Three Newspaper Articles Today — Why we don’t seem to understand money

This morning I read an article about Ted Cruz’s plan to use seized drug money to build Trump’s Wall. I read an article about Trumps cutting taxes to businesses. Then I read another article about Trump imposing a 20% tariff on Canadian softwood imports.  Taken together they would not seem to warrant treatment in one place, but both articles report a common phenomenon—public policy proposals that represent a complete misunderstanding of money.

Before I get into money aspects, just a bit of a background is in order for these two issues. Tax cuts for business is a way to give businesses an incentive to hire more workers.  This happens in a strange way, it is largely invisible workers who will not actually show up on the shop floor. Tax cuts do not create jobs, demand for goods and services create jobs.  But, Trump is convinced of the opposite just as he in convinced little green men bugged his bedroom.  A former Obama Administration Trade Negotiator reports that Canadian Trade Negotiators chose to not make a deal over softwood thinking they would fare better under a Trump administration since he is a builder.   Ted Cruz must see the writing on the wall when it comes to positive support by US Taxpayers for paying for the wall and is attempting an end run in an effort, I guess, to curry favor with Trump.   Enough background.

A fictional story should illustrate one of the articles.  A bunch of lumber folks in Canada got together and set up a softwood lumber association.  They pooled some money and made donations to Canadian politicians to get them elected to Parliament.  Once in Parliament, the elected representatives realized that there were jobs in the lumber industry in their districts.  The softwood lumber association lobbyist came around with information about how the politicians could structure the tax or subsidy or employment laws to make it cheaper for the lumber folks to make money and hence hire more people.  Since their tax bills were lower, or their subsidy from the government was higher, or their labor costs were cheaper, they hired more people, cut down more trees and exported to the US more softwood.  In essence, in this fictional story, the price of softwood coming out of Canada and used in Canada is cheaper because of at least one kind of government support than it would be if only free market forces were determining the price of softwood.

Now, I say this is a fictional story because I do not know how the Canadian system works.  If it works like the US system, I could, with some hours of research, put capital letters on the associations and lobbyists and identify chapter and verse the parts of the tax code, labor laws or outright grants of some kind or other to the softwood folks.  What the fictional story illustrates is how moneyed interests determine public policy in a democracy.

On the other side of the story, Trump tweets how badly our politicians have been beaten by the Canadians over the years on these trade issues.  Never mind that the US gives an energy subsidy to every energy user (it starts with the tax write-offs for oil companies and continues all the way down to the pump in one form or another) so that no one, despite cries of expensive gas and diesel, pays the real cost of moving their goods (the US subsidizes all transportation in this fashion).  This includes the failure of the governments to charge heavy trucks for the cost of the damage they do to the highways in contrast to passenger cars.  So, the US unfairly competes on the world market by making transportation cheap.  Then too, US industry uses of unemployment insurance to maintain a labor pool, is a form of providing cheap labor to give our seasonal workers an income in the offseason.  So, while we cry foul when the Canadians use some form of subsidy to increase profits for one of their industries we do the same thing, often on a larger scale.

The bottom line is any tax, subsidy, or regulatory advantage that gives a firm greater profit is an unfair trade practice.  To wit, all such are unfair trade practices.  Yet, they are written into the US and state tax codes by, indirectly, campaign donors to legislators.

It is interesting that the businesses that reap a profit from government tax cuts, subsidies and regulations are the first to cry when they have to cut pollution (which is a cost they impose on others), hire indiscriminately, or just plain pay fair.

Now, the tax cuts for business.  While Trump imposes a 20% import tax on Canadian softwood, he creates an unlevel playing field for US firms by helping them make goods and services below cost.  He will loudly argue it is the American Way.  Actually, it is the way he and other rich guys keep getting richer.  Watch the employment statistics and the national debt as a result of his lining his pockets.

So, how is this not understanding money?  Simple, it does not matter where a dollar comes from it is a dollar.  So it if it is seized funds from a drug lord or money you sent in with your tax returns (or didn’t get back) it is the same.  It is a dollar just like any other that you have provided in one way or another (yes even the seized funds of a drug lord are there because of the laws that make it American money).  It is not Mexico paying for the wall.  A better idea is seizing Trump’s fortune and let that pay for the wall.

Giving rich guys money to create jobs, doesn’t cut it.  If you do the analysis, less than 00.1% of such gifts to the rich make it to the job creation end of things and that is only because they can’t find a way to hang on to that 00.1%.  You and I don’t know this, but the real kicker is we have let the rich guys pick the candidates we elect and make the laws to keep them rich.  What if we were to find out?

Advertisements

The relative stake different socioeconomic groups have in both the economy and the political system.

In the US voter turnout rates varies directly by income.  This is not a two-variable causal relationship as many other variables, mostly associated with income, come into play.   The 2008 election demonstrates the relationship.  Here is a link  to see it on Wikipedia: https://en.wikipedia.org/wiki/Voter_turnout_in_the_United_States_presidential_elections#/media/File:Voter_Turnout_by_Income,_2008_US_Presidential_Election.png  I chose this diagram as it broke the income groups into 10 rather than two or a few categories.

Overall I would argue that the underlying explanation, while complex, involves the relative stake different socioeconomic groups have in both the economy and the political system.   That is the more affluent a person is the more he or she is able both to benefit from public policy and perceive that he or she can have a marginal, small to be sure, impact on public policies in the future by voting.  Perceived benefits and costs from public policies that the affluent recognize along with civic responsibilities such as voting provide a more coherent picture of being part of the body politic.   The less affluent, in contrast, are more likely to perceive they are at the mercy of public policy.  I should think the less affluent would be less likely to perceive their concerns and needs are considered when policy is made; and, the less affluent are less likely to expect their votes matter.

This contrast across the continuum of economic groups and their levels of participation is likely exacerbated by the issue content of elections in the last half century:  welfare reform, lower taxes, drug tests for public housing residents, stop and frisk, public health funding to name just a few.  The lower one’s income the more recent changes in social welfare programs have caused financial challenges to one’s daily life and existence.   To a very real extent the concerns by taxpayers over funding social welfare policies is a direct attack on those who rely on those programs.  How could a public welfare recipient feel part of a political and economic system that publicly declares they are, at best, a drag on growth and prosperity?

One of the prevailing “stories” about America is that if a person works hard that person will become a success.  That belief belies that well over 99.99% of those of us who judge ourselves successful had a lot of help from family, neighbors, public servants, pastors/priests/rabbis just to name a few.  However, the further one’s parents are down the income ladder the less assistance one will receive from anyone to be success.  Indeed, the farther down the income ladder the more obstacles and impediments to becoming successful one will encounter.

It is no accident that there is a strong positive correlation between an individual’s income grouping and one’s parent’s income grouping.  I am not arguing that hard work doesn’t pay.  However, if you are doing a menial task for a living you receive a menial wage.  It is difficult to amass a fortune on a menial wage no matter how hard one works.  Things like housing, transportation, clothing, medical care/insurance, can quickly become unaffordable on a menial wage.  Then people earning a menial wage, like everyone else, have children or parents or both who are in some fashion at least partially dependent on one for their housing, transportation, clothing, and/or medical care/insurance.  Just because one does a necessary task that folks who had more support can avoid should not condemn one to being on the socioeconomic and political margins.  But it does.

Having a wide spectrum of needs based programs, we call them entitlements, that a significant proportion of our citizens rely upon with another significant number of our citizens decry and do not want to pay taxes to fund creates all the necessary ingredients for civil strife–potentially a class based civil war.    Yet, this potential conflict is not necessary.  Rather it is an artifact of how we create money and how we redistribute money through government taxing and spending policies.  Our approaches to both monetary and fiscal policy are the basis of a big share of our political conflict.

If we did not maintain income transfers through government we could mitigate some of the core conflicts in the American Society, Economy, and Polity.  If you look closely at the proposal for creating new money through all the sovereign citizens and giving the government’s a stipend in lieu of a tax base you will find it obviates the need for the lion’s share of entitlements and the resentments those entitlements engender from those paying for the entitlements with taxes they pay.   You will also find it largely removes the largest reason for the differentiation among givers and receivers from public policy.  Finally, if you stop the incentives for lawmakers to play favorites based on campaign contributions, you begin to equalize the playing field for all.

A more equalized playing field will not automatically and quickly create more successful people.  But it will make it possible to prove that success can be attained without such a strong correlation to one’s parent’s income levels.  For example, the voting age is 18.  So, when a person reaches the age of participatory citizenship that person will have resources that are not dependent upon his or her parents for support for job training or a formal education.  Or, an 18-year-old could approach self-sufficiency.  That could prove a break on crime, hopelessness, veterans’ adjustments to separation, again to name a few.

One policy issues that will need to be addressed is the practice of withdrawal of civil rights from ex-convicts.  I should think it would facilitate their reintegration into society if they were finished with their rehabilitation and punishment when released from incarceration and their rights restored at that point.

Another policy issues that will need to be addressed is the content of educational curriculum.  It would be expeditious if all citizens had some personal finance training and a firm grasp of how governments and the political processes operates.

Turnout will increase across all income groups.  While paying citizens to do their civic duties of voting, jury duty and educating their children and the like is not quite the same as requiring citizens to vote, the financial penalty for not voting largely obviates any difference between the system I propose and compulsory voting.  Hence, we need to examine the impact of compulsory voting in the 22 nations that have it.