhead means more money in pocket - to spend on other consumer goods.

• extra higher-speed cargo rail capacity.  Reduces structural cost of shipments.

• grow number of colleges - reduces cost of colleges through competition, increases number of teaching positions (possibly employing formerly 'useful' working highly skilled workers)

• grow number of publicly subsidized hospitals and state-subsidized hospital staff - potentially reduces cost of emergency care and general-practice care.

• grow number of parks and biking / walking paths - increases likelihood of exercise / outdoor activities, reduces long term health costs

Sadly .. States can't print money... BUUUT.. A 2% nation-wide federal tax coupled with additional debt-spending, distributed proportionately to states in ear-marked 'block grants' might...

The Zeus that had no clothes


The MYTH of our grand-children paying off our debts irritates me more than anything else.. We WILL print money to pay our short-term interest payments 30 years from now.  Why the F* would the US government default on debt instead of inflating money?  This is beyond insulting to common-sense.  States can't do this.. Greece is failing because IT CAN'T do this today.  But Italy with the $100M lyra to $1 USD was able to because that government use to be able to print it's own money.  Debt is not the enemy of a government.  Lack of domestic productivity is..

And that's why they call it the blues...

Social Medicine

France and England and the former Soviet suite of countries have state owned, financed and operated health care systems.. They are the definition of socialized medicine.

What this means is that the government has an infinite ability to fund the hospital (they can print money - except maybe in the EU) if they deem health care to be more important than say national defense.  It also means they can mandate any change they need - breaking unions, organize educational programs to employ future sectors of the health industry that they feel will be lacking qualified employees in the medium to long run.  It's in their financial interest to provide such incentives as they are liable for the health industry if there are cost overruns or scarcity of resources.

However, the dark side is that innefficiencies can fester.  The government is often powerless to fix a known problem because it is the very definition of 'too big to fail'.  And potentially undermotivated employees (see DMV for reference) may not have any incentive to step-it-up to call out bad co-workers, or take time out of their overworked schedule to help a co-worker accomplish a task or more ideally [re]-train them.

A corporation on the other hand starts off with ultra-motivated founders.. Their money and their livelihood is at stake.. They often take pride in their work, and natural selection matches motivated people with heads-of-companies. (Lazy people don't go out and risk their cheeto money on a new company, and motivated people aren't happy doing routine work every day).  Thus even in large companies, divisions are run buy such motivated people (except when nepotism creeps in - son of the founder gets a cushy VP job).  But on the hole, there are at least some divisions with high motivation for efficiency, productivity and or profitability.

The natural selection weeds out the less capable companies (including dis-economies of scale as they are able to compete with leaner firms).  I say 'are able', because many companies become big and fat becase they've found a way to cheat the system.. Have a law passed that gives them exclusive monopoly rights (incluing the evil that is Patent and copy-right.. But this is a war for another day).

Thus for most industries, a competative 'not too big to fail' company is going to be more effective and be able to facilitate more customers/clients than an equivalent government industry.

However, one element of corporate efficiency is that it gives the customer everything they demand, and almost nothing more.. You may THINK you want a car with a nav system. . But really, why spend $2,500 on a car feature, when you can buy something from bestbuy for $90 that's more up-to-date.  Now, a wealthy person doesn't want the 'hassle' of a non-integrated nav-system, and money is no object (at least not in the $30k range).  Thus car companies have efficienctly isolated wealthy people from poorer people in their pricing.  Similarly with other goods and services.. 'Coupons' often require time and effort of the customer, and thus a wealthier person can't be bothered to save $1.50.  And possibly not even $50.

Health care is no different.  Ignoring the fact that we have a graduated pay system from HMO to PPO to retained doctors.  A given insurance company or medical professional's price-sheet is geared to provide what the customer needs efficiently, so long as that customer is representative of every other customer within a demographic.  And if this was all we had to deal with, the US health-care system would be marvelous.

The problem lies in the special cases.  If you are too poor, the hospital still services you, but needs to recoup the costs - spreading them across all normal paying customers.   But even there it doesn't spread out evenly..  It's spread out by statistical correlation with your ability to pay, or the risk that you might not pay... Thus, a person with no insurance, cold off the street, is considered high risk.  Furhter, they are not contractually bound by an HMO/PPO price-sheet, so they can be charged whatever is desired.  Further, to date, this is such a small percentage of the population (people that are not risks of non-payment but do not have insurance) that they are not a true market that can negotiate it's price (by shopping around from hospital to hospital).

Another special case is actually the most publicized.  Getting sick.  If you get sick in an expensive way, your insureers job is to get out of paying for it (statistically on average this saves them a substantial fraction of money - even when taking in to account law suites).  The most common pattern is 'prior conditions', which is a silly premise.. Another is simply having a bad health care plan that may only cover $20k / year, or worse, life-time.

The problem is that becase people so rarely get sick, or are unable to consider their situation of being sick in the future - that they are unwilling to spend an extra $50 / month today to acquire a better plan for tomorrow.. I say $50 as a reference point.  On any given day, there is a $300/month difference between good coverage and bad coverage.. But that's because most people naievely choose the cheaper coverage, leaving the better contracts to the low-volume and thereby necessarily high-priced category.  Thus, those with good 'jobs' get the high priced packages (where the employer hides the cost), and those with easily-replaceable jobs get the cheapest possible plans.. So the rich push for more expensive and poor scrounge for the cheapest possible, widening the gap.  If, instead people understood that the cheapest plans were practically useless and that they would have a life-threatening ailment one day, they would force themselves to save up the extra $50 for a slightly better plan.. And as everyone would do so, then a better contract COULD exist.  Meaning more pricey coverage, but with higher volume, meaning the margin CAN be smaller yet still profitable (consider that CPUs cost $10 billion to design, yet have a dollar margin once they've hit their stride.. imagine a drug maker charging only a dollar more than it costs to make it - it's possible, but only with sufficient scale).

Then there's drugs.  Unlike doctor services which have high but fixed overhead - and thus distributing the cost equitably with high enough volume eventually brings the costs down dramatically .. Drugs are more like CPUs.  High R&D costs, but practically pennies to produce.  BUT, also like CPUs, some types have very rare uses - so their costs will never see high volume.. Sadly, drug companies push to release the rare-use drugs into the open market for unrelated remidies.  This is like selling you a tractor to commute to work.  It might actually get the job done at the end of the day, but it probably wasn't the best available tool, and probably not even the best price.

Even if you use government subsides for R&D, you just wind up paying for it in taxes.. 1 cent  / day  to cure foot fungus might not sound like much, but it would likely be more expensive than what a private industry would spend to come up with the same solution.

So we have the two extremes.  Full government run health, and naturally discriminating free-market.

But lets take another look.  I normally don't participate in health-insurance, but my company recently gave me some numbers and I was shocked.   The PPO plan was roughly $10,000 / year for a family plan.  If you consider that there are still some single-income families out there, this is crazy.  25% of an average US  income to health insurance.  Again, you could choose the cheaper HMO (still several thousand), but re-enter the quality-of-care divergence.  Now 1 cent for foot cream is one thing, but 25% suggests something is wrong.  With all the efficiency, you should be at least getting basic care + catastrophic insurance without so much intrusion on your way of life.

It is genreally known that insurance companies are profitable.. That their premiums rise based on investment instrument profitability, NOT cost of health-services and NOT with law-suites.. Namely studies have not shown any correlation except for bond and other investment instrument price fluxuations.  Namely, if bonds are doing well, then insurers are cash safe (they can treat bond investments as if it was in their checking accounts, cashing out any day they like).. If bonds are doing poorly, then insureers would rather 'ride the storm', knowning that tomorrow is a better day to sell.. But they still have cash obligations.. So to meet them, they raise premiums.  Incidentally, bonds and other 'safe' instruments are where they park the premiums until they're needed (0.5% checking accounts would not be prudent).  Note that they COULD lower the premiums when market times are good again, but if you have a captive audience, and every insureer runs by the same game-plan, there's no incentive to do so.  Of course, this turns into profit, which quickly is given back out to stock holders.. So any 'extra's are lost during boom times, and the cycle starts all over again.

Likewise, a profitable insurer is willing and able to pay high rates to hospitals (not because htey want to of course, but because the insurer has to insure SOMETHING).  So hospitals love their PPOs and maybe even a few HMOs as they're cash cows.  It allows them to set the base-line price for a procedure.  Namely the doctor plans out their average cost for the year based on previous years, and if they were heavily HMO or PPO, then they know how much of a raise to give everyone, how much new equipment to buy and amortize over 10 years.  Good years set spending practices that are difficult to change for many years to come.. And thus over time, the profitable insurance company feeds into doctors offices, hospitals, and of course drugs.

Because people are unaware of hte actual costs of the actions their taking, there is a loss of market efficiency - namely natural information passing from buyer to seller.  Here we go through an intermediary who has no interest in an individual transaction's efficiency.  Maybe you needed that laser eye-scanner, or maybe a simple flashlight would have been sufficient.. Nobody knows, because people aren't shopping around for doctors (especially w/ an HMO) like they do so dilligently for shoes or a car.  You are already in a form of socialism when you use insurance company intermediaries for health.  And especially so when your employer chooses the insureer (being the cheapest possible, or the 'best we can afford').  So really, we have 2 layers of separation for the market efficiencies to be applied.

So my first comment is that we do NOT have a free market health care system.  So all this complainig about not choosing my doctor only identifies you as the top 10% (PPO and beyond). It shows how ignorant you can be of the majority who can't choose their own doctor (not that choosing would do any good, given the remaining informatoin vacume issues).  Secondly, as I've shown above, we are NOT in a market-based system.  We are in a meta-market system, where actors are blindly making decisions. And that over time, the decisions have become bad and multiple choice - and only A through E.

Canada has something half way between socialism and capitalism.. Kind of like us, but it was engineered instead of allowed to fester.

Canada uses public insurance, but private practice.  They don't charge for individual operations, so there is information loss (the government may innappropriately negotiate away a misunderstood drug or operation).  But since everybody is forced to pay their 1 cent / day for foot-cream, they fully fund the normal operations.  revenue is predictable so doctors can properly plan future expenses / salaries.  Catastrophic is covered, no pre-condition issues. No cost offsetting.  But most importantly, no profit steering.  The only potential for profit here is the doctors, but they are competing with one another to fullfill the same services for a lesser average price - instead of the other way around like in the current US system.

There is still that 25% cost.. It's there in canada, just like in the US.. Some $10k / year for someone earning $40k.  It's not one-to-one in Canada.  It's part of their general tax, and it's only 10 to 50% of that for any given year.  So you might think - boy that's 25% MORE taxes they have to pay.. suckers.. I don't want to be paying 40% tax.

Well, I hate to break it to you.. You already do.  It's just that the government is really good at hiding things from people that are statistically REALLY bad at math.  They don't realize that 7+ 1.5 + 8 + 2.5 + 5 + 7.5 + 25 is actually a really really big number.

First, the government has the concept of the AGI.  Adjusted Gross Income.. This is a base-line number that's used to take all their trickery into a comparable point.

If you are self employed, you'd understand.  Namely a self employed person leaves no place for the government to HIDE taxes.. They pay for EVERYTHING up front..  You may think that having your employer pay taxes is 'sticking it to the man', but then you'd just be proving your ignorance.. If your employer has $100k / year available to pay out in salaries.. Then if the government adds a new tax, but only does so on the 'above the line' employer tax, then they necessarily have to reduce your salaries, benifits to make up for that loss.. While they usually can't just cut your salary, they certainly will try and not hire someone new for as much (people are usually hired below a target salary, then give them raises as they prove themselves - exception being prevoiusly experienced people - which is really just like moving into an identical house in a different neighborhood).

Taxes you pay:

Social Security and Medicare: 50% employer, 50% employee.. But when you're self employed, the number is warped because your 'base salary' is higher, so this warping is accounted for in above-the-line AGI.

Unemployement: employer

Federal,State taxes: employee

When you add it all up, and if you don't have sufficient deductions (e.g. you don't own a house), then your total tax will be up and around 44%.

You can reduce this by 10% if you own a big enough house to get your deductions from the 25% tax bracket to the 15% tax bracket.  Due to the graduated scale, every penny you deduct reduces your overall effective tax-rate.

This point of this is to compare apples to apples.. In Canada, you have government negotiated private care, with government taxes.  You have very low premiums and or hospital costs.  Your total tax is rougly 40%.

You have the same tax in the US, but THEN, you have to pay upwards of 25% in ADDITIONAL insurance premiums.  Thus roughly 60% of your true income is diverted towards defense, bridges and health-care.  Compared to the 'poorer' Canadian country.

If you're healthy, you can game the system and save that 25%, and really, this is what people call 'the american dream'.. Gambling and winning.. Course, you can have 1 million players and a single winner, but the casino gets that one photo, and they're assured the next year's worth of addicts.

Obama Taxes

I don't get this argument I keep hearing. Repeating something over and over doesn't make it more true.

I hear things like this over and over:

"I'm not sure that those that voted for Obama would agree with a dictatorship. How can a President "ask" that a CEO of a major company step down? And If that CEO did not step down, then what? Would he tighten the screws on GM and the CEO? 

What about all the spending? And for what? What are we getting for this? Just more debt for our kids."

Which I think sums up the opposition argument.

A) Obama is not a dictatorship - he's at the mercy of congress and the judiciary. He can not make international treaties w/o congress. He can't spend money w/o congress. He can't go to war, enact/ignore a law.. And, if you haven't noticed controlling the Democratic congress is like hurding cats.. Only the repulblicans have mastered the 'block vote' concept.

B) There is no legal enforcement that Obama has over non-banks (yet). We do have SOME regulatory power over banks - but certainly not willy-nilly. However, when one potential investor says to a prospective investee, I'll not grant you money unless I think it's a prudent investment - then certainly he can have an effect on the operatoins of the business. This happens every day around the world. It's what controls what you see on TV, what you eat, etc. 

C) The corporate/bank "spending" is mostly lending/investing - and depending on how the companies survive the melt-down, we'll get most of the money back. Yes, most of the stock is non-voting, and has dropped precipitously, but stocks do that, it's only a paper loss until sold.

D) The 'stimulus' package is the closest detractors have to a real argument. However, their argument is usually poorly crafted. If a state doesn't repair a bridge and it kills 500 people - how cheap do you think that's going to be? It's the state's responsibility to pay for these types of repairs (including schools doing as well as Waltereed), but few states can afford any additional capital expenditures. Thus there is a humanitarian element to this portion of the spending. Unfortunately repairing a road doesn't have as good a return on investment as building a new one (you're not increasing the efficiency of local businesses). The 'stimulus' employs a single set of people, and doesn't amplify sufficiently to recoup the money. Renueable Energy R&D also likely isn't going to be a cash cow.. In fact, it's likely to drain resources - throwing good money after bad. Consider cold fusion, or pretty much anything to do with space exploration. Yes, there are residual advances - but paleing in comparison to the costs. The point is that you're not making financially sound investments.

However, there is another, more important, dimension to the stimulous package. It is effectively printing money. The federal reserve, by maintaining a near-zero interest rate does so by writing checks to bankers for US treatures (now also mortgage backed securities). These checks create money out of thin-air. Banks keep an account with the federal reserve, and thus they never cash the checks - they merely have their accounts credited. Thus there is no actual physical printing of money going on - though banks have the right and do request physical cash transfers as needed - these do result in printing. But a substantial fraction of this has to do with retiring old/damaged bills.

The treasury issues bonds on the open market. The Fed purchases on the same market (though not necessarily directly from the Treasury). When inflation is in check (as happens in an inflation - though not in 'stagflation' - poor Bush I), the fed can freely purchase billions of dollars worth of bonds (offsetting the treasuries expenses). Thus the Fed effectively 'transfers' not-yet-printed money to the treasury.

So long as the resession endures (e.g. no inflation), the fed can fully fund the treasury and NO taxes will increase.. PERIOD.

Now, when inflation does eventually kick in, then the fed is required to stop buying US treasuries, and in fact, start selling them back (taking money out of the economy) This happened just before the y2k bubble. Unfortunately it's difficult to guage the right time to change directions, and many say Greenspan took way too long. BUT, if done correctly, the inflation should happen alongside the economic recovery - which means larger tax collection revenues and thus a lesser need to issue new US treasures (aside from the usual reissuing recently expired treasuries).

So IF the excess spending is truely temporary, and IF the loans are repaid in short order, and IF the Fed correctly manages the money floating in the system to prevent over inflation, or inflation in key sectors attached to their market (like the housing market - tied to those same banks getting all this money during the Bush Era), then we can 'level off' gracefully.. The fed raises rates back to a sustainable level - starts pulling that extra cash back out of the economy, and tax revenues catchup to the [now reduced] spending levels.

There are certainly a lot of things that can go wrong.. But it is ignorant at best and immoral at worst to claim that 'Obama is sacrificing our kids futures' - phrased as if he was knowingly doing this - or worse, that it's not neglegance on Obama's part, but maliciousness- that he's somehow against your children.

Even though several things can go wrong, here is what I consider the worst case to be. Inflation. NOT higher taxes.. The laffer curve says that there is some maximally efficient tax-rate whereby the government would lose money if they lowered OR raised taxes. Namely if you raised taxes, you hurt the economy and thus can't collect as much from the reduced corporate profits. If you charged less, then you're at such a low level that corporations can't further profit from the reduction. Consider that we charge different industries and demographics at different rates - thus there is a maximally efficient point for every section of the economy - and the government obviously is trying to hit that sweet spot in each region (though nobody can know for certain what it is, since it's a moving target). Thus, even if we were overly indebted, it would be STUPID to raise taxes beyond this maximal point. You only collect LESS money in taxes by raising the taxes too hight.... So how do you know it's too high? Ask the oil company. Namely you experiment, from year to year, tweaking the value, and trying to rule out as many variables as possible.

The point is you will NEVER see 90% tax rates again (check your history to understand just how good Americans have it these days).

Finally, on inflation. We have had 2.5% 'core inflation' for ages. But we've had 102% spending for that same time. low-inflation values lenders and cash-holders, but suffers debtors. Property owners are indifferent. As most Americans have $10k of credit card debt, and are now $25k to $500k underwater on their home mortgage, inflation benifits the average american. Why? The min-wage has not moved very quickly over the past 15 years (this has been a huge reason for the lack of inflation - in my lay opinion). Once this rate goes up, we're going to see inflation (regardless of the Fed's monetary policy). Min-wage is considered poverty-line in most of the country. Raising it is not exactly immoral (for the mores of capitalism). Growing it by 25% means that basic household goods can grow in price by 19 to 26% (video games, movie tickets, fashionable clothing would certainly grow faster than milk for example). The growth in price is natural because more people can afford them. This increases base good profitability (though their constituent costs are also rising). Some industries are hurt by the inflation (government wages and procurement certainly is hurt). Basically things average out for most people...

EXCEPT debt. While the operating costs of the government might grow 10%, the tax revenues increase by at least 10% and thus the ability to pay down national debt (along with personal mortgage debt and credit card debt) is stronger (not 10% stronger because costs went up by 10%). But consider having $1 million in debt when you earn $100K / year. That's a lot.. Consider that $1M when you make $1 billion / year. It's almost a rounding error. The point being, as inflation slowly creaps over time, the existing debt becomes less and less of a burdon. Now, what's important is that this does not include NEW debt. Obviously your newly issued bonds need to be 11% or higher with 10% inflation. So you're worse off borrowing in this period. So if you are not careful, you can certainly be in a much worse situation..

But my point is that inflation CAN be a net positive for the country, if managed correctly.

War on terroism

The following are a collection of my experiences on the war on terrorism.

It is inconsistent to claim that America is being attacked based purely on it's love of freedom. On NPR today (2006-08-31) it was quoted that Canada and France are equally free-loving, and yet are not targets of terrorist activity.

It is inconsistent to claim that America's opportunities are a target of covet.. Consider the Arabic kings who are wealthy beyond imagination.. Then consider the fact that Osamma Bin Laden is a decendent of this same class of opulance.

It is inconsistent to claim that Democracy is a political instrument that gives fear and anxiety to what are called Islamic extreemists or Islamists. Palistine and Lebanon had democratically elected "states" and yet those elected bodies had an overwhelming mandate of militant opposition to the neighboring state of Israel. While one could argue that Saddams 100% voter turnout and poll results were less than honest, coerced and manipulated, it is hard to believe that the west bank (Palistine) and Lebenon's support of Hesballa represented something other than the popular opinion (which is the essense of Democracy - for better or worse).

It is inconsistent to claim that America's original goals in Iraq were the Democritaziation of it's people.. The liberation from tyrrany and fear-mongering.. The removal of the world's most worry-some wart (considering the current state of Iran, Syria, North Korea, China, Russia and Venezuela).

It is inconsistent to claim that an American colonial occupation of a country that (in majority) wants nothing more than the removal of a sacrilegious presence in their holy land is justified in some way.

It is inconsistent to target an international organization of millitancy and ignore its leadership. To claim that no country that harbors [this type of organization] shal be left unsettled, and yet to completely leave Pakastan untouched (who homes the base of operations for America's Enemies)

It is inconsistent to be a political party of Christian Morality and yet support a doctrine of anti-Christian wealth-oriented/poor-rejecting government policies (Government is either Agnostic or Religious.. But to win the Religious vote and reject the teachings of that same religion with respect to it's own people is sacrilegious).

It is inconsistent to claim accountability for subordinates of the country (corporate accounting, public school systems, science which would hurt the economy (global warming), science which competes against religion (evolution)), but at the same time leaving absolutely no checks and balances for violations of civil liberties and international humanitarian activities... Case in point, Guantanimo Bay is a moral black hole.. Perhaps the detainees are moreless murderers, but the Democratic principles of the US bill of rights have no presense. If these [rights] truely are principles worth "dying for", then why are they unapplicable to non US citizens? Shouldn't unalienable rights mean that even the all powerful US can not deny these rights to peoples of the world? Alternate case in point, the US position of Israel v.s. the Arab states: The US has never made an admonishing comment towards Israel even when Irasel has unjustifiably attacked US land an spied on US organizations.. But Arabic countries can do no right by us. They are all backwards, harberors of terroism, an part of the axis of evil. Can there be no account of truth and consistency to these nations and creeds? Can one liken unto us do no harm, and one deviant from us do no good?

The above being said, it is completely understandable why the above is true.. As with the Lord of the Rings: The two towers, when you are the King, your primary responsibility is the well being of your subjects.. And sometimes the well-being means their very lives. As King of the US, your responsibility is to keep the public spirits up. It is to rally your armies with pride and nationality. It is to demonize your enemy so that your soldiers can press their blades into their hearts with conviction. This is the making of an effective King.

Other kingly duties involve keeping the classes content with their station in life.. The middle class needs to continue feeling upward mobility, while the lower class need to be taught the American dream (a phrase ironicly originated in the 1930's during the great depression as a lament on the lost dream of American upward mobility). The pyramid scheme that is the US economy relies upon an irrational growth scheme which needs to be supplied either by ever-record-breaking baby-booms, or ever-record-breaking personal-debt-levels. The role of the US King is to glorify this scheme and to keep people content with the economic model. Supress thoughts of the hang-over-days of tomorrow when the pyramid comes crashing down.. Suppress thoughts of environmental back-lash.. Suppress thoughts of our over-drugged food-supply and how it will biogically weaken us tomorrow. None of these things can help us today - at best they can only facilitate a shock-to-the-system.. One which would quantify the King's reign as the end-of-a-golden-era. It would be better to prolong the dream; Technology has a way of bailing us out.

I say US King because a aristocratic King is a devinely appointed blood-line, while the US elected officials are a super-star elite who's devinity is hard to ignore.

Now, an important question is "Why would a follower of Islam be willing to give his life to hurt US citizens?". Perhaps this question is unimportant to the US King. As the king must view all enemies of the state (both foreign and domestic) as a threat worth irradicating. The situation is rearranged to: A man inclined to hurt innocent people is an immoral man. An immoral man must be illogical. An illogical man is not to be reasoned with. An unreasonable man must be ignored and dealt with as a child.. A child must only be shown disciplinary strength. An undisciplined child must be punished with no bounds.. This lack of boundries includes death.

So we can see that the innocent deaths of American citizens can logically be used to justify the deaths of the followers of Islam. At least by the Kingly powers and defenders of the US. It is certainly part of their job descriptions (irrespective to their political affiliation).

But as a citizen, not charged with the keeping of the US public well being. I do not have the constraint of defending my own people.. I have to answer to my own moral conscience. And I have eyes and ears to the facts of the current events.

My ears have informed me that the US has a long standing Imperial standing in the world.. This standing largely replaced England after World War II and as a direct response to the power of the Russia Soviet Union during the US coined Cold War. It became necessary to hypocritically support one suppressive governemnt while denouncing another based purely on the allegance of those in power. Our government has become so comfortable with enforcing it's will on governments that are not directly opposed by other super-powers that Iraq, Israel, the west-bank and Lebonon are a direct result of our cold-war policies. The process of keeping puppet states (which we exclusively teach in US history books as the role of Russia for the Satelite states of the Soviet Union) is a powerful motivator for guarilla war-fare... If you are a proud national of a country, and some other ultra-country topples your government, replacing it with one with no direct power (only a yes-sir authority to the imperialist power), would you not feel a sense of duty to recover autonomous identity? Isn't this what the founders of the United States went through? Is it consistent to deny our own past?

Now the means by which these nationals taken on their charge is of historical interest.. What was the worst that the US patriot of old took on? Dumping Tea? How about commiting guarilla warfare - the likes the civilized world had never seen? Sure sub-saharan Africa presented uncivilized war-tactics, but what of these Anglified Americans? Were they not high-society? Were they not God-fearing? Why would you attack the higher in rank over the enlisted? Why would you attack cowardly via sneak attacks? Why would you ambush instead of letting God decide an honest and fair battle of two opposing Armies? The answer, is obviously darwinistic survival of the fittest.. The American Collonials did whatever was necesary to win their freedom.. And with the US so much more well funded than the British of the 1970's, why would anyone assume that defenders of a modern day era would do anything less?

"But we are trying to help, why are the Iraqi's being so ungrateful?" To paraphrase soldiers of the Fahrenheit 9/11 movie. Why do we assume that the soldiers of the British Army were being any less considerate of the needs of the American colonies? "No taxation without representation" was the motto of the day.. It wasn't "our churches are being defiled by infadels" - something more easily believable if Atheists ran our country and willfully repossessed ALL US churches out of some bogus proclamation that churches support anti-education and science reform. No, we were upset because we had visible frustrations with the control of our own destiny.. How much more frustrated must a country seeing it's own demise under an alien foreign power be?

Now Iraq is a complete digression of the overall problem. This problem is that there is a US presense in the world that extends beyond the US borders.. Most US citizens are unware of this presence and thus can not response intelligently to it's concerns. US citizens my trust that all activities of the US are for the benifit to the rest of the world, but such thoughts are naive. What is good for Enron are good for Enron - NOT the people of California. It is within the power of the Californians to rise up against Enron when the feel the need. Likewise, Canada, France, Mexico and indeed the Islamic nations of the world do not share a common well-being with the US. Our well being is to keep the rest of the world poor, as that means there is little competition for our labor force. Our well being is to take all the natural resources from the world at a very low uncontested price.. We can do this because we are a stable and reliable high-volume customer. We can do this because we collude with the Kings of the oil-rich countries of the world -giving them special promises of power within their own countries.. In essense, we are buying off organized crime to get a reliable deal on their natual resources (though this may be an extreme interpretation of history).

So, why does an Iranian, Syrian or even North Korean feel compelled to competed against America? The simple answer is that we're there. We are in the faces of everybody - waiting for our next opportunity to squander (as does a good faceless corporate entity). Watching this historical squandering of opportunities (both political and natural) leaves a healthy distaste and memory. It becomes natural to oppose the golliath - he is so easily flawed. But the concept of taxation without representation comes back into play here... In the UN, there are serious matters of international consequence that do not affect the US, because we have the power to successfully reject anything that is not in our own interest. But smaller countries do not have this same power.. They have the threat of sanction.. The threat of new international law.. Of forceful extradition.. Of international flight restrictions.. Of uncontested public defamimg by other countries. Of having border disputes resolved by 3'rd parties that have nothing to do with the outcome (and thus feels arbitrary to the involved parties). In short, being a 3'rd world country sucks big time. One would quickly find themselves synical. And the leader must necessarily reflect the will and sentiments of it's citizens. Thus the leader expresses public outrage for the politicals powers of the day.

So when the US King declares the most outspoken to be an axis of evil, the stage is set for a party.. A rough and tumble party, where nobody will come out without a hang-over. An alternative might have been to ignore.. To leave alone.. To quietly suppress those aspects of ill repute (such as the bombing of Iranian Nuclear facilities by Israel in the 1980's - long since forgotten).. But the current Kingship has chosen to demonize the potential outcropping of political bad-guys. Doing so has set the stage.. We have defined our opponents.. Not as victims, but as oppressors.. And they need only open their mouths to fullfill those roles.. The US kingship need only follow up with it's own delusions of grandure to wage war against the world (for surely the entire world must eventually oppose the one true leader - as there can be only one). The world is thus devided into 3 camps.. Those that have nothing to gain/lose (classical sweeden, and currently Russia), those that stand to gain by supporting the Giant, and those that can gain local popularity by opposing the Giant.

Somewhere in the middle are we citizens that find the actions of all parties immoral.. How can you stand on the side-lines.. How can you side with an oppressor who pre-emptively attacks those that they fear (Nero presumably feared people and had them executed purely on a whim). And finally how can you commit suicide of yourself and children in opposing a Giant head-on.

With each actor acting on his own behalf, it is difficult to lay blame, but more difficult to outline a path-to-peace. Can the US pull out of Iraq? Certainly. We did it in Vietnam.. The detractors took over power and many innocent people were slaughtered.. We took 15 years of shame and pain.. Military recruite levels were horrendous because people feared another senseless war.. Thankfully history repeats itself and volunteer levels were high enough to repeat the entire debacle....

No, US soldiers are for defending the home-land.. NOT land abroad which is intrinsictlly undefendable. The only possible alternative is an uber military force - the UN.. Something in which we all countries surrender our autonomy over to. If the US military is the monopoly on force within our countries, the local police force can do without machine guns.. If instead the UN represented a similar umbrella of force throughout the world (presumably with an uncorruptable accountability system) then we could drastically reduce our international defence-keeping forces. We could rely instead on international disputes being settled purely by legal system (as do 99.99% of all US domestic disputes).. Police gun incidents are so rare you can watch every one of them on TV.

Now certainly there are a lot of ethnic risks at stake in a UN body, so we are currently not in any condition to hand over domestic autonomy.. Adverse selection would demand that those with the greatest interest in taking away from us would eventually come to power - leaving us with little to defend ourselves with.

But logic dictates that reliable processes do exist - that incentive systems are gradually working us towards centralization. That regional instability dessipates as countries and regions become more inter-connected. As poverty is slowly deminished (or at least as wealth is exposed to one-empoverished regions).

It is hard to deny that brute-force erradication of extremists will inherently fail.. It is as vexing as the war on terrorism where the feedback system promotes further dissodence.. The restriction of supply of drugs necessitates a scarcity which increases the price of drugs, thereby increasing the reward incentives for supplying more drugs.. If a gram of an illegal substance approaches a million dollars, then what resources would be spared in trainsporting such a substance.. Likewise, a war on terrorism is predicated on the perfect eradication of such a supply.. But as the erradication process generates further motivation of vengence and acts as proof of a need to counter-balance an immoral imperialism, you will find yourself in a positive-feedback system which grows exponentially from any temporary decline.

Instead the war on drugs and the war on terrorism need to have the pride of original mistakes removed (the forgiveness of original Sin). The war on drugs needs to have a recognition that supply needs to level out and that regulation of supply needs to occur in a way in which the most demandful are not impeeded - thereby stabalizing the price and removing all incentives for organized crime to participate. Likewise, the war on terrorism needs to silently have all underlying encouragements removed.. An entire generation has been empowered by Israel and the standard US administration-line.. We need to remove all evidence of support of immoral activity against Islam for a whole generation... People may linger to historical addages of the imoral decand west, but we can not provide proof of their disdain.

While the personal lives of our citizens is beyond the control of the politics of a free society (one of the direct calls-to-arms of Alkiada), we can certainly cieze control of Arabic resources.. This means ciezing telling local officials what to do, and of course removing military presence (both physically and economically - including Israel). With America out of the picture, surely militants will arise.. But our new challenge will be in defending our interests in countries that welcome us.. But certainly it is cheaper to define a convoy of US tankers across the atlantic by the primitive use of radar, than the paid-salaries of 150,000 troops in Iraq.

This is not a statement of isolationism, but a statement of double-coincidence of wants. If a country wishes our presence, then it is in our interest to be there.. But if we have to defend against the citizens of a foreign country, then what is the cost-benifit of living in that country.. To say nothing of occupying them.

Pulling out is always costly, but almost always cheaper then continued generational training of our evilness.

Can the King admit defeat? No.. It is unlikely.. Rome was sacked when it started acquiesing to it's previously conquered countries... Instead all that we can do is change the subject.. New administrations can quietly withdraw troops under locally distracted causes (say temporary humanitarian relief efforts - which never get restored).. Public interest is critical - both for the chatty US and for the occupied / malrepresented nations of the world. But while lies can get us into a conflict, they can most certainly restore the status quo... It is not what we say, but how we say it. It is not what we intend, but how we portray it. It is not what we conquer, but how the history books are written of it.

Bush is correct to not give time-lines or to say anything less than "not on my watch". From a Kingly perspective, he will be a failure by doing anything less. And a King is concerned of nothing other than his own legacy - and thereby the legacy of Kings. But again, as a citizen, there needs to be an exit strategy in Iraq - and indeed on the war on terrorism (and drugs and the cold war). Perpetual unwinnable wars are like public entitlements which can never ultimatly be payed.. Pyramid schemes that benifit today at the expense of the day of reconing. Bush made a half-hearted attempt to resolve Medicare expendatures by privatizing medical drugs (meaning, like home insurance, not everybody is guaranteed, but at least we don' t have to foot the bill anymore). Eventually these military expeditions that the US has lead since WWII will catch up to us.. 9/11 is just one symptom of the larger problem.. Perhaps major super-powers like China and Russia will never game a confrontation with us.. But those without a state are becoming more capable and prevalent. It is only a matter of time before the David takes down the Golliath. All that we can do is prove to the world that we are not a Golliath.. That we are a wise Sollomon, fairly dividing the land such that while people may feel short-changed, they can not find the justification of immorality in us.

Such leadership is lamented.. I have seen no contenders.. But perhaps this is the essense of faith and prophecy.