Bread & Butter

Making-the-Case People

2012-01-29T13:56:00.000-08:00

The problem in America-led business management and social arrangements paradigmatic thought is ONE – the entrenchment of just too many making-the-case people. Finally, when it all gets too expensive to sustain, whole activities like Education and NASA get cut whole sole instead of the unnecessary file pushers that make it agonizing for the recipient of the activity and uneconomical for the providing organization.

We all know too well that America is reeling under a massive public deficit that is sought to be cut to ensure the global currency does not lose its meaning. The Corporations too are saddled with incredible costs and are not able to manage the pricing of their products to meet the new spend levels of people now without easy loans that they previously recklessly bit into resting assured on the ‘strength’ of their home ‘valuations’. Overpaid Executives with sticky ‘bonuses’, no matter what the company performance, is, of course, one cause. But there is another generic problem.

American thinking relies, and merrily weaves in, too many making-the-case people into how organizations, associations and governments are run. Your manager does not decide what you are paid and how you are rewarded. S/he, and the level above him, will make the case for what you might deserve. In fact, a whole layer will together make the case. This layer could include several ‘coordination’ departments many of which might not be of any value add and perhaps coordinate NOTHING. Rather, YOU have to coordinate between them to remove impediments to do your own straightforward job! And the decision on your pay, perks, and ‘performance’ will come from someone who does not even know who the heck you are!

You want to exist and involve in economic activities in America as a free person, your company will hire a lawyer to file for your Permanent Residence. But even before that, there will be a whole department to make-the-case for your absorption as a Permanent Resident in the USA. And they will make no case by themselves. Your own departmental manager will have to do that, and this facilitating department will okay it. An expensive Law Firm would be billing the company to take these documents to make-the-case (relay) to the Government officials, that will further make the case if they are convinced. Then some final group of officials will make a decision based on the dynamics between the Company and the Government. YOU, your family, and the goal of becoming a free economic agent, don’t matter! You are just a number tied to your company.

File pusher jobs, and making these sham roles appear wily nilly relevant, is the bane of the modern Organization and Government. Consequences include horrendously complex tax codes, immigration patrols where 20 people want to check your boarding card and passport on airports one after another (thankfully, US is the best on this one as far as domestic flights are concerned or when you are outbound from the US). Visit the Niagra falls and its very easy to get onto the bridge that goes to Canada. There is no sign warning you of it, and once you get onto that bridge, you cannot turn back. If it was not your intention to cross over into Canada, you still have to go all the way to Canada side and then turn back. If you are not carrying your passport, there is an array of officers over there to toss you around, when FINALLY one will run your Driver License through the system and give you the clearance to get back into the US side. Result: Upto an hour of your time lost, NOTHING gained by anybody, at least 10 people’s jobs are supported by the tax you pay, who are all your lords now, not facilitators. And all this to achieve NOTHING – just to record that one guy (you) made a “wrong turn” onto the bridge to Canada!

Healthcare is sought to be provided via the Employer, and now it becomes imperitive to keep a substandard Corporate entity going, with all it's existing Executive and Bureaucracy perks and star-studded payments, else 40,000 people that it employs will lose affordable healthcare.

The big problem is that this file pusher atrocity and waste is not on anybody’s radar. “Government costs too much, so just close down NASA, and remove Music, Drama, and Arts from Public Schools” is just not the way to go. Nor is cutting staff uniformly across all functions in an Business Organization to reduce costs, and lose the ability to serve customers in the process. Executive Bonuses need to be truly Results Linked and not sticky on previous years’ performance, while making-the-case Lordships' burden needs to be located and cut.
It might be a good idea to be a "Nation of Laws", but not of Lawyers, with complicated, confusing and confounding laws and procedures to artificially make lawyers and case makers appear to be of "value".

Market Based Skilled Immigration

2012-01-04T13:18:00.000-08:00

The current system is only going to dissuade more young people domestically from getting themselves educated for high skilled jobs due to artificially depressed wages, while the imported talent will have (and already is) an ever increasing concentration of mediocre people willing to undergo prolonged period of indentured employment.

The American policy on legal, skilled immigration is not working for anyone.

The whole idea of skilled immigration is to make sure a country can tap into the best talent in the World, while preventing a shortage in supply of skills from raising the wages of that labor to levels that it becomes unprofitable to employ them. Yet a pendulum swing in the other direction, with companies calling the shots in the process, and a long drawn one at that, only leads to import and absorption of deficient talent instead of the best, and an unwarranted depression of the wage level for those skills, causing even fewer people to specialize in those skills domestically, especially if the price of Education is also scaling the stratosphere. Add to that the relative ease with which people can come in for low payment employment either illegally or on asylum (often on the pretense that they are persecuted in their respective home countries), and you reap a fast growing pool of people that seek Social Security and Medicare benefits in old age yet the young in that category contribute little to fund it as they just don’t have the income.

The current American skilled immigration system requires an employer sponsorship of a candidate’s permanent residence, and is a goldmine for the Corporations to exploit the situation. Not only a company gets to recruit for cheap abroad, but can continue to pay incommensurately low pay, perks and position compared to the person’s value add, and do this throughout the long process of employer sponsored green card process. A process like this is not merely an asset to prevent artificial wage spikes for certain skills, it is a bigger liability because this is a pendulum swing to the other extreme. Now, you get wages artificially depressed and, over time, you attract mediocre people into the game that will be willing to brave! through years of wage exploitation to receive their prized green card – that takes them towards unemployment benefits, freedom to switch employers, and social security and other gains.

The skilled immigration system has a crying need to be made market oriented, and receive this change fast. The key to a market based immigration system, where the aspiring immigrant is not treated a indentured labor by his sponsoring employer, lies in the following approach:

No concept of employer sponsorship for Immigration

A corporation be made free to recruit outside the country and bring the person in on a Work Visa. The employer pays a fee for doing that, say, $50,000 (or some figure depending upon the size of the company). This ensures that a company goes outside for recruitment only if it is really facing a skill shortage domestically.

Now, in such a scheme, having filed for the Work Visa does not make the employer own the non immigrant worker. The recruit is free to switch jobs at will; however the new employer pays the Government pro rata of this $50,000 fee if this job switch occurred less than 5 years from his import into the country. The Gov then pays off the original employer this pro rata amount after deduction of a modest change fee. The process can continue through to the subsequent employer(s).

In this system, when the person has worked in the United States for 5 years, and has contributed a certain minimum in federal taxes, it ought to be deemed that indeed the American economy needs and has room for this person. S/he can then simply apply, without attorney representation, for a permanent residence, and receive the same upon clearing security checks et al. In fact, in this approach, there is even not as much attraction for a green card, except unemployment benefits, as the person is always truly free to switch employers on a Work Visa, even have out of job periods, and just stay as long as he is able to support himself and his family on his income or savings - if not, he would return to his home country without any policing. A pathway direct from Visa to citizenship could also be considered after having successfully stayed around say, 8 years (or 10) and having contributed certain minimum amount in taxes.

The current system is only going to dissuade more young people domestically from getting themselves educated for high skilled jobs due to artificially depressed wages, especially compared to what it costs in the United States to buy that Education, while the imported talent will have (and already is) an ever increasing concentration of mediocre people willing to undergo prolonged period of indentured employment. Leaving skilled immigration in the tight embrace of Gov officials, serpentine procedures, clumsy legalese, and routine-snug large Corporations is extremely corrosive to economic vibrancy.

Private Companies with Public Aided Bottomlines Are Really Government Departments!

2011-11-10T21:20:00.000-08:00

And their Executives are truly Government Bureaucrats, Only More Expensive; They Are No Entrepreneurs..

These are especially times where size and functions of Government, and what these cost, are in sharp focus. No wonder, for the Public Deficit has scaled alarming proportions, not much different from countries in Europe that are facing collapse, and are seeking, perhaps undeserved, bailouts from around the World, to hang on to their cozy lifestyles. It’s not very reassuring that “USA’s debt is denominated in its own currency, so no need to worry”, even the people shouting this the loudest don’t really know how much such confidence can be relied upon.

The people that have a Right-of-Center approach to Economics were on the ascendant, and perhaps well deserved, given the scenario. However, they have lost considerable foothold over public imagination because they have focused on things that ought to be the last towards cutting public deficit. They have singularly focused on cutting the most (relatively) relevant Government programs such as Unemployment Support, Social Security and Old Age Medical Security, while given a free pass to Corporations that run their “improving” bottomlines on addition of tax holes that others do not have, and Toplines with wasteful Government procurement. These do not quite add commensurate employment in the economy, because the Executives at the helm of these companies first reward themselves lavishly for this effortless (Government showered) Topline and Bottomline improvements before adding some additional secretarial or procedural staff. The need for hiring robust, commensurately paid workers arises only when there is money to be earned in business, in the marketplace, not when its coming direct from Government. Sham employment created with Government doles forever requires support through public deficit and dilutes the importance and payout for capable workers.

The socialism that the Right-of-Center people, ushered into power in 2010, could have succeeded in cutting by now is this Corporate-Executive welfare. But instead of collaborating with other parts of the ideology spectrum on this, they have merely lip-opposed Corporatism (since these companies are nominally private sector) while opposing everything that Government does directly. A much better strategy for a caucus such as the Tea Party would be to change the order in which it wants to reverse elements of Socialism. Else, they not only risk losing all ownership of the popular disapproval of Executive Welfare on public money, but because of not being in tune with what’s priority of the moment for regular people, they will lose the entirety of the economic agenda to Socialism in abandoning the OWS movement entirely for the Left.

The Right of Center formations have to concede that someone that gets money from the Government (directly or as special tax break) on the promise of creating jobs with it, is a Bureaucrat, and not an entrepreneur, and fighting for his privileges does not strengthen Capitalism. An entrepreneur raises money from private parties, and employs people, in order to make profit that's out there to make! An entrepreneur is not supposed to get profits doled out to him on the hope (read: 'dope') that he will then create jobs with a part of these prefabricated profits! A Bureaucrat, in contrast, provides a service that is needed by public at large, and receives a budget from the Government to do so, with the Government deciding the salary that he will make for his service, as also the salaries of people he will employ in the delivery of the service mandated of him. Even the Socialists are opposing the private sector Bureaucrats' extravagance on public money, so the Tea Party types should be putting their weight to it in the legislature where they have representation and the OWS, at present, does not. If the Tea Party can deliver the Economy from the Corporate Executive bamboozle that it is craving freedom from, there is a chance to stay relevant in the Political Economy, else oblivion into the hands of the OWS.

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Insights for the Tea Party from Herman Cain and # Occupy Wall Street

2011-11-05T15:36:00.000-07:00

Corporations and Its Controllers, and Government Departments, are More People than People - Is the Issue of the Times, Not Small Govt-Big Govt as much ~

The Tea Party phenomenon was a very powerful one in 2010. It prevented any chance of US policy going Socialist. But it left one, even more powerful promise, that it had held out, undone and indeed just withdrew from it. While keeping its focus on cutting Entitlements, and unfocusedly cutting Government across the board, the Tea Party walked away from the more important, more immediately relevant, issues of inverted socialism, and faceless organizations having become more important than natural humans. In this withdrawal, the Tea Party has lost the imagination of the independent voters, and it is now the Occupy Wall Street movement that has this imagination for freedom from the Corporate and Government nooses. It’s the nooses we want freedom from, not necessarily getting rid of all Government and Corporation presence. Like, we want a neighbor to stop dumping his trash in our frontyard, not necessarily getting rid of the neighbor with whom we do enjoy the socializing!

The end goals of the Tea Party are a near total elimination of Government and its programs, and it’s not an illegitimate agenda in itself, albeit one that will need a lot of convincing, and is attainable only in several steps. The first step is to first deliver on the promises that got it the support from the independent voters in 2010. Right now that promise is being championed by the OWS movement, not the Tea Party. The Tea Partiers see the end goal of the OWS as the exact opposite of that of the Tea Party – even though the OWS movement has no unanimity on all these other goals peripheral to ending Corporate and Executive Welfare. The Tea Party members have only tried to badmouth the OWS, and withdrawn from ending the feudal mechanism of handing out money to Corporate Executives to distribute jobs with, a mechanism that doesn’t even work while worsening the public deficit - for the Executives keep nearly all of it, showing the Tea Party rants against bailouts and corporate welfare to mere lip service for gathering votes.

The recent Herman Cain debacle around alleged sexual harassment incidents brings to fore the power that faceless organizations have in silencing natural human persons. There are legal processes where an employee’s future can be decided by interaction between the employer and a Government Department, where it doesn’t even matter who or what the person is, like s/he were a mere number. Such ridiculous scenarios are found not just in sexual harassment situations at the workplace but also others, such as the employment based immigration process. The Top-Down handout Economy, where Gov provides Topline and Bottomline to Businesses, is the worst deal for good workers, for it makes them uncritical to business success, and you get more exploitation, including sexual advances with impunity; what else can you get from the guy who thinks he is employing you as charity!?

Faceless Organizations and their higher importance in the eyes of the legal system than natural persons, the rent collection by the people that are at the helm of these organizations and have become the route for Government grants to reach to the intended targets - without any effective discipline, Government or Market - is the issue of the times, not Smaller or Bigger Government by itself. There’s no way for the Tea Party to bypass, and not deliver upon, this key issue, yet stay relevant and achieve the rest of its agenda: Inverted Socialism has to be removed first; only then can there be credibility in engaging with people on the entirety of socialistic policies.

Also See: (Click picture for link)

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Anything But Arm's Length Bailouts

2011-10-15T13:28:00.001-07:00

A new banking crisis, with epicenter in Europe, is widely being speculated. It will be good to learn from the last experience on Bailouts and not do them all over again. There are Other Options abound, than maintaining the undeserved opulence of Wall Street on public money while cutting social programs for children and the elderly.
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Let's face it. The first line of focus that Companies maintain is to shore up their bottomlines and stock prices, followed by maintaining Top Executive compensation.
When a company screws up on its finances and business model, throwing a lifeline at it with additional tax breaks or Government purchases, most of all Bailout dollars, does not imply the company will add employment. It adds employees when there is additional money that its target customers have that it can win by selling more of its products and services. Getting a money shower from above makes it unnecessary for the company to fight more in the market with more employment. So, artificial Corporate or Wall Street resurrections are a hopeless social policy. Besides, these weaken the merit and diligence values inherent in TRUE Capitalism.

Sometimes arresting the fall of a whole sector might become necessary in the interest of averting a cardiac arrest, and death, of an economy as a whole. After all, hitting one's face to spite one's hand isn't such a great idea. In such a scenario, following a process of temporary Nationalization, rightsizing and rightcomping, then reprivatization, needs to be followed. It was very well executed in keeping the American Auto sector from collapsing lock stock and barrel. The same could not be applied on the Banking-Financial system in 2009 because the Tea Party was riding high then with the Independents, on the suspicion that Socialism - Government running Businesses even more than it already has been - was round the corner. The Auto Sector restructuring has now played out its full course, and no incremental socialism occurred as a result. And the process did not enable public money to be cornered by bailoutee Executivedom for their own welfare that they had proven unworthy of. Yet the arm's length bailouts that Wall Street received, and continuous Top-Down policy support with QEs and abeyence of Mark2Market, have resulted in exactly that. The Tea Party murmurs not against it, advocating all deficit reduction with merely cuts in social programs, opposing even plugging the holes in the tax code that are making it regressive! No wonder, TP has lost the imagination of the Independent people. The result: #OccupyWallStreet.

Nationalization isn't the only option. Dodd-Frank in now in place to do an FDIC style resolution in cases of Financial Firms that are not within the scope of the traditional FDIC. Of course, the BEST option, when possible, is to simply let the mangled firm fail in the market without any Executive or agency intervention.

Arm's length bailouts, and other Top-Down Corporate-Wall Street welfarism, are Both a social waste and weaken the spirit and vibrancy of genuine Capitalism.

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Austerity Is for Others!!

2011-10-12T10:42:00.000-07:00

If not fully visible, click on the image:

#OccupyWallStreet: Supporters, Dismissers & Repressers

2011-10-09T18:32:00.000-07:00

The OWS movement needs a redressal of what brought it into existence. Supporting all that it is capable of evolving into can shrivel up the economy to a fraction of its current size, while perpetuating the protested injustice and Corporate-Wall Street prepostriety with dismissal and repression will only fuel it ever more.

The story of the #OccupyWallStreet movement is rather simple. The United States was running a FIRE economy that imploded. The flow of money that enabled economic transactions was sustained by a credit bubble managed by Wall Street with bamboozles ("stock prices are a 'leading indicator' of the Real Economy”) and half truths ("property prices only go up"). While all this 'worked', Financial Institutions employed a lot of people, and took out big rewards for themselves for ‘serving’ society, ostensibly as a fruit of Capitalism. When the shaky system collapsed, Wall Street was able to extract props from the Government in the shape of bailouts and other policies. It, however, now began to worry about currency collapse in the face of huge public deficit. Thus began the demand for austerity.

Whereas the demand for austerity isn't wrong by itself, austerity has to begin with removing subsidies for the sectors that have lost their importance in the economy, so they can shrink to size and compensations that they can legitimately afford by themselves, not with props like suspension of mark-to-market, zero interest rate policies and Quantitative Easing and Fed buyout of toxic assets. THAT is where the Occupy Wall Street movement arises. Austerity needs to begin with removal of Wall Street and Corporate Welfare, rejection of the wasteful Top-Down Reaganomic money introduction, which is now a spent force with a crippling public deficit as its accumulated side effect. Austerity can, and should, also involve shedding of Governmental activity that does not add value to the life of the people, only subjects them to fear and constraints around what they can and cannot do. BUT austerity CANNOT morally begin with cutting Schools and Healthcare umbrella for the people. 50 pupil classrooms, with no music, arts or drama, is essentially a Developing World Education, not something to emulate as a first step towards deficit cutting and austerity.

The OWS movement has its origin in the fact that there is extreme entrenchment in the current configuration of the Wall Street- Corporate Economy, where it’s business “leaders” can screw up royally, and still get maintained in their positions – and compensations, and get to continue running the show, while adding to their own compensations as they lay off more workers. This is like say, a Michael Phelps getting to stay the reigning Champion no matter how his performance lately! and increasing his celebrity brand endorsement fees to whatever he might fancy.

Failure to address the root causes of the OWS movement will harden it along rather simplistic anti-Capitalist and anti-Corporate lines. Needless to say, that would be very destructive. Yet you cannot suppress the movement, nor blindsupport wherever its headed -- only its root causes can be addressed with the removal of ZIRP, QE, all Corporate Subsidies, tax loopholes and Top-Down public spending support to Corporate Toplines and Bottomlines.Introduce money at the roots, and enable the Corporate Economy to target earning this money with sharp, capable, well compensated, motivated workforce.

PS:

In context, it is also relevant to point that runaway Executive Compensation, while laying off workers, became possible under the Top-Down Corporate Support paradigm. While this paradigm is dismantled, it would be best to also create some legal limits to Executive Compensation linked clearly to the cash flow from operations that the company is achieving. Leaving it to the so called “Shareholder Democracy” doesn’t help, for it does not exist. Most shareholders in public listed companies are invested in them through mutual funds, and are only vaguely aware what’s even in their portfolio! Much less that they can in any way decide what the CEO can take out from the company.

The Best Way to Kill Entrepreneurship is to Nanny It ~ Dilbert

2011-09-29T10:32:00.000-07:00

From Scott Adam's blogpost: The Best Way to Kill Creativity:

I wonder if the best way to kill creativity is to encourage it.
This notion will take some explaining.

Humans don't need to come up with new ideas when everything is running smoothly. We need creativity when we're threatened and all of the usual defenses are deemed inadequate. In other words, the best way to generate creativity is to induce hardship on humans, which would be unethical. Conversely, the best way to reduce creativity is to - wait for it - make things nice and comfortable for creative people. In other words, any ethical attempt to encourage creativity will have the unintended effect of killing it.
Devil's Advocates will point out that I've previously said my best ideas come during a relaxing shower. Surely that disproves my idea that hardship is necessary to produce creativity.
But I'll bet the relaxing shower only helps creative people who feel threatened or uncomfortable in their lives outside the shower stall.

Equally True of Entrepreneurship: The Best way to Kill it is by Encouraging it.

When the Top tax rates were in the stratosphere, Reaganomic Supply Side Boons came in like that cool (or warm) shower, but they have overdone their soothing. Doing more Reaganomics will kill its own baby.

Supply Side Econ been a spent force for a while, degenerating from a once Practical Stimulant of Entrepreneur led growth, to now the Philosophical fount for a handout economy, with Governments increasingly entrapping themselves as responsible and empowered to ensure "private sector" Toplines and Bottomlines with purchase and tax stimulants.

Dimensions of Fair Taxation

2011-09-28T15:40:00.000-07:00

In the opinion of this writer, there are several Principles to fair taxation.

The Dignity Principle: Treatment of Income from Investments ought to be same as Work Income

Why should investment receive tax props while not work? Isn’t work that we do, and generate work income from, an outcome of the time and money we invested in what we educated or trained ourselves to do? Why an assault on the Dignity of work by providing tax sops for contributing Capital to a business? Why should the possibility of unlimited rewards, even as liability is limited to one’s Capital contribution, not be sufficient? If, further to it, tax sops are needed by the entrepreneur to get spurred to go into business, then he just ain’t one.

The Means Principle: Contribution towards Public Infrastructure & Institutions according to One’s Means

This implies that the effective tax rates paid by people ought to be progressive with income, not regressive.

The Freedom Principle: Taxation Should Not Encourage or Discourage Any Particular Way of Being

For instance, Taxation should neither encourage nor discourage Consumption or Savings. Each man should be free to choose his mix, especially when s/he is already mandated to contribute-participate in the Social Security system. The “Fair Tax” (federal consumption tax) pushed by many to replace the Federal Income Tax is not really fair, for it robs a person of his freedom, while he already bears individual responsibility for his economic choices. Taxation is a way of providing public infrastructure and general security and institutional blanket under which individual talent and achievement can bloom, taxation isn’t a code of economic morality or manipulation.

Likewise, a tax code that encourages home ownership over renting, or buying with debt over buying in cash, too falls short of the freedom principle.

The Engagement Principle: Taxation Should be Bearable

Difficult to quantify this, but you cannot tax people to the point where they lose the desire to work or invest. So taxes need to be equitable, and generally, as low as possible. In this regard, there is a valid point that there are State and Local taxes one bears in addition to Federal taxes. The States collect taxes ostensibly to provide Education, Infrastructure, and Disaster Management.

Perhaps the rationalization, simplification, and loophole elimination in the tax code can be delinked from uplifting of, and immediate job creation in, Education, Infrastructure and Disaster Management. It can, at first, be just focused on reducing and evenhanding tax rates, while contributing towards bringing the deficit to a financial safety point.

A separate program could be later instituted towards helping State Authorities correctly direct their tax collections to truly public interest activities, with limited money help towards it tied to their elimination of waste in their respective Govs and unnecessary activities and procedures, redirecting their revenues to essential public services and activities, and tax respites rendered to their respective residents.

Fair, Bearable Taxation - Robust Public Infrastructure & Institutions - Controllable Gov Deficits are a Foundation for Economic Prosperity - on which Growth Storeys can be built by private venturing - seeking genuinely earned toplines and bottomlines, rather than extracting Gov procurement, special tax treatments and entrenching a handout economy.

The Foundation Elements can be strengthened as a Single Program, or broken out into several.
.....In any case, Fairness needs no growth excuse.

Fair Taxation is Part of the Foundation, Not a Growth Storey by Itself

2011-09-26T14:29:00.000-07:00

It is nobody’s argument that more one’s income, the lower contribution one must make towards maintenance of societal institutions, be they the police, external defense, education, natural disaster preparedness, or roads. Fair, progressive contribution for shared services is the bedrock of a lastingly viable Capitalist order.

When this foundation erodes, it needs to be restored. Plugging gaping loopholes and special treatment of certain incomes, combined with leaned up bureaucracy in Gov and removed dole support for the fat ones in the private sector, will open the door for a combination of:

1. Reducing tax rates for all

2. Reducing accumulated deficit/GDP

3. Adding or Amplifying, while restructuring as might be needed, such societal institutions as are squarely needed and are currently underactive, and in direct delivery of the services they render, not file and procedure pushing

All of the above are in the nature of systemic longevity foundation restoration, and will unlikely have an immediate economic BO!OM effect by itself, though activities 1 & 3 will indeed seed some employment and incremental demand in the economy, which will provide the reason for private sector investments.

Significant, 100% organic, Exciting! Rate of private sector growth is possible only if a new boom occurs. Robotics, Biotechnology, Virtual Reality, Green Energy are possible contenders as the boom leaders, but it’s difficult for a Gov to will a boom in any sector into existence at any given point in time, as we have seen with the Solyndra disappointment.

In recent times, we have seen booms/bubbles in ERP, Telecom, Dot Com, Web 2.0, Housing, and Government Bonds. They occur when they occur. Low interest rates and abundant credit, or Government buying of what people do not need -- for the purpose of providing Topline nany-support to private sector -- or tax doles for bottomline support, can help them form, but the more artificial the boom is, shorter it lasts, and rather than deflating or correcting along a smooth curve and making way for the next industry, they often pop quickly and menacingly.

Meanwhile, being prepared for natural disasters, to be able to save life before and after it strikes, is a REAL thing that a Government can put public money into. Besides, of course, the delivery of Education and Bridges and Roads.

It might be a good time to stop perpetually seeking economic titilation - to rather focus on solidifying the eroded foundation for some time.

The Top-Down Handout Economy and the Threat to Individual Merit & Freedom

2011-09-14T12:21:00.000-07:00

Water the Ground, Not the Tree Top!

Consider the delusion-pretense of process as the be-all as dangerously complete when Business Brahmins from McKinsey begin to preach that the very concept of individual merit and achievement is bogus:

The Baseline Scenario

Is Meritocracy Good?

with 153 comments

By James Kwak

Two years ago I wrote a post arguing that smart, well-educated, hard-working people did not deserve to make more money than other people, at least not as a normative (as opposed to a utilitarian) matter.

Last night I was re-reading A Theory of Justice by John Rawls. This is what he has to say on the matter (§ 12, pp. 73–74):

“[The liberal conception of the second principle of justice] still permits the distribution of wealth and income to be determined by the natural distribution of abilities and talents. Within the limits allowed by the background arrangements, distributive shares are decided by the outcome of the natural lottery; and this outcome is arbitrary from a moral perspective. There is no more reason to permit the distribution of income and wealth to be settled by the distribution of natural assets than by historical and social fortune. . . . Even the willingness to make an effort, to try, and so to be deserving in the ordinary sense is itself dependent upon happy family and social circumstances.”

There is, of course, much more to individual merit and achievement than the dismissive "happy family and social circumstances" that the quoted article claims. And there is work to be done on equality of opportunity. But my point and focus here is different:

Artificially strengthening Business Organizations with Top-Down handouts, namely even more tax breaks and Govt procurement contracts, will further strengthen their delusion that they merely need some Employee Nos. at the roots, and can treat, pay, promote them as they please, because "their merit or individual capabilities dunn matter". This makes for a vacuous Top-Down economy, not much different from the USSR. In fact, even worse: In the American ‘system’, the handout recipients are private entities (not Government Departments), so the hand-outer Government cannot even dictate how the handout will be utilized – how much for remodeling CEO’s commode, and how much utilized for creating new jobs. If the USSR entrenchment-handout-ocracy collapsed, where our "nominally Capitalist World" is headed on the same inspiration is much more dangerous. Only an achievement economy is a robust one, stamping out individuality and individual achievement on one's talent + hard work - is not a recepy for a strengthful society or economy. But this is not to disagree that there's more to be done towards equality of opportunity.

Corporate Trees need to be designed to collect their own sunshine and suction up and distribute water competently absorbed by the roots. Public programs need to water the ground with money and employment, via strengthening of Disaster Preparedness (damage pre-emptive as well as damage recovery), modernization of schools, roads and bridges, and so on - thereby, create potential customers (purchasing power) for the businesses to attack with capable, well paid, and motivated ground workforces. Showering of money at the top, with unnecessary procurement and tax breaks, sends individual worker merit down the tubes.

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The only meritorious! part in the quoted article is that there is no normative case for paying higher for Education, higher income has to be earned by demonstrating utility. Yet It is a societal mistake to scuttle merit and emphasize behavioral suaveness and political navigation through the entrenched power structures - as has occurred under the Corporato Topdown socialism in the last few decades, with its near single minded emphasis on doing well via "Corporate Ettiquetes", "Managing to survive 'Superiors'", while the Government has been seduced to share the responsibility for Corporate Toplines and Bottomlines....More....
A system of Individual Merit and Achievement, combined with Bearable, Progressive Taxation is perhaps the best - wherein with its progressive tax haul, the Gov provides for equality for opportunity, not outcomes. Government should not get itself into the aim to "creating employment via the private sectors". Beyond having fair, equitable taxation -- with the current tax collections at pathetic 17% of GDP, low taxes and loopholes are overdone and desperately need a correction-rationlization to collect more to deliver on Infrastructure, 21st Century schooling and Disaster fighting -- the Government can only do harm to worker dignity, relevance and deserved compensation if it attempts doing any more for the "private sector" employment - especially as Top-down handouts.

Relevant Further Reads on this Blog:
Back to Basics
When Do Businesses Really Create Jobs
Commodity Management

Of Punters, Entrepreneurs and Distortionary Taxation!

2011-09-13T09:18:00.000-07:00

Abstract:
Market Investors are Not Entrepreneurs. Neither Entrepreneurship nor Investing Is helped by Distortionary Differential Taxation, Which is often one of the Root contributors of Malinvestment Bubbles. Uniform Taxation is the Least Distortionary.
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It is a valid argument that taxation causes distortion in the market. It can skew investments, consumption and work-specialization decisions in particular directions that capital holders, consumers and potential workers might not have taken if there were no taxes. So, tax policy and interest rate policy have been held as the cause of many investment and asset bubbles. The most recent of these has been the leveraged home ownership bubble.

It is not the assertion of this writer that tax policy does not distort and cannot contribute to bubbles. Yet the business of running even a lean, pointed, efficient, unbureaucratic Government raises the need for taxes.

And not just taxes, but any kind of Government tinkering with either the natural return or risk from a proposed venture or activity (like working as a Java programmer) is distortionary.

The next best, least distortionary scheme, to no taxes, is bearable taxes that are UNIFORM across how you earn your income. That is, all income is treated the same way, be it payment for work or an appropriation of business profits, or capital gains.

A bogus argument one comes across ever so often is that 'entrepreneurs need lower taxes than others to get encouraged to start a business, so the Capital Gains tax ought to be lower than taxes on work income'. This thought is wrong on many counts:

First off, entrepreneurs get into business for the thrill of running their own show and for making much more money than in a job, even if that implies they pay more tax (obviously you should expect higher tax bill on higher income!), and not as a tax hedging strategy. To even think of the latter case is a hopeless academic drawing.
Further, Punters in securities (stocks, Gov and corporate bonds included), home prices et al are no entrepreneurs. They know that they are playing the 'greater fools game' especially in stocks, as eventually every stock will typically go to zero when that company fails. The hope in stock and bond investing is that "I will get off before this entity bites the dust (or chooses to default - in case of Sovereign bonds)."
If the Government has to take the responsibility to shore up the returns in a business so the entrepreneurs-to-be can create jobs by Government provisioned Risk-Return trade offs, then what the heck we need entrepreneurs for!? We might as well get some job creation directly by bureaucrats openly nannying these created businesses, cut these middlemen (er, 'entrepreneurs') out then. How's 'make business' of the sort the pseudo pro entrepreneurship types demand better than 'make work'? I would imagine that it is WORSE, in that 'make business' is costlier, on count of having to fund the middleman (aka the 'entrepreneur').
Government trying to provide lower tax rates for income from market assets vis-a-vis other income types is more distortionary than uniform taxation of different income types. Government should stay away from changing the natural risk-return profile of contemplated ventures and asset bets. The least distortionary thing is to uniformly tax all income types, and not encourage one over the other.

Another argument often heard is that a lower Capital Gains tax (compared to tax on other types of income, such as hard work) encourages availability of Capital at lower cost to entrepreneurs looking to Go public to scale up on their operations, so it's private employment friendly. Although that might be true, again few things:

There is no way to keep this within the realm of encouragement and stop it from taking on bubble proportions. Alan Greenspan surely was trying to 'encourage' home ownership not quite create a housing bubble! And we know what happened. Folks wax eloquent about production of Google and the likes on the the free flow of money into IPO and secondary stockmarkets, encouraged by tax policy. But they look the other way on the fact that silicon valley is more a symbol of Capital waste than successful ventures, financed as they are on the mere names of buzzwords and the PhD programs of the venture founders. Which invokes my next observation that:
There is not even a shortage of investment or capital market funds to even theoretically merit a babbycuddle on Capital Gains Tax. If the artificial make available funds for capital formation or consumption be held as prudent and sensible, then there is no case for opposing Fed directed ZIRP, and Keynesian spending, yet we know how harmful these can be to private savers and to the stability of the currency.
Artificially low Capital Gains tax can cut both ways. It makes it easy to jump into a stock, but it also makes it easy to dump it at the smallest of rumor or speculation, destroying 'shareholder value'.

All things considered, it is the opinion of this writer that Capital Gains taxes be given some sort of parity with income from hard work. That is, Capital Gains be added to one's total taxable income, with a portion of it , increasing with holding time, as tax free - as some sort of inflation indexation of the cost basis. Say, e.g., for every 1 year of holding time, 10% of the Capital Gain realized be tax exempt, and the rest simply added to the total taxable income of the person, participating in the same tax rate slabs as all other types of income.

Furthermore, trading of financial assets should also haul some transaction tax say @ 0.5% per transaction, like the Sales Tax on change of hands with physical goods.

Needless to add, rationalization of taxes on income from financial markets will contribute to the competing objectives of deficit reduction, reducing tax rates generically, and funding the Jobs Bill.

Commodity Management

2011-09-06T22:52:00.001-07:00

(Day After Labor Day, 2011)

Has it ever happened to you that you were handled badly by customer service for the product or service you bought, and switched providers? How about had a bad experience with a brand of shoes, or fast food?

It happens all the time. Businesses have to pay for a bad delivery or production with lost customers, from production or implementation of software, to massage therapy, to retail store experiences.

Yet the wish in the last few decades has been to treat production and delivery as commodity skills. To pretend like it does not matter who delivers or makes what you sell, and pay them less and less.

What we have seen in the last two decades is bloated middle managements, with better and better pay, positional glamor and power. The Question that arises, is there any sense (other than the arbitrary wish to see things that way) to treat the deliverers as commodity skilled while the middle management as the ones with some real, suave, situational skills critical for business?

On closer investigation, the scenario is shockingly opposite to what one might expect. Today, in the corporate world, every step in middle management is driven by process and rules. If you resign your job, there is a manager handbook telling the manager how to handle you - on what basis to ascertain and document whether you are worth keeping or a good riddance. If worth keeping, what to offer you to stay on as a first step. What to offer next, how far to go, then what to say if you are just intent on leaving, how to scare you that leaving the current company is such a risky decision for you, given you are so perfectly matched to your current company, like no other! Similarly, performance appraisals, pay hikes, et al, are all mapped out. Any communication of e.g. bonus payouts is standardized for everyone, though it might be signed in your manager or vice president's name! There might as well be a robot in that place and it would make no difference!! No matter who's in that place, it's the same Program that runs, yet it goes by the name of leadership - something that is supposed to be DEFINED by choice making and subjective assessment. And gets paid leadership dough, with the result there isn't enough to hire good quality, well paid direct workers in sufficient numbers. Even those that are hired are constantly bombarded that they don't really make a difference, and their best bet is to play along and support politics of their supervisors and 'superiors', for their individual contribution and skills are commodity. Yet this is but a big bamboozle.

The reality of the matter is that it is the middle management that is a commodity skill in today's world, although the pretense that drives compensation structuring has been the opposite. Factually, other than a few strategic positions at the top, the rest of human Capital is really at the bottom, in the delivery and production roles. These, combined with the right strategy and direction chosen at the top, make or break a business organization. Companies that realize this, and work their hiring and compensation policies and organization structures accordingly, will win the battle for efficiency, motivated delivery force, and finally, customers satisfied with the quality and pricing of the products and services that serve them well.

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Move the Cheese: When Do Businesses Really Create Jobs.

2011-09-04T15:40:00.001-07:00

It's a strongly entrenched meme now that a Business creates jobs when it does well, and cuts when it is doing badly. This is reverse causality conjured up by armchair economists and academics that have hardly run or even worked for a Real Business.

Businesses don't create jobs when incremental profits are handed down to them by Gov as reduced taxes and/or purchasing what they make....Pray, what's the need? The only few jobs when Gov "improves the returns from a Business" are a few clerical and administrative assistent sort of jobs. Gov as a big brother profit booster and these file pushing jobs are actually more harmful to a nation's economic vibrancy than useful. When the money is being sprinkled on the top by the Gov, you only beget business organizations evolve into feudal, bureaucratic, procedure driven entities where money is handed out from top to bottom for a pretense of work, while showing loyalty and niceties correctly upwards, all in the name of Corporate diplomacy and etiquette.

Businesses create Real jobs when there is an incremental business out there to win, from new customers or deepening the footprint with the old. The top down, trickle down money sprinkle on businesses is counter business vibrancy and should not be done in the miscoceived zeal to create jobs. In fact, the need is to cut Gov financing of Corporate profits, to rationalize taxes, and spend part of these savings into languishing items of public services like Education and Infrastructure. A side benefit of it will be new jobs and introduction of money at the bottom, existing businesses will have to hire workers to win this spending power for themselves. Another portion of the cuts and tax rationalization (including plugging loopholes) can be used to reduce Individual tax rates for all, which will further boost the quantum of business out there to win. The final portion will help reduce the debt/GDP, which is also important - to keep the currency meaningful. For a more drastic correction of debt/GDP, a Sovereign default (Quantum slashing of Treasury Debt and Entitlements) is not practically or morally infeasible: More on this one in my next post.

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Austerity Means Prioritization and Rebalance: Not Flip a Coin and Go Cut!

2011-07-15T16:44:00.000-07:00

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The debate currently framed around simply Increase Gov Spending v/s Decrease Gov Spending is stupid. There is a Great opportunity to choose focus and rebalance, while affecting the much needed correction in Gov Income and Expenses towards achieving lower Annual Deficit to GDP ratios.

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The idea of Governmental austerity measures especially makes sense when there is an accumulated deficit and an economic slowdown at the same time, and it looks impossible to wipe out the level of debt/GDP with economic growth that can be reasonably projected. The analogy used is that just like households cut in such a scenario, so should Government. Yet the analogists forget that when households go about cutting expenses in bad time, they show a method behind the madness:

Not everything is cut, there is focus and care behind what part of an expense head is cut, additional income is resorted to that is possible without killing oneself working, and the cuts-and-new income also enable some previously neglected expense heads to get additional allocations that they always deserved but many noxious expenses were preempting them earlier by misguzzling too many funds.

In other words, useful austerity is not as simple as cutting, rather a prioritization and rebalance, such that the debt servicing and current expenses get better against the GDP and current income, without shrinking the lifestyle that doesn’t need to shrink, and is the very purpose of existence!

Things to cut:

1. Complexity in the tax code, leading to harassment of the tax payer, and the need to hire too many people in the tax bureaucracy.

2. Tax loopholes and meaningless deductions.

3. Unfair tax provisions: Why income from active work ends up getting taxed higher than passive income from financial paper? Makes no sense, except maybe if this were restricted to people beyond retirement age, as there is no shortage of Capital these days.

4. Wasteful unnecessary-procedure bureaucracy – e.g. if you are in a town at the border of US and Canada, it is very easy to get onto a bridge that goes to the other country. There will be no signage warning you. Once you are on the bridge, you are not allowed to turn back. And at the other end, you will be stopped for not carrying passport and permit to enter the other country. Three officers will be involved in routine procedure and paper pushing to turn you back. Then at the home end, similar process will ensue involving another 2-3 officers! All for just saying, “Hey, if you want to cross over into Canada, you need to be carrying your passport!”

5. Any Government Departments not really needed – don’t have a list handy with me, maybe there are none? In any case, any excess procedure personnel can still be cut. e.g. instead of cutting teachers and music, arts and drama in schools, cut excess staff and procedures in Department of Education.

Things to improve allocations:

1. Teachers that deliver Education in schools. 50 student classrooms are not a good model of Education and militate against getting the young interested and excited about learning.

2. Music, Arts and Drama in schools.

3. Modernization of Road and Bridges.

4. High Speed Mass Transit.

5. Fundamental Research, including Space Exploration: Later on in life, one might choose to become a Quant Analyst on Wall Street, but a child really gets interested in Science because s/he, at the time, wants to be an Astronaut or Space Scientist or Firefighter or Forensic Detective. Take these careers away and you will find everyone studying Debit & Credit, or nothing at all!

The debate currently framed around simply Increase Gov Spending v/s Decrease Gov Spending is stupid. There is a Great opportunity to choose focus and rebalance, while affecting the much needed correction in Gov Income and Expenses towards achieving lower Annual Deficit to GDP ratios. The consensus to be built is for what Gov should and should not provide, and how to fund it with a fair, sustainable scheme of tax and deficit. This blogger suspects this'll yield agreement on focussed-lean Gov as opposed to simplistic "Small Government".

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Why We Hate the Government

2011-05-23T06:55:00.000-07:00

It, however, does not mean Absent-Government is any answer. The answer lies in vigilant citizenry/voters
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Many Government Departments have a strange way of working. They make circuitous, horrendous rules and formulas and expect the regular folks to be able to follow them. Any mistakes made are a liability to the person concerned. Even the high and the mighty, and the highly educated, are not able to escape – when they are found on the wrong side of this crap, they beget titles like Turbo Tax Geithner and the like! Government does oftentimes make life complicated and burdensome.

Government Departments such as the IRS need to reverse their ways of working. For example, they have ALL the information about a tax payer that works for a salary, his/her bank accounts, as well as trading accounts. These are all linked to one’s Social Security Number. Why not its systems compute the tax liability and send out a payment/reimbursement advice, showing the calculations. Let the person challenge it if something is inaccurate or not taken into consideration. If the IRS under-computed the tax, it’s their mistake for which the taxpayer is not liable. This will become an example of Positive Government.

Because many of our dealings with the Government are inconvenient and messy, people oppose ALL Government programs, even the ones that are needed for a civilized, equal opportunity, individual liberty society to smoothly function. It’s quite a shame that the teacher/student ratios are falling in schools, and they cut important personality shaping music and culture activities, while public Universities are getting out of reach of most people (many girls actually going into prostitution via internet sites to pay for tuition – this is as ridiculous as it gets).

Whereas it is the right thing to reject bureaucracy and file/email pusher jobs in Government (or even private sector for that matter), and the compliance headache that the procedures they create to make/keep themselves relevant slaps on We the governed, there is no need to throw the baby with the bathwater.

Access to affordable Education is the minimum positive responsibility of the State, followed by Healthcare. State Organization is not merely for protecting contracts, private property and from external aggression. The answer lies in vigilant citizenry/voters.

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An' Unto the Issue Room Ye Shall Recycle

2011-05-19T20:14:00.000-07:00

Hankering on “They Deserve to Keep it All”, never mind crumbling schools and University funding, is a eulogy for the Zuckerbergs and the Pages just gone too far.

We like to hold in very high esteem the people who work around creating or exploiting new Technologies to produce something we can all use and enrich our lives with. And it is, of course, a Good thing. But sometimes appreciation can go ridiculously far.

We are appalled with any talk of any changes to the tax code that would make a Mark Zuckerberg and a Larry Page pay more in taxes. “It will kill their creativity. And desire to produce more such things.”

Of course, if you take away 90% of one’s income in taxes, no one wants to create anything. It does not mean, if one is paying an effective tax rate of 20% on an income or wealth generation of say, 1 billion dollars, raising that to 30% will make him not feel any thrill in doing similar work anymore.

But the apparently stronger argument seems to be, “These guys DESERVE to keep their money – ALL of It. So If we have to increase taxes, then NOT for them. They created this money/wealth, and should not be taxed a penny more.”

This Deserve (read: “Especially Deserve”) thing needs to be challenged. As long as money was legally made, you deserved it, as much as another that earned it another legal way. Nobody can really establish how much of it was due to talent, intelligence, hard work and pure luck (“being at right place at the right time”). But let’s even make a distinction for a moment for creation of something like a Google or Facebook, and dig further:

If we look closely, the market Valuation/Quantification of what these guys “Especially Deserve” is HUGELY a product of what the Gov is doing. The zillion dollar internet company valuations occur in times of super low interest rates and fresh money creation, forced into place by Government, oftentimes to tide over a deep recession. We all pay a heavy price for this in terms of disappearing returns from holding our essential rainy day and old age savings in safe places, even accepting negative Real Returns, OR the face the potential of losing it all in riskier places. The numerical value of their valuation, and thereby, what their founders and stock-option holding employees cash out of these companies, has come at the cost of normal people.

“NO NO, we want to encourage people to do certain type of things over another. THEREFORE, the differential taxation even for equal income and wealth-encash.” In that case, put in temporary, specific, measurable, controlled giveaways /“spending through the tax code”, rather than keeping generic, no limit (Read: STUPID) giveaways on Capital Gains and similar incomes.

In a fiat currency economy (and this writer is no supporter of the Gold currency that makes wars more necessary than any “nation building”), money is but a means of individual achievement AND the medium through which people engage in activities that net improve the median joy of living, such that also the next generation is able to get equal opportunity to educate, train and offer themselves for society’s leadership spots. The cheap money that the Fed sends out around is like the bowling shoes that a bowling alley provides to play the game (and then return) - THAT results in these funky valuations and cash ‘urns’. Hankering on “They Deserve to Keep it All”, never mind crumbling schools and University funding, is a eulogy and reward just gone too far.

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Defund-Slash Wasteful Bureaucracy..

2011-04-05T13:38:00.000-07:00

..In Government and In Public Ownership/Supported-Listed ** Businesses.

An oversized, expensive Bureaucracy in public listed ("private!") businesses on Govt support is the Biggest Waste that crowds out the funding of new ideas.

Small Government is a simplistic chant to the extent of losing sight of exactly what it is against!
It is Time to Just Get Back to Basics of Public and Private...and Public & Private (e.g. Postal Services, Education)....with Sensible Taxation, Not Corporate Maintenance** that cannot be sustained anymore without crumbling General Socio-Economic Infrastructure.

** Stewart:

....I stand corrected. That is a corporate tax rate of, hold on, $3.2 billion... negative 60%!

Right Questions Are Most Right When Asked @ The Right Time!

2011-03-24T16:12:00.000-07:00

...Especially Over Nuke Clear Policy

Hey It's 2011 !

2011-03-14T00:40:00.001-07:00

It is the 21st Century. We are getting devastating Earthquakes of Richter intensity of 9. And we seem to be simply unable to withstand anything beyond a 7.5. The Economy today is seeking a fulcrum to lift itself. The Dotcom, followed by property, fulcrums are lost. But man's quest to shield himself from nature's fury is still around. It's time to give vent to it, while also seeding Employment in the process. Even if one finds the thought of fighting or resisting nature (aka 'God') repulsive, doesn't human society, at least, deserve to give to itself a dependable disaster recovery logistics service, like the fire service? There is IMMENSE work to be done in this utility area, people to be hired in large numbers; as also in Geological/Seismic Research; in Construction Research and Engineering, to find and commercialize new construction materials - to be able to build structures that can withstand a Richter Scale 10 quake, even higher.

Visit msnbc.com for breaking news, world news, and news about the economy

Savers & Spenders

2011-02-20T01:40:00.000-08:00

Calling for the Return and Celeberation of Risk in the "Market"
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This is an age old question: Who is more important for the Economy: Savers or Spenders?

The importance of spenders is slam dunk. One man's spend is another man's income. Collapse of spending, owing to fear one is about to lose one's job, or the products in the market failing to excite, or too high priced for the value perceived of them, spells also a collapse of employment.

On the face of it, it appears that Savers are equally important. For their savings make available the Capital for new production that boosts employment. However, the importance of these savers falls when there is a Central Bank- Banking System complex creating the investment money needed by the economy, using the Banking Leverage. The bad part of this Capital is that it is largely debt. For formation of Equity Capital, once again, Savers become important.

So far we can say, public policy need not be concerned with creating savers that want to supply debt Capital to new enterprises, Central Bank-Banking System complex ¦ Banking Leverage suffices. The only useful savers are those that will supply Equity Capital for new Enterprises or will start these themselves.

With the above framework, one can conclude that the protection provided to people's deposits in failing Banks needs to be significantly scaled down. The protection should be reasonably limited to the amount people need for a rainy day, and protection for Bank deposits need not be per Bank account. The older people need more safe money than younger folks, which needs to be factored.

There is a crying need for age based, across-the-Banks, limited protection paradigm. Beyond that, the individual chooses to either spend his money or takes the risk in making equity investments. Much of the economic crisis has been due to the desire of Governments to ENSURE Returns AND Safety to people from Fixed Income AND Variable Income savings instruments, many of which are actually gambling instruments. The need of the time, actually for all times, is that the Govt stays hands-off on returns and safety of savings instruments, with robust protection for the seniors, and very limited for others. The valuation of stocks, and keeping them in a Bull run, is not a Gov responsibility, nor does it make sense to insure EVERY Bank Depositor for USD 250,000, and per Account, at that.

Government needs to focus it's energies and resources on it's real tasks, from Social Security to modest Unemployment Assistence to Education, Infrastructure and Basic Research. It should not concern itself with the Dow Jones or NASDAQ. When it does that, it plays into the hands of Wall Street, then willy nilly it ends up insuring THEIR profits and Bonuses. And this comes at the cost of falling short on Real Gov functions. The only help that the Gov can give to players in stockmarkets is in its vigilance on fraudulent accounting in public companies and "lax" auditors. Also, the need is to recognize that much of stockmarket investments are actually bets on cards the players have no idea how good or bad they are. The gains from these bets need to be taxed no less than income from work, perhaps more.

Due to the gamblerization, the another responsibility of the Gov is to regulate the compensation distribution in public companies, rather than sinking deeper and deeper into showering Corporate and Personal Tax breaks that give No uplift to Employment, only to Executive Compensation and Stockmarkets. These further cause the Gov to fall short on the expected focus of their actions and spending. It obviously receives a backlash from the people, who want Gov to spend/invest their money in what are Government functions, not in strengthening a Bizarro Capitalist / Inverted Socialist "system".

The real Demand Stimulus for the Economy will come from within the Private Sector, by evening out the compensations. As Henry Ford said, "I pay my employees well....so they can buy my cars!" Tax breaks and wasteful Gov procurement is no way to stimulate, and as I wrote above, detracts the Gov, and its money, from its functions in which it is already falling short. If anything, need is to Raise taxes.

As for one's savings and investment, there is a need for individual responsibilty, a return to the classic, individual Risk-Return decision, with Gov hands off from it, except limited protection, more for retirees, with respect to designated fixed income instruments.

Intelligent Design Is Intelligent Economics

2011-02-16T22:08:00.000-08:00

With the blind-gamblerization of the Shareholder, Intelligently Frameworked Corporate Compensation is squarely the Need of the Time.
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(The China Daily Feb 11, 2011)

I learn that pilots of the airplanes that fly us make about $60,000 a year. If this is True, This Is SCARY. For what can you get for $ 60,000. How can this paltry payment attract good people into the profession, and keep the ones already in from not being frustrated with what they can buy for work of such responsibility. Honest to God, I am now scared of flying.

And This is Beyond Ridiculous, when the same airline companies are able to pay it’s Executives and CEOs tens of millions in ‘compensation’. It’s the pilots that we as customers and society want to be well paid and cared for (for motivatedly flying us safely), not the pretty-face CEO, who might not even know how his company executes its businesses. The pretty, vacuous nature of Executive-dom was clearly apparent in 2008-09. The Bank Execs had zero clue what hit them, their apologists in the media and pseudo-intelligentsia bamboozled about that the crisis was a ‘black swan’ event (sic); and the Executives and CEOs of most companies (banking & non-banking) looked at the Government to tell them what to do (nee, help them out). They had no idea how their respective companies are impacted and how they will steer their companies to keep them in black. All they knew is that they need to guard their bonuses (for what!?) somehow, lay people off if that’s what it takes...and/or wrench concessions and tax cuts from Government to maintain them. For this kind of "value add", who wants to pay millions of dollars a year to these guys, with many more millions in perks, private jets, spicy escorts, resort retreats, et al.?

Nah, market “forces” do not evolve a sensible compensation distribution curve in Corporations. Nor do Shareholders. Especially today’s shareholders, that are mere gamblers in company stock. We have no clue what the company they bought does, and how to discern how well it is being managed. It’s just a ‘greater fool Hope’ running full throttle. Even our bets on stocks are placed by managers of funds into which we “invest”. And the crisis of 2008 should have made it clear how “insightful” (sic) these guys are!

Executive Compensations are ‘decided’ by the Company Board-members, that are appointed by…..the Executives themselves! Makes zero sense this system.

There needs to be strong regulations around how much variance any individual’s compensation can have from the median for that company. Also, the ones at the top should have most of the compensation squarely derived from the profits made by the company. It is not a company’s responsibility to equalize Executive compensation from one year to the next.

A regulatory correction of corporate compensation curve is the need of the hour to steer clear of the vicious Deflation cycle that we all fear for. Deflation itself is NOT the cause of layoffs and Unemployment; it is the thoughtless “solution” of it with layoffs that is. Even China has recognized that building and sustaining demand needs them to even out the distribution of the spoils of corporate success. That is also the best bulwark against demand plop, unemployment….and even disinflation (assuming disinflation is even a problem by itself).

Fox News recently had this poll: (left side graphic added by this writer)

With the irreversible gamblerization of the shareholder, Regulations/Restrictions around Executive Compensation packets are Overdue.

Property Market Bugbears

2011-02-16T01:37:00.000-08:00

It might be high time to reconsider the taxation of property, at least of primary residences.

Not long ago, there was a self evident truth on property: “its value always goes up!” This ‘axiom’ resulted in people buying property without a second thought. All the considerations that would make a person stop and think were irrelevant because:

“If I lose my job, or have to trade down in compensation for any reason, and cannot make the mortgage payment, I’ll sell the house for a profit. In fact, this profit itself will keep me going for a while!”

“The property tax and insurance that I pay for the house together is 2% of the price, while the price goes up every year at 4%, so I stay net positive on the property tax that I pay!”

“No price is too high as long as I can make the mortgage payment that I will start at (it might reset later) as the price will still go higher. If the later, reset payment is too high then I can sell and cash out positive.”

But the ‘axiom’ has now crumbled, and it’s better to see the house more like a car, something that you consume but pay for over time. Even if one continues to see an investment angle to it, it has to be seen as buying a share or mutual fund. It can gain or lose value - nothing can be predicted around that with any certainty.

It has now become imperative to assess if the price and payment makes sense. It is even more important to assess whether one will keep a job with which one will be able to make the payments for a continuous 15, 20, 30 years (as the term of the mortgage may be). Nobody wants to dutifully make payments for say, 10 years, and then lose the house with one’s job - because of lack of cash flow to continue payments and a momentary housing market where you happen to be underwater. Towards this, I had blogged about a deferred ownership plan structured like an insurance policy with surrender value. Here, I want to discuss the other bottleneck today in making a home purchase decision. The reluctance of buyers, even when the price is right, leads to avoidable ghost neighborhoods and lost business transactions around home repairs, remodeling, broker commissions, et al.

This other bottleneck is the Property Tax.

Consider that one buys a home for $500,000. The property tax and insurance payment for this comes to about $ 600/month (after factoring in its tax deductibility – ASSUMING you were already itemizing before you bought the house, i.e. were already not taking the standard deduction).

So, even after paying this house off over 30 years, one will still be paying 'rent' of $600/month for the rest of one’s ‘ownership’ (assuming at that point too itemizing is better than taking the Standard Deduction – otherwise the figure goes over $800). This is clearly too high, and takes away half the feeling of really being an “owner”. What was driving people into buying homes before the crisis was the investment angle they saw in them (especially an annual rate of appreciation greater than property tax + insurance payment), which now stands diluted without much chance of resurrection through policy. In order for the new driver – real desire of ownership - to take hold, the property tax side of things will need some work.

Instead of a property tax on everyone in possession of a mortgaged or paid off home, a general Net Worth (Net Wealth) Tax needs to be considered, with a strong dose of partial exemption for one’s primary residence . Individual Home value, per se, as the focus/unit of taxation ought to be shrugged off.

Of BizarroCapitalism/InvertedSocialism, Civility & Liberty

2011-02-11T23:13:00.000-08:00

The independent votes ushered the Tea Party into the Congress because TP were the only ones in 2010 whose sayings held the promise of rolling back “socialism and sticky benefits at the top”. In 2008 similar hopes were from Obama (unfortunately he had such an awful lot to handle together that he just lost out to the games of BigFin CEOs and could not rightsize it to new economic normal). Actually, the message from 2008 & 2010 is identical if you don’t see Obamacentric. But the message stands lost - even to those that the juggernaut sent into Government.
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This is a very good post. I would like to make a few tangential comments:

1) Let's for the sake of argument, say that the financial near meltdown of 2008 was an accident, that the BigFin guys didn't really know what they were doing. If they didn't know what they were doing, they do not, and did not deserve the compensations that they have/had been making, nor a tax code that makes them escape with taxation rates lower than real work executing people...At least, let's get THAT right then. What’s the point of pretending (and waste-showering money over) someone as our superhero when he’s really nothing more beyond Peter Parker?
2) Let's say, again, that they were unaware what they were doing. The bubble of cheap money-MBS formed and, as it got bigger, BigFin automatiche accumulated more and more employees and executives with SuperStar salaries (see point 1 above that these were, in that case, undeserved vis-à-vis any real talent or competence). Now when the bubble has popped, should not the greater part of this phony employment get shrunk? if the economy has to support these "Stars" with such comps, obviously it'll be sluggish in coming back. But these guys got summarily bailed out with no shrinkage. Even beyond the moral side of it, sticky and undeserved "Superstar" Compensation is a clear, practical drag on the economy. I can't but laugh in sadness when I hear that CEOs want to reduce personnel salaries and benefits to be competitive, without talking about what they intend to do about their own rather ridiculous payouts!

3) "Had we been trained to react at the mere signs of incivility when they arise, we could have avoided a lot of tears, fights and misery in our lives."

Firstly, agree. But also:

I'm really afraid these days that all the talk about civility is really going to make commons folk afraid of posting their thoughts and feelings on their facebook, twitter or linkedin accounts for fear of a 'civility police', while the real people (Leaders) that can affect crowds will just come back to old ways in the name of ‘giving voice to the feelings of the people’. Already in the Corporate World, only those in power have the freedom to 'call a spade a spade', and they do so when only it suits them. This cld well get extended to normal people's web life and telephone life as well. Already stuff you write on the internet is visible to recruiters and company executives, and i'm not sure if it's completely safe to post one's views on the web, yet public discussion and opinion formation WAS the biggest intellectual promise that the web ever held. Alas.

I shudder to think that the civility discourse might spin (unintended) an addition to the already "socialism at the Top and fend-for-thyself at the bottom" paradigm. Again, besides the immorality of it (it JUST DOESN'T sound right), it doesn't sustain, and snaps, at some point, real bad. Egyptian paradigm, even in diluter forms, is a virus that we shld guard against installing itself onto our systems, for it gets stronger over time - then yields disruptive change when people just can't take it anymore.

The message of 2010 election results was NOT the technical deficit hawkery and extreme Govt program shrinkage that the Tea Party core stands for. The independent votes ushered the Tea Party into the Congress because TP were the only ones in 2010 whose sayings held the promise of rolling back “socialism and sticky benefits at the top”. In 2008 similar hopes were from Obama (unfortunately he had such an awful lot to handle together that he just lost out to the games of BigFin CEOs and could not rightsize it to new economic normal). Actually, the message from 2008 & 2010 is identical if you don’t analyze Obamacentric. But the message got lost on Obama; and now it has gotten lost on the Tea Party – they are focusing on technically low budget, very small Gov, which is actually unimplementable – at least not right away. There’s a lot the Gov has to make right (before it can shrink from all sides): including amending the wrongs of 2008-10 that are so pointedly highlighted in this post.

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Even China

2011-02-01T13:55:00.000-08:00

Time for Private Sector Stimulus in America.
Reports are out on China's next Five Year Plan. What China, it seems, intends to do are couple of very sensible things:

Direct it's State Controlled Corporations to pay out a Bigger portion of their profits as Dividends.
Direct Companies to improve worker compensations.

China has recognized that its massive savings rate comes about from an income distribution where many get to keep way, way more they can spend. Indeed the Chinese macro savings rate today is a whopping (some would say, ridiculous) 45%! As a result, the mass of people, especially worker population, just don't have the income to comfortably consume even Chinese products, never mind imports. As a result, independent of whether or not the Chinese Yuan is undervalued-by-fiat: as opined by many Economists and countries that find themselves outpriced by Chinese exporters, China ends up with a massive Current Account Surplus.

What China seeks to do is to even out two imbalances in one stroke - the Domestic income imbalance and the imbalance/unsustainability on its External Account. The hope is that some of the improved income of the Chinese people will get spent on imported products, so China's Worldwide exports will be better matched with increased imports, and will not be seen as a nuisance by others anymore.

The above is a great step, and deserves to be praised. The question is whether other countries will similarly realize that it's time to look at the acute income imbalances that they themselves have, and their affect towards their economic stagnation. For instance in the United States, companies are sitting on a stockpile of retained earnings of about $2 trillion. There is a need to put in place policy that encourages that it either be invested into production or distribution (that employs people) or paid out as Dividend. The Corporate Tax Code needs to be reworked imbibing each of the following:

Dividend Payouts be deductible when working out taxable profits of a Company.
Earnings retained for more than 2 years be flat taxed at a signifiacnt rate (say, 20%).
Only individual employee compensation upto $500,000 (including bonus) be tax deductible.
Executive Compensation be regulated and linked to the profit generated by the Company and the general compesation levels in the Company, NOT decided by Board of Directors that owe their positions (and perks) to the Executive Management.

Enough Supply Side Stimuluses - they have long reached zero returns, whether you pump directly to Companies or into Big Fin.

It is Time for Private Sector Demand side Stimulus into the Economy,....Just Like China.