Next up on bailout, subsidies list

Apparently lobstering is not a good business to be in right now. Don't be surprised if we find an earmark coming up soon to qualify lobster fishermen as farmers so they can get those subsidies and welfare payments. Of course, the real problem is that there's too many lobstermen (or farmers) producing more product that the market will buy even at steeply discounted prices.

Tipping point

Usually I find him to be a right-wing blowhard, and often when I do agree with his position I find his logic supporting that position to be questionable. But today Jim Wooten's column had an interesting slant on the tipping point represented by this election.

Consider

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy..." Attributed to various people.

While the source of the quote is questionable, there it is nonetheless.

That tipping point: 220 million eligible voters. 89 million pay no income taxes, and another 65 million pay only 3% of income taxes collected. Obama wants to add millions more to the no-taxes column. More than half of the voters are not paying into the pot of money from which they will control the outflow.

More from that article:

Bob Irvin of Atlanta, a management consultant and former Republican minority leader of the Georgia House, observes that Obama “is trying to convince voters that his new taxes will only hit” those at the top.

“But do the rough math for yourself,” he continues. “Suppose he took a hundred million dollars a year from every Fortune 500 CEO. That’s $50 billion. If you add $100,000 from each of the top 1 percent, that’s 3 million people times $100,000 and that totals $300 billion.”

Continues Irvin: “You’re still less than halfway to the annual amount he proposes to increase spending, which is $800 billion a year. To get there, he’ll have to raise taxes on everybody else an average of $1,500 a year,” including illegal immigrants and those who pay no taxes now.

Note that that $1500 is from every man, woman, and child. And the math here is correct, the $800B figure is commonly quoted for Obama's plans and ($800B - 500 * $100M - $100K * 3,000,000) = $450B. And if the population is 300 million people, $450B / 3ooM = $1500.

Another take on that is this. The expected tax increase for the top 0.1% (income more than $2.87M) under Obama's plan is $701,885, and the expected tax increase on next 1% (income between $603,403 and $2.87M) is $115,974. Now, it seems to me that if I had that kind of income, I could afford to pay accountants and layers to help me structure my finances to minimize my tax load. It certainly seems like a decent trade for me to pay $500k to avoid having to pay an additional $700k in taxes. Or maybe I could spend $100k to reduce my tax load by $500k or for the next group, it seems that if I can spend $50k to avoid paying %100k in additional taxes, then I'd probably do it.

So I have to wonder what Obama is going to do when all those people decide to *not* pay those taxes. Or what the charities these people have been contributing to find themselves short hundreds of thousands of dollars in contributions?

Health care is not a right

Nor is housing, food, or any number of other things socialist nanny/welfare states try to say are fundamental human rights.

To me, it is a self-evident truth that your rights do not trump mine. If the only way you can afford food, shelter, clothing or health care is to force your fellow citizens to pay for them, then you have essentially decided that it is worth enslaving others to meet your needs.

Here's how we can see that health-care is not a right. Imagine that tomorrow every doctor, nurse, P.A., EMT, etc.--every health-care provider--decided to quit their jobs and refused to practice medicine. How then will you exercise your health-care "rights"? Many people will say that doctors will have to be forced to provide care. And those people have just espoused a form of slavery--forced labor is a form of slavery.

Forcing others to pay for your health-care is only somewhat removed from that far-fetched scenario. Each dollar removed from someone to pay for your health care is a dollar they worked to earn. A portion of their alloted time on this Earth was confiscated from them for your benefit.

While I'm on health-care here's some things to consider:

• About 10% of all health-care spending in the USA is obesity-related.
• Between 10 and 15% of all health-care spending in the USA is smoking-related.
• Health-care costs in the USA averaged $6,280 per person in 2004.
• Half of the population spends little or nothing on health care, while 5 percent of the population spends almost half of the total amount. Among this group, annual medical expenses (exclusive of health insurance premiums) equaled or exceeded $11,487 per person.
• In contrast, the 50 percent of the population with the lowest expenses accounted for only 3 percent of overall U.S. medical spending, with annual medical spending below $664 per person. Thus, those in the top 5 percent spent, on average, more than 17 times as much per person as those in the bottom 50 percent of spenders.
• The elderly (age 65 and over) made up around 13 percent of the U.S. population in 2002, but they consumed 36 percent of total U.S. personal health care expenses.
  
• A new study from the Mayo Clinic reports that intensive care accounts for 30 to 40 percent of hospital spending, with the majority of care given to elderly patients with chronic conditions.

Even if you think health-care should be provided by the government, do you think every person in the US (notice I didn't say citizen) should have unlimited benefits? Consider this article:

Ana Puente was an infant with a liver disorder when her aunt brought her illegally to the U.S. to seek medical care. She underwent two liver transplants at UCLA Medical Center as a child in 1989 and a third in 1998, each paid for by the state.

But when Puente turned 21 last June, she aged out of her state-funded health insurance and was unable to continue treatment at UCLA.

This year, her liver began failing again and she was hospitalized at County-USC Medical Center. In her Medi-Cal application, a USC doctor wrote, "Her current clinical course is irreversible, progressive and will lead to death without another liver transplant." The application was denied.

The county gave her medication but does not have the resources to perform transplants.

Late last month Puente learned of another, little-known option for patients with certain healthcare needs. If she notified U.S. Citizenship and Immigration Services that she was in the country illegally, state health officials might grant her full Medi-Cal coverage. Puente did so, her benefits were restored and she is now awaiting a fourth transplant at UCLA.

The average cost of a liver transplant and first-year follow-up is nearly $490,000, and anti-rejection medications can run more than $30,000 annually, according to the United Network for Organ Sharing, which oversees transplantation nationwide.

What does Ana say about her situation?

"It doesn't matter if I'm undocumented," she said. "They should take care of me at UCLA for the rest of my life because I've been there since I was a baby."

Stupid vent in AJC today

"McCain is a maverick? Oh, come on. All he does is push tax cuts, tax cuts and more tax cuts. That is the same old tired idea the Republicans have flogged for years, and what did it get us? Gigantic budget deficit, crumbling infrastructure and a deep recession."

Please. The reason we have a huge deficit is spending. Prior to the recent downturn, tax revenues were at an all-time high in real dollars, and tax revenue increases rose sharply after the Bush tax cuts. Especially helpful were capital gains cuts and corporate tax rate cuts.

And we're *still* not in a recession, despite what people think. The economy grew in the first two quarters, and may have shrunk ever-so-slightly in the 3rd quarter. A recession is 2 consecutive quarters of negative growth. The recession of the early 80s saw 13.5% inflation and 10.8% unemployment. Right now we have 5-point-something for unemployment and inflation. Anyone who says we are in a "deep recession" is just plain wrong. We could certainly be headed for one, and next year we might find out that we were indeed in a recession (once 4th quarter numbers are out).

Great Vent in the AJC today

"My mid-40s son and his wife read no newspapers, no magazines; don’t watch or listen to any news (except “The Daily Show” and “SNL”); have two kids, a large adjustable-rate mortgage, credit card debt and zero savings. Needless to say, they’re just wild about Obama."

"Because they can afford it" part 2

This quote from the Tax Foundation was mentioned in the previous posting:

• The top-earning 25 percent of taxpayers (AGI over $64,702) earned 68.2 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86.3 percent).

Another way of looking at that: Four guys go out for dinner, one guy is forced to pay for everyone's meal, while the other three agree to pay the tip. But they complain about it and would really prefer it next time if the first guy pay for most--if not all--of the tip next time, too.

They think it'd be fair, too, since he makes ten times what any one of them makes. And besides, his steak was better than theirs (probably because he stole the best steak from them while they were taking a smoke break).

"Because they can afford it"

Was discussing some of the tax plans being put forward by the candidates at lunch the other day, and one of the guys agreed with the notion that it was OK to demand more taxes on the rich "because they can afford it". Even after discussing the disparities in the current tax domain (2006 numbers from here and here) he still thought it was a good idea.

• lower 50% pays 2.99 % of income taxes collected
• top 1% pays 39.89% of income taxes collected (AGI > $388.806)
  
• top 10% pays 70.79% of income taxes collected (AGI > $108,904)
  
• lower 50% pays average tax rate of 3%
• top 1% pays average tax rate of 22.79%
• top 10% pays average tax rate of 18.86%
• top 1% earned 22.06% of cumulative AGI (but paid 39.89% of income taxes)
• top 10% earned 47.32% of cumulative AGI (but paid 70.79% of income taxes)
• 41% of the US population will be outside the federal income tax system, essentially free-loading on on other half
• 43.4 million tax returns, representing 91 million individuals will have zero or negative tax liability (out of 136 million tax returns)
• 15 million more households file no tax returns at all
• this is by far the highest these numbers have ever been, as a percentage, going back to 1950 (when it was 28%)
• the "Bush tax cuts" caused this number to jump form 26% to 32% to 41%
• The top-earning 25 percent of taxpayers (AGI over $64,702) earned 68.2 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86.3 percent).
  
• The top 1 percent of taxpayers (AGI over $388,806) earned approximately 22.1 percent of the nation's income (as defined by AGI), yet paid 39.9 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.
  
  

In the face of these numbers, I find it hard to believe that anyone thinks somehow the rich are not paying their "fair share". And to think that anyone would support taking still more from the very people who provide jobs and capital makes even less sense to me.

The notion of "spreading the wealth" is one Marx would be pleased to hear about. It was Marx, after all, who popularized the notion of "From each according to his ability, to each according to his needs." Combined with "because they can afford it" and a skewed notion of "fair share" leads to a bad place.

The ultimate conclusion of this logic is a society where everyone "earns" the same amount of money no matter what their job is or even whether they work or not. Anyone who earns more than the equality line would be taxed for 100% of their income above the equality line. Anyone who earns less will be "given" money from the government to bring them up to equality line, even if their starting point is zero. Now, everyone has exactly their "fair share" of the national product, and the wealth was spread evenly. And those whose "earned" paid into the system more "because they could afford it".

We can see clearly what would happen in such a society. Those with abilities would quickly decide that their efforts are not worth anything more than anyone else's effort and they would abdicate. Soon, they will be forced to labor "for the collective good of society".

Ayn Rand's "Atlas Shrugged" explored this very topic. In that society, well, here's what Wikipedia says:

Looters and moochers

Rand's heroes must continually fight against the "Parasites", "looters", and "moochers" of the society surrounding them.

The looters are those who confiscate others' earnings "at the point of a gun" (figuratively speaking) —often because they are government officials, and thus their demands are backed by the threat of force. Some looters are following the policies of the government, such as the officials who confiscate one state's seed grain to feed the starving citizens of another state; others are exploiting those policies, such as the railroad regulator who illegally sells the railroad's supplies on the side. The common factor is that both use force to take property from the people who produced or earned it, and both are ultimately destructive.

The moochers are those who demand others' earnings because they claim to be needy and unable to earn themselves. Even as they beg for their help, however, they curse the people who make that help possible, because they hate the talented for having the talent they don't possess. Although the moochers seem benign at first glance, they are portrayed as more destructive than the looters—they destroy the productive through guilt and often motivate the "lawful" looting performed by governments.

Looting and mooching are seen at all levels of the world Atlas Shrugged portrays, from the looting officials Dagny Taggart must work around and the mooching brother Hank Rearden struggles with, to the looting of whole industries by companies like Associated Steel and the mooching demands for foreign aid by the starving countries of Europe.

Sanction of the victim

The Sanction of the victim is defined as "the willingness of the good to suffer at the hands of the evil, to accept the role of sacrificial victim for the 'sin' of creating values."

The entire story of Atlas Shrugged can be seen as an answer to the question, what would happen if this sanction were revoked? When Atlas shrugs, relieving himself of the burden of carrying the world, he is revoking his sanction.

The concept may be original in the thinking of Ayn Rand and is foundational to her moral theory. She holds that evil is a parasite on the good and can only exist if the good tolerates it. To quote from Galt's Speech, as presented in the novel: "Evil is impotent and has no power but that which we let it extort from us," and, "I saw that evil was impotent...and the only weapon of its triumph was the willingness of the good to serve it." Morality requires that we do not sanction our own victimhood, Rand claims. In adhering to this concept, Rand assigns virtue to the trait of rational self-interest. However, Rand contends that moral selfishness does not mean a license to do whatever one pleases, guided by whims. It means the exacting discipline of defining and pursuing one's rational self-interest. A code of rational self-interest rejects every form of human sacrifice, whether of oneself to others or of others to oneself.

Throughout Atlas Shrugged, numerous characters admit that there is something wrong with the world but they cannot put their finger on what it is. The concept they cannot grasp is the sanction of the victim. The first person to grasp the concept is John Galt, who vows to stop the motor of the world by getting the creators of the world to withhold their sanction.

The question "Who is John Galt?" is also answered towards the closing of the novel — John Galt is a man disgusted that non-productive members of society use laws and guilt to leech from the value created by productive members of society, and furthermore even exalt the qualities of the leeches over the workers and inventors. He made a pledge that he would never live his life for the sake of another man, nor ask another man to live for him, and founded an enclave, separate from the rest of the country, where he and other productive members of society have fled.

Here's a thought exercise. Everyone has someone they know who earns less than they do. Some friend who is always unemployed or underemployed and never has any money. You know that it's because they've made bad choices in their life. Now, what do you think if I told you it wasn't fair that you have more, and I'm going to take half of your income and hand it to that guy. If you think that's unfair, welcome to my point of view. If you think that's fair and think it's a good idea, why haven't you handed him your money voluntarily yet?

USA Today's pretty fair analysis of bailout causes

I hope this was a front-page article (hard to tell in on-line version) and every reader of that paper studied the article carefully. It rightfully points at two big problems, recognizes both parties role, but rightfully attributes "government" as the primary cause, although it does seem to focus more on the role of Gramm's hedge-fund amendment compared and blame Democrats for fighting Bush's and then McCain's attempts to reign in Fannie and Freddy. When mentioned as a cause, the CRA is dismissed. So maybe not so fair and balanced.

No single government decision sparked the crisis, but collectively the candidates had a point: Both parties in Congress played important roles in setting the stage for the ongoing financial meltdown.

...

"The crisis was caused by government," Gramm says. He cites the Community Reinvestment Act, which he says "forced banks to make subprime (mortgage) loans" to people who couldn't afford them.

Democrats, including Harkin, and many economic analysts dispute that. As for what he learned, Harkin says, "Don't pay attention to Wall Street when it comes to issues like this."

Bailout train wreck

Once again our good friend Bill has produced a must-read link. I have neighbor who stopped to chat while I was doing yard work and we got to talking about the bailout. He predictably ended up with some sort of "I blame Bush for this mess" comment. I stopped and explained to him about CRA, Fannie & Freddie, how Bush administration had tried to do *something* back in '03, and how as stupid a Bush might have been, at least this one thing you can't pin on him or his administration--the bailout program itself, sure, but not the mess the bailout is purported to clean up. At the end of the conversation, I told him to hang on a second, I have something for you to read -- I had printed this article out for myself since it was too long to read comfortably online, so I gave him my copy.

You might keep a copy on hand for just such an emergency.

It's a long journal article. Here's the official executive summary (emphasis mine):

Why did the mortgage market melt down so badly?
Why were there so many defaults when the econ-
omy was not particularly weak? Why were the se-
curities based upon these mortgages not considered
anywhere as risky as they actually turned out to be?
This report concludes that, in an attempt to in-
crease home ownership, particularly by minorities
and the less affluent, virtually every branch of the
government undertook an attack on underwriting
standards starting in the early 1990s. Regulators,
academic specialists, GSEs, and housing activists
universally praised the decline in mortgage-under-
writing standards as an “innovation” in mortgage
lending. This weakening of underwriting standards
succeeded in increasing home ownership and also
the price of housing, helping to lead to a housing
price bubble. The price bubble, along with relaxed
lending standards, allowed speculators to purchase
homes without putting their own money at risk.
The recent rise in foreclosures is not related em-
pirically to the distinction between subprime and
prime loans since both sustained the same percent-
age increase of foreclosures and at the same time.
Nor is it consistent with the “nasty subprime lend-
er” hypothesis currently considered to be the cause
of the mortgage meltdown. Instead, the important
factor is the distinction between adjustable-rate and
fixed-rate mortgages. This evidence is consistent
with speculators turning and running when hous-
ing prices stopped rising.

There are some more choice bits in there too, this is from the conclusions section:

The question that is being asked is the correct
question: how did it come about that our financial
system allowed such loans to be made, condoned
such loans, and even celebrated such loans? The
answers that are being given are not yet the correct
ones, however. The main answer that is being given,
that unscrupulous lenders were taking advantage of
poorly informed borrowers, does not fit the evidence
nor does it dig deep enough.
The “mortgage innovations” that are largely the
federal government’s responsibility are almost com-
pletely ignored. These “innovations,” heralded as
such by regulators, politicians, GSEs, and academ-
ics, are the true culprits responsible for the mortgage
meltdown. Without these innovations we would not
have seen prime mortgages made with zero down
payments, which is what happens when individuals
use a second mortgage to cover the down payment
of their first. Nor would we have seen “liar loans”
where the applicant was allowed to make up an in-
come number, unless the applicant was putting up
an enormous down payment, which was the perfect-
ly reasonable historical usage of no-doc loans (which
require minimal financial documentation).
The political housing establishment, by which I
mean the federal government and all the agencies
involved with regulating housing and mortgages,
is proud of its mortgage innovations because they
increased home ownership. The housing establish-
ment refuses, however, to take the blame for the flip
side of its focus on increasing home ownership—
first, the bubble in home prices caused by lowering
underwriting standards and then the bursting of the
bubble with the almost catastrophic consequences
to the economy as a whole and the financial diffi-
culties being faced by some of the very homeown-
ers the housing establishment claims to be trying to
benefit.

This Vent says it all

In the AJC Vent column (random one-liner musing from anonymous readers):

I am afraid that McCain won’t deliver on his election promises, but I’m more afraid that Obama will deliver on his.

I think this sums up my opinion too.

AJC's Jay Bookman Opined on Obama's Tax Plan

According to the headline: "McCain plan skewed toward affluent; Obama approach more balanced."

After launching the column by highlight McCain's flip-flop, Mr. Bookman proceeds to use analysis provided by the "nonpartisan Tax Policy Center" to repeat their conclusion that “Sen. McCain’s tax cuts would primarily benefit those with very high incomes. … Many fewer households at the bottom of the income distribution would get tax cuts.”

First of all, the Tax Policy Center is decidedly not non-partisan. It is a joint outcropping of the left-of-center Brookings Institution and the Urban Institute. The Brookings Institution's web site proclaims in progressive rhetoric that among their primary goals are to "foster the economic and social welfare, security and opportunity of all Americans" and to "secure a more open, safe, prosperous and cooperative international system". The Urban Institute was created by hthe Johnson administration to study the nation’s urban problems and evaluate the welfare state as embodied in more than 400 laws passed as part of the Great Society initiative and is still funded primarily by federal government contracts. I can hardly see either of these bodies as a bastion of impartiality.

To the rest of the comments, I say "Duh!" When you cut taxes, those benefiting the most, in absolute dollars, will be those who pay taxes. In an analysis of the 2006 IRS data, economists at the Tax Foundation determined that of the 136 million federal tax returns filed, roughly 43.4 million tax returns, representing 91 million individuals, will face a zero or negative tax liability.

A negative tax liability means that these people will not only be paying zero dollars in taxes, they will be receiving a bonus payment from the pockets of real taxpayers. Normally, this is through the Earn Income Tax Credit, which is an anti-poverty program that transfers between $2800 and $4800 from taxpayers to the working poor, provided they have children. However, nearly one-third of the more than $30B expended by this program is going to people who don't qualify (and many who have committed outright tax fraud by claiming it).

On top of that 43.4M filings, another 15 million households will not file a tax return. So roughly 121 million Americans—or 41 percent of the U.S. population—were completely outside the federal income tax system in 2006. And Mr. Obama wants to relieve millions more of their responsibility as citizens to help pay for the upkeep of the country, even in the smallest way. In fact, he wants to just give $1000 qualified families (many of which will now have negative tax liabilities). This is just wealth redistribution, and Karl Marx would be proud.

The Tax Foundation also pored over IRS data to discover that the lower half of tax filers (remember, this does not include the 15M who did not even bother to file) pay, collectively less than 3% of all collected income taxes. The evil, filthy rich, the top 1%? They paid over 40% of all collected income taxes, despite earning only 22% of the the income versus . That means that 1.35M filers paid more than 10 times the collective taxes collected from the 67.85M filers in the bottom 50%. The top 10% paid more than 47% of the total. What, exactly, then is their "fair share"?

Obama's plan will take an extra $788,959 per taxpayer in the top 0.1% (income over $2.8M). Two questions: what is that rich person not going to spending that money on, and do you really think that money will trickle down to the "working class" from the government that confiscates it?

We have a system of government and taxation wherein half the participants are, for want of a better term, free-loading on the system. The old saying is that "A government robbing Peter to pay Paul can count on the support of Paul."

Subprime videos on youtube

Our good friend Bill has pointed these out to me. Worth watching.

This first one is bunch of clips from CSPAN covering a 2004 hearing on Fannie & Freddie.

This one is actually a slideshow (with some bad language).

Ups and Downs

The news publication timeline being what it is, there ware a lot of letters-to-the-editors of the newspapers I read that cried about the 777 point market drop Monday. "Can't you people see we *need* this for working-class folks like me, I was really hurt by the market drop."

I light of Tuesday 500 point recovery, I wonder how many of them will be writing back to say "never mind"?

I also noticed this pattern this week:

• Monday, passage of the bailout bill appears imminent--market tanks by 777 points (largest single-day loss).
• Tuesday, the bill has been rejected by the House--market up over 500 points (3rd largest single-day gain).
• Wednesday, slow news day--market stable, down 19 points.
• Thursday, Senate passed a revised bill chock full of goodies on top of the $700B (and plenty of earmarks in in "must-pass" bill), currently down 250 points.

It looks to me like passage of the bill hurts the market more than non-passage. This bailout bill will further devalue to dollar, set a horrible precedent (like that hasn't happened already), and the earmarks will come to light far too late.

In 2 or 3 years, will taxpayers still be paying for this bailout and be expected to bail out the next big losers (maybe the auto industry will come back for more than the $25B already slipped to them this week while everyone was looking the other way).

Bailout blame: The Government

I still find myself too swamped to make my own comments. But I thought I'd point out this article by an Harvard economist who argues from the same position I laid out earlier.

The current mess would never have occurred in the absence of ill-conceived federal policies.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Let's toss in a column by the ever-erudite Thomas Sowell, who also calls out Barney Frank and points out that the Bush administration tried, unsuccessfully, to reign in Fannie and Freddie.

If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.

It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

Phasing out Fannie Mae and Freddie Mac would make much more sense than letting politicians play politics with them again, with the risk and expense being again loaded onto the taxpayers.