Patriocracy movie review

I’m sad to say that after watching the movie “Patriocracy”, a documentary about our country’s polarized political environment I can’t endorse it for one major flaw; that of its mischaracterization of the US debt. They use the same low-info fear mongering about the debt as the movie is otherwise against. And they do it incredibly early in the movie as if it is the most important issue facing our country… well, not “as if” since it is clearly state that it is the number one American problem.

I appreciated that they proposed solutions at the end, and showed how MSNBC and Fox “News” are a huge part of the problem, but they are like those two networks in the way they “looked” like they are experts on the US debt when they clearly are completely misinformed and adding to the public hysteria over it.  Two really bizarre statements really stood out.

One was a lie or error; that the U.S. “borrows most” of the money from China. This isn’t even remotely close to being true. China holds around 7% of the debt. How is that “most”. Using this lie, they add to the fear that China is somehow taking over the U.S.  Meanwhile, even if China owned 100% of the debt this wouldn’t be true, but at 7% the film completely discredits themselves and makes you wonder what else they got wrong.

They further add to the ridiculousness by saying “The Chairman of the Joint Chiefs says the number one threat to America is the debt”. Good grief. So you have a MILITARY expert who obviously knows nothing about our MONETARY system weighing in on the subject? How on earth is his opinion relevant? It isn’t. He is totally clueless.

Now I realize we have Alan Simpson saying the same thing, and you’d think his words would be relevant and appropriate, but he’s clearly been sand bagged by the nonsense rhetoric of ideological economics rather than reality based economics. You can hardly blame Simpson, or the movie for not realizing Simpson doesn’t know what he’s talking about, because the entire country has been hood winked into believing the fairly tales told about the U.S. Debt. But that doesn’t change the fact that the movie gets an “F” for failure by perpetrating this myth. A HUGE reason for the polarization is each side wants to blame the other for this largely imaginary problem.

The bottom line, until reality based economics is understood, rather than politically created economics, BOTH sides will think they are right to take their side of the debate, and the polarization will not stop. Only “monetary realism”, and objective understanding of how the monetary system really works, what the Debt and deficit really are, and how we use and mis-use the debt and deficit, and their ACTUAL benefits and their actual problems, can we ever hope to talk about real solutions to the countries problems. The bottom line is the #1 problem of the country isn’t the debt or deficit. Not even close. How and where we spend is up there, but not how much we spend. But that’s for another article.

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Free market economics is like streets with no traffic signs

Most “economists” never mention the second source of money when they fear monger about government debt and deficits. One particularly nonsense post at http://www.learnliberty.org states that when Governments cut spending, economic activity goes up. He cites a couple of examples, probably because there aren’t any others. Meanwhile, what he doesn’t consider is why one or two instances of governments cutting spending might have “worked”. Well, here’s when it can “work:

1) the private sector took on debt like Clinton’s surpluses when private debt started to skyrocket.
2) saved money was spent – as in the case of soldiers coming home
3) money re-directed from unproductive to productive uses (from tanks to cars, from war planes to well, anything at home).

Note that #2 and #3 happen when wars end. The “economist” used the example of U.S. cutting government spending but economic activity going up after the war. Well, doh!!!! The U.S. was spending enormous sums on largely wasteful things. Killing people isn’t good for anyone’s economy. When that money was re-directed back home, and a lot of it was cut, you got #2 and #3 in spades. Plus, the private sector started taking on debt again, so in his example he also had #1 going on as well.

Meanwhile, the UK is proving right now that a Gov cutting spending when none of the above 3 things are happening leads to recession/depression. Spain, Ireland and Greece are also finding out just how awful austerity is for an economy. The debt and deficits of these governments actually go up even as they reduce spending. Why? Because they take in far less in taxes with everyone out of work.

Most “free market” monetarists say that governments always spend wastefully – but it was not the gov that built McMansions, and bought 2nd, 3rd and 4th homes, and speculated to high heaven in both the 1920’s and the 2000’s. The private sector is equal, if not worse, than governments in wastefulness. Government didn’t create derivatives, that was Wall Street.

Both governments and the private sector can do great good, and both can do great harm. Placing all the blame on Gov spending is ideology, not economics. Understanding that the Gov and Private Sector are like two parents who must work together should be obvious, but ever since Reagan/Thatcher we’ve come to believe that the private sector should do everything and Gov should just get out of the way. That is no different from removing every street light and stop sign and sending the traffic cops home and thinking the drivers will just figure it out.

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Tony Robbins promoting the debt myth

It is frustrating to see someone like Tony Robbins, with such a big audience, spend 20 minutes fear mongering about an imaginary problem – that of the U.S. government’s debt.

Of course Tony Robbins isn’t alone.  Everyone believes the US Government has the same kind of debt as households.  That myth is causing the entire country to be focused on the wrong problem.  And the solutions to this imaginary problem will turn the actual problem into a nightmare.   Our country has been teetering on the brink of a deflationary Depression – capital D as in the Great Depression – and only the size of the US debt and deficit has saved us so far.

As much as we all hate to hear about money being spent on food stamps, unemployment checks and medicare, that spending is saving the country from tent cities, bread lines and much worse unemployment.  That type of spending, in my opinion, isn’t nearly as bad as people believe.  I’ve heard critics cry that “trillions have been spent on the poor”.  Well, the poor are still poor, so who has the money?  The answer is that businesses, workers and savers ended up with it.  Money spent on the poor immediately gets spent by them which employs people like the local grocer, the farmer or food company who produced the food, and truck drivers and all kinds of other workers up and down the line.   Some of that money also comes back as taxes from those down the production/earning line.  Food stamps more than likely also keeps people away from crime as a source of money which saves local governments and hospitals money, not to mention the non-financial benefits of not allowing kids to starve and keeping the streets safer.  Yes, there are better ways to spend, but not spending at all would force the kind of economic disaster that Greece, Spain and other countries are living through right now.

But back to Tony Robbins.  Tony, if you’re listening, let me try to explain why the US Government debt doesn’t need to be paid back, and their debt is nothing at all like your or my debt.

The simplest explanation is the government can simply print to spend.  You might counter that printing would cause inflation, but that’s another discussion.  The possibility of inflation doesn’t change the simple fact that the government can print money and therefore can always do that to pay its debts.  Households can’t do that.  They must either work to earn money, or default on their loans.  The Government NEVER has to default.

There are a number of routes I can go for a fuller explanation.  But let’s tackle the related myths.  One is that “China funds us”.  Nope, they don’t.  We do NOT borrow money from China.  China earns U.S. dollars via their trade surplus with us.  Americans send over their hard-earned money for toys and iPads.  Companies like FoxConn exchange their dollars for Yuan, and in that sense WE, the citizens, FUND THEM.  Next the Chinese government who has a printing press that spits out Yuan whenever they please (and my understanding is that they are adding as much as 17% to their money supply annually for a number of years now – and we’re afraid of 3%), so they try to figure out what to do with these green pieces of paper.  The U.S. government will not let them buy strategic things like our oil fields or oil companies, so they are left with buying golf courses, buildings, or… we let them buy U.S. Treasury bonds.

Everyone claims that is them funding the Treasury, and that now the Treasury owes the Chinese.  And that is technically true, but look at it another way.  Bonds are a savings account just like when you deposit money into a savings account at your bank… now your bank owes you that money.  So are you bankrupting them if you deposit $1 trillion?  With that money in the bank, is that bank now going broke?  Laughable when you think about it that way.  Of course you may counter that “they would be going broke if they spent it on medicare and food stamps”.  But again, the U.S. can’t go broke since they have a printing press.  There is no chance the Treasury, working with the Fed, can’t pay China back if it ever demands U.S. dollars instead of U.S. bonds.

A quick sidebar for the tin foil hat types who are all over the comments section of your youtube video.  They claim that the Fed is independent, and owned by private bankers, and that the Government ceded control of the printing presses to them, and so the Treasury might be stuck holding the bag.  This is laughably ludicrous.  Firstly, it is far more accurate to describe the Fed as a fourth branch of government.   They aren’t truly private, for example, Ben Bernanke can’t print himself a billion dollars and go out and buy a house.  Yes, there were bailouts for bankers during the financial crisis, but GM got bailed out too, and Congress and the President were in on the bailouts and could have stopped them at any time.  The worst part of all this misunderstanding is that you, me, Congress and the President were not knowledgable enough to stop the bailouts and realize there were other ways to solve the financial crisis.  But that’s also for another post.

You may ask “why do we call it debt, or why does the U.S. borrow to spend?”  First, the U.S. does not need to “borrow”.  They could simply end the entire process and not issue any bonds.  The biggest savers in the economy (including the Chinese, hedge funds, the uber-wealthy, pension funds and grandma) who buy U.S. bonds could be told to save elsewhere.  Congress can pass a spending bill, and the Treasury could just debit the necessary accounts.  The Fed could be ended too, although they provide the useful service of setting interest rates (there is no such thing as a “bond vigilante” in the U.S.)   We use an arcane process started during the gold standard days, which was not changed when our system changed in 1971.  You can find very technical descriptions that would satisfy any open-minded economists at sites like debtdeflation.com/blogs, pragcap.com, monetaryrealism.com and neweconomicperspectives.org

Of course you may immediately realize the good news if what I’m saying is true….. that is no one’s taxes need to be raised.  Obama doesn’t need to “pay for” any new spending.  Millionaires and billionaires can keep their money.  I personally think their taxes should be raised – but that is my ideology speaking, my belief system that says those sitting on trillions in savings while 80% of the country is flat broke, just isn’t right.  But in reality, we do not need their money.  They can keep it.  However, without redistributing money in the system the US government debt and deficit MUST be increased to inject new money into an economy that doesn’t have enough.

Now let’s handle some of the objections.  First, one must realize that the U.S. dollar only comes into existence in one of two ways.  Without one or both, there are no U.S. dollars – and Tony, I assume you like those dollars in your savings account, right?    #1 is when you take out a loan – let’s say to buy a house.  Your bank literally creates money out of thin air.  You’ll hear the phrase “loans create deposits”.  That is your loan ends up in newly created U.S. dollars in the bank account of where ever that money is going.   Yes, your lender creates a liability, and is owed that money back.  But that too is created out of thin air.  And when you pay that loan back the bank doesn’t get to keep the principal… the liability, and therefore the money, simply disappears just as it magically appeared.   So debt repayments make money evaporate.

This is important because households created trillions and trillions of dollars to build and buy homes in recent years.  That new money creation led to massive jobs growth.  Take note of that – new money created jobs.  The problem with this is two-fold.  First, easy credit conditions during good times leads to serious malinvestment.  Families with 2 kids don’t really need 4 bedroom homes, and 2nd and 3rd homes.   Construction jobs are also temporary jobs.  Once the home building stops, those jobs disappear.

But worse, is when the bubble collapses, the new money creation also ends.   The boom becomes a bust, and for more than the obvious reasons.   When new money stops being created, and old money/loans are paid back, money is being destroyed – money is leaving the economy therefore shrinking the economy.  So we went from a situation where trillions of dollars were being created to one where trillions are being destroyed.  When more money is evaporating from the economy than is being created, jobs are lost.  First it was construction jobs, but as money evaporates there is less demand for all goods and services, and so job losses spread to all sectors.

This brings us to the second source of new money.  The US government spending more than it taxes, otherwise known as the annual deficit.  The US debt, which is the tally of all past deficits, and stands at roughly $15 trillion dollars.  One thing Tony missed, as does everyone else, is that private sector debt is 3x the governments, and was 4x to 5x in 2008 when the collapse of the private sector’s debt caused the global financial crisis.  The other thing that Tony misses is that the Government doesn’t need its money back.  When taxes are collected, it too destroys money by removing it from the private sector.  Banks need their money back.  But again, there are only 2 sources of money – one is contracting right now, and without government deficits the economy would contract.  Government surpluses would make the money contraction even worse.

Think about what happens when money gets paid back.  Pay both the banks back (which is happening) and the government back (which thankfully is not) and then there is no money left in the economy.  How you like them apples Tony?  We do need money in the economy – right?  Which do you prefer, for households and companies to be deep in debt, or the government?  One has a printing press, the other doesn’t.  Case closed.

Of course household and business debt is useful.  People see an opportunity, take out a loan, and hopefully create wealth, and then pay back their loans.  Wealth remains in the economy (a new house, a new gadget, etc) and the money disappears.  Of course if you want to re-sell that house, a new person takes out a new loan and new money enters the economy once again.  I call that “monetizing wealth”.  If the private sector can’t or won’t take out new loans, we can not “monetize wealth” and we can not grow.  So that ONLY other choice is for the Government to spend.

Since I know inflation is a major objection let me end by tying up loose ends.  Note that when the private sector is paying back, or defaulting on, their loans faster than they are taking on new loans, the money supply is shrinking.  This is DEFLATION.  If the Government ran a balanced budget the economy would shrink and the deflation would get worse and worse as consumers would hold off all purchases assuming the next day would bring an even better price.  Deflation is obviously the opposite of inflation.  Inflation favors people in debt, deflation favors people with cash.  Today we have a very small percentage of savers sitting on trillions of dollars, and the vast majority of the country broke and deep in debt.  So I’m personally in favor of inflation right now.

But are we getting inflation?  People point to oil and gold and claim we have terrible inflation.  But those are both worldwide commodities.  China’s money printing, and their and India’s demand for oil and gold are what is causing oil and gold inflation, not what the U.S. is doing.  But we pay the same worldwide price as they do.  In fact China’s prices at the pump largely match our most expensive markets in California, while Japan is 50% higher and Europe’s prices at the pump are double.

One last benefit of inflation is that it encourages production rather than sitting lazily on your savings.  As more money gets pumped into the economy there is more incentive to go after it, as well as the incentive of your saved dollars losing value.  Deflation does the opposite.  Why work so hard when your savings increases in value, and the value of your work goes down.

In summary, the U.S. Government’s spending is called “debt” but it really is just spending.  They don’t need their money back because they have a printing press.  If we pay them back, the economy loses money and we enter a deflationary Depression.  The debt of the U.S. government is simply their past spending.  It is savings in the private sector, or it might have already been destroyed by paying back private sector loans.  Finally, China does not fund the U.S. government.  No one other than the U.S. government funds the U.S. government.  Your and my debt is 3x the government’s, and unlike the Government, we do need to pay our loans back.  Tony, get on board with this and you’ll see there is an enormous amount that can be done to fix the economy, get people back to work, get real productivity and production back on track, but none of this will get done if we fear monger about an imaginary problem, and don’t actually understand the true meaning of money creation and U.S. government debt.

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Why Krugman is wrong, and how. The importance of debt.

Finally a clear description of how the economics profession is failing us.  I’ve heard time and again that they don’t include banks in their equations, and never quite understood what that meant.  Leave it to the very clear writing of Steve Keen at debtdeflation.com/blog:

“…how they get it wrong: by ignoring banks, and treating loans as transfers from “savers” to “spenders” with no bank in between…. the borrower’s increase in spending power is counteracted by the lender’s fall in spending power.

Yet, what really happens with most loans is that banks create new money out of thin air when they make a loan.  You show up for a mortgage of $100,000, the bank approves it, and places $100,000 in your account.  Where did they get the money from?  They created it.  Sure they input a liability on their books, and may have to go to the Fed for reserves, but the money did not have to exist any where in the system for them to place a real $100,000 into your account.

I’d suggestion reading the full article on Keen’s site, but you can also skip to the part that intrigued me the most by scrolling down to “Neoclassical Misinterpretations of Fisher, Minsky & Banking”

Why is this so important?  Keen explains as well.  My explanation is that new money creation expanded the economy – and many, many trillions of dollars of debt money has been created by the private sector since the 1980’s, which a rapid expansion in the oughts.  This money creation was understood by the mainstream. Worse, paying those debts back isn’t understood either.  What the banks created was temporary money.  They don’t get to keep that $100,000 loan after it is paid back.  When principle payments are made it cancels out the liability the bank created.  The banks get to keep fees and interest payments, but that’s it.  But the problem for the economy is that the private sector is taking today’s paychecks, and instead of buying goods and services which expands the economy, they are paying down yesterday’s debts.  It literally makes the banks liability disappear, and nothing more.  As you can imagine, this is a huge reason why Steve Keen would call his blog “debt deflation”.  And it is the reason why the US Gov’s debt has had to go through the roof.  If the disappearing money wasn’t replaced, the economy would collapse into a new Great Depression.

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Savings, good for me, bad for you. Economics 101

George W. Bush famously said after 9/11 that Americans should go out and spend.  To many this seemed like a dumb idea – when in a recession, we should hunker down, save, not spend.  But he was partially right.  While savings is good for the individual, it is not for the economy.  We need people to go out and spend during a recession.  Savings, the friend of the individual, is the enemy of the many.

We can see this by looking at today’s economy.  The U.S. has a record high debt.  We know that U.S. Gov debt equals Private sector savings.  So, if the Government has record high debts, it means the private sector has record high savings.  And herein lies the problem with our economy – only a small group of people and corporations have any savings, and they have a LOT of it.

It isn’t the U.S. debt that is the problem.  It is the makeup of the private sector’s savings and what they are (not) doing with it.  As long as the big savers save, the only other choice is for the U.S. Gov to continue to pile up the debt.

For those of you who are so afraid of the size of the U.S. debt, you might want to know who has all that US Government debt.  China and Japan are sitting on a combined $2 trillion.  Good luck figuring out how to tackle that one.  Millionaires and billionaires are probably sitting on another $2 trillion.  And corporations have locked up another $2 trillion in cash.  Yet the GOP says these last two groups are untouchable – in fact they need even more cash via tax cuts so they’ll have an incentive to work (I mean create jobs).

Bush had a point that spending was needed for the recessionary economy.  But egging on the little guy to shop, especially when they are in debt up to their ears and 65% have no savings at all, is the wrong focus.  The current GOP and the Ryan budget is similarly misguided – trying to cut money that goes to people who will actually spend it, while giving more tax breaks to the biggest savers.  The bank robber Willie Sutton would tell us to go where the money is… and that’s our trade deficit, and the savings of our biggest domestic savers, the wealthy and large corporation.  The ONLY other choices are 2) take it from the future paychecks and services of the middle class and poor, or 3) the Government must spend more (go deeper into debt).

I’m personally in favor of option 3.  Let the rich keep their money – they (stole) earned it.  Definitely do not take future money from anyone who will actually put it to use – I mean food stamps get spent IMMEDIATELY and end up keeping the grocer, the truck driver and the farmer in business.  So my proposal is to stop collecting all taxes from those in the bottom 95%, and start Government spending on education, infrastructure, and green technology.  Keep doing all of these until unemployment hits 5%.  Only then should we raise taxes or reduce government spending.  But if you do want to raise taxes…. raise it on the biggest savers.  They’ve got the money, and they are the enemy of the many right now.

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Gov spending vs. private sector debt

There are two types of money creation.  The government spending money into the economy, and the private sector taking out loans.  The 20 to 30 year boom we just experienced was due to a combination of both government spending (which many erroneously call “debt”) and private sector debt (which really is debt).  Since our country spends more than we earn in international trade, and since our corporations and our richest citizens save huge amounts of cash, new money must be pumped into the economy to replace that money.

Of course our politicians are spending more time talking about pulling back on government, while at the same time the private sector is paying down, and defaulting on, debt.  Not surprisingly we are no longer experiencing an economic boom.  Instead we’ve had a collapse, a recession, and now a muddle through economy due to money contraction and destruction.

Looking at deficit spending, and Federal “debt” growth, combined with private sector debt growth, it’s clear a ton of new money was being created and spent into the economy over the past 30 years.

Since money creation spurred on the 20 to 30 year boom, and money contraction and destruction are causing our current economic malaise, it seems clear the solution to getting the economy back on track is money creation.  If true, the question is Government spending vs. private sector debt?

That answer is easy since private sector debt is bad.  Debt is borrowing from future earnings and spending that money today.  Since the private sector, via student loans, mortgages and credit cards, went on a 30 year debt binge, TODAY is the future.  Today is when we need to pay for yesterday’s spending. The country is doing that via deleveraging through a combination of paying back debt and defaulting on it.

Government spending, which most also call “debt”, does not have to be paid back in the same way.  First, the government can print money out of thin air, so if some big bill comes due it can be taken care of it with new money.  Second, most of that money are treasuries which are essentially savings accounts for third parties like China and pension funds.  They won’t be asking for that money back because it is an investment that pays interest, and they prefer the income stream to the cash since, in the case of China, they have plenty of their own cash and are continuing to earn more of our dollars via their exports to us.

So to repair the economy there are 2 choices.

1) Wait for the private sector to deleverage before their spending returns which will provide the demand that drives companies to hire.

2) Help them deleverage by getting more money into their hands via government spending.

A third choice is to get the private sector to borrower again.  Terrible idea since that’s how we got into this mess of an economy.

However, you may be reading this and thinking that government spending also didn’t work.  The truth is a lot of it didn’t, but not for the reasons most believe.  Government spending is the only true money creation since it really doesn’t have to be paid back.  Private sector debt is temporary.  Governement spending doesn’t have to be.

With $14+ trillion in national “debt” (or cumulative spending) where has all the money gone, and why don’t we have a better economy today?  And if $14+ trillion in spending hasn’t done the trick of providing a robust economy than why would more spending help?

The answer is two-fold.  For one, a huge portion of that money was siphoned off to the financial elite.  By “financial elite” I don’t just mean the wealthy, I mean those who earn their money from pushing paper around, and creating paper products like derivatives.  They are also the lending industry – those who earned from fees and interest on loans, from penalty fees like over-draft charges, and from all kinds of tricks like offering free checking to those you know are most likely to rack up huge fees for over-drafting.  This sort of business is not only not productive, it has clearly been destructive to the well being of the consumer who represent 70% of our GDP.  Meanwhile, the top 1% got incredibly rich off of financial gimmicks which helped everyone else rack up huge debts, and ultimately collapsing the economy.

Much of the government spending recently has gone directly to the financial industry via bail outs.  Imagine if those lenders, investment firms and insurance companies were allowed to fail and that money went to roads, bridges, green technology, high-speed rail and other constructive, rather than destructive, areas.  Or directly to homeowners to bail them out?  Both would have help with private sector debt rather than further enriching the financial elite.  The former would have helped the economy, the latter has not helped it.

There are only two other alternatives to more government spending; 1) tax and redistribute, or 2) debase the dollar so that we stop importing so much and can start exporting.  But Republicans simply will not accept either of those two solutions, so more government spending is literally the only possible option – and the only possible spending plan Republicans would ever support would be a tax cut for main street. Of course they aren’t likely to support that either until there is a Republican President, or the Democrats get tough AND stick together.

Either way, government should not be supporting more private sector debt, the private sector should do everything it can to get out of debt and avoid debt in the future, and the unless we debase the dollar or redistribute wealth via taxation, government spending is the ONLY other way out of this sick economy.

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Job Creator myth

If you lower taxes on the rich, or on big corporations, they will create jobs.

Or will they?

The talking point is that taxes are too high, and if lowered businesses would start to hire.  I guess the other talking point is that rich people are hiring.  I really don’t know what an individual rich person’s taxes have to do with companies who hire, but lets lump them in since that is what those who want lower taxes for them do.

The truth – when someone is handed something for free, they have no incentive to change their behavior.  The wealthy, for example, can hand off their wealth when they die to their kids, tax-free, up to $5 million right now.  This creates an entire class of rich kids who have no incentive to work, or create businesses, or run their parents business, or do anything other than support the Champaign and night club industries.

Conversely, if taxes were exorbitant, those rich kids would be forced to learn something from their parents about how to create businesses and jobs.

Taxes can also incentivize specific behavior too.  For example, when the rich are given the lowest possible tax rates on capital gains – or gains from investments – they are specifically being incentivized to invest – except investment ala the stock market and hedge funds create nothing of value, and that is where the vast majority of capital gains comes from.  If profits from the stock market and hedge funds were taxed at 50%, the stock market would do what it was intended to do – provide long-term capital for well run companies.  Instead it is now a casino thanks in large part to our tax code.

If the wealthy had a tax rate of say, 70%,  they would have more than twice the incentive to earn money than if their tax rate was only 35%.  For example, at a 35% tax rate on a $1 million income they would take home $650,000.  But at 70% they would take home only $300,000.

Now those who don’t like this idea (usually the rich, or politicians who want to help the rich) would say this kind of tax rate would remove their incentive to earn since so much is taken away from them.  Nonsense, that is like saying that someone will choose not to be rich because it isn’t easy.  First, it isn’t easy to become rich (unless you are handed it) and someone capable of creating profitable businesses, or earning tons of income, would not suddenly decide to be poor.  They would attempt to earn more so that they could be as wealthy as they wanted to be.  The reverse is therefore more likely to be true – at a lower tax rate this same person or company is likely to feel satisfied far sooner and lose interest in working harder or smarter for even more money.

As for businesses, expenses are deducted from earnings before taxable income is calculated.  So the more a company spends – for instance, on employees, the less taxable income they have.  So when taxes are very low, they have no incentive to spend on anything.  We can see that today as corporate earnings are at record highs and we have the highest unemployment in a generation.

High tax rates actually force a company to look for excuses to spend.  Low tax rates force a company to look for excuses to not spend.

In its simplest terms, “corporate welfare”, or a free pass with low or no taxes, reduces a company’s incentive to spend and therefore grow, just as individual welfare reduces an individual’s incentive to work.

The solution to today’s economic problems doesn’t have to be exorbitant taxes, it can simply be fair taxes (or as described here it doesn’t have to be ANY new taxes).  Or targeted taxes.  Since taxes ALREADY incentivize behavior, and given the recent global financial crisis, the excesses and corruption on Wall Street, record corporate earnings, and high unemployment, it is clear we have been incentivizing the wrong behavior.  It’s time to go back to real capitalism, because right now, by transfering wealth to the wealthy, we are becoming a plutocracy, an oligarchy and eventually a fascist state.  Those who fear socialism are creating a far worse state.

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Travel as education. The “walk about”

I just watched the below video interview of entrepreneur David Gilmour, founder of Fiji Water.   He talks about his father giving him a choice at the age of 16.  I’ll pay for you to travel on $10 per day, by yourself, every summer until age 25.  Or, don’t, and at age 25 I’ll stake you with some money to start a small business.  Gilmour chose to travel and explains how those experiences shaped him.

http://s.wsj.net/media/swf/main.swf

This clever travel plan fits perfectly with the advice I provide in “Don’t Go to College” in that real-world experience is incredibly valuable.  Instead of racking up debt in college, travel on $10 per day and gain knowledge you simply can’t find in a class room.  Many of the most successful and interesting people I’ve met have all done extensive travelling, mostly on shoe string budgets.

The above video is a good one for anyone interested in what it takes to be an entrepreneur.

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Financial Services Modernization Act

To read the name of the Act 12 years later you clearly know the outcome.  The “Financial Services Modernization Act” of 1999 did exactly what we didn’t need to do…. “modernize” financial services.

By 2007 the financial system was crumbling, and it famously collapsed in 2008.

This article dated November 1, 1999 describes “probably the most heavily lobbied, most expensive issue in a generation”.

The same article has a paragraph titled “Threat to financial stability” which includes this sentence “Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system.”  In other words the financial crisis was predicted in 1999.

The article goes on to talk about gradual erosion of banking regulation “over the past 20 years” presumably dating back to the “Depository Institutions Deregulation and Monetary Control Act of 1980”.

“Modernization” of the financial services industry destroyed the safe guards imposed on the system after the last great financial crisis.  Will we ever learn?

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The top 1% have already won the class war

Stunning visual of why Occupy Wall Street says this is the 1% vs. the 99%.

Source MotherJones.com

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