Nontrivial Pursuits

Should the government cut income taxes to stimulate the economy, as the Republicans have urged? No, it shouldn’t. Take a look at this graph Paul Krugman put up on his blog:

According to the graph, it would actually make more sense to raise taxes on rich people than it would to cut them, if your purpose is to fight a recession and stimulate the economy. When Bill Clinton and a Democratic Congress raised the income tax rates of the wealthy in 1993, the immediate result was seven years of strong economic growth. After the Republicans slashed the income tax rates of the wealthy in 2001, the immediate result was economic decline, followed by one the weakest economic ‘recoveries’ on record. Employment and economic activity began to pick up significantly only after the immediate effects of the tax cut had worn off.

To understand why the historical record flatly contradicts the claims of the Republicans on tax policy, it helps to understand a few basics about the economy. Economic recessions are times when unemployment grows, businesses lose money, and measurements of the economy’s performance show a significant downturn. The measurement that gets most of the attention during a recession is the GDP, i.e., the Gross Domestic Product.

The GDP is a measurement of economic output, but it is also more directly a measurement of total SPENDING in the economy. GDP numbers are derived primarily from sales figures, the sales of goods and services. When the economy is in a recession, sales drop because there is a decline in total SPENDING. When spending drops, people lose their jobs. If you want to eliminate unemployment and pull an economy out of a recession, then it is absolutely necessary that you increase the amount of money that is being SPENT in that economy.

(You’ll want to note that the opposite of spending is saving. When money is saved, it is taken out of the economy. When saved money is spent by a borrower, it is injected back into the economy. When an economy evolves into a recession, it is usually because less of the money that has been saved is being spent by new borrowers. Ultimately, then, the only reason why recessions ever occur is because too much saving is going on and not enough spending. Now, it may be prudent for the individual to save for purchases and not borrow, but if everyone were to do this, the economy would collapse into a catastrophic Greatest Depression Ever.)

An “economic stimulus package” can only be effective if it leads directly to an increase in total spending in the economy. Does an income tax cut—-by itself—-cause an increase in total spending to occur? No it does not. An income tax cut by itself cannot produce a net economic stimulus. This is because a tax cut by itself must necessarily be accompanied by a reduction in government spending. Governments cannot spend money that they do not have, so any time a government reduces the amount of taxes it collects, it is automatically depriving itself of the money it needs to continue spending as it had. Unless something else is done a tax cut automatically forces the government to reduce its spending. The ‘something else’ that usually enables governments to continue spending is called borrowing.

When governments borrow money, the economic result is always the same: strong, direct economic stimulus. This is because money that had been taken out of the economy (saved) is then spent by the government. In contrast, an income tax cut by itself takes money that would have been spent by the government and gives at least some of it to savers who will remove a portion of the money from the economy. The only time an income tax cut by itself is not contractionary is when all those receiving a tax cut go out and spend all of it. When that happens, the decrease in government spending is exactly matched by the size of the increase in consumer spending. And when that happens, the effect of the tax cut is neither expansionary nor contractionary for there is no change in total spending. That’s the best you can hope for if you cut taxes and pay for them with spending cuts. Listening John McCain?

Of course, it is far more likely that at least some of the taxpayers who receive a rebate check from the government will either save some portion of it or they will use some of all of it to pay off debt. If/when either of those things happen, the net result is a withdrawal of money from the economy as a direct result of the tax cut. This, because the drop in government spending that would occur would be greater than the increase in consumption spending that would occur. When an increase in consumption spending fails to make up for a decline in government spending, the result is a net decline in total spending and deteriorating economic strength. That, my friends,is why income tax cuts by themselves are almost always contractionary.

The only reason why George Bush’s income tax cuts for the wealthy in 2001 did not throw the economy into a deep depression is because he also did something else besides cutting taxes that actually provided some stimulus to the economy. He borrowed massive amounts of money in order to maintain government spending levels and to finance his incompetently conceived and executed War on Terror. It took all of that borrowing and historically low interest rates to keep the economy from collapsing as a direct result of the Republican tax cut.

If the tax cuts had been given only to poorer people who would have spent all of it, the effect would not have been as contractionary. But because the Republicans gave most of their tax cut to America’s wealthiest people, larger amounts of money were removed from the economy, requiring even more borrowing in order to avoid disaster. Saving is the very last thing you want people to do with a tax cut that is intended to stimulate consumption, so why would you give any of a tax to wealthy people when the economy needs stimulus, not more saving?

Utterly unappreciated by the media is the simple economic truth that tax increases are a true stimulus to the economy, if some of the money collected in taxes comes from people who would have saved it, instead. When/if that happens, money that would have been removed from the economy by the savers would get spent by the government, instead. That is a net increase in total spending, which is economic expansion, any way you look at it.

Why is it that we never hear any politicians proposing that taxes be increased—-on the nation’s richest savers—-as a way to stimulate the economy? Unfortunately, the Republican Party has been so successful in promoting its economic mythology over the years, many Democrats have come to come to accept many of their flawed premises. How incredibly sad for us. Let’s hope that we can start to change that situation this election cycle…

Economic Justice

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There seems to be one crucial difference between Barack Obama and John Edwards that stands out more than any other. Obama presents himself as the conciliator, a peacemaker, as a high-minded individual who will refuse to participate in ugly attacks and counterattacks. John Edwards, on the other hand, has shown us that he expects a fight with the Republicans and wants us to know that he is up to the challenge. Many Democrats have actually chosen between Edwards and Obama based on this one distinction, alone. It’s a subject we need to start examining in greater depth…

It has been rather amazing to see what Barack Obama has been able to do with the very same theme John Edwards first popularized four years ago. Remember? It was John Edwards who got the attention of the Democratic Party in 2004 with his Campaign for One America; he repeatedly criticized the Republicans for their efforts to ‘divide America’ in order to achieve their political ends. He could smell and taste the sweet fruit of cooperation and wanted it just as much as Barack Obama wants it today. But John Edwards is not the same man that he was four years ago. After the failure of the Kerry-Edwards ticket in 2004, John had some time to reflect on things and he finally came to the conclusion that it had been a big mistake for him to support George Bush’s war. While this changed position was certainly significant in itself, I think it also reflected a new willingness in John Edwards to question a number of old political assumptions.

He could see that the doubts he had felt about Bush’s motives and methods—-that a rising tide of patriotism eventually overwhelmed—-were right all along. If he had trusted those inner doubts about Bush’s lust for war, he would have ended up on the right side of history. I think this ‘rude awakening’ also influenced his perceptions of what is necessary to prevail against the Republican Party. He was a front row witness, after all, to the campaign of character assassination that the Republican Party—-once again—-used to pull off another victory over the Democrats. (If the strategy hadn’t succeeded as well as it did, the final vote wouldn’t have been close enough for them to steal.)

I think this is a big part of the reason why John Edwards is focusing on a new message this time. Of course he would like—-as would I—-to see everyone ‘come together’ and end their divisions and join together, hand-in-hand, in a new spirit of cooperation. He wouldn’t be a Democrat if he didn’t feel that way. It’s just that he now has a fresh memory of what our Republican Nemesis is capable of and he knows that The Republicans are going to fight with tooth and nail and misinformation and character assassination and lies about almost every aspect of any health care program that any Democrat might propose.

He knows that when the Bad Guys start employing all of their power and resources and wicked inspirations—-through the Republican Party—-they are not going to be interested in ‘ending divisions’ in the country. Negative campaigning is a strategy that has worked for them time after time after time. One of the most famous of Democratic defeats in recent decades was Hillary Clinton’s [foolish, in hindsight] effort to sell the Republicans and their sponsors on a compromise plan that they never had any intention of considering. They had intended all along to throw up a firestorm of opposition (i.e., divisiveness) in order to utterly defeat the Democrats.

John Edwards knows that once he (or Barack or Hillary) try to get any legislation passed that would actually improve the financial security of the bottom 2/3 of America’s citizens, the only way it will be possible to maintain a non-divisive atmosphere is by simply giving up and not pressing the Republicans for any real change. You know, kinda like how the new Democatic Congress caved in on Iraq last year after Bush made it clear that he would put up a huge fight that they might regret.

I would say that John Edwards now has a more mature understanding of the political landscape and realizes that we need to be willing to call bad guys Bad Guys if we want to be able to stop those bad guys from continuing to hurt people through their political efforts. Why must we accuse and define the Republicans and their corporate sponsors as a threat to the American people? Because if we actually try to do something to improve the lives of average Americans, the Republicans will do their best to demonize us, to misrepresent our motives and our methods, to portray us as people who are ultimately a danger to the American people. That’s what they do. We need to reveal these people to the electorate, not let them get away with their evil machinations.

I suspect that at some point John must have realized that his experience in successfully arguing cases of moral import to juries as a trial lawyer actually made him the best qualified Democrat remaining in the field to represent the American people when the time comes to argue the case for universal health care to Congress and the Republican minority. I really think that John is the only one of the three who could overcome the firestorm of Republican resistance (especially if he had Obama on his team as VP) that is sure to come.

You see people, the Republicans fully intend to be devisive (i.e., define us as a threat to the American people) and they will loudly scream that we are the ones being divisive whenever we voice any criticism of their policies, motives, etc. We will not be able to win against these people if we are not willing to define them to the electorate. In order for us to define them (in a way that will defend us from their attacks), we will need to criticize them. And yes, that is divisive. We need to let the American people know who WE are and who THEY are and why they should want to identify with US (it’s because THOSE people actually are are a threat to US). When the other side is committed to trashing your reputation with a huge investment of resources, it is absolutely necessary for us to embrace divisiveness because that is the only way we are going to be able to provide a victory for [the vast majority of] the American people.

Yes, it’s regrettable that we must be strident in our efforts to obtain justice, but that unfortunately is the reality we are dealing with.

REPUBLICAN NEMESIS
REPUBLICAN NEMESIS (printer friendly format)<—ce2bf9dbee26b0b00772b91b1b859c02—>

Alone among the Democrats who are running for President, John Edwards has boldly made his desire to eliminate poverty a central theme of his campaign, citing the need for transformational change rather than the “same old politics of incrementalism.” A recent article in the Washington Post gives us a good sense of how the Republican Party will attack Edwards’ efforts to help the poor. The response we can expect to hear: “We’ve already tried that before and it doesn’t work. It would be a waste of money.” Are they right? Is it true that there is nothing sensible that could be done for the poor?

It is true that “the poor will always be with us” in the sense that there will always be some group of people in society who are ‘least well off.’ The reason why it is true is because there simply aren’t enough of the highest quality [most desirable] “experience opportunities” available for everyone to experience them. There is only so much beach front property, only so much mahogany that can be harvested, only so many of the ‘best’ restaurants, entertainers, scenic views, etc. The varying scarcity of natural resources is what guarantees that there will always be rich and poor…distributions of money have nothing to do with it.

Any serious effort to end poverty is therefore not an effort to make everyone rich or upper-middle-class, but is simply an effort to do whatever is realistically possible to improve the economic well-being of those at the bottom of the economic ladder. There is much that can be done. What in particular? Well, I’m someone who agrees with John Edwards that what is needed is ‘fundamental, transformational change.’ But what kind of transformational change? For the sake of argument, let’s start by asking ourselves what the best deal is that we could ever realistically hope to offer to the poor and lower-middle-class.

The single most important thing we could do for those living in poverty is completely eliminate the problem of unemployment. I’m not talking about simply creating ‘more jobs’ for them, or providing them with training for jobs that we think might be available somewhere in the country; I’m talking about creating a jobs environment where there are more jobs available than there are people to fill them. Forget about any other considerations for a moment; let’s just spend some time focusing on the many ways that the poor and middle-class would benefit if our political leaders were to create and maintain a constant labor shortage.

In such an economy, the Poor and Middle Class would soon discover that they’d be living in the best of all possible economic worlds. Yes, people would still lose their jobs as they do today, but it wouldn’t matter. New jobs would always be easy to find. Market forces would put constant upward pressure on wages because all employers would be forced to compete with each other for scarce labor. Many employers in a tight labor market would discover that they have an incentive to actually treat their employees with respect. For the first time, the poor would actually be able to enjoy a large measure of economic security (No, they wouldn’t have specific-job security, but they would enjoy employment/income security.)

To put it quite plainly, there is nothing that society could do for the underprivileged that would be more kind, more helpful, or more generous than to maintain a labor shortage for them. What would it cost the rest of society—the upper-middle and upper classes in particular—to bestow this great blessing on the disadvantaged? The answer, in the purest of economic terms, is NOTHING. On the contrary, the upper classes would actually reap a great benefit from the elimination of poverty in this way. Even the rich would enjoy an increase in the amount of real wealth they’d be able to consume.

The reason for this is quite simple: people who are not working do not stop consuming; they just aren’t producing any of the stuff they consume. Somebody else is. As a society, we all become richer in real terms when all those who are idle become productive. If part of your productive output is no longer needed to provide for the basic consumption needs of the unemployed (because they are now producing for themselves), then that means more of your output becomes available to you, for your own consumption. When/if we employ all those who are able-bodied and able-minded in real wealth producing activities, everyone else automatically gets a pay raise IN REAL TERMS.

There are other real benefits that a maintained labor shortage would bestow on the wealthier classes. With jobs more than plentiful and wages on the rise, social pressure on those who are not working in the poorer neighborhoods would increase dramatically. I’m talking, of course, about the social pressure that the working poor would be putting on those able-bodied/able-minded individuals in their neighborhoods who are not working. With the elimination of all unemployment—and a dramatic reduction in idleness—crime rates would drop significantly, providing those who are not poor with an enhanced feeling of personal security.

Another benefit: Since the intelligent way to create and maintain a labor shortage is for Congress to increase its spending on a variety of public investments—e.g., infrastructure, education, environmental cleanup, health care unencumbered by paperwork headaches and qualification issues—both the rich and the middle-class would end up enjoying a higher quality of life as a consequence of the elimination of poverty through the elimination of unemployment. These are true economic investments, the kind that make us all wealthier in the long run.

And then there are the intangible benefits of eliminating poverty that would accrue to the wealthy. By allowing themselves to be taxed more, they would make it possible for Congress to eliminate poverty through increased expenditures on public investment. If it were made clear to the poor that the acquiescence of the wealthy to a higher level of taxation is what made it possible for them to finally enjoy true economic security, the lower classes would quite naturally feel a deep sense of gratitude toward the affluent, instead of resentment and hostility. What would that kind of feeling be worth?

Gratitude, a cleaner environment, a big reduction in crime, less highway congestion, a better educated populace…all are benefits that those at the top of the economic ladder would be able to enjoy if poverty were eliminated by eliminating all unemployment. If John Edwards wants to turn his dream into a reality, he would do well to emphasize loudly the ways in which the upper classes would benefit from the elimination of poverty and not allow the Republicans to frame his crusade as little more than a Robin Hood scheme to steal from the rich and give to the poor (guaranteed to fail, anyway, right George?).

“Don’t do it for them; do it for yourselves, if that is what matters.” This is the kind of message that the press, in particular, needs to hear from the Edwards campaign. As we have witnessed over the past two and a half decades, the press has been all too willing to accept as legitimate the self-interest arguments that the Republicans have continuously promoted. (Not all that surprising, since most news reporters/anchors are solidly members of the upper-middle-class, if not the upper class.) They are the ones that John Edwards needs to win over with his own self-interest arguments.

(There is still one more major reason why the rich should want to eliminate poverty by eliminating unemployment: it wouldn’t cost them anything in terms of lost purchasing power to do so. See why this is true here.)

(Concerned about the problem of inflation? You’ll want to read this.)<—b7b2994b1bcba2601086052b0fdd9303—>

Working title: Smart Rich vs. Stupid Rich.

An advice book for The Wealthy.

Yes, many advice books have been written for those who would like to be wealthy some day, but how many advice books have been written for those who are currently wealthy? My book will explain how this privileged group of individuals can act to OPTIMIZE the amount of real wealth they are able to enjoy in their lifetimes.

I think there just might be a market for such a book.

Much of what I will be putting in Smart Rich vs. Stupid Rich can be found on various pages of my website. If you want to get a good general feel for its content, read Make The American People Richer. Also, The Progressive Income Tax: Theoretical Foundations.

Throughout the book, I will be emphasizing the difference between real wealth vs. financial wealth. To understand the difference, just try to imagine what it would be like if everyone were to somehow become extremely rich in dollars one day and then we all decided to retire and live off of our accumulated ‘wealth.’ We’d all be able to enjoy lives of luxury, right? Well, no.

We’d all soon discover that we didn’t actually possess any real wealth at all, because no one would be producing anything of value that we could buy. The only reason why money has any value to us is because it gives us a claim on the productive efforts of others. How wealthy you actually are depends more on what others are doing than it does on your personal accumulations of paper notes.

The Real Economy is the productive behavior of people; it is the actual goods & services that people are producing and trading and consuming. If we want to optimize the welfare of the citizenry, rich and poor alike, then we must optimize the productive output of the populace.

Ultimately, discussions about money flows should only matter to us if it can be shown that they affect the status of the Real Economy in some way.

So if you are already rich and you want to become richer still, then you are going to want to make sure that all able-bodied and able-minded people out there are producing something of value. Why? Because those who are not working do not stop consuming; they just aren’t producing any of the stuff they consume. Somebody else is.

As a society, we all become richer in real terms when all those who are idle become productive. Look at it like this: if a portion of your productive output is no longer needed to help provide for the basic consumption needs of the unemployed (because they are now producing for themselves), then that means more of your output becomes available for your own consumption.

If I am successful in my composition efforts, rich people will come to see that their personal enjoyment of wealth and their financial [& even physical] security are dependent on their ability to get all those idle poor people out there working. That’s when it really becomes fun to be rich. Not only do you get to be rich, but you also get to know what it feels like when all the people who are poorer than you actually feel gratitude toward you for what you have made possible for them.

The best thing about the economic agenda I propose? The wealthy are not asked to make any kind of real, material sacrifice. Contrary to what their friends over at the Republican Party have been suggesting to them, it is not possible to deprive the wealthy of any of their purchasing power when they are asked to pay taxes in a way that preserves their ‘rankings’ within the hierarchy of all disposable incomes earned.

This may be the single most important insight that my book will provide to the rich people who run our country. Market economies guarantee that the wealthy cannot be hurt by progressive income taxation. To understand why, read the book when it comes out or simply read through the articles I’ve provided links to. Your eyes will be opened to a new world of possibilities.

Unfortunately, I don’t really know how to go about getting this book published. The first problem is that I don’t have any time to spend on composition. My financial circumstances are such that I must spend all of my time either working as a wage earner or on trying to figure out how to earn more income in order to meet my obligations to my family. They have great needs right now (medical costs, a Christmas without presents, etc.) and are depending on me. Maybe I could fulfill my obligations to them and still write the book if I could somehow get a decent-sized advance, but I have no contacts with people who are in publishing and I don’t know who might be receptive to my ideas.

Prior to composing this blog entry, it occurred to me that I really should be using all of the resources at my disposal in my search for needed income, and that would include my website. I may not get a lot of traffic coming to my site [since there has been no time/money to promote it] but I do seem to be getting an increasing number of visitors to my site who were referred by search engines like Yahoo, Google, and MSN.

So I’ve decided to make this appeal to those who aren’t afraid to invest in a possible happy future. Maybe some wealthy soul out there who sympathizes with my goals will read this and feel inspired to help me turn this book into a reality. Or maybe some regular visitor who happens to know some people in the publishing business will mention my work to them.

So there you have it, folks. All I can really do at this time is present myself and my idealistic goals to the world through my website and then see if anybody cares. If you have any advice for me on how to get my articles turned into a book, send me an email at:

james@nontrivialpursuits.org

My family and I would be most grateful…

James J. Kroeger<—1864b3ba0911299ae74b6b42e5be45df—>

Throughout this summer’s Israel-Hezbollah war, certain opinion-makers in Israel argued that it was absolutely crucial that Hezbollah be crushed or the consequences would be very dire. Some claimed that Israel’s very existence was threatened. Today, there is little doubt that the Israelis themselves see their army’s failure to destroy Hezbollah as a major setback.

For decades, Israel has sought to provide its citizens with Security by ruthlessly crushing any efforts the Palestinians might make to resist Israel’s absolute power. It’s an approach that is supposed to work in theory by eventually convincing the Palestinians (and their Muslim supporters) that RESISTANCE IS FUTILE. The perception of futility is supposed to be followed by resignation and then sullen acceptance of Israel’s demands. With an Israeli gun pointed at their heads, the Palestinians will supposedly—-eventually—-accept the demands that Israel has been making of them and then peace will finally be achieved.

For a number of years, it actually seemed as though Israel might be able to succeed with this approach. At the end of the last decade, many people were hoping that Yasser Arafat might settle for Peace With Dishonor at Bill Clinton’s urging, but then he ultimately backed off of the idea. Now, in the aftermath of Hezbollah’s impressive “victory” against the mighty Israeli army, everything has changed. Palestinian militants have been given a booster shot of hope and inspiration. But that’s not all; Hezbollah’s victory has also boosted the confidence of Iran’s passionate leaders, who can now be expected to respond to any threats George Bush might make with a smirky, “Bring it on…”

So what now, Israel? What kind of future do you have to look forward to? The Wall is not going to protect you from long-range missile attacks. Some day, the enemies you have made will obtain nuclear weapons. What happens to your security then? Do you want peace with your neighbors, Israel, or do you not? Maybe, just maybe, this little wake-up call will prompt Israel’s opinion-makers to begin reflecting at length on the virtues of a fresh, new approach to peace negotiations with the Palestinians. After all, they’ve spent fifty-eight years relying on their Tough Guy approach and it hasn’t worked.

Perhaps it would help if they began by re-examining the most fundamental aspects of their situation. Forget about the immediate threats that you perceive at the moment, Israel, and ask yourselves what kind of peace would you ideally like to experience in the future? Do you want to arrive at a point where you are actually able to live without fear? Do you want to some day see smiles on the faces of your Palestinian neighbors? Do you want to feel a warmth of Good Will radiating from their hearts? If that’s what you want, then you are going to have to try a much different approach from the one you’ve been embracing.

EXTREME GENEROSITY

In order for the Palestinian people to ‘let go’ of all the bitterness and resentment they feel now and start having positive feelings of friendliness for the Israelis, it is absolutely essential that they be able to walk away from the negotiations table feeling as though they had won a tremendous victory. They need to end up with a settlement that is so incredibly generous, and so filled with face-saving Israeli [and American] concessions, they won’t be able to contain their joy at their good fortune. They need to feel as though they have won a great victory and their Muslim sympathizers around the world need to see that the Palestinians are delighted with their good fortune.

What the Israeli people need to understand is that this is the kind of Peace Settlement they are going to want the Palestinians to end up with because it is the only kind of settlement that is going to give them the Lasting Peace—-the freedom from fear—-that they truly want. They need to change the hearts of the Palestinians with something dramatic. The Israelis will know that they have finally achieved true peace when they start seeing smiles on the faces of the Palestinian people, smiles that reflect authentic feelings of gratitude and friendliness toward them.

It’s your choice, Israel. Endless war, with the likelihood of nuclear devastation in the future, or a true and lasting peace with your neighbors. What will the Israeli people get for the high price they might ultimately have to pay? Only their “Right to Exist” from the only people who can legitimately grant them that right, the people who used to own the land before Israel’s founding fathers took it from them at gunpoint. Yes, the Palestinians will be willing to grant the Israelis the right to inhabit and rule the land they once owned, but only if they feel as though they have been handsomely compensated for it.

All of the hatred that half the world currently feels toward Israel would come to an end. The Israeli people may feel as though their founding fathers achieved a great thing when they resurrected the state of Israel from the dustbin of history, but they really haven’t achieved a thing, yet. How about impressing the world with a dramatic and historically unprecedented move to change the deeply resentful feelings that your current enemies have toward you? How about giving the children of Israel a future that is cleansed of their fear of annihilation?

Do you want all of these things, Israel? If you do, then you’re going to have to do something like this:

Agree to a compensation package that overwhelms the Palestinians with its generosity. Give them [virtually] everything they’ve been demanding for the past forty years plus a little bit more. Pre-1967 borders. Jerusalem becomes either an international city, or a multi-capital city. If it becomes supremely important to Israeli negotiators to turn some of the Jewish settlements in the West Bank into Israeli land, then the Palestinians must be given twice as much pre-1967 Israeli land in compensation. The way to win the good will of the Palestinian people is by shocking them with your ‘new leaf’ commitment to astounding generosity.

The Israelis need to get over the urge to get best deal they can, by bargaining “tough” with the Palestinians and threatening them with more pain if they don’t give the Israelis the things that they want. Instead, they need to stun the world with an amazing display of good will and a generous spirit. On top of all the territorial concessions, throw in a huge amount of cash at the Palestinians. Make them feel as though they had all just “won the lottery.” Would $30,000 per family be enough? $50,000? Pour an equally generous amount of money into the construction of new businesses, industries, and modern infrastructure in the new Palestine.

Where would all the money for this come from? Well, if we were to take all the money that Israel and the United States are now spending on their Wars on Terror and then solicit big contributions from Europe, Japan, China, and the rich Arab states, it should not be difficult to put together a pot of around $500 billion, which should be more than enough to overwhelm the Palestinian people and instill within them a feeling of great pride and satisfaction. They would finally have Peace With Honor.

AN APOLOGY

There is one more thing we could give them that would guarantee the success of the Extreme Generosity approach. It is actually something that Israel cannot give them, but the United States can. It is also something that would not cost the American taxpayers a cent. What might this magical ‘something’ be? A formal admission by the United States government that we had been wrong all along in getting ourselves involved in the dispute between the Israelis and the Palestinians. Why would we do such a thing? Because it is the simple truth.

Mistakes made by American leaders in decades past are ultimately to blame for the fear that Americans currently have of one day suffering a nuclear terrorist attack. It was good old Harry S. Truman who first got us involved in the Arab-Israeli dispute and it was his decision in 1948 that put us on the side of the Israelis. At the time, the American people were feeling a lot of sympathy for the Jewish people after the horrors of the Holocaust were revealed, so it was easy for them to consent to a plan to ‘give them a homeland’ where they would be free of persecution.

Unfortunately, everyone in the press conveniently ignored the fact that the land the U.N. decided to give to the Jews happened to belong to someone else. To understand how the Palestinians (and some Jews ) see the creation of the state of Israel, imagine a similar thing happening here, in America. What if the Indians who lived in New Jersey 300 years ago fled by boat to Europe instead of becoming assimilated into the developing American culture?

What if, over the years, those Indians educated themselves and kept their sense of ‘nationhood’ alive and maintained a dream of some day returning to their homeland? What if they started emigrating back to New Jersey in big numbers maybe 60 years ago and made it clear that they intended to get their land back? What if the majority of European nations supported their cause and sent them military hardware and financial support? How do you think the modern inhabitants of New Jersey would feel about the claim that the land really belonged to the Indians because they had once lived there 300 years ago?

I’m pretty sure I know how most property owners in New Jersey would respond. Outraged? You bet. Militant? You can count on it, especially if the seizure took place at gunpoint, as it did in Israel in 1948. The truth is that it is impossible for the United States to justify its support for Israel while declaring loudly to the world that it is outrageous and immoral for one country to invade and annex another. It’s theft at gunpoint, any way you look at it. This is why the Palestinians and their Muslim sympathizers are so crazy angry at the United States, because they see the incredible hypocrisy of our political leaders and are outraged that we do not see the injustice and sympathize with their plight.

Yes, it’s true. Our sympathy for the Jews—-a good thing—-is what ultimately led us to make an incredibly stupid decision to approve an illegal and immoral act. Maybe we weren’t guilty of malevolence, but we are nevertheless paying the price now for the moral/intellectual lapse we had back then. Since Nine Eleven, we have been spending hundreds of billions of dollars on Homeland Security and on the Iraq & Afghanistan wars and we will be spending trillions more in the future if we cannot get ourselves on the right side of history. Does this mean that we are supposed to start hating the Israeli Jews now? Of course not. But no longer can we play favorites.

WISE PARENTS

Americans have become accustomed to seeing the Israelis as their friends. I’m not recommending that we just toss that aside. When a parent sees his child being chased by some angry adults who live at the far end of the neighborhood, he will naturally assume that his child is being victimized and will threaten the pursuers if they do not cease chasing his child. But if he listens to the adults and finds out that his child stole something from them and damaged their property, he will not abandon the child, but will reprimand him and insist that he do the right thing to make amends.

If he is a Wise Parent, he will feel a little embarrassed, but he will not hesitate to scold his child. He will recognize that an opportunity exists for his child to learn some important lessons about life through acts of atonement. But if he is a Foolish Parent, he will ignore all evidence that is presented to him of his child’s guilt and will accuse the angry adults of ‘just hating’ his child for no good reason. He will focus, instead, on being loyal to his family members and trying to defend them from all outsiders, no matter what they might have done to earn the antipathy of strangers.

For 60 years, America has been a Foolish Parent re: the Arab-Israeli dispute. Because our ‘child’ has always been in the wrong, we now have a lot of people around the world hating us for our moral hypocrisy, who see us as an arrogant enemy of Justice. We can bring an end to the Arab-Israeli Feud if we would stop being foolish and start being Wise Parents, instead. We have a moral responsibility to try to talk the Israelis into doing the one thing that is going to bring true peace to their land.

For Israel, it is actually quite simple. They are not going to get True Peace without Happy Palestinians and they are not going to get Happy Palestinians unless the Palestinians are able to achieve a negotiations settlement that is ‘unbelievable’ in its magnitude. Israel can give them that and still keep at least 90% of what they had in 1966. They will have to give up a little, but they will have won the biggest prize of them all, the one that has eluded them for sixty plus years: the acceptance of their “right to exist” by the Palestinians.

When the Palestinians grant them this right, then the rest of the Muslim world will grant it also if face is saved with the gifts of extreme generosity and the United States apologizes to the Muslims of the world for mis-reading their grievance. If/when the United States does this, there won’t be a dry eye in all of Islam. The ‘Clash of Civilizations’ will be over. Peace will have finally arrived.

James J. Kroeger is a ‘Philosopher Economist’ who has presented a number of analytical examinations of various moral/political/economic issues on his website, Nontrivial Pursuits. He has a Master’s degree in Economics from the University of Texas at Arlington but confesses that his ultimate goal is to publish an in-depth examination of the emotional side of Human Nature.

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Nontrivial Pursuits links of interest:
Republican Nemesis
Economic Justice

Senator John Edwards has decided to join Supply-Sider Republican Jack Kemp in an effort to turn America into a nation of savers.  Sounds like a great idea, doesn’t it?  The only problem is that, if such a goal was actually achieved in any big way, the economy would be thrown into a deep recession, possibly even a Depression.  

When public officials start to talk about the nation’s savings habits, they need to keep a few key economic facts in mind:

Number 1:  ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS (households, firms, governments).  That’s where the money comes from that pays everyone’s salaries.  An increase in GDP (spending) generally reduces unemployment.

Number 2: MONEY SAVED IS MONEY NOT SPENT.  A decision to save is a willful decision to not spend.  

Number 3: EXCESSIVE SAVING CAUSES UNEMPLOYMENT.  It’s what caused the Great Depression of the 1930’s.  People who had money—-that they could have either spent or saved—-were choosing not to spend it.  People who would have been happy to spend that money did not have it in their possession.  Generally, when people start to save more and spend less, jobs disappear.  When that happens, we call the result a Recession.

If John Edwards wants to join in an effort to turn America into a ‘nation of savers’, he’s going to have to explain at some point why he wants something to happen that we know is going to worsen unemployment (if the goal is achieved in a big way) while at the same time saying that he wants to reduce poverty.  The way out of this dilemma is for the Senator to start being more specific in his stated goals.

Having more savings available at your disposal is a wonderful goal.  The only problem is that it is possible for too much saving to occur in an economy.  As long as there is zero unemployment, we don’t have to worry about excessive savings levels in the economy, but whenever there is a shortage of jobs, the very last thing we need is an increase in total savings.  We’d need more spending of saved money, instead.

This constraint should not deter John Edwards in his efforts to encourage and enable more savings for lower class households, but he needs to start making distinctions.  He needs to point out that when there is too much saving going on in the economy, it does not mean that everyone is saving too much money.  The problem is that some people are saving too much money; even while others are not saving enough.  In effect, these Super Savers (generally, the Rich) are ‘hogging all of the available savings’ that the economy can safely tolerate (without creating or worsening an unemployment problem).

Senator Edwards would be able to help his cause (aiding the victims of poverty)——as well as distinguish himself from other political contenders—-by pointing out that the real problem the nation is facing when it comes to the topic of savings is not that there is an inadequate level of total savings in the economy, but that there is an inequitable distribution of the total savings that the economy can safely tolerate.  The upper-bound constraint that we face when it comes to total savings forces the realization that we can safely increase the savings of the poor and working class only by reducing the savings levels of the very rich.  (Yes, it really is a zero-sum solution.)

When there is any level of unemployment in the economy, the federal government is morally obligated to tax the `excess savings’ of those who need extra savings the least—-the Rich—-and spend that money on improvements in the nation’s infrastructure.  Their excessive savings are thereby re-distributed through job creation to the poor, who are then in a better position to save money for themselves.  That’s really the only way we can increase the savings opportunities of the poor without damaging the overall economy.

Of course Senator Edwards is right that we need to do something to help the poor to save money.  But let’s not let the Republicans take that sympathy and translate it into a general call for all Americans to save more.  We need to be very specific about who needs more savings and who needs less.  It is, of course, the poor who need more savings but at the same time rich people need to spend more of their savings on improving the nation’s infrastructure through their government.

Let’s not let ourselves get tangled up in yet another of the clever obfuscation schemes that the Republicans use so well.

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Nontrivial Pursuits links of interest:
Republican Nemesis
Economic Justice

Saving money is a wonderful thing, isn’t it?  If you can manage to save a decent amount, it can provide you with a measure of much-valued security.  Indeed, some people think so highly of the habit of Saving they refer to it as a virtue.  So is that what it is?  A virtue?  Well, let’s just ponder that concept for a minute.  What kind of world would we be living in if everyone were to start saving money and no one were to ever borrow again?

Well, we can be sure that one of the most celebrated benefits of saving money—-the opportunity to earn interest income—-would disappear.  It turns out that savers need borrowers.  So how can we say that saving is a virtuous act if it is necessary for some people to dis-save in order for the savers to benefit?

There is a certain ideal that all savers pursue as a sort of ultimate goal: to save a very large amount of money and then retire and live off their accumulated dollar wealth.  Isn’t that what all the financial experts out there are advising us to do?  But just ask yourself what the world would be like if everyone were to somehow become extremely rich in dollars one day and then we all decided to retire and live off our accumulated money wealth.

We’d all be able to enjoy lives of luxury, right?  Well, no.  What we would soon discover is that we actually possessed no real wealth at all because no one would be producing anything of value that we could buy. In order for savers to benefit optimally from the saving of money, they need to have a lot of other people out there who are not able to save like them, but who are forced to work for a living, instead.  

The Real Wealth of the economy is its productive output: the real goods and services that are produced by our combined work efforts.  The more we collectively produce, the richer we collectively are, in real terms.  It ultimately doesn’t make any sense for us to all seek to become millionaires, because we cannot all live off of the productive efforts of “others.” But that’s actually the Republican Party’s ‘solution’ to the problem of poverty, isn’t it?  

What we should all seek is to maximize the production of real wealth in our economy so that we can maximize our consumption of real wealth. Enhanced economic security is something we can provide ourselves with, but it’s not going to come from everybody finding a way to save more money. The good news is that we can collectively provide ourselves with something (financial security) that we cannot all individually hope to provide ourselves with.

There is yet another very important reason why the practice of saving of money is not always a good idea.  If everyone were to “perfectly embrace” the ideals of thrift that are endlessly promoted by voices within the financial community, the result would be an economic disaster.  That is to say, if all Americans stopped borrowing money and they committed themselves, instead, to the practice of putting off all purchases until they had saved enough money to pay cash for them, America’s economy would immediately collapse into an economic depression, perhaps one that would even exceed the Great Depression of the 1930’s.

Why do we know that this is an absolute fact?  Because we know that ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS.  Just ask yourself where the money comes from that pays for nearly every job holder’s income?  It comes from the SPENDING of other people.  An economic recession is defined as a period of time when there is a decline in aggregate spending (GDP).  When spending drops; jobs disappear.  That’s what happened during the Great Depression; too much SAVING was going on.  People who had `extra’ money that they could have spent, chose to save it instead.  Those who would have spent the money if it had been placed in their hands, did not have it in their possession.

There is no denying that—-all else equal—-an individual will benefit from saving money so long as not everyone else is also saving money.  But we need to understand that the practice of saving money is not a pure virtue because bad things can happen if too many people are saving too much.  Yes, go ahead and try to save as much money as you can, but understand that when there is any level of unemployment in the economy, the government is going to have to reduce total savings if it wants to improve the welfare of all.  The only issue then is which savers should be asked to give up some of their savings in order to help the national interest?  I say tax the savings of those who are in the best position to make a sacrifice: the extremely wealthy.

It may be prudent for an individual to save (or save more) in certain circumstances that are strictly defined, but it is ridiculous to refer to the act of saving money as a virtue.  So can we please stop referring to Saving as some kind of Absolute Good, one that a society can never get too much of?  If anything, economic history has taught us that exactly the opposite is true.

The Misunderstood Relationship Between Savings & Investment

James Kroeger

In my previous blog entry, I suggested at one point that the solution to the problem of unemployment in America is for the government to tax savings and spend that tax revenue on increased production of Public Wealth. One Democrat whom I respect, Jude Nagurney Camwell, had this to say:

At a time in this country when we are a debtor nation and so few are saving, and while credit debt runs the typical American life, I don’t think it’s politically responsible to tell Americans that savings are being treated punitively.

There is no doubt in my mind that Jude speaks here for many Democrats who, I’m sure, would be aghast at my suggestion that savings be taxed. These would be the Democrats—-many of them economists—-who have been regularly citing the decline in the nation’s Personal Savings Rate as proof that America needs to start saving more. Well folks, I’m here to tell you they’re wrong.

In order to pursue this discussion at all, we need to first understand the relationship that exists between savings, spending, and income. The BEA economists who calculate America’s Personal Savings Rate will tell you that money saved is income that is not spent. That is to say:

SAVINGS = INCOME – CONSUMPTION

That’s how the economists at the BEA arrive at a total savings figure; they calculate it from income and spending numbers. America’s Personal Savings Rate is simply the percentage of total income that is saved:

PSR = SAVINGS / INCOME
or
PSR = (INCOME – CONSUMPTION) / INCOME

If you’re mathematically inclined, you’ll want to note that if expenditures are constant, a higher INCOME number will result in a higher calculated Personal Savings Rate.

The reason why the nation’s calculated Personal Savings Rate does not provide us with useful information on national savings is because BEA economists do not include in their calculation of total personal INCOME the income that households earn from capital gains. They have their reasons for doing this but they are not ultimately good reasons, for capital gains income can be either saved or spent on consumption, just like any other kind of income. If they were to include capital gains income as part of total personal income, the result would be a significantly higher calculated PSR.

From this, we can see why the calculated PSR has declined while the Republicans have been running the Federal government. As they have cut the income tax rates of the wealthy, a greater share of the nation’s total income is comprised of capital gains income. This is because the very wealthy are most likely to use the huge gifts of disposable income that the Republicans have given them to buy assets, like stocks and real estate. When those assets appreciate and are sold, they provide income.

It is not, however, this flaw in the calculation of the Personal Savings Rate that tells me that America is currently saving too much. It is unemployment. Far too many Democrat economists have ignored the ultimate economic truth that ALL JOBS IN THE ECONOMY ARE DEPENDENT ON THE SPENDING OF OTHERS (consumers, firms, government). That’s where the money comes from that pays everyone’s salary: the expenditures of people or organizations. Savings have never created a single job, ever.

When there is any level of unemployment in an economy, it is because too much money is being saved. Think about this for a second. What is a recession? Officially, it is a decline in GDP. GDP is a measurement of aggregate SPENDING. Whenever a nation is having any kind of problem with unemployment, there is only one way to solve the problem, and that is by spending more. Where is the additional spending supposed to come from? Well, didn’t we just say a minute ago that any income that isn’t spent is money saved? All else equal, whenever there is a drop in aggregate savings, there will automatically, and necessarily, be an increase in spending. More spending means more jobs created.

In another article I’ve written, I pointed out that increasing the amount of income taxes that are collected from wealthy savers is something that is guaranteed to provide a economic stimulus to the economy. This is because it takes money that would otherwise have been saved (by rich people) and spends it instead. Yes, you heard it right: INCREASING taxes provides a stimulus to the economy if the citizens who are being taxed more are the nation’s biggest savers. Increasing the taxes of citizens who would have spent the money that they would be paying in taxes (the poor and working class) would do no good, because the increase in the government’s spending would be exactly matched by a decline in consumer spending.

Now, to say that there is too much saving occurring in the economy is not to say that everyone is saving too much. If your country’s economy needs a reduction in total savings (an increase in total spending) in order to eliminate unemployment, it makes sense for the federal government to only tax the savings of those who need ‘extra savings’ the least. The ultra rich should be asked to give up much more of their ‘extra savings’ than middle-class savers are asked to give up. Indeed, in order for more people in the lower-middle-class to be able to save more without their additional savings hurting the economy, it is necessary to ask the ultra rich to save substantially less. For a number of reasons, the best way to achieve this goal is to simply make the income tax much more steeply progressive.

There is only one “rate” we can refer to that will tell us if the participants in an economy are—-collectively—-saving enough and that is the employment rate (there are flaws in the unemployment rate). Unfortunately, far too many Democrat economists have embraced without question the ‘more is better’ assumption when it comes to savings. It’s a simplistic assumption that is flawed on many levels. Let’s hope that they can begin to acknowledge that there are certain times when a net increase in total savings will have a positive effect on the economy (when the economy is experiencing hyperinflation) and other times when additional savings will have a negative effect on the economy (when there is any level of unemployment).

Nontrivial Pursuits links of interest:
Republican Nemesis
Economic Justice

It seems as though the Democratic Party has always been somewhat pro-immigrant, if not actually pro-immigration.  That is to say, Democrats seem to have viewed immigrants as deserving of sympathy because they are poor and all, but at the same time, the native poor of this country [who also deserve our sympathy] feel threatened—-and for good reason—-by the influx of immigrant labor because it tends to drive down their wages.

From these two distinct sympathetic Points of View we have seen the development of two separate factions within the Democratic Party.  Yes, we’re talking about the Pro-Immigrant Democrats vs. the Labor Democrats.  During the past week these two groups have become, shall we say, increasingly impatient with each other.  Some Pro-Immigrant Democrats were starting to sound like they were accusing Labor Democrats of being racists who “just hate foreigners.”  In response, many LD’s have started to accuse PID’s of having a traitorous lack of sympathy for “America’s own poor.”

This kind of division within the party is never a good thing.  Unfortunately, ‘party regulars’ have demonstrated during the past week that they are quite clueless as to how it might be possible to get these factions on the same side.  Although both sides are guilty of missing opportunities to resolve their differences, I put slightly more blame on the Pro-Immigrant Democrats for not allowing themselves to fully appreciate the concerns of Labor Democrats.

Who can really blame Labor Democrats for not wanting to see the bargaining position of America’s working poor deteriorate even more than it has during the past couple of decades?  It’s not difficult to see the root of their concerns.  In a Market Economy, workers will only see real gains in their wages if the demand for labor becomes greater than the supply.  Given this reality, Labor Democrats are rightfully concerned about immigration because it brings more job-seekers into an economy where real wages have been in decline for quite a while.

Instead of addressing this fundamental concern, Pro-Immigrant Democrats have typically fallen back on sympathy arguments and on borrowing the “it’s not so bad” arguments that have been generated by Republican Corporate Interests to downplay the consequences of immigration on the domestic labor market.  Not surprisingly, it’s an approach that hasn’t won over too many Labor Democrats.  If PID’s want to gain the support of LD’s to their cause, then they are going to have to support measures that would completely eliminate the concerns that LD’s have about low wages.  Do that one thing and they will find Labor Democrats eager to stand shoulder-to-shoulder with them in opposing harsh restrictions on immigration.

Instead of being viewed as a threat by LD’s, PID’s could easily transform themselves into The Best Friends of Labor.  All they need to do is start putting the blame for Labor’s predicament where it truly belongs.  The problem is not too much supply in the labor market, it’s too little demand.  Unemployed people should be seen as an opportunity, not a problem.  They provide society with an opportunity to produce more real wealth—-Public Wealth—-that would improve the quality-of-life of ALL Americans.

It’s an opportunity that is exploited whenever the Government increases the amount of money that it spends on infrastructure—-highways, sewers, education, etc.  Increased government spending on these Public Wealth Initiatives immediately translates into job creation.  You see, all jobs are ultimately dependent on the spending of others (of consumers, firms, governments).  Any time there is any level of unemployment, it is because insufficient spending is taking place.  This is a problem that Congress can correct at any time by simply choosing to spend more on Public Wealth creation.

Of course, in order for Congress to spend more money, it needs to obtain it from some place.  Are there any citizens in our country who could afford to be taxed more in order to increase the nation’s production of Public Wealth?  As a matter of fact, there are.  You don’t want to tax those who are already spending all of their income; if you did, the total amount of spending would just end up being the same.  Government spending would increase but consumer spending would drop by the same amount.  There would be no net increase in spending or jobs.

If, however, the government were to tax the wealthiest of savers, then we would experience a real drop in unemployment, and a real gain in Wealth Production.  When the government taxes savings, it takes money that was removed from the economy (not spent or received by anyone) and puts it back into the economy by spending it.  The net increase in aggregate spending creates jobs. If Congress increases spending enough through this method, it will be able to eliminate unemployment and bring about an End To Poverty As We Know It.

This is the kind of economic agenda that Pro-Immigrant Democrats could embrace and promote that would virtually guarantee an end to the rift that currently exists between the them and LD’s.  Their position should be: “Put the blame for America’s declining real wages where it belongs.  It’s not the supply of labor that is the problem; it’s the insufficient demand for labor that has been hurting both America’s poor and the poor of all other countries.

Pro-Immigrant Democrats need to tell America: “Look, forget about immigration.  That’s not the problem.  The problem is not having a party in control of Congress that will act to eliminate the problem of unemployment in America.  If Congress were to commit itself to creating and sustaining a chronic Labor Shortage in America, it wouldn’t matter how many immigrants cross the border, we’d still see improving real wages because the demand for labor across America would still be greater than the supply.”

Ultimately, this is an economic agenda that could be exported to other countries.  The reason why Mexico has a big problem with unemployment is because its political leaders have not been willing to tax the savings of Mexico’s richest citizens.  If they did that and spent the money on a vast improvement of Mexico’s infrastructure, then Mexico would leap into a better economic future.  With full-employment in Mexico, you’d find very few native Mexicans wanting to cross the border into America.

Once we’ve fixed our own unemployment problem in America, we could begin to put pressure on countries like Mexico to eliminate their own unemployment problems just like we have.  The result?  The immigration issue completely disappears from the American political scene.

James Kroeger<—bff53e4ad6e2e70665c19ef209867d52—>