The bankruptcy of San Bernardino analyzed by a Reuter’s article yesterday is a study in the growing dysfunctionality of governments in which public unions and politicians are creating total chaos by spending obligations that defy the laws of math and morality. Fifty years ago San Bernardino was a prosperous middle class city. Today over 1/3 of the population lives below the poverty line while a police lieutenant can retire with a one-time payout of $230,000 and a guaranteed pension of $128,000 per year after that. Nearly 75% of the city’s entire budget goes to the police and fire departments and its largest creditor, Calpers (the California State public employee fund), is owed $143 million. But Calpers says San Bernardino would have to pay $320 to leave its system, because it has banked on a mystical 8 percent projected return on its investment in San Bernardino. The second largest city debt is a list of private creditors that hold $46 million in pension bonds. They are threatening to sue.
Calpers and many other large public funds rely on Wall Street returns. In fact, many of them have entrusted hundreds of billions of dollars to Wall Street fund managers who are paid the huge Wall Street fees regardless of fund performance, and take up to a 20% commission if funds perform. As government pension funding projects further shortfalls (actuaries estimate public pension funds are now only funded with 41% of their obligations) they invest in higher risk stock and hedge funds–treating funds held in trust for government employees with much less respect than the employee would treat his own money. Some public employee pension funds appear no safer than Bernie Madoff’s schemes–they just play by looser rules (GASB vs. FASB) and expect taxpayer bailouts or future generations will pay for money they take from public treasuries. Continue reading →
Our current United States tax structure values slavery more than work. Let me unpack this statement a bit. We tax capital gains at 15% while we tax income on wage labor at 28% to 35%, about twice the rate. This means people will have a higher incentive to earn income through capital gains on investments than to work for a living. However, capital gains on investments are generated by someone else’s work, so one who invests in stocks or bonds is earning an income on someone else’s labor. This can be viewed as a variation on the concept of slavery.
From a moral standpoint, one is more entitled to the fruits of ones own labor than to the fruits of the labor of another. Hold on! you might say. Your capital is providing jobs for other people who voluntarily entered into the wage arrangements that will generate the wealth for the investor. I will not argue against the value of capital investments and the concept of capitalism in general. In fact, I am a supporter. My concern is with who controls capital and for what reasons. I will maintain that a system of taxation that encourages the exploitation of the labor of another more than individual work is morally suspect. I would much rather see people encouraged to invest capital in their own businesses. Current tax laws discourage that.
From a practical standpoint, this tax system encourages the demise of the American middle class, for the capital accumulated in investment funds is generally invested in production facilities in other countries and distribution through chain stores in the United States that pay less for labor. Ironically, the American middle class—both Democrat and Republican—have created this system and fueled it with tax exempt and tax-deferred pension funds.
Democrats often complain about the 1% and Wall Street corruption and corporate welfare that this system generates, but Democrats are as heavily invested in pension funds driving this system as are Republicans. The psychology driving this system is less than noble. It basically boils down to the concept that “I want to earn money and retire on profits generated by someone else.”
Continue reading →
Lower capital gains taxes fueled a Wall Street bubble.
While recently engaged in a dialogue with an individual who was upset with the greed on Wall Street and wanted to increase corporate taxes, I realized that he was unable to understand the difference between corporate taxes and capital gains taxes, and that neither political party or the media have been very helpful in educating American citizens about the difference—and the difference is huge.
Capitals gains taxes are taxes on profits that investors make on investments in corporate stocks.
Capital gains are also profits on other types of asset appreciation, including land, homes, and other non-paper investments. However, with the large increase in managed portfolios for retirement funds, capital gains on paper investments like corporate stocks have played a significant role in reshaping the US economy. No longer are just a few venture capitalists hoping to strike it rich on Wall Street, but tax deferred 401k and 403b retirement accounts have turned most government and corporate employees, both Democrat and Republican, into investors in corporate stocks. Wall Street has become a Main Street idea. Republicans like Mitt Romney, who worked at Bain Capital, argue that these taxes should be kept low so that individuals will invest their money in corporations. Reductions in capital gains taxes were part of the “Reaganomics” strategy that brought in more investment capital and led to the rebirth of the American economy and jobs in the 1980s that is worthy of being called “miraculous.” Their success has caused many people to advocate low or no taxes on capital gains as a way to create jobs, and this is a priority on the Republican Party Platform.
The Wall Street boom that accompanied the increased investments in the 1980s led to many opportunities, challenges, and changes on Wall Street. Large concentrations of money in one place led to many temptations, wider acceptance of greed, higher payouts, and bought-off regulators in the SEC. Banks wanted to begin investing, using money from FDIC guaranteed depositors to speculate on the market. Both Republicans and Democrats received increased contributions from Wall Street and banking lobbyists. There were inadequate checks and balances in the system to prevent this behavior and politicians in both parties turned a blind eye, letting the “good times roll.” Continue reading →
The Federalist Papers: The Best Argument for the Constitution
Today I was sent an article by a friend asking for my response. It is titled “The Birth of the Administrative State: Where It Came From and What It Means for Limited Government” written by Ronald J. Pestritto, Associate Professor at Hillsdale College. It shows how understanding the Federalist Papers can lay bare many common errors and misconceptions about government in our culture and political parties today. I encourage you to read this article, and you will find my response to my friend Alan below.
This is an excellent article. It makes many of the main points that I have been making on this blog, and sheds light on the actions of some particular individuals like Woodrow Wilson, Dewey, and Goodnow who, like Obama, were academics sheltered in the cocoon of their ivory towers and failed to display any real understanding of human nature, incentive, and the production of goods. I think this sentence pointed out the main mistake of the progressives: Continue reading →
The Federalist Papers: The Best Argument for the Constitution
Paragon House has made available a new edition of the Federalist Papers designed for e-book readers. Rereading them might be a good place to start in understanding how to rein in the out-of-control growth of U.S. governments.
The Federalist Papers were written over 200 years ago as an argument for New York State to ratify the U.S. Constitution. They contain an understanding of human nature, political power, and core principles often ignored by today’s political leaders, courts, schools, and the media. This ignorance has led to the breakdown of our political systems and to an unchecked growth of government. The application of these principles to our current governments can unleash the freedom, human energy, optimism, and economic productivity, necessary to provide a foundation for peace. Continue reading →
The Supreme Court, like every other branch of government, has become the playground of special interests. These interests are reflected in their decisions, and in their departure from the Constitutional principles is evident in their arguments as well. The discussion below is intended to help people think about the role of the Supreme Court in a principled way, rather than as a group to which they can appeal to achieve personal benefits or impose moral views on others through their decisions.
The Purpose of Government is the Happiness of the People
When the U.S. Founders established the Constitution, their goal was to establish the best system for all people to pursue happiness. In Federalist 62, Madison stated:
A good government implies two things: first, fidelity to the object of government, which is the happiness of the people; secondly, a knowledge of the means by which that object can be best attained. Some governments are deficient in both these qualities. Most governments are deficient in the first. I scruple not to assert that in the American governments, too little attention has been paid to the last. The federal constitution avoids this error; and what merits particular notice, it provides for the last in what increases the security for the first.
The Declaration of Independence is the Mission Statement of the United States. The Constitution is the legal structure designed to achieve it, and the Federalist Papers are the best explanation of the principles behind it.
The recent Supreme Court decisions on Arizona’s enforcement of illegal immigration and “The Affordable Health Care Act” show little knowledge of the means by which that object can best be attained because they retained a more myopic focus on justifying positions based on legal precedent and popular culture rather than the principles of sound governance that concerned the Founders.
The Supreme Court Reflects Political Factions
Continue reading →
The Widening Gap: The number of the unemployed in the US doubles in 4 years at government’s “brisk” rate and triples in 4 years at May rate.
According to the US Labor Department the United States added about 69,000 new jobs to the economy in May 2012. Yet according to demographics, about 160,000 new potential workers need jobs each month. Add those numbers to the 12.7 million already on unemployment and, at the labor department’s “brisk” growth rate of 200,000 new jobs per month, it would take over 20 years to get the unemployment rate down to 3%. Continue reading →
An image based on fear not science
June 20-22, 2012 will be the dates for a big conference on the environment called Rio+20. It will be held in Rio de Janiero. Before then, and during the event, we will hear many arguments about climate change and why we need a green economy. The climate is always changing, and I believe in the value of science, living sustainably, and thinking “green.” However, I have yet to be convinced that what the United Nations has told us is based on good science or that UN agencies really have the ability to “care” for the environment and, if they did have the ability, they would be the right authority to enact taxes because of conflicts of interest. And, further I have come to be suspicious of the motives of any government or corporate official that uses the logic of fear to garner support that will increase his or her wealth or power.
The Cause and Solution to Sea-Level Rise
Unscientific linear logic
As a case in point, lets look at the issue of sea level rise. In the climate change debate there is much discussion of the rise of oceans as a result of glacial melt. Glacial melt, the argument goes, is a result of global warming; and global temperature rise is caused by the human activity that causes greenhouse gases; and greenhouse gases are created by carbon emissions, such as from burning fossil fuels.The solution, it is argued, is to have a global authority tax the use of carbon fuels and take the money to create sustainable environment programs. Continue reading →
Bankrupt European economies and the out-of-control U.S. debt are problems symptomatic of democracies. Democracy was tried by Ancient Greeks, and similar problems occurred in ancient times. Plato, in the The Republic, listed several problems of democracy, among them:
- Democracies encourage mediocre leadership.
- Leaders must pander to the selfish desires of their constituents.
- Leaders focus on short-term goals to get elected, and
- Democracies tend to spend more than they take in.(1)
Plato’s proposal was to create a communist-type government that was run by philosopher-kings, Ancient Greece’s version of the technocrat. His idea was to assign the most qualified and skilled person to perform important tasks of leadership and education.
While sympathetic to Plato’s desire to create a better society, Aristotle shot down many of Plato’s ideas in his Politics. For one thing, Aristotle understood that the most skilled people may not motivate the average citizen. He argued that one mother with 5 children could better educate them than a philosopher-king responsible for 1,000 children. First, the mother would be personally motivated to care for each child, while the teacher could not give such personal attention to all. Secondly, the teacher would primarily be motivated by the desire to seek an income for himself, and the learning by students he taught would be a byproduct, not the primary concern of the teacher.
Continue reading →
The purpose of a constitution is to regulate the flow of power, not to pass laws
In recent years, particularly in the state of Minnesota, constitutional amendments have become viewed as an alternative method of passing legislation when it is threatened with an executive veto. Such amendments get placed on the ballot by the legislature for a voter referendum. If passed, they become law with any action by the governor. The problem is that the purpose of a Constitution is to establish the parameters and machinery of government, including how legislation gets passed, and rights of citizens that must be protected—not as the vehicle for passage of individual laws.
The purpose of a constitution is not an alternative place to enact taxes or laws relating to the specific goals of political factions or interest groups. That is the purpose of the legislature, and a governor’s veto is an established check on the power of the legislature designed to ensure that bills serve the interest of all parties before getting signed. If a bill cannot get enough votes to override a governor’s veto it should be killed. Our founders did not intend contentious issues that had a simple majority to be an adequate form of government as it does not protect the people from what they called “mobocracy.” Continue reading →