Don’t Fear the Tax Man, Unless He Only Comes For Thee

Taxation

In my last blog, I examined how Democrats work their payouts to their supporters, so that they can retain, and hopefully expand, their winning collation.  As I explained in that post, Social Safety Net programs like Social Security and Medicare, are specifically designed to help large swaths of the population in the hope that people who need those programs will support the party that created them, in other words, prompt them to vote for the Democrats.

And the Republicans, to combat this, must engage in a strategy to make people believe these programs are not sustainable, and then they must offer an alternative carrot to the voters.  The one that they have fixated on is “Lower Taxes.”  Their point behind this is that if taxes were lower, people could put money aside for their own old age.  It stresses personal responsibility over shared burdens.  And honestly, like all public policies, it has both a good side and a bad side, some truths, some lies.  But at the end, it is simply an alternate vision, designed to woo voters to their side.

Or, I should say, it was, until the administration of George W. Bush.

Now it is a harbringer of a sea change in American politics, one that can be read to show that democracy is no longer really needed or desired.  Until “W,” tax cuts were either targeted to the poor, as in the Earned Income Credit (a Gerald Ford policy) or an across the board tax rate reduction, as in the Regan Tax Cuts.  These tax policies benefited a wide swath of voters, and could be viewed as a way for the Republicans to combat the social programs of the Left and draw in voters.  This actually worked for Reagan, who won re-election by an astounding margin.

But, with the Bush II tax cuts, something seemed to change.  Although taxes were still cut across the board, the bulk of the tax cuts were targeted to the super wealthy.  In fact, the richer the person, the better they did with the Bush Tax Cut.  Since 2008, the Republicans across the country have doubled down on this policy, and the bulk of the tax cuts have benefited multi-millionaires, basically the 1% Club.  Although crumbs are still thrown at the Middle Classes, many, and sometimes most, people actually see their taxes go up under current Republican policies.  The only uniform beneficiaries are at the top end of the tax rates.

At the moment, people are still accepting this, because the story has been sold, and bought, that the rich pay far more than their fair share.  Even though this is true on a certain level, progressive tax policy recognizes that Bill Gates can afford a 5 million dollar annual tax bill far better than a minimum wage earner can afford a 500 dollar one.  I should note here, progressive in this usage does not refer to the political left, it simply refers to the idea that taxes increase the more money you make, and go down the less you earn.  Regressive taxes are the opposite, and hit poor people harder than the rich.  Sales Tax, which is uniform, regardless of your income, is an example of a regressive tax.

However, the tax changes currently under consideration by Trump bring regressive taxation to the fore.  Two policies especially are extremely regressive; removal of the child deduction and elimination of the mortgage deduction.  These two policies are among the most progressive tax exemptions, as poor and middle class people spend a lot more of their income, percentage wise, on children and interest.

It’s almost like Trump could care less about using tax policy to win voters.

In fact, this becomes very similar to the payouts that you see in dictatorships and monarchies.  This is because this payout affects only a tiny percentage of the voters, and screws over the rest.  In fact, from a political standpoint, this would be very, very stupid, as the last thing you want to do in a democracy is piss off a sizable percentage of the population.

Unless you no longer care about democracy.

And this is where these policies begin to terrify me.  If Trump was concerned about winning elections in the standard method, i.e. winning the popular vote, he would want to make sure his agenda benefited the widest swath of people.  But what if he didn’t care about that?  What if he, and the Republicans in general, were no longer interested in paying off a large segment of the population?  What if they were only worried about gaining the support of a small, but very powerful, segment of the population?

In that case, their policies would look a lot like these; screw the bulk of the voters and further enrich the already rich and powerful.  That is not the pattern of behavior in a democracy, where you have to please wide swaths of the population, that is the behavior of a party unconcerned about democracy.

In a democracy, you have to get 51 percent of the people, or at least the voters, to vote for you.  This doesn’t matter in a non-democratic country, where the leaders are selected through some other method.  And here, I would like to point out, despite a earning 3 million vote margin, Hillary Clinton is not the president.  So the finger of inequity is already on the scales.

So, tax cuts that are specifically targeted to the richest segment of society are casting light on a real problem, one that may grow, unless we do something about it.  Up until recently, these massive tax cuts for the rich have gained widespread approval because of the aspirational nature of American Society.  We all expect to be rich someday.  In fact, most people consider themselves to just be “temporarily embarrassed millionaires,” to quote John Steinbeck.

However, income inequality is beginning to raise its head, as many, maybe even most, people begin to recognize their children will do no better in life than they did.  Worse, many people have to face the fact that their children will not do as well.  The aspirations are more and more becoming obvious pipe dreams. This very well grounded concern is what actually pushed Trump into the White House, at least if post election surveys are to be believed.

However, the actual policies being enacted don’t follow from addressing the concerns of the constituents.  The actual policies are very much those of an oligarchy, where the “peasants” have no voice.  Why would this be?

Perhaps it is because they know that they can ride this wave for a couple of elections, get their policies enshrined in such a way that they will be hard to undo.  Possibly they think that they can say that the opposition to helping the poor was “too great,” and use that to fuel outrage to gain even larger margins.  Perhaps this is simply a bait and switch operation, where they feel that they can con the voters into voting against their self interest for years to come.

Or it could be a much darker reality.

Perhaps they have decided that we are moving down a new path, one that doesn’t need millions of voters.  Possibly they no longer care if people are happy, now that they have the majority.  Maybe they think that democracy is a bad idea, and they want to shift to something new, something that will pay off fabulously for them at the expense of the rest of us.  It is possible they believe the democratic experiment has run its course.

If this is the case, the rest of us need to show them just how wrong they actually are.

The Zombie in the Room

Automation

Capitalism is dead.  It isn't apparent yet, because it is still shambling around like the zombie it is, but for all of that it is dead.  Really in the end, it was the victim of its own success.  It survived for centuries, outlasting revolutions, adversarial paradigms and even outright attempts to stack the deck in the system. 

The one thing it cannot survive, however is automation.

I know that seems like an odd thing that would kill off a dominant economic system, but it has and it will.   The reason, automation eviscerates the center.  And just like a person cannot live without a digestive tract, capitalism cannot survive without a middle class.

People see that capitalism is failing, at least intuitively.  Right now people are focused on a number of things that they claim are destroying capitalism.  However, they are focused on symptoms or phantom causes, not on the actual rot at the heart of the tree. 

The Right screams regulations, minimum wages and health care spell the end of the system, and we will be left with socialism or communism.   To a certain extent, they are correct; we will have to turn to a form of socialism if we continue on this path, but not for any of the reasons they claim.  The Left, on the other hand, blames income disparity, greedy business tycoons and mega-banks for the downfall.  Again, as with the Right, they have some correct points, especially where greed is concerned.  But again, they miss the forest for the trees.  Not that the individual trees are unimportant, they are, but the larger picture is being ignored.

And, as I stated before, the root problem is automation. 

But why is it such a problem?  The reason is simple, automation destroys the low-education, focused skill, high paying jobs, that built the system.  It destroys the jobs that are central to making things.  And these jobs, not professional positions are central to a strong capitalist economy. 

There are certain realities to the professional world.  We only need a certain number of doctors and lawyers and other professionals.  For example, unless we deliberately infect people so they are sick more, or change the system to require all people to be needing a lawyer at all times in their lives, there is a saturation point to these jobs.  They are population ratio jobs.  You only need a set number of these people to serve a set number of members of society at large.

Similarly, there are only a certain number of teachers that were need, because, again, it is a population ratio profession.  Even at the most generous staffing levels, you only need about one teacher to every 15 full time students.  That's a lot of teachers, but overall, it isn't an overwhelming number, and it is completely driven by a limited resource, namely, the number of people seeking education.

Almost every profession is similar, architects, engineers, even bankers are limited by the number of people who will seek their services.  The only profession that I would say is exempt from this would be scientists, because, there is always far more to explore than there are people to explore it.  However, this is also a self-limiting profession in another way; only a certain percentage of the population has the inherent talent to excel in the sciences.  And honestly, that limitation also applies to the other professions as well.  Only a certain number of people have the skills for law, or design or teaching.  Yes, you can teach some of that, but, honestly, there is a need for aptitude as well.  And I would like to note, aptitude is not equivalent to intelligence.  A person could be brilliant, but if they cannot deliver a good oration and handle themselves in a debate, they are not going to make it in law or politics.  It just won't happen.  Similarly, as we see over and over in our current crop of politicians, you don't really need to be smart to be elected, you just need a great stump speech and a powerful delivery of that speech.

However, manufacturing jobs are not a limited field, at least not in the same way as the professions.  And by manufacturing, I am including all types of making, from a baker, to a carpenter, to an auto assembly line worker.  These jobs are demand driven.  The more cakes, the more buildings and the more cars people want, the more people will be employed in those professions.  On a side note, this is why most companies created planned obsolescence, to make sure that people kept buying.  It is also why "in" colors, and other fashion and styles change, it keeps demand high. 

But to return to the point, making is typically a focused skill, instead of one requiring extensive and wide ranging education.  Further, any needed education in making is typically done through an apprenticeship.  There are schools that have stepped in with vocational education, but often these are six month to two year programs.  In the traditional apprenticeship, you didn't even have to pay for your education, you got paid to learn.  Although the pay was certainly lower than it would be for a journeyman, it still was income during the education process.

Further, these jobs were typically high paying, often even higher paying than professional positions.  My uncle, who was a licensed engineer, educated at Perdue, left engineering and became a pipe-fitter, because he made significantly more money at it.  After he made the switch, he was able to pay off his mortgage in 7 years, instead of the 20 more that it would have taken before.  He also found it to be more satisfying work, but that is another topic for another time.  For now I will just say, often people engaged in making things have a very high level of satisfaction and pride, because they see the product of their labor.

So in the end, in a workforce with a large manufacturing component, you get a lot of people employed at high paying jobs, without needing years of expensive education.  Further, these jobs can be done by almost anyone who gets the necessary training.  My uncle always said that he could pull anyone off the streets and make them an excellent pipe-fitter in six months if they put their mind to it.  And with the wages of a pipe-fitter, they could have a nice house, a nice car and send their kids to college, if the kids wanted that.  And even with all those expenses, they could put aside enough for a very nice retirement.

However, automation has wiped out a vast majority of these jobs, and is on track to obliterate even more in the coming years.  Already, they have developed 3D printing technology to build simple houses.  How much longer will it be before they can 3D print skyscrapers?  And when they do, what will happen to the carpenters, steel workers, concrete guys and bricklayers?  They will go the way of the assembly line worker. 

And pushing this is the inevitable drive to maximize profits.

If you don't have to pay wages, insurance, unemployment, and taxes on thousands of employees, and can replace them with robots, or printers, or other machinery, you save yourself a fortune.  Of course, the equipment costs a lot of money at the outset, but that is a one time expenditure, and further, it can be depreciated, saving even more money when tax time rolls around. 

Not only is this good for the bottom line, it is actually a mandate of the capitalist system.  Failing to maximize shareholders' profits is at best dereliction of duty, at worst, possibly a criminal fraud.  Regardless, the economics require the companies to lower overhead and increase profit.

And we have seen it over and over.  There are virtually no receptionists left in the American corporation, and increasingly all basic customer service calls are handled by automated systems.  Grocery stores rely more and more on self-service checkout lanes.  Assembly lines  use robots.

Its even creeping into the professions.  Fifty years ago, the average architectural firm had a couple of dozen draftsmen (and yes, they were almost all men at that time) cranking out detail after detail, by hand on Mylar.  Then came AutoCAD, and those two dozen could be replaced by six, because the details could be cut and pasted from one drawing to another, no effort required.  Now, Revit is reducing the six to three, and further, with the internet, those three can be in India, just as easily as in the US.  Pretty soon, given how BIM is evolving, the architect will be able to click a set of menu options, design the building and instantly produce a set of CDs without a single other person needed: one step production.  And with that, what jobs will there be for architectural interns, job captains or technicians, or any other employee beyond possibly an accountant to manage the books?  And really, with Quickbooks, is that even needed?

And this is how capitalism dies, not with a bang, going out in some sort of proletariat conflagration, but with a whimper of disappearing jobs, with no hope of employment for the vast percentage of people.

So, the Right is correct, in their minds, by saying all that will save it is for labor to become so cheap that it actually doesn't make sense to automate the jobs.  They don't acknowledge the actual problem, and I doubt they consciously recognize it, but intuitively, they understand this.  However, what they fail to understand is that if everyone is receiving poverty wages, no one will be able to buy anything.  And since this model depends on demand, it enters a death spiral.  For certain, the captains of industry will get even more fabulously wealthy, at least until the bottom drops out.

At the end of this death spiral is a sad fact, either the world embraces a radical socialism, where almost everyone in the bottom 2/3's of society is on the Dole, or we accept that we will unleash a string of violent revolutions.   People who are starving, and who have no hope, will overthrow a government, and kill everyone who has the things they want.  Then, a small faction gets the power and the money, and the cycle repeats.  Over and over, into eternity.  France had this happen for about a hundred years; Revolution, brief prosperity, disenfranchisement, discord, Revolution.  Only an embrace of a socialistic ideology and two world wars completely broke this cycle.  Had those two things not happened, France would likely be as unstable today as many of the countries in South America.

The Left also sees some of what is going on, that the big banks and CEO greed are driving the bus over the cliff.  They also recognize that income disparity is really impacting the demand based economy.  But they are focused on the symptom, not the underlying disease.  They want to institute policies that redistribute the wealth and level the playing field somewhat.  However, just like the Right, all this does is delay the inevitable.  Sure there will be a short term spike in demand, as people have more disposable money, but that increased demand will produce money that is used to increase automation.  The construction company is suddenly awash in capital, so what will they do?  They'll buy that really cool concrete printer that they couldn't afford last year.  And suddenly, an entire concrete crew is out of work.  That crew's prosperity is gone and they stop buying.  This is repeated over and over in company after company.  And then demand sinks.  And once again, we are back to the point where it is either almost universal Welfare, or revolution.

But what about education?  Can't we just retrain these people for new jobs?  Teach them a profession?  Well, that puts us back to the beginning of this paper.  Professional jobs are based on populations; it isn't a demand system, unless you create artificial demand.  Therefore, you will quickly get saturation.  We are already seeing this in Law and in Higher Education.  There are far more law school graduates and PhD's than there ever will be available positions.  And suddenly a Juris Doctor is handing you your McDonalds.

Further, I am going to be blunt here, (and probably destroy some of my Liberal credentials) not everyone is cut out to be a college student.  Even though we like to think everyone is a special and unique snowflake, and that everyone gets a prize because they tried, that isn't the way it works.  Can someone with an IQ of 95, which is solidly average, but not outstanding, really make it as a neurosurgeon or a physicist?  That is not to say that there are tons of things they can do, and do very well.  But, are they going to succeed in an intensive and competitive college program?  Unless we genetically engineer everyone to be brilliant, we will have a range of intelligence in humans.  (And don't even get me started on Eugenics being a "good idea."  It isn't.)

So what is the solution.  Either we have to develop a post-capitalist economic model that is not based in employment, and maybe not even in money, or we have to limit automation.  Although the first option is, in my mind at least, the more realistic long term solution, the reality is, no one is going to go along with that strategy, at least not now.  We can't even get the powers that be to move on climate change, which is as close to a certainty as science can ever get.  We will never get people to move on some sort of change to the fundamental economic structure of the entire world.

So that leaves limiting automation.  I read a science fiction story by Jack Chalker where they had a law that stated, "unless the job is too hazardous to be undertaken by humans, no job that can be done by a person is allowed to be given over to a robot."  Although some would argue that this, for all intents and purposes, kills off capitalism, in actuality, it is the only way to save the system.  At least save it until we can actually come up with something better.

Why?  Because it would re-insert the high paying, low education but focused skilled jobs back into the economy.  If assembly lines and construction sites were required to be using people instead of machines, we would have a much more robust middle class.  and with a robust middle class, demand for the products of manufacturing would go up.  And this would lead to further expansion of job opportunities, which would in turn lead to more demand. 

I realize that this would also lead to more resource consumption, more pollution and more environmental devastation, so this is not really a long term solution.  As I said before, it would only be a bridge to a different system.  But it would give us the time to come to terms with some realities that we don't want to face right now.

However, in the end, it would give us what we need most, time to solve the problem.

Stupid Is as Stupid Says

Redistribution

Mitt Romney, the supposedly "intelligent business man," said something yesterday that may be one of the stupidest things to ever come out of his mouth.  And I'm not talking about the 47% comment; I'm talking about his comment that Obama wants to redistribute wealth, while he wants to create it.

I've blogged about this before, but I think it needs to be hammered home, wealth is not a commodity.  It is not like Cadillacs or Yachts that can have production increased and flood the market.  Wealth, while not a finite resource in strict terms, does not actually increase over the long term.  It may grow in limited windows, but over time, it will normalize to proportional levels.

What this means is that inflation will overtake gains every time.  A few decades ago, a millionaire was the pinnacle of wealth, now millionaires are a dime a dozen.  In today's world, the billionaire occupies the same lofty status as the millionaire did in 1900, and they probably represent the same proportion of society, after adjusted for population growth.

This does not mean that an individual cannot attain vast social and financial mobility, both in the positive or the negative direction.  What it does mean though is that, in our current economic model, there will be roughly the same proportion of very wealthy people to the rest of society, and there will always be a poor underclass, at, again, roughly the same percentage as exists today.

This is simple economic fact.  Pumping more money into the system ultimately will only spur inflation, it will not increase the number of wealthy people, nor will it decrease the number of people living in poverty.

Therefore, the only way to change the percentages and proportions of rich and poor is to redistribute wealth.  Redistribution moves money around the in system, altering the relative proportions of the people in each category.

The Bush years saw one of the largest redistributions of wealth seen in this country since the Gilded Age, which was the last time that the rich controlled a similar share of the nations wealth.  That was also the last time the net worth gap between the rich and the poor was at this level of disparity.

Understand, this was not caused by creating wealth at the top, it was created by redistributing money upward, taking it out of the pockets of those with the least, and giving it to those with the most.  It has been a case of trickle up economics.

And this is where the "business man" shows that he knows very little about how economics work.  It harkens back to his comment about "making this a country of haves and soon to haves."  He acts like all Americans can be rich at the same time.

This is not possible in a capitalist society.

The only way change this ratio is to redistribute wealth from the rich to the poor.  This disaggregates money, spreading it around, and reducing the gap between the ends of the spectrum.  Many of our Social Safety Net programs do this.

Unemployment is one of the best examples of a redistribution program in this country.  Businesses, who typically have some amount of liquid assets, pay into the unemployment insurance fund, which then gets spread around to the unemployed, keeping them from falling further down the social ladder.

Other redistribution programs include subsidized student loans, Pell Grants, The Earned Income Credit and many other programs that allow people to maintain their place society, and even improve their lot in life.  These essential programs are funded by income taxes on the wealthy, and move money into the hands of those who need a hand up or steadying support in life.

These programs help equalize society, but they are, by strict definition, somewhat socialist.  They are not, however, hallmarks of dependency.  They are not a "hammock" for lazy people to lie down in and have the world handed to them.  This redistribution makes society stronger, because it does open doors for everyone to have the possibility to become rich.

If you become homeless because you lost your job, finding another while in that situation can be almost impossible.  Unemployment supports people so that they don't fall so far that they can't recover.  Student loans and grants allow anyone to go to college, and as a result, dramatically increase their lifetime learning potential.  Earned Income Credits allow people with families who also have jobs, try to get a little bit ahead in life, to provide more for their children, and maybe make their lives better.

These downward "redistributions" make society stronger, and give more people opportunities to improve their lives.  

And this is the dirty little secret that Mitt Romney does not want to admit, if he wants this country to be a place where everyone can be rich, he will have to end capitalism as we know it, and replace it with egalitarian communism.

It's kind of a strange position for the Republican presidential candidate to be advocating.

Put Down That M.B.A. Before you Actually Hurt Someone With It

Experts

For a political party that markets itself as being the side with the expertise on economic issues, the Republicans are exhibiting a shocking ignorance on how the market sets prices.

Case in point, Republican governors across the country are retuning to the concept of Nullification in regards to the Medicaid expansion in the Affordable Care Act.  They are flat out refusing to participate the law, claiming that they are not going to expand health care for their poorest citizens.  This not only deprives literally millions of people adequate health care it becomes a de facto tax on the rest of us.

On a side note, the concept of Nullification was used by many of these same states to try to continue Jim Crowe era segregation.  A policy that was once used to block African-Americans from sharing in basic American rights, like voting for a president, is now being threatened against this country's first black President to eviscerate his greatest policy achievement.  I guess things never actually change.

But to return to the point, not participating in this aspect of health care reform displays either complete ignorance or utter disregard that is so amoral that we might as well term it evil.  I would hope that it is the first, but I fear that it is the second.

Let me explain.

Medicaid, like Medicare and private insurance covers the cost of health care, both preventative and incident related.  In fact, since many health care plans prior to the A.C.A did not cover preventive care under their private plans, Medicaid had some advantages of regular insurance.  In short, it means that people who are sick can get treatment early in their illness, before a minor incident becomes a medical crisis.  It also means that people can get regular care that might prevent a serious medical condition from developing or progressing.

Without health care coverage, this is what happens: simple illnesses become severe; medical conditions that could be dealt with by lifestyle changes or simple treatments become debilitating crises.  The cost in this lost productivity is staggering.  A person who, through illness can no longer continue in their job creates costs that ripple through the business.  Similarly, a person who continues to work sick is less productive, and if the illness is contagious, spreads that illness to coworkers and customers, causing a ripple of lost productivity.

From a simple cost/benefit ratio, health care is the far cheaper solution.

Some of you may say, Medicaid is for indigent people, and if they just got a job, they could afford health care.  I have heard many Republican Congressional members say that it's their own fault that they don't have health care, and if they took personal responsibility for their lives, they wouldn't need to depend on the system.  Basically, if they don't have health care, it's their own fault and it's all on them.

And this is another aspect of failure to understand economic reality.  Due to a couple of chronic, but not life threatening, medical conditions, I am what is considered a high risk individual when it comes to health insurance.  As a result, my insurance runs close to $12,000.00  per year, and I'm glad to have it, because many people in my position don't have the ability to purchase insurance at any price, because of those pre-existing conditions.  And so you know, this cost is just for me, no one else is insured by my plan. 

What this means is, if I had a minimum wage job, almost my entire paycheck would go to health insurance, taxes and F.I.C.A.  I would only have about $3,000.00 per year to cover everything else; namely rent and food.  I challenge anyone in this country to live on $250.00 a month for all of their expenses.  Fortunately, I have a mother who is willing to pay for my health insurance, otherwise, I wouldn't have it. 

Some of this hopefully will change under ObamaCare, but for now, this is my reality; I am a 40 year old man, who makes a good living, and still has to get financial help from my mother because of the cost of insurance.

The Medicaid provision covers this gap, by opening up the program to all people under 65 who have incomes of less than 133% of the federal poverty line.  There are many people across the country working in minimum wage jobs, and without this government program, they will have no access to health care at all.

But this is not even where the worst failures to understand economics lie for the Republicans. 

For that, we have to go back to the idea of how profit works in a market economy.  In business, income must exceed expenditures. In other words, you need to bring in more money than you spend on things like your building, the cost of the wages of your employees, utilities, supplies and anything else that costs you money.  When outflow exceeds income, you are either going to go bankrupt, or you are suddenly a charity, whether or not that was your intent.  This should be something that most people understand.

Now, when people come in and take your services without paying, they add to your overhead, instead of adding to your profit, they help move you to bankruptcy.  You can also make a case that they are stealing from you, as many Republicans and health care C.E.O.'s have decided to do.  Because they view sick people who happen to also been poor as criminals, they are now stationing debt collectorsin Emergency Rooms to make sure that incoming patients show them the money first.  If they can't, they are sent elsewhere or they literally get dumped on the street corner.

However patient dumping, even though it is done by many hospitals, is actually illegal.  This means that most emergency medical care facilities treat even people who cannot pay.  Publicly funded hospitals, like Denver Health, who have to treat anyone who walks through the Emergency Room door become the medical provider of last resort.  Since most of the working poor cannot afford health insurance, and prior to the A.C.A., they did not qualify for Medicaid, they only way they could get medical treatment was in the emergency room.  Typically, because of this, they were far sicker, and far more expensive to treat, than they would have been with access to preventative and maintenance health care.

This is where the worst failure of the Republican understanding of economics comes into play.

The poor people, for whom the E.R. is their primary care provider, cost a lot of money to treat.  Far more, typically, that it would cost in a regular doctor's office, and for medical conditions that are better suited to the office than the hospital.  This is because a trained E.R. staff, and the facility itself are vastly more expensive than a traditional primary care doctor's office.

To understand how much an E.R. visit costs, just for a simple routine emergency, a few years ago, I cut the tip of my nose open on a car door at 11:30 at night.  Since it was deep, and I knew I needed stitches, I had to go to the hospital.  Five stitches, two hours and three thousand dollars later, my nose was back in one piece.  If I had not had insurance, I would have had to come up with all that money, instead of the $250.00 deductible.  If I could not, the hospital would have had to eat it, since, unlike my nose, you can't get blood from a turnip.

And this is where the problem comes from.  When poor people use the E.R., that costs the hospital a lot of money.  (I will agree the costs are inflated, but that is not what I'm addressing here)  Since they are poor, and cannot pay the thousands of dollars the hospital visit costs them, ultimately the bill never gets paid, and the hospital is out that money.  Sure they might pursue debt collection, but the poor person really has nothing to lose, and declares bankruptcy, and so, the debt remains unpaid.

But not really, because, unlike thirty years ago, most hospitals are no longer charities, they are for profit companies.  Even the charitable ones are expected to break even; long gone are the days when the church collection plate funded the local hospital.  This means that the money to cover the unpaid bill has to come from somewhere.

And guess where that is.

Right, your hospital bill and mine.  Everyone with insurance who goes to the hospital subsidizes the unpaid medical care that the poor receive.  In fact, the uninsured add approximately $1000.00 to every insured family's premium according to Families USA.  Since this sort of thing was judged a tax by the Supreme Court, I guess that you could say every insured person pays a $1000.00 tax through their insurance premium to cover the medical bills of the uninsured.

 Therefore, the people who can afford to be, and actually are responsible subsidize those who cannot afford medical insurance through a privatized taxation scheme, and the rest of the people get off scot free.

On another side note, this is the reason for the mandate; it limits the people who are trying to game the system by not buying health insurance when they can afford to.  If you want to talk about freeloaders, those are the real ones.  The poor are not the slackers here.

So how does this demonstrate that the Republicans are either incompetent or evil?

By not expanding Medicaid as set forth in the A.C.A., the Republicans are shifting the cost of medical care for the poor from the government to private citizens through the de facto tax of inflated medical costs.  And yes, I do realize that Medicaid is funded through a genuine tax.  However, that share of income tax that funds Medicaid averages out to about $85.00 per person per year, which is significantly less than the $1,000.00 per year people pay in increased insurance premiums due to the uninsured poor.  Admittedly, this is the average tax burden increase for the middle class, the rich pay much more, sometimes a few thousand dollars per person at the high end of the income scale.  That is what progressive taxation means, the more you make, the larger your share of the tax burden, because those tax rates impose far less on impact on the wealthy.

Since the Medicaid expansion is almost entirely subsidized by the federal government, and will be funded at least 90% even once everything is in place, these states are sacrificing the poor on the altar of conservative ideology that in no way reflects how the market really works. 

So either the Republicans do not realize that it is actually better for the overall economic health of the middle class and of the country to fund medical care for the poor through the Medicaid system, or they are deliberately making medical care more expensive for a middle class already stretched too thin. 

It's up to you to decide which is the correct interpretation.

A Brief Lesson In Economics

Disparity

Lately, the news has been filled with stories about the rising gap between the average American and a wealthy American.  The net worth divide in this country is at its highest level since the Gilded Age, that beautiful time when Robber Barons sent private armies to kill union organizers, child labor was the norm, tenements were typical working class housing, and the average life expectancy for a poor person was roughly the same as in most Third World Countries.

To give you an idea of how extreme this gap is, currently in America, the top 10%  of the population control 80% of the wealth, and the other 20% has to be split up among the rest of us.  In hard numbers, that works out to a little over 3 million people controlling most of the nation's financial resources, and other 309 million of us have to fight over what is left.

On a side note, Teddy Roosevelt busted up the monopolies, created the Sherman Anti-Trust act, and in general brought an end to the Gilded Age.  More interestingly, he was a Republican.  Today, he would be exiled as a Communist.  And just so you understand where real Communists fall in the political spectrum, compared to them, Teddy WAS very conservative. 

To return to the point, this wealth gap in America is more extreme than it has been in over a hundred years, and it is getting worse.  This is also a global problem, but I am just going to focus on this country.

When you point out the facts that I have just laid out, you get accused of class warfare.  Pundit after pundit calls it jealousy for those who by their hard work make a success of themselves.  You hear that putting money in the pockets of the rich is a good thing for the overall health of the economy.  The Right claims that taxing the rich is what is stopping the recovery dead in it's tracks.

This is all lies.

I should point out that saying that is very dangerous.  Calling a lie a lie is the most forbidden thing you can do today.  No matter how outrageous the statement, you cannot call it a lie.

But it is, the income disparity in America, and the world as a whole, will ultimately bring down the entire system.  Even though Teddy Roosevelt ended the era of the Robber Baron, the system did not really right itself until the Great Depression, when the vast fortunes of the ultra rich vanished in a puff of smoke.

And perhaps that is what should have happened in the last meltdown.  If all the Wall Street Banks had gone broke, the income disparity would have been greatly reduced. 

However, it also would have meant that for the average American, the family pet would have become a dinner option, and the family car would have been a nice place to live.  So obviously, we could not let the system collapse, no matter how much it might have helped level the playing field.  We would have had an entire lost generation, just like we did for the entirety of the 1930's.  Remember, it took the massive industrial mobilization of World War 2 to completely wipe out the aftereffects of the Crash of '29.

That said, I would like to explain why income inequality is a bad thing, not just for those on the bottom, but for the country in general.  It boils down to one simple statement.

Wealth is a finite resource.

In that regard, it is no different from any other commodity, food, oil, precious metals, water.  There is a limited amount of it, and because of that, it functions just like any other commodity.  The more scarce it is when it is a vital resource, the more problems that situation causes.

Your parents may have made the statement, "Money doesn't grow on trees," when you wanted something that they couldn't afford.  My parents said it to me all the time and it was one of the most important lessons of my childhood.  Money is limited, which is a good thing.

If money was an unlimited resource, it would have no value at all.  That would lead to something called Hyperinflation, which is an even worse financial disaster than a Depression.  Hitler came to power in a country where literally a wheelbarrow full of money would not buy enough food to feed a family for a week, and the economic situation in Germany at the time was one of the prime causes of his rise. 

To understand how devastating hyperinflation is, imagine that you got a $1,000.00 check at 4pm today, with all of the purchasing power of $1,000.00.  By 5pm, it would only have the power of $800.00.  By the next morning, if you kept it, it would only buy what $100.00 bought when you got it.  By the time 24 hours had passed, it would be essentially worthless, maybe a few pennies, but no more.  This is what happened at the end of the Weimar Republic, and set the stage for the Nazi Party.  (And Godwin's Law strikes again)

But the point of this is, when you flood the system with newly printed money, it does not add capital to the equation, it devalues the money.  If everyone had a million dollars, a million dollars would not have any value.

So to sum up this point, money is a limited resource, and must remain so, in order to retain it's value.

Moving on to why economic disparity is a problem; when the limited resource called money gets concentrated in the hands of a few, for all intents and purposes, it gets taken out of the system.  It gets locked up and not used.

In essence, this is similar to the O.P.E.C. oil embargo of the 1970's.  The oil producing countries decided as a whole to stop selling oil to America, and hold on to it, which brought the economy to a literal halt.  Rather than doing anything else with a Saturday, you would wait for hours in a gas line, hoping that there would be some left by the time you got to the pump.

Now we are facing a monetary embargo by the wealthy.  This is not necessarily a deliberate embargo, although some of it is probably politically motivated, but it is an embargo nonetheless.

The reason for this has a simple explanation; rich people cannot spend enough to keep the economy moving.  Remember, 3 million people possess 80% of the wealth.  To put this in context, in 2011 alone, almost 13,000,000 new cars were sold.  If the wealthy were the backbone of the economy, this means that every single person in the top 10% would have to buy four cars every year for the rest of their lives to keep the auto industry afloat.

This is why the wealthy do not drive the economy, and why the wealth gap is a problem.  When the money concentrates in the hands of the few, it stops there, because they do not need enough stuff to keep people working.  No one needs four new cars every year, so that money just sits there.  They cannot spend enough to make up the difference, but that money is taken out of the hands of the bottom 80%.  Remember, it is a limited resource, you cannot add new money into the system without devaluing the existing money.

As the process continues, when consumption drops, the need for production drops at the same rate.  This results in layoffs, which cause further drops in consumption because more money is taken out of the system.  It becomes an accelerating trend, the less that is spent means that there will be less to spend down the line.

And the wealth continues to concentrate, which in the end will destroy the economic system.

There is a dark irony here, the concentration of wealth, which is the goal of individual capitalistic impulses will ultimately destroy the capitalist system as a whole.

It would be hilarious if the toll it exacted on the rest of us wasn't do devastating.

The Holodeck Will Be Mankind's Last Invention

Obsolescence

What goes around, comes around; history is a never ending repeating cycle.  We can look to the horizon and see the work life and economy of Ancient Rome returning.

In the next few decades, humans may revert to a society where the primary occupations are agriculture and food preparation, basic service industry jobs and the manufacture of small scale handcrafted items.  The reason: 3D printers may make large scale manufacturing obsolete.  The Pirate Bayis claiming within 20 years, you will be able to print off a new pair ofsneakers.  When you factor in quantum molecules, there is essentially no limit to what that technology can create, other than organics fit for human consumption.  Creating those is a much harder endeavor.

While I am skeptical of the timeline that they are putting forth (aren't we supposed to have flying cars, robot servants and colonies on the moon by now?) I do not doubt that we will have the technology at some point in the next century.  And once we have it, it will spell the end of our current economy as we know it.

First, we will begin to lose manufacturing.  It will be the simpler products first, like clothing, that has uniform materiality, or the very high tech products, like computers, which already are created primarily by printing processes right now.  Then it will expand to printing objects like car parts (which they are also planning for) and once that happens, how long will it be until entire cars can be printed.

Admittedly, printers on that scale will not be household items, but it could be very possible for you to go to a car dealer in the future and order up your car and then wait for it to be printed out.  Similarly, you go to the contractor, and they haul a building-sized printer out to the building site and print your new house right up for you, furniture included.

And with that, the entire manufacturing industry goes away, except for boutique artisans who handcraft objects for technophobes or iconoclasts who insist on human made products.  Otherwise, all of our hardgoods will come out of the printer's hopper.

Soon you will even see designers begin to disappear as design your own (whatever) software becomes readily available.  These programs are already beginning to cut into home design, as people are bringing in plans they came up with using the design your own home program.

Add to that the idea that the iPhone will have the ability to take blood and saliva samples to diagnoseany illness.   Researchers in South Korea are already beginning to develop this technology.  With robotic surgeons, and digital diagnosis, there will be very little left for doctors to do.

This is the next wave of a revolution that began with the first textile mills, which eliminated the need for hand woven cloth, except, again, for highly specialized artistic or luxury purposes.  The assembly line, the robot, the computer, the self scanning checkout lane, all of them have reduced the need for human labor, and yet at the same time increased the amount of goods to consume.

The unexpected ramifications of this are staggering.  We have had to create a consumer driven economy in order to consume all that we create; our products, our stuff, literally controls our lives.  We have planned obsolesce simply to make people buy replacements of things they already own; if you only needed to buy one refrigerator every generation, there would be no refrigerator industry.  My aunt and uncle had a refrigerator that they purchased when they got married in the 1940's.  That refrigerator was still in their house and working when my aunt sold it in 2003.  You cannot tell me that in 2012, we cannot build a refrigerator that lasts for over 50 years with no repair, given that we were able to do so in 1945.

For the same reason, fashion and design change at lightning pace.  The couch you bought five years ago now looks dated and unstylish, and you need a new one, so that you don't look behind the times.  A couch is harder to make break down, since there are no moving parts, so other strategies to get you to buy a new one have to be employed.  It is all a game to keep the industrial machine humming.

But the side effect of automation in this process is we no longer need very many people to build it, yet we need them to be employed to buy it, hence a service based economy.  When my grandparents were growing up, there were very few restaurants, and most of those existed in conjunction with hotels, to cater to travelers.  My grandmother only ate in a restaurant maybe twenty times in her whole life.  Thirty years ago, when I was a kid, there were only three restaurants in our neighborhood, a McDonalds, a casual diner, and a decent Italian restaurant.  Now there are at least 12, not counting the four Starbucks.  (And you can stand outside of any one of those and see the other three, I'm not joking.)

With fewer and fewer manufacturing jobs, we have had to expand the service industries to pick up the slack.  We've even had to create new services, like personal trainer, massage therapist and dog walker, to compensate for the loss of manufacturing jobs.  And the worst thing is, these jobs will never pay as much as those lost industrial wages.

And this will result in the eventual end of manufacturing, because no one will have enough money to buy the products, at least not on the scale that is necessary to keep the assembly lines humming.  So really the only answer is to eliminate the assembly line and completely automate the process, which is what the 3-D printer revolution will bring about.

But this new revolution will require a radical rethinking of the economy.  There will be no manufacturing jobs, not even running the assembly line, because there won't be an assembly line.  Moreover, a large segment of the cost of goods comes from the overhead of running the factory, and with no factory, there is no overhead, in fact, there isn't even really a company if you make the object in your own house on your own 3-D printer, so the cost of goods will have to drop.  Maybe money can be made from the design, but that is about all.  You might even subscribe to brands like you do to Netflix, with unlimited downloads and printouts.

So really, in this new high tech economy, we might look very much like a low-tech agrarian economy, with the only jobs being in agriculture and service industries.

   

The only other professions we would need would be all of the copyright lawyers and  digital police to try and stop all of the illegal downloads of Nike shoes.

Against the Fall of Night

Outsourcing

I just read an article detailing a conversation between Steve Jobs and President Obama.  At an technologies industry dinner last year, the President opened the floor for questions and Steve Jobs began asking him a question.  The President then asked Jobs "what would it take to make iPhones in the United States?  Why can't that work come home?"

Jobs' reply, "Those jobs aren't coming back."

The MegaCorps have no interest any more in investing in America.  Apple used to make all of its products in the United States, now it makes almost nothing here.  And Apple is not alone, this is being repeated in company after company, industry after industry.  All of them are moving their manufacturing to other countries.

Morris Berman, author of Dark Ages America describes this process as: at the end of empire, the moneyed interests rape all of the money out of the system to take it to where they think the next empire will be.

Those jobs, that capital, is never coming back.

I have blogged in the past about how greed will destroy capitalism, and eventually it will, unfortunately, the path to its death will be strewn with millions of bodies of those it discarded and crushed in it's death throws.  Before succumbing, Capitalism, in its current greed driven form, will wreck entire nations.  I should point out, this is not a rant in support of communism or socialism, as those are also failed models.  The seven deadlies will always bring economic systems down.

No, what I would like to look at is what this flight of industry means.  There are a few different scenarios that are possible.

First, we continue to outsource our misery.  This is what we are doing now.  In America, we have demanded things like living wages, an end to sweat shops, workplace safety and clean air and water.  These are things that most Americans believe are necessary for a civilized and enlightened society, most American, that is, except the captains of industry.  The people who run the companies see these things for what they are, unacceptable infringements on profit margins.

Every minimum wage law, every pollution regulation, every safety policy cuts into the money that they can make.  To most people, that is a decent trade off, but not to the Masters of the Universe.  As Stephen Bainbridge said,  " The social obligation of business is to sustainably maximize long-term profits for shareholders. Nothing more. Nothing less."  Anything that cuts into profit margins is unacceptable.

Therefore, in this view of corporate responsibility, the responsible action is to move the company to a place where pesky things like human dignity do not interfere with profits.

The technical term for this, by the way, is "Externalizing Costs."  We gain cheaper goods by outsourcing the environmental and human damages to another country.  Every time you buy an item from Wall-Mart that is made in China, you have externalized these costs.

This scenario does not have a happy ending for either our country or the places we move our industry to.

In the United States, it means fewer and fewer jobs, especially in the low education, high wage sectors of manufacturing.  An assembly line worker typically does not need a college education, but they make a very comfortable, middle class wage.  They can buy a house, go on vacation, have nice things and even send their own children to college.  Without industry, we move even more to a two class society of highly educated elites and poorly educated service workers.  (And one only needs to look at France circa 1780 or Russia circa 1915 to see how this ends, its not pretty.)

But this also does not have a happy ending for the countries we outsource to either.  As those countries get richer, and consequently, more educated, the workers there will begin to rise up as American workers did in the late 1800's and early 1900's.  They will begin to demand change as well.  But the captains of industry did not make the same mistake they made in the United States.

Here, we are a democracy.  (I know, we are technically a Republic, but everyone has a say in how the country is run)  If the corporations are grinding us underfoot, we have the recourse of the ballot box.  Now the corporate masters are locating in totalitarian countries, where it does not matter how much the people scream, they will just massacre the protesters and bring in new workers.  Never doubt that they will depopulate entire cities to try to suppress rebellion.  (And trust me, they will not allow the Arab Spring to spread, efforts to shut down social media are already underway across the planet.  SOPA anyone?)  The MegaCorps will prop up, and even put into place, ruthless dictators who will bow to those corporations. 

This scenario ends with a devastated America and a totalitarian ruled Third World.

The second scenario is almost as bad, especially for America.  We will normalize the value of a dollar to that of the Rupee.  In other words, we will drastically reduce the value of the dollar relative to other currencies.  In India, most people live on a few hundred dollars a year, much like Americans in the early 1900's.  We think, in our little bubble, that that means that they all live in poverty.  It is true that they do not have our standard of living, but with that amount of money, they have a comfortable life.  Again, much the same as an American's life in 1910.

I went to India a few years ago, and felt like a Rockefeller because I had a few hundred dollars in my pocket; I could afford to buy almost anything I wanted.  The reason for this was the exchange rate.  My dollar was worth 45 Rupees, and a Rupee was worth slightly more than 2 cents.  But to an Indian, a Rupee had a similar amount of purchasing power as a dollar here.  I would buy a cup of coffee for 2 Rupees, which is like a $2.00 cup of coffee at Starbucks.

Profit is made on the exchange rate.  Industry can pay an Indian worker 40,000 Rupees a year, but that amounts to only $800.00 US Dollars.  The Indian worker can live as comfortably in India on that as an American could live on $40,000.00 a year (provided they don't want to travel outside of India) and the American company can save $39,200.00 on salary costs.

If we want to bring industry back to the United States, we would need to reduce the value of the dollar to approximately 2% of its current value.  You can imagine the havoc that would wreak on both the American and Global markets.  Industry would return, at the cost of a devastated global economy.  This scenario also works in the opposite direction as well, that the Rupee could rise in value to be equal to the U.S. Dollar.  This would have the same effect, just from the other end.

Unfortunately, if America fades as an empire, which it already is doing, this scenario will be extremely likely, especially given that our currency is not backed by anything more than "the full faith and credit of the United States."  If we were on the Gold or Silver Standard, this couldn't happen, because our currency would be pegged to something of real value, as opposed to an agreed upon worth.  (I'm not going all Ron Paul here, but he does have a point, even if it is completely unfeasible at this time.)

The final scenario is the most optimistic, but it requires all Americans to join together and take control of our destiny.

Buy American, and only buy American.

If people rise up and demand American goods, and refuse to purchase products made outside of the country, we will cut into the profits of the MegaCorps and they will notice it.

Then one of two things will happen: either they will accept a reduced profit rate in order to make any profit at all; or other companies will rise up to meet the demand, and they will make things here because there is a market for them.

For too long we have been victims to the market, without realizing that there is no market without us.  We do have some control over the economy; we are not at the mercy of the Masters of the Universe.  We can turn the free market against the people who's only obligation is to line their own pockets. 

The Law of Supply and Demand states that when there is a demand, there will have to be a supply to fill that demand.  If we demand only American goods, then the Market will have to supply them, one way or another.

This path requires courage, and a willingness to forgo cheap goods, but if we all stand firm, and do not waver, we will succeed.

And this success has further ramifications.  Without the need to protect cheap labor, the MegaCorps will have no incentive to continue to prop up totalitarian regimes, other countries will see that you can have a thriving economy and still have human rights and a clean environment, and the corporations will learn, with great power comes great responsibility.

This is the only way to hold back the fall of night.  Let us not go gently. 

The Other Failing of Pure Systems

Anarchy.

One of the two main failings of modern economic theory is its failure to account for the seven deadly sins.  I wrote about this a few days ago, and then touched on it again a couple of days later.  As I said, human nature will defeat any pure economic system from without.

But contained within economic theories are the seeds of their own destruction, a failing that is so hidden in plain sight, most people do not even recognize its existence.  The two primary economic models of the last century, Capitalism and Communism, seek to replace government with an economic system.

Let me repeat that, both Marx and Smith advocate anarchy.  Both economic systems state that followed in their purest form, government will no longer be necessary.

The reasoning is different for them, but the end result is the same.

Communism states that in a pure egalitarian society, there is no need for governance, because all citizens will work equally toward the common good.  “Each to each according to need.”

Obviously, this will not work at any social scale beyond a band level society.  It works well at that scale because there are social controls, such as shunning that work very effectively in a group of twenty.  Those social controls do not work with advanced, modern society.  If your group of friends won’t talk to you, there’s always Facebook.  We lack the sanctions in a large scale society to make egalitarianism work.  We only need to look at the Soviet Union to know how this story ends.

The anarchy in Capitalism is more obscured, but it is still obvious if you know where to find it.  The Invisible Hand of the Free Market cannot function with any form of regulation.  No safety laws, taxes, tariffs, inspections or regulations.  Any government interference cripples the Invisible Hand, and that hand can only function in a completely free environment.  Again, pure anarchy, although not as overt.

Some of you might say, well what about police and such.  The free market cannot work without security.  The free market answer is you pay for it.  Private security, for those who can afford it, will take care of crime, at least, again, for those who can afford it.  Military, fire protection, roads, all of these can be paid for by the users, maybe as a subscription, but all bought and sold on the free market.

You can see this anarchy appearing in Tea Party purists.  Ron Paul, Grover Norquist, and their ilk would be just as happy with this scenario as they could be.  The real aim of the Tea Party is not to get government out of your life, it’s to get government out of government, kill it and bury it in an unmarked grave.

This is the Capitalist Utopia, a world where there is only the Free Market, and that is the world that they wish to make for the rest of us.

I would like to point out here, by the way, a scary corollary to this.  The minute you outlaw slavery and prostitution, you have destroyed the Free Market.  I want to make absolutely clear that I am not talking about the institutionalized race based slavery of the Antebellum South, which is also destructive to the Free Market, although for different reasons.

I’m talking about a person’s right to sell themselves, or possibly their children, as most common law in this country deems children as the property of their parents.  At its root, on the books, Statutory Rape used to be classified a hundred years ago as a property crime.  (I was sickened when I learned that.)  As soon as you cannot sell yourself, for money, the there is no Free Market.  I know that sounds harsh, but a free market must be absolutely free.  Ask a die hard capitalist economist and they will point out that a truly free market has never been achieved.  That's because people wouldn't stand for it if it was.

Those of you who worship at the Altar of Free Markets need to remember that.

It is unacceptable to allow a human to sell themselves.  Not everything is a commodity to be sold on the open market, and that is something most people, from all aspects of the political spectrum, would agree with.

Once you accept that premise, all that is left is to accept that the Free Market is an illusion, we need government and economic systems are NO substitute for that government.  Unless the Tea Party really wants to cause the United States to cease to exist for all intents and purposes, they need to accept that there will be laws, taxes and regulations.

If you still want to live in Anarchy, move to Haiti.  I'm sure you'll find it lovely.  The rest of us will stay here and try to make this impure system work.