Shame on US

Warning—I haven’t blogged in awhile and my dander is UP


1. The financial crisis-depression and Fair

I tell my kids over and over again life isn’t fair. My kids are 5 and 2 and they are starting to get the message. Now Mr. Krugman- all op ed writers at the NYTs, WSJ etc and all members of congress and most citizens of the world let me say the same thing to you.

LIFE IS NOT FAIR

And trying to build a plan to help the economy built on fairness (if reduced to the absurd which is what I do on this blog) is communism-socialism at a whole new level. Every family gets one car (same car same color same features). Every sports team has the same payroll and the same level of players. KC playing the BOSOX isn’t fair. Brad Pitt looking so good isn’t fair, lets put some battery acid on his and Angie’s face to keep the beauty quotient fair.

Think of it like this. You’ve got 3 books and 1 kid. That’s great one kid has 3 books. Then you have a second child. It’s not fair for one child to have 2 books and the other 1 book so you pitch 1 book. Then you have another child and since you only have 2 books and 3 kids you have to pitch the other 2 books because they can’t be divided up fairly. Obviously the household was better off with 3 books but the requirement that they be divided up fairly results in a worse off household with no books (but it is fair; none of the kids have more or less books than the other).

Is it fair that banks get lots of bailout money when they where so important in contributing to financial excess and the employees so well paid. NO. The mortgage tax deduction also contributed to an over consumption of home equity. How do you feel about giving up your mortgage tax deduction????? But back to the banks—should we let them all fail. Well we could, but realize that all of your savings would most likely be wiped out and we would be reduced to barter for a means of commerce. I didn’t really like Mad Max the movie that much that I would want to live in it.

2. Buy America
Are you fucking kidding me. Let me make sure I got this right. America is in debt up to its eyeballs. We are going to have to borrow a lot more and we are going to tell the guys who loan us money to continue to loan us money (at next to zero interest rates) but we won’t buy your stuff. Humm that’s gonna go over like a fart in church. And even worse the buy American provision is focused not on services where we are more cost competitive but on materials where we are not. So we get less bang for our buck, overpay and wind up employing fewer people because we overpay for materials for the stimulus. By the way did any of these guys study the great depression?

3. There is no magic pill

It seems like most of America is on some kind of pill, and we think that if you could just get the right smart people in a room for a couple of days they could figure out THE ANSWER to the economic challenges the planet faces. Sorry guys. No magic pill for this one. It more like cancer where you don’t know what’s gonna work. Nothing might work. And at times the cure is gonna feel worse than the disease. It’s easy for Frank and Shelby to sit by and complain and find problems with various proposals but while they piss and moan the patient is bleeding out. And while doing something may not work well doing nothing can be much much worse –i.e. letting Lehman fail. And if your gonna do nothing at least have the courage of making it be a conscious and explicit decision. I want to see the GOP say we don’t think we need a stimulus package. At least that is a position. We don’t like some parts and some aspects of your plan (what we want tax cuts to be 45% not 33% of the plan) is not a position it is politics, and the time for politics is past.

4. We are not going regain our prior living standard any time soon (if ever)

America was living beyond its means. With no savings and lots of spending. Spending is going to go down and saving is going to have to go up. People are going to live in smaller houses, with fewer cars and less stuff. It will suck getting used to this. BUT there is no magic pill that will bring us back to where we where. It was driven by unsustainable consumption with no savings. So don’t expect the government to get us back to where we where. We have just got to hope they keep us from civil unrest, wiping out our savings, and returning to barter. Judge the success or failure of their plans based on the grimmest scenario you can think of, not a return to the artificial halcyon days of the past.

5. The road to hell is paved with good intentions
a. Buy America (see above)
b. Regulate the heck out of hedge funds and force them to cut fees ---well that is expensive which means they will have to be bigger, and of course the bigger they are the more likely a failure might be systemic so then you have to bail em out, and the harder it is to spot risky behavior (try managing 50 portfolio mangers as opposed to 1 or 2)
c. Bonuses for regulators (paid for by those they regulate like FDIC) the wife came up with this one ---how do you quantify a bonus for a cost that hasn’t happened
d. Tax returns of over 30% at 95%---that sure eliminates the incentive to take more risk above a certain level, but it also eliminates the desire to take risk and is open to all kinds of earnings management

The long and the short of it is complexity in and of itself is a financial cost. I have written enough sales plans to know that the more targeted behavior you try to promote the more crazy unintended consequences you get. Just look at the US tax code. How much money is wasted spent trying to be tax efficient. How much energy is spent trying to make income look like long term capital gains. Our tax code already kills too many trees, and is economically inefficient. And now we have an 800+ page stimulus package to add on top. Bad economics.

So a proposal.

Stimulus package as follows

250 billion for tax relief (payroll tax relief) for 2009 and 2019
250 billion for states and city welfare and unemployment
400 billion for fiscal stimulus (education, green technology roads etc.)

And while we I am at it

Tax code
Income (short and long term capital gains included) tax
0-25 k 0.00%
25k-50k 10%
50k-100k 16%
100k-200k 22%
200k-500k 30%
500k+ 35%

Deductions
Charitable deductions can be taken dollar for dollar against income.

That’s it.

I have not run the numbers but I am guessing that is going to be close to revenue neutral. And even if the rates need to be adjusted just a bit you get the point about simple (with no energy wasted trying to make income look like long term capital gains).