Sunday, November 28, 2010


I discussed this a few weeks back in class ...

The Greenspan Commission (yes, Reagan raised taxes)
It was early in the 1980s and Ronald Reagan was just elected president. He was staring record deficits in the face. Part of the problem was tied to his trickle-down, tax cuts for the rich, policies which were going to drain income from the national treasury. The other problem was tied to increased defense expenditures and anticipated hikes in social security costs down the road.

Because tax cuts and increasing defense spending were the heart of President Reagan's policy prescriptions, he focused on social security spending as a way to deal with looming budget shortfalls. So he appointed a blue ribbon panel to study the social security problem - which was Reagan's way of dealing with his budget deficit mess. The panel was chaired by future Federal Reserve chair, Alan Greenspan. Thus was born the Greenspan Commission (the National Commission on Social Security Reform).

The Greenspan Commission was driven by two realities. They had to buy into Reagan's assumption that trickle-down economic policies would reduce budget deficits (even after 1980 presidential candidate George H.W. Bush exposed it as "voodoo economics"). Then they had to accept that President Reagan was going to increase defense spending. As a result the Greenspan Commission was told to ignore any consideration of across the board tax increases, and to not consider touching defense expenditures, as a way of fixing the budget.

What emerged from the Greenspan Commission were a set of policy prescriptions that effectively doubled social security (FICA) taxes on America's middle-class and their employers.

In addition, retirees had to accept postponement of cost-of-living increases while some employees saw the date when they could begin receiving benefits deferred. President Reagan signed these recommendations, along with others, into law in 1983.

Left unsaid throughout the entire process was how social security, a pay-as-you-go program, had been generating program surpluses for years. Part of the reason for ignoring these program surpluses is because discussing how to protect those surpluses (in a "lockbox") would have drawn attention to the fact that the federal government had been using these surpluses to shore up budget expenditures and deficits over the previous decades.

Put another way, the federal government was sucking off of the social security program - and owed the social security program money (as it does now) - but didn't want to admit it.

The Greenspan Commission ignored this inconvenient reality, and decided to start the clock over on it's own terms. This meant that America's middle-class would pay for previous deficits, PLUS President Reagan's signature tax-cuts-for-the-rich program PLUS rising defense expenditures. America's wealthiest would get a pass.

The Boskin Commission (wishing inflation away to the cornfield)
Fast forward to 1995. With Reagan and Bush era policies raising our national debt Washington's elites were once again concerned about government expenditures. Specifically, they were concerned with a national debt that had quadrupled in 12 years. But instead of focusing on rising defense expenditures and foolish tax cuts for the rich policies, policy makers once again looked at anticpated social security costs (again ignoring present program surpluses), and focused on mandated cost-of-living-allowances (COLAs).

Since social security recipients receive annual increases in their benefits, which are tied to the official rate of inflation (COLAs), the U.S. Senate decided to put another commission together - the Boskin Commission. But this commission was tasked with looking at how inflation was measured. They wanted to see if they could slow down social security benefits by adjusting COLA increases downward.

If this sounds confusing your instincts are correct. Their real goal was to cut benefits, without nobody noticing. Guess what? The Boskin Commission found a problem.

Let's reemphasize this point. The Boskin Commission's real goal wasn't to find a new mouse trap for measuring inflation. It's goal was to find a way to reduce social security payments, and to do it in a way that would confuse everyone enough so the recipients wouldn't notice (or give up trying to figure it out). Here's how they did it.


All of us know that home prices doubled in a short period of time before the markets collapsed. We also know that crude oil prices doubled, tripled, and then quadrupled over the past 10 years. Anyone who goes food shopping know what's happened to food prices. Then we have insurance premiums, medical costs, co-pays, education and other service fees that we have to pay, especially as government budgets and services are cut back or privatized.

Yet, over the past 10 years, the consumer price index (CPI), which measures our nation's inflation rate, has barely budged. Here, check it out.

Now, do you believe that your household costs have actually increased by an average of 2-3% per year? Neither do I, and I have the bills to prove it. I'm sure you do too.

Here's what's been happening.

Because of the Boskin Commission's "hedonic" adjustments we don't count the $1,000 you paid for your new computer as part of our inflation numbers. Why? Because since it's twice as fast as your old one the government concludes that you really paid half as much for it. The same goes for figuring out how much your car and refrigerator cost.

Think of it this way. In the government's eyes your $1000 computer only cost $500. This is akin to saying, "Now that I'm buying $3.00 hamburgers, which give me twice the calories, I'm going to start calculating my food budget at half the price." Huh? Yeah, that's what I thought too.

Look, if you double up on the calories for the same amount of money you're not always doing yourself any favors. Oh, and you're still spending $3.00.

Then we have the substitutions.

Because of the Boskin Commission, when the government sees the price of steak go up it assumes that consumers replace steak with chicken, or some other meat-like substance (note: the "core CPI" actually excludes food & energy prices). Pesky prices according to the Boskin Commission don't count if you don't really want them to count.

But, in the real world, you and I know the price of steak went up.

In this way, with hedonics, substitutions, and many other accounting tricks, the Boskin Commission helped reduce inflation in America. Like the little boy on the Twilight Zone segment who wished things he didn't like into the cornfield, the Boskin Commission's recommendations allowed America's policymakers to wish inflation away.

And just like that, America's retirees and middle-class wage earners saw the size of their social security checks, and other raises, stagnate as real prices rose in America.

Oh, as an aside, with official (but artificial) low rates of inflation Alan Greenspan had his green light to keep on lowering interest rates. This, as we all know, contributed to the housing boom and the markets subsequent collapse. Thank you Boskin Commission.

President Obama's Deficit Commission (watching hope take a dive)
Now we have President Obama's Deficit Commission, and it's deficit reducing proposals. As should be expected, nothing is said about 60+ years of using social security surpluses for current expenditures ... nothing is said about three decades of unfunded trickle-down policies ... nothing is said about walking back Bush's tax cuts for the rich policies ... nothing is said about unfunded bailouts for Wall Street that now reach into the trillions of dollars ... nothing is said about unsustainable and reckless war projects.

So, guess who's going to pay through the nose on this one?

So much for keeping hope alive.

Whether it's tax increases on the middle-class (Greenspan), wiping out cost of living increases and ignoring the impact of inflation (Boskin), or turning our back on what's really driving national debt loads (Obama's Deficit Commission), America's middle-class is being made to pay for 30 years of unfunded tax cuts, corporate bailouts, and reckless wars.
All of this goes a long way in helping to explain the widening wealth and income gaps that exist in America. I think we need another commission to study the issue ...

- Mark

Wednesday, November 24, 2010


Some Thanksgiving funnies ...

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- Mark


I've commented on this before (here, here, and here), but I'll say it again: The Tea Party movement does not reflect mainstream America. The group is really little more than disgruntled Republican Party extremists in political drag.

Tea Party Poll

Here's some numbers that make it very clear what we have is really weak tea.

- Mark

P.S.: If you're wondering what happened in the last election, keep in mind that the election was not a referendum for the Republican Party, or the Tea Baggers. President Obama and the Democratic Party have done their level best to leave Independents and their Democratic base uninspired. People are still pissed off about the bailouts and how the American consumer/taxpayer/homeowner/worker are getting the shaft in all of this. Suggesting that the Tea Party movement should get credit for the 2010 electoral outcome is like claiming roosters should get credit for the sun coming up.

Tuesday, November 23, 2010

Monday, November 22, 2010


"Don't you see that the whole aim of
Newspeak is to narrow the range of thought?...
Has it ever occurred to you, Winston, that by the
year 2050, at the very latest, not a single human being
will be alive who could understand such a conversation
as we are having now?... The whole climate of thought
will be different. In fact, there will be no thought, as we
understand it now. Orthodoxy means not thinking —
not needing to think. Orthodoxy is unconsciousness."

- George Orwell, 1984, Book 1, Chapter 5

Why think for yourself when Fox News is there to do your thinking for you ...

I've been saying for some time now that to help grow the economy that tax cuts for the rich are the least effective tax policy. The data is not only strong but it comes from the non-partisan Congressional Budget Office (CBO). Still, in their continuing effort to narrow America's "range of thought", Fox News likes to disagree.

In their latest snippet of disinformation host Neil Cavuto forcefully accused his guest, Democratic strategist Chris Hahn, of lying when Hahn said of the Bush tax cuts, "For every dollar you spend in tax cuts, you get back 30 cents to the economy."

As Media Matters put it, the figure Hahn cited is not only accurate but well documented. Here are the numbers from the CBO ...

... and from (as cited in front of Congress April 10, 2010 by Mark Zandi, chief economist for Moody's Analytics, and a former economic adviser to John McCain's presidential campaign).

At the end of the day, looking to Fox News as a reliable source of information is akin to claiming that Arnold Schwarzenegger is a talented actor, or that World Wrestling Entertainment is a competitive sport.

Seriously, check out this Fox /Glenn Beck piece, which Jon Stewart does a good job of picking apart (starts at 2:30).
- Mark

Saturday, November 20, 2010


Remember this nice picture from my November 4 post?

It was my less than diplomatic way of explaining what our country - through the Federal Reserve - is doing to itself as we purchase our own debt. As I explained then:

The Federal Reserve is going to spend about $600 billion to purchase Treasury notes (our debt), which will help keep our unfunded obligations (war, corporate bailouts, tax cuts for the rich, etc.) going. Then, for good measure, the Fed will use it's financial muscle to boost the stock market's performance. They're doing this because, you know, we didn't use enough taxpayer money for Wall Street's Bailout in Perpetuity Program, which we made official in 2008.

On the good side it looks like the press is finally catching on to the shenanigans being pulled by Wall Street's boot-licking servants over at the Federal Reserve (who seem to think it's their job to guarantee Wall Street's profits).

Check out these headlines, compiled by Money and Markets Mike Larson, from the past week ...

"Fresh Attack on Fed Move; GOP Economists, Lawmakers Call for Abandoning $600 Billion Bond Purchase" -- Wall Street Journal, November 15

"Under Attack, Fed Officials Defend Buying of Bonds" -- New York Times, November 16

"Fed officials defend $600bn stimulus" -- Financial Times, November 16

 "Bond Market Defies Fed; Interest Rates Rise Despite Launch of Treasury Buying as Investors Take Profits" -- Wall Street Journal, November 16

I won't get into what's happening with long-term treasury notes, the value of the dollar, or other details that explain how this hurts our larger economy and the American consumer (for now). But it's clear that the Federal Reserve has gone farther than any boot-licking agency should when it comes to serving Wall Street's interests.

[Not that it needs to be said, but replace "Wilson" with "Bernanke"]

However, I think it's important to note one thing. By finally bringing attention to the Fed's "snake-eats-own-tail" policies, this could be the medias first step in finally calling out the Federal Reserve for doing stuff no central bank should be doing. You know, like bailing out specific industries, propping up the stock market, subsidizing profits, and irresponsibly putting U.S. taxpayers on the hook for trillions in corporate credits and guarantees.

Then again, if history is any indicator, I'm not going to hold out much hope that our media market watchers suddenly understand how important it is that the Federal Reserve does what any central worth it's salt is supposed to do - guard the integrity of it's currency. Seriously, why did it take the 4th Estate almost two weeks to discuss what I posted on November 4th? 

Still, it's a start.

- Mark

Friday, November 19, 2010


One of the more interesting things I've found when giving off-campus presentations is taking on topics that have been over-hyped by the media, and then turned into emotional and political spectacles. How can America begin to have a serious discussion on anything of substance when the media and the American public crave Ballon Boy stories, snooki-drenched reality shows, and other entertainment blood that have turned much of America into the world's navel-gazing heartland?

This is what I think about when I'm asked to explain complex topics that are trivialized by the media, like how our immigration challenges have actually been made worse by "free-market" policies that are hardly driven by free market realities.

Think about it. Just as no one wants to discuss the societal costs of a media culture driven by Balloon Boy-like drama, no one wants to discuss how reckless free market policies would push more Mexicans out of Mexico, and eventually feed a xenophobic and race-baiting crowd here in the U.S. The press, and our increasingly snooki-drenched society, would rather focus on spectacle than analysis.

As a result, in my off-campus talks, apart from having to explain Mexico's development history, I need to explain how the North American Free Trade Agreement (NAFTA) was a highly scripted trade document that has little to do with free markets, or laissez-faire economics. This usually entails asking my audience how a multi-thousand page, government-escorted,  government-enforced, legally obtuse and lobbyist driven trade document reminds anyone of the magic of the market?

This is what makes this article on Prison Economics so ironic.

The article describes how a cabal of executives from the private prison industry came together to discuss industry business, and then ended up crafting the language that became Arizona's new immigration law. Their goal was to find a way to have the government pay them money for incarcerating more people. Getting the public foaming at the mouth over Mexican immigrants was their tactic of choice.

Think, for a moment, what this means.

Private prison executives, who stand to make lots of money if their prisons are full, developed an immigration law that's designed to increase arrest and incarceration rates of Mexican migrants. This, in turn, will lead to increased demand for more prisons because, according to the Corrections Corporation of America (CCA), the agency that detains illegal immigrants (Immigration and Customs Enforcement, or ICE) is the targeted client, and will provide "a significant portion of our revenues" as incarceration rates increase.

So, at this time, this is what we have: An industry driven trade agreement (NAFTA), negotiated and enforced by the state (federal governments on both sides), that effectively forces Mexicans off their land and out of Mexico (in the name of efficiency). This is followed by industry driven immigration law, embraced and pushed for by the state (Arizona), which allows the private sector to profit from capturing and incarcerating "illegals" who enter the state.

With NAFTA and Mexico's laggard development levels forcing more Mexicans out of Mexico, rounding up and incarcerating them is kind of like shooting fish in a barrel. Only better.

With the state (at many levels) backing the privatization and incarceration activities, there are fewer people around to push for real policy solutions when it comes to developing Mexico. Worse, we're now feeding a private group that has both the resources and a financial stake in fighting comprehensive immigration reform, and demonizing an entire ethnic group. Nice.
And the privatized race to the bottom continues. 

- Mark

Wednesday, November 17, 2010


Have you ever wondered why the Democratic Party, just two years after President Bush and the Republican Party ran the country into a ditch, are on the defensive again?

Have you ever asked why President Obama and the Democratic Party don't aggressively challenge Republican Party talking points either legislatively or politically?

Have you ever wondered why former Wall Street dragon-slayer Eliot Spitzer is sitting on the sidelines as a CNN mouthpiece, while right-wing serial cheaters and whore mongerers like Newt Gingrich, Senator David Vitter (R-LA), Senator John Ensign (R-NV) and Larry Craig (R-ID) stayed in office after their peccadillos became public knowledge?

Well, wonder no more. It appears that the Democratic Party's major players, which appears to include President Obama if you ask George Soros, don't have the cajones for confrontation.

Indeed, this piece by Taylor Marsh focuses on the curious case of former NY Governor Eliot Spitzer to help explain why Democrats are losing political battles and the ideological war for America's soul. Simply put, much of the Democratic leadership is afraid of their own shadows.

To make her point Marsh points to "something you never see from Republicans, even when they're wrong, caught lying, or found to have done something illegal, even criminal." And just what is it that you'll never see from Republicans? Marsh cuts to quick: "Republicans never make their own pay for their insatiable libidos or reprehensible behavior."

Democrats, on the other hand, either don't want confrontation, and seek diluted bi-partisanship, or become moral crusaders who throw each other to the wolves in the hopes that they're not called hypocrites. Here's what Marsh has to say about former NY Governor Eliot Spitzer:

In France he'd be made a hero, with his sexual proclivities ignored, his fighting instinct to go after Republican Fat Cats hailed.

In America, the disgraced "sheriff of Wall Street," at a time when we could use someone with balls, is relegated to the punditocracy.

Here's Marsh discussing Republicans who've been caught with their pants down:

Republicans never make their own pay for their insatiable libidos or reprehensible behavior. Newt Gingrich asked his wife for a divorce in the hospital as she recuperated from cancer, yet he has his eyes on running for president in 2012. Fox exalts him, with Sean Hannity sucking up to him at every appearance. David "diapers" Vitter was humiliated yet he remains a senator. Rudy disgraced his wife by announcing he wanted a divorce publicly before he'd told her, but that was after he'd had a failed marriage to his cousin, yet Chris Matthews and his ilk never castigated him like they did Clinton. John Ensign is still a senator today even after his moral and suspicious shenanigans out of Sin City.

Here's Marsh on the impact of the Democrats who don't support their own, while Republicans give their morally challenged brothers a free ride:

So, today when I turn on CNN to see Spitzer as a pundit, then look around at today's crop of gutless wonders currently leading the Democratic Party, the only people I see winning from keeping Eliot Spitzer out of public office is Republicans. They knew how dangerous he was to them politically, so when he handed them a chance they took him down. That's why it's very likely Republicans on Wall Street and their friends on the Right in the U.S. Attorney's office took him out.

This, my friends, helps to explain why Democrats are on the road to lose the biggest battles in the future. When Republicans see their dark shadows, they ignore them. When Democrats see their dark shadows, they turn and run away. 

No wonder progressive billionaire is telling Democratic donors to direct their financial support somewhere other than the president's direction.

- Mark

Tuesday, November 16, 2010


If you've ever wondered why congress is so clueless when it comes to understanding how to unwind and fix our financial mess take a look at this from Zero Hedge.

It appears that Dan Edstrom, who performs securitization audits (Reverse Engineering and Failure Analysis) for his company, wanted to find out who actually owns his home and how his home fit into the securitization process (ABS, CDO, CDS, etc.) that was created by the geniuses on Wall Street. After a year, this is what he came up with ...

Zero Hedges Williambanzi7 put it best when he commented: "Take a look at this chart and then decide how long you think it will take for Barney Frank and Eric Holder to sort everything out."

Put another way, this chart shows why we're screwed.

Worse, unlike the students in my "Myth of the Free Market" class, most members of Congress don't understand the basics behind how we got into our current predicament and, consequently, don't know how to clean up this mess. For our members of Congress it's a lot easier to hide behind blind ideology, shrug, and say "let the market work ... let's deregulate."

Throw in a few campaign contributions and ... well, you get the picture.

At the legal seminar Mr. Edstrom is organizing for December, topics to be discussed include "control fraud" (see William K. Black), the securitization process, and the legal loopholes behind the engineering of complex financial instruments by Neil Garfield.

- Mark

P.S. Here's the link for an expandable version of the chart.

Monday, November 15, 2010


The changing face of Europe, over the past 1,000 years ...

- Mark

WHO REALLY PAYS TAXES (and other thoughts about our crybaby elites)

David Fiderer has an interesting article at that helps outline how America's wealthiest class have been getting away with murder when it comes to understanding who pays their fair share in America. If you listen to Fox News and Republican commentators, you know that they regularly lament the fact that the poorest Americans pay no taxes, and like to suggest that they're getting a free ride in America ... as if we should all aspire to be as lucky as the poor.

Nothing could be further from the truth.


Among the numbers we should be paying attention to include not just simple income taxes paid but total income earned (their slice of the pie) and "other" taxes paid on income, like social security and medicare taxes. If we include these factors we find that:

* The top .10% of income earners (i.e. the super wealthy), whose average annual wages of $7.4 million adds up to about $1 trillion in national income, paid approximately 21.6% of America's total income tax. The bottom 50% of Americans, whose average annual income of $15,287 also adds up to about $1 trillion in national income, paid approximately 15.4% of America's total income tax.

While 21.6% is definitely more than 15.4% which tax bracket would you prefer to be in?

* The Bush tax cuts treated both groups - the super wealthy .10% and the bottom 50% - about the same. This means that both groups saw a percentage tax reduction of just over 30%. For America's super wealthy, those making $7.4 million per year, their tax reduction meant they got an additional $500,000 back each year. For those making an average of $15,287 per year, their tax reduction for the year was about $186, or 50 cents a day.

So, which tax bracket would you prefer to be in?
* As an aside, but closely related, we should also consider the impact of what I like to call the Paris Hilton Multi-Million Dollar Inheritance Act. Think about this one. Courtesy of George W. Bush and his Republican-led Congress, the children of the super wealthy won't pay estate taxes on the unearned million/billion dollar incomes windfalls they will receive this year when a rich patron dies. I'll leave the details of this story for another day.
Still, I have to ask, which tax bracket would you prefer to be in? Better yet, would you be complaining and whining like today's super wealthy?

We need to include social security taxes paid when we look at national tax burdens because, in real simple terms, social security taxes have been producing financial surpluses for the social security program for years, and will continue to do so long into the future. The burden for funding social security surpluses falls squarely on America's middle class, who pay a disproportionate share of their income into social security.

Critical here is understanding that we don't save these surpluses. Nor do we invest them. We don't put them in a "lock box" either. Every president has been using social security surpluses to shore up our annual budget deficits, which include funding our national tax cuts for the rich appetite.

In fact, Ronald Reagan effectively doubled social security taxes to help fund his tax cuts for the rich program and to pay for his record setting budget deficits. Yet, most Americans still think he was a tax cutting crusader.

At the end of the day, if we can use social security taxes to help pay the bills today we should count them as part of the total income taxes paid. It's really that simple.

- Mark

Friday, November 12, 2010


Christmas is around the corner.

Immediately after Thanksgiving we'll all be treated to a never ending stream of Christmas classics, including It's a Wonderful Life. And that's a good thing. I like the film. In the movie Jimmy Stewart plays the part of George Bailey, who is guided by a guardian angel and shown how the people in his world would have turned out if he were not around to influence events.

Most of us remember admiring Jimmy Stewart's character, George Bailey, because he did the right thing, and stood up to the town's financial bully, Mr. Potter (played by Lionel Barrymore).

The theme of the movie is important because it's message is both moral and highly suggestive to those of us who try to work hard and do the right thing (even when things don't break your way). I bring all of this up because President Obama's Deficit Commission has come out with a report that lays out a plan to solve our deficit problem.

Unfortunately, it does so without considering how we got into our current predicament, let alone attempting to balance issues of equity with ability to pay for the mess we find ourselves in today. What this means is that unless you're fortunate to belong to the Top 2% of America's richest population, or work as an executive in corporate America, there were no guardian angels on the commission to watch out for your interests.

Just a committee of Mr. Potters looking to make sure no one asks questions or challenges the rules of the game.

To get an idea of what I'm talking about take a look the Washington Post's interactive on President Obama's budget proposal and deficit spending here. One of the first things you'll notice is that budget deficit projections for 2011 come in at about $1.27 trillion (click graph to enlarge).

Where do these deficits come from, you ask? If you talk to Tea Baggers or members of the Republican Party (or listen to Fox News), you'll learn that it's all President Obama's fault. George W. Bush, if we are to believe his comments during his book tour, had nothing to do with the current mess we confront.

However, the closer we look at the roots of our budget mess the easier it is to see that President Obama had little to nothing to do with our deficit problem. In fact, if we were to reprise the George Bailey story line, and ask what the world would like if George W. Bush had not been around to influence events, we see an entirely different picture of our world.

Specifically, if we removed George W. Bush's policies - and took away all the spending made necessary by the deregulation-induced economic downturn, the subsequent bailouts and rescues, the unfunded tax cuts for the rich, and the financial costs associated with paying for the ineptly managed wars that George W. Bush pursued - our national deficit for this year would be approximately $120 billion instead of $1.27 trillion!

That's right, our budget deficits would be about one-tenth what they are today. Here's another look at the root causes behind our current deficit numbers, courtesy of the Congressional Budget Office ...

Either way you cut it, if George W. Bush had pulled a George Bailey and found it necessary to remove himself from our nation's history - and if we had a guardian angel that would have let him - chances are you and I would be looking at quite a different world. A better world.

Instead, after being handed a national economy with budget surpluses, President Bush turned around and transferred those surpluses to his already wealthy friends, and then blew some more on wars that he essentially bungled and left to his successor to clean up. Throw in an economic downturn made possible by deregulation and easy money - then add subsequent bailout and other recovery measures - and it's easy to see how we've ended up in the economic hole that we now find ourselves in today.

Still, many Americans seem to think that our deficit problems begin and end with President Obama. As if President Obama has some kind of "fix-Bush's-mess" magic wand.

As President Bush continues his "Don't blame me" book tour, one thing is more and more evident: He has a clear conscience and doesn't seem to mind that President Obama is blamed for his mess.

Before I close, I want to point you to some data that should be important as we begin to discuss how we should pay for the economic challenges that now confront us.

If we look at the Nov. 17, 2010 Federal Reserve Statistical Releases we can see that while wage compensation for all of America's employees equals about 62% of national income (p. 14, line 2), America's wage earners contribute more than 83% of our nation's total tax revenue (that number is sure to increase if we consider who the Deficit Commission wants to pay for the national debt on the books).

Corporate America, on the other hand, currently earns about 14% of our nation's pre-tax (p.14, line 12), but is on pace to contribute only about 9% of nation's tax revenue in 2009 and 2010. If we compare this to the period between 1940 and mid-1960s, when corporations paid about 25% of our nation's tax revenue (and even paid 39.8% in 1943), one thing becomes clear: Individual Americans have been taking on a greater share of our nation's tax burden since the late 1960s and early 1970s, while corporate America has seen it's overall tax contribution decline.

By reducing it's overall tax load, at precisely the time that our nation has gone to great lengths to organize and stabilize our global economy for their sake, corporate America has been able to both increase profits and make bigger and bigger payouts and bonuses for its executives and shareholders. These dynamics help explain how growing income and wealth disparities in America have occurred over the past 30 years.

At the end of the day, not only did we see our already weak guardian angel get mugged when Georg W. Bush came to office, but the Tea Baggers and their Republican brethren are completely off base when it comes to understanding the roots of our national deficits, and how to fix them. 

- Mark

Thursday, November 11, 2010


It's Veteran's Day.

Here's to the people who actually deserve(d) bonuses in America ...

American Revolution

Civil War

World War I

World War II



The Gulf Wars

- Mark


Why am I not surprised that a Deficit Commission, made up of millionaire Washington insiders, would come up with a debt reduction proposal that's heavy on targeting safety net programs, but does little to address the massive wealth transfer policies that's been going on since the 1980s? Where's the call for serious defense cuts? What about tax clawbacks for ill-gotten gains and unearned bonuses?

Seriously, we now have the largest income and wealth gaps in this country since 1929, and no one - including the "centrist" Blue Dog Democrats and those deluded by the call for compromise - wants to discuss how favorable legislation, tax cuts for the rich, slowing wage growth, Wall Street's bailout culture, reckless & unfunded wars, and the outsourcing of real jobs are the primary culprits behind our growing debt loads.

The Deficit Commission's recommendations need to be rejected. For those of you who want to learn more The Young Turks will lead today's show with a "Hell No!" on the deficit commission recommendation to cut Social Security. 3PM ET, MSNBC.

- Mark

Tuesday, November 9, 2010


Anyone familiar with Latin America's history knows about the special exemptions that the military, the church, and other privileged groups had before and after Latin America's independence from Spain (which began in 1810). These special exemptions of privilege were called fueros, and were granted to members of the nobility (pre-independence), the clergy, government officials, and the military.

This, as you can imagine, contributed to a culture of privilege and immunity that did tremendous damage to Latin America's economic development on many levels.

For the privileged few who were granted fueros they found themselves exempt from certain taxes, immune from the threat of imprisonment for debt, and also had access to special courts. In a few words, if you had a fuero you could largely operate with impunity, as long as you didn't upset someone with a greater degree of privilege and status. One of the last military dictatorships that provided a degree of immunity that we might recognize as a fuero militar was the brutal military dictatorship of Augusto Pinochet in Chile in the 1970s.

I bring all of this up because after watching Wall Street loot the public treasury, and then escape any degree of punishment for their reckless and incredibly stupid market bets, Wall Street's mandarins may now be exempted from normal criminal prosecutions too. Check out the story here.

In brief, it appears that a Morgan Stanley wealth manager will not face felony charges for a hit-and-run because Colorado prosecutors don't want him to lose his job. Martin Erzinger, pictured below, allegedly struck a cyclist while driving. Erzinger won't face criminal charges due to the district attorney's concern for his career.


Martin Erzinger, who manages more than $1 billion in assets for Morgan Stanley in Denver, is being accused only of a misdemeanor. That's right. In spite of hitting a bicyclist and leaving him on the street for dead - something that you and I would have to pay the consequences for - Colorado prosecutors don't want to press felony charges because Morgan Stanley money manager could lose his job.

For those of you keeping score back home this is what we have.

You can make stupid bets and borrow at a ratio of 40:1 to make those stupid bets, and you don't have to suffer any consequences as long as you work for one of Wall Street's elite firms. Better yet, because of what some might refer to as an emerging fuero financiero, as long as you currently manage enough money, and are considered one of America's financial mandarins, you may no longer have to worry about committing certain felonies.

No wonder America's financial elilte don't like to discuss class warfare. With the income and wealth gap in America growing past pre-1929 Market Crash levels, they're winning the war and don't want the rest of America to talk about how it's destroying the moral justification of capitalism.

Banana Republic here we come ... ¡Viva la patria!

- Mark

Monday, November 8, 2010


I meant to post on this last week ...

Via the Huffington Post we learn that as President Obama considers lowering the corporate tax rate - in the name of reform, of course - an impediment to lowering corporate tax rates are the corporations themselves. Because President Obama wants tax cuts to be "revenue neutral" (i.e. income from taxes that is lost due to a tax cut must be made up elsewhere) it turns out that corporate America can't decide which of the highly lucrative tax loopholes it already has on the books that it wants to throw out.

So, for example, to cut the corporate tax rate down from 35% corporate America has to consider giving up one of the following tax breaks:

* Defering profits on overseas income.
* The ability to shift profits to low-tax countries.
* Tax breaks for research.

The trouble for U.S-based corporations is that individual industry's can't agree which tax break they want to give up. So, for example, a firm engaged in significant research & development (chemicals, pharmeceuticals, etc.) doesn't want to eliminate or reduce tax breaks for research, while a firm on Wall Street might have no problem with this choice.

In all cases, it should be noted that contrary to what many might claim (or believe) U.S. corporations don't pay nearly as high a tax as other corporations around the world do. To be sure, while U.S. corporations pay one of the highest marginal rates (what's on the books), their effective tax rate (what they actually pay) is not as high as it is in other countries. This helps explain why corporate taxes paid, as a percentage of national GDP, is higher in places like Japan or France than it is in the U.S. ...

You can read the entire article here.

- Mark

Sunday, November 7, 2010


Since my Friday post was a bit serious, today's Sunday post takes a somewhat funny look at what seems to be driving our market today (it certainly isn't market confidence). The cartoon is courtesey of one my students, who used it in a stellar presentation last week (click to enlarge). 

- Mark

Saturday, November 6, 2010


This Huffington Post headline says everything we need to know about the coming two years ...


The masterminds behind the GOP plan (which include our very own Rep. Kevin McCarthy) aren't really interested in making our country work. Like other failed movements in the 20th century they're only interested in using the state to perpetuate a failed ideology, propping up private corporations with public funds, and wielding power.

You would think that eight years of George W. Bush and 30 years of debt-drenched trickle down economics would have taught us all a lesson.

- Mark

Friday, November 5, 2010


From the group Metallica ... While I'm not a fan of Metallica (my son shared this with me), "King Nothing" is a music video that hits on many of the topics we've been discussing in my International Relations class. Specifically, we've been focusing on the rise and decline of empires, and how empires over time have consistently pursued conflict and war (i.e. what ends up being hegemonic war) when they sense their hold on power is slipping away. Things don't go well towards the end.

Fair Warning: While some of the clips in the video may be a bit strong for some, the "King Nothing" message is provocative and offers some insight into why we're not safer after conducting our War on Terror ...

- Mark

Thursday, November 4, 2010


This is why Main Street is pissed off ...

The Federal Reserve is going to spend about $600 billion to purchase Treasury notes (our debt), which will help keep our unfunded obligations (war, corporate bailouts, tax cuts for the rich, etc.) going. Then, for good measure, the Fed will use it's financial muscle to boost the stock market's performance. They're doing this because, you know, we didn't use enough taxpayer money for Wall Street's Bailout in Perpetuity Program, which we made official in 2008.

These two posts from zero hedge help explain what's happening ...

First up, let's take a look at the Federal Reserve's balance sheet through 2012. It appears that the Federal Reserve, in an effort to pump more money into the economy (called Quantitative Easing, II), will purchase about $75 billion in Treasury notes every month for the next 8 months. This will help the U.S. taxpayer government surpass China as the top holder of U.S. Treasury notes (China holds about $868b in Treasury notes) by the end of THIS month (click graph to enlarge).

In real life this is what were doing ...

I know, the picture's ugly. But it's about as good as any to drive home the point that we're taking on debt to continue policies that maintain: (1) unfunded bailouts for Wall Street, (2) unfunded tax cuts for the rich, (3) unfunded wars, and (4) a hyped up war culture that doesn't want to touch national security budgets (even though we spend more than all of our enemies, combined!).

The next Zero Hedge post makes it clear that the Federal Reserve isn't even trying to fake it any longer.

Specifically, as opposed to guarding the integrity of the dollar - a job every real central bank is supposed to take seriously - the key goal of the Federal Reserve's easy money policies, according to both Alan Greenspan and Ben Berananke, is to boost stock prices. No magic market pixie dust here. U.S. taxpayer government money is necessary to make sure Wall Street prospers.

That's right. We're using debt and easy money to maintain unfunded policies, and to inflate stock prices so Wall Street feels better about itself.

To hell with debt that lead to inflation threats ... To hell with debt that undermines global confidence in the dollar ... To hell with debt that brings on the threat of currency wars ... To hell with debt funded policies that undermines the integrity of the market ... To hell with debt that shackles the American consumer and taxpayer to an uncertain future. Job One for the Federal Reserve is to help an already bailed out Wall Street, by using Fed money to boost stock prices.

This, my friends, is the magic of the market at work in modern America. And Wall Street just loves it.  

- Mark

Wednesday, November 3, 2010


"They are unanimous in their hatred for me
and I welcome their hate."

- Franklin D. Roosevelt,
speaking about the banks opposition to his policies  

Given successive wins for the Democratic party in 2006 and 2008, with the exception of Harry Reid in Nevada, things went about as expected last night. Simply put, your base can't get excited when Wall Street swims in record profits, while unemployment and debt are higher today then when you took office (even if President Bush's policies are to blame).

Still, we need to keep in mind that, after his wildly unpopular court packing scheme, President Roosevelt saw 82 House seats go to the Republicans in 1938. Here, President Obama needs to understand that, in addition to having to swim in the economic backwash of the 2008 market collapse, he did a terrible job of selling health care reform. Now he needs to stand with the unemployed and others who are on the losing side of the America's biggest wealth and income gaps since the Great Depression.

Simply put, embracing Wall Street in the hopes that they will do the right thing, and then playing nice with the Republicans - who smell 2012 blood in the water - will not stop his opponents from painting him as socialist-communist-fascist-big spending-big government-liberal.

There's a few things President Obama can take away from yesterday's election.

Lesson I: Don't do Wall Street's bidding, and then turn your back on Main Street and the unemployed with weak policies in the housing and jobs sector.

Lesson II: If Republicans can generate this kind of loss by saying "no" and watching you take credit for record foreclosures, record bankruptcies, and 10% unemployment - while America's moneyed elite party on - don't expect them to suddenly help you look presidential and accomplished over the next two years.

Solution: President Obama needs to channel his inner-FDR and develop his FDR Moment. President Roosevelt raised the ire of Wall Street's biggest financiers by telling America, "We know now that government by organized money is just as dangerous as government by organized mob.

Absent this - or an unexpected economic recovery - here's my prediction of what's probably going to happen over the next two years:

* Republicans will put out a couple of feel-good gestures over the next few months (appearances are important; and they're feeling giddy).

* Legislation is proposed/passed, but with baggage (i.e. with plenty of earmarks or culture war poison pills)

* Republicans claim (beginning around March) they can't work with an "inflexible" president.

* Gridlock, finger pointing, and Obama gets tagged as a failed president (as he continues to try and court Wall Street).

If President Obama thinks he can pull a Clinton after 1994 he's mistaken. He doesn't have the political or economic room for playing nice. There's too much debt and unemployment, which has the Republicans salivating (because they'll pin everything on him). With Wall Street and Republicans smelling blood, President Obama needs to know that America doesn't have the patience to stand by and watch as the financial sector turns on debtors and homeowners, while Wall Street and America's aristocracy swim in record profits and wealth.

The only problem for President Obama is that he hasn't set the table for his FDR moment. What a dilemma.

- Mark

P.S. For our local politicos, here are the election results for Kings County and Kern County. For those of you who are unfamiliar with California politics, Kings and Kern County are conservative strongholds in the southern San Joaquin Valley. The region is dominated by agriculture and oil money, and has more in common with Texas politics than it does with California's coastal politics.