The KGB Oracle Forums General Public Discussion (SPECIAL ACCESS) KGB Political Debate Central I knew this would happen...

Well, not exactly. Market crash of 2008 had two root causes.

1) Govt interfering in those markets. It was the Govt ultimately underwriting those bad loans via Freddie/Fannie and HUD etc that both caused the housing bubble and made the securitzed mortgages look like safe investments.

2) Lack of enforcement of existing regulations. SEC did not pursue those commiting wrongdoings because of the political influence of those they would pursue. Even dating back to Clinton era, who of course was a Democrat. The issue was not to little regulation, it was gov't corruption. Regulations being on the books only effects those without the power to ignore them. So basically it harms your average joe trying to do business, but not your politically connected elites.

Selective enforcement becomes even more of a problem the more regulation you have, because regulatory bodies cannot even begin to keep up. Invariably, those who wield power and influence manage to get away with things. Which is just how the Dems like it. Did you know Investment bankers heavily favor Dems in political contributions? Why do you think that is?

A Limited government can be better, and more easily focused on doing what it does do - and doing it WELL. A gov't saddled with every regulation someone can cook up a good sounding one-liner for, will inevitably not be able to perform its assigned functions in an equitable manner.

So you don't believe there is any regulation that is bad? If you have regulation that has bite and real consequence, without having to overburden with red tape wouldn't you think that would be more efficient? Or do you just think the more regualtion the better? I'm simply saying, get rid of the inefficient regulation that does nothing. And again, I'm not saying NO regualtion. I know we need regulation, I'm SAYING we need regulation with BITE. Where the consequences will make people be aware of what they are doing. Efficiency is key here, but I see you don't want efficiency. That's the problem with Government now, they are very ineffecient and can't seem to do very good math. If that's what you like... well you've got that now.

Deregulation is much worse than the worst kind of regulation, with deregulation you can fairly accurately predict that Greed Is Good will happen, and fuck the consequences.

Sinij, a couple of serious questions for you:

1) Have you ever looked at a regulation, and thought maybe it was put in place not protect people from the "elite" but rather enacted on the behalf of various elites for the purpose of furthering their financial or political goals?

2) Do you think wealth is something that can be created, or is it something that exists independently and is simply to be distributed fairly?

Yes, and it is still better than open season looting deregulation would cause. Regulation also gets torpedoed by lobbying, cronyism and revolving "consultant" door and blurred lines between regulators and industries. Still, we don't have better system and tearing it down before we have something better is fundamentally bad idea. What TeaParty trying to say is analogous "Sometimes Police is corrupt, so lets abolish police". You don't have to follow through with the plan to understand how monumentally bad this idea is. TeaParty isn't about "lets make regulation more effective", it is about "I don't want to pay taxes but expect same level of service (i.e. Medicare/SS)" through and through. Pure greed in other words.




In fiat money system wealth can be arbitrarily created out of nothing. If you remove monetary consideration and focus on more tangible (i.e. goods/food/service) then wealth has to be created via labor.


My turn to ask questions:

1. What do you think about trickle-down effect in "wealth creation" ?

2. Why do you think most corporations, along with CEOs, located in first world countries with high taxation and restrictive regulation and not for example in Cambodia or Somalia where they don't have to be concerned with any of it?

Ok so now for your questions.

1) Ok this is a tough question, not because of the mechanics of the economics involved... but because of the politically loaded meanings of the term "trickle down economics". For the purpose of my answer, I am going to address Reagan's view of supply-side economics and regulatory reform which is what most people are referring to when they invoke the "trickle-down" tag.


Supply side economics is not totally flawed, because it at least focuses on the core ability of people to be able to supply - which in this context equals being able to create. Mainly by reducing taxes to reasonable levels so people have the opportunity and incentive to re-invest.

Lets step back a second -

During Reagan years many people argued against supply-side as "trickle-down" economics saying that just because the "rich got richer" that this would not necessarily translate into more spending. Lots of conservatives argued that if the wealthy had more money to spend, they would buy more goods and services and so poorer people would benefit.

In this context of the argument, the liberals are actually more correct. The rich folk buying an extra car or some more cognac here and there does not really amount to shit in the overall scheme of things. HOWEVER - that fact is not particularly relevant though it makes for a good sound bite. It is because supply-side in its true form has as its main focus the ability to create.

So lets talk for a second about this vague "ability to create" what does it actually mean? What am I and others referring to when we invoke this phrase?

It refers to a couple things, which are inter-related.

1) Sanctity of private property. Whats mine is mine, whats yours is yours. If I earn and legally purchase land or goods, it is mine. Just because you or someone else wants what I have, does not give you a right to it. Taxes are one thing, taxes designed to place such a burden on me that it amounts to disenfranchisement are something else.

2) Lack of gov't interference that prevents me from establishing or operating a business or economic concern.This interference can come in the form of regulation, or corruption. Some allowances for regulation can and should be made where certain operations have a direct impact on the well-being of others, but in most cases enforcement of existing laws would suffice. Most importantly, gov't should not become a proxy for wars between entities.

In other words, taxes and regulation should be reasonable and minimal. Each of these points have myriad challenges and dozens of manifestations, but things can be boiled down to these two points.

(I would also argue a third point: Stability of money policy, in other words dont devalue my currency to the point where it has a material effect on my business. Though this is actually tied in with the first two points , inflationary money-printing falls under abuse of private property and gov't interference if you really look at it. Anyhow.)

So - back on the main point, now that we have clarified the vernacular a bit.

Ability to create, as wealth can be created. A bunch of rocks in a mountain is a bunch of rocks. People can live on those mountains and be poor. If those poor people take the metal from those rocks, and turn them into machines, and use those machines to farm more crops and kill their enemies who would steal from them - they now have wealth. A few hundred or so million years ago the planet was covered in plants. Now, those dead plants have turned into things like oil. Dig it up, turn it into gasoline, you now have wealth because the people who made the machines can use it to run the machines. And so on and so forth.

Wealth can be created. However, money does not create wealth. Printing money does not a machine create, nor does it drill oil or refine gasoline. However the people who make the machines and refine the gas like money, because it lets them affix and preserve records of value. A machine might be worth a thousand barrels of gas. But bartering is clumsy, the logistics are difficult for large transactions, and it makes recordkeeping a bitch. So, money is created to abstract the value of those goods.

In your previous post you indicated that wealth is created through labor. I feel the need to remind the audience that labor in itself has no value, only useful labor has value. Just laboring does not necessarily produce anything. I could go in my back yard, dig a hole, fill it back up.... and repeat it a million times. And have jack and shit to show for it. Labor may be needed to some degree, but accomplishes little or nothing without insight, creativity, planning, and leadership.

The fact is that most people are capable of labor of some sort. However, the other aspects of wealth creation are in somewhat shorter supply. As a result, they tend to take a larger share of the wealth created.

If they make enough wealth, they tend to want to invest in other opportunities. The IT revolution was a perfect example of this. Tons of people working on sweat-equity ( taking stock shares as salary) in hopes of making something workable, and then being part owner of - a new business venture. Venture Capital firms betting money on the success of new enterprise. Many fail , some succeed. There is lots of risk, but also lots of reward.

Now, why do I mention the IT revolution specifically?

Because - in the pre-Reagan tax and regulatory environment IT COULD HAVE NEVER HAPPENED.

Lets look at things from, according to some, the "Big Bad Guys' " perspective: a Venture Capitalist/Investment Banker.

Scenario 1)

So, imagine for a second you are this Capitalist. You have 10m bucks. Part of it is yours, part of it is from people you know who have also had some success... and they are going to trust you to invest this money.

You go and look for people who have ideas and/or fledgling businesses. You find 10 likely candidates, you think they have potential. So you give 1m to each of the candidates in exchange for a stake in the business.

Out of the 10, 7 fail and you lose you the 1m. Three succeed and one makes you 1m on top of your investment (2m back total) one makes you 4m back on top of your investment (5m) and one makes you 7m back on top of your investment (8m). Cool, though most failed - you ended up with 15m back from your 10m. Gov;t taxes you 15% of what you made (1.8m tax - from net of 12m from profitable companies) and you are left with 13.2m total. Next step? Do it again. Create more jobs. It took you a year, and you netted 3.2m after taxes. It was risky, but you also have a bit more cushion now in case of future bad bets.

Maybe your next attempt will go better, maybe it will go worse. But since you were able to pull out a hefty profit, it seems worth doing again right?

Scenario 2)

Same setup, same investment, same results.

Except this time the Gov't takes 35%. Cause it has to pay unemployment insurance, and etc. Finance another war, subsidize a power Senator's industry.... you know the drill.

This time the Gov't takes 4.2m in taxes. Leaving you with 10.8m. 800k profit on a year of huge risk. Thats only 8%. Now account for inflation and opportunity cost.

Suddenly doing this type of risky investment makes less sense. Now, what if one of the successful companies had not succeeded or been even slightly less successful. 3/10 is a pretty damn good success rate.. my scenario was optimistic.

In most cases at that tax level people investing 10m on new enterprise would have LOST money.

****

Now just to add it -

Scenario 3.

The company that would have made 7m return for the investor, was put out of business by the gov't because Google bribed a fuckton of gov;t officials and had an obscure regulation instituted. Business is tied up in lawsuits.

Net result - investors lose millions.

-------------------------

So, there we have it. The successful Capitalists from scenario one are probably celebrating with an extra car and a shiny new bottle of cognac, but thats not what grew wealth creation so the point is moot. Besides, I would say they earned their loot... they did a lot of work researching opportunity and took lots of risk.

So that is my answer regarding supply-side " trickle down" economics. I do not expect any liberal to be converted, but hopefully at least some liberals can at least understand the point of view of those of us who do not like liberal economic policy.

I will answer the second question later, regarding domiciles. There's a few different answers, and it will also require some verbiage to begin to address it properly.

That is a great explanation Derid. Some liberals seem to hate the fact that someone puts in the hard work and risk to make a lot of money. Some of those liberals that are wealthy want all the rules to apply to others, and not to them.

Well Derid, at least you understand what you believe in and I can respect that.

Here are follow up questions to #1 and your explanation -

Do you think difference between capital gain tax rate and personal income tax rate in US has something to do with wealth inequality in the US and shrinking middle class?

Lets keep using arbitrary 1M number for starting new business, with current wealth distribution approximately top 2% can afford to start new business (directly or indirectly). If we go back to mid 70th (inflation adjusted and all that) it gets close to top 5%, so more than double number of people that have enough wealth to start this arbitrary new business. Wouldn't that result in more of them started?

Last but not least, do you think that low capital tax rate and concentration of wealth has anything to do with systematic excessive risk taking that greatly increased number and magnitude of bust/boom cycles economy experienced in the last 20 years?

Adds value or divert it? Also traditional way into "lots of money" isn't "hard work" (labor) but "investment" (capital).

Read this.

Here's a paragraph from that site you posted.

I think the highlighted tells the biggest reason why corporations go overseas. It's about saving money. If you are going to move your company overseas, your moving jobs, and tax revenue from those jobs via workers will go with it. So what DOESN'T make sense would be to taxing them a higher rate making the decision for the company easy to move it. They could also place tariffs on countries that are having companies being moved to.

Our tax system needs to be changed. Should companies catch a break paying .001% tax along with write offs? No, they shouldn't. Our tax system is flawed, and I still can't believe not enough people are not wanting to fix it. Is the Fair Tax act the one? maybe, maybe not. A flat tax? could be, but until we find a fix for our taxing system, we will never get a fair tax for middle class or the rich. When I work up to 48 hours a week. My bring home pay is only a few dollars off if I had worked 55 hours. Is that fair? I spend more time working only to get more money taken from me. This is what pisses me off, the only way I can gain a significant change in my paycheck, is if I work more than 62 hours a week. These little tax brackets we have kills people like me. It's like you're working for nothing when you work between 48-60 hours a week. A flat tax seems more likely of a fix than a national Fair tax or consumer tax on goods.

About the corporate tax, I don't think it should go above 18%. Back in the early 90's during Clintons first term when the economy was slow. He took the corporate tax down to 25% from 35%. It seemed to work well for him. Like I said, until we change the tax system from the current cluster fuck we have now, it's not going to be fair. Unless you go the pure socialist route and add another 30% tax to top 30% of earners in the U.S. Then the only thing that would do is afford the government to fill the coffers of welfare and other/more social programs. You probably think adding more tax revenue by tax more will take the debt down to nothing. But when we are already spending a lot more then we are taking in revenue. How would taxing more while SPENDING more offset us from still outspending what we are taking in? Small Business and big corporations still employ far more people than the government. Therefore the government doesn't create the nations jobs. This is the typical flaw of liberalism. I call it the "hold your hand syndrome" where you need Government to tell you what you should and shouldn't do.

"A wise man's heart is at his right hand; but a fool's heart at his left.
Ecclesiastes 10:2"