Why Taxing Stock Trades Is a Really Bad Idea

Wall Street Journal – January 5, 2010

Everyday investors shouldn’t be punished for a subprime fiasco fueled by Fannie Mae and Freddie Mac.

By Donald L Luskin and Chris Hynes

You ever see an article and see the headline and think well, I don’t particularly care about that topic, but, the authors’ names catch your eye, so you read it anyway. This was that article. And then when I finished, I realized that the authors were total jackasses and completely fabricated their point of view and that instead of arguing coherently and bringing me around to their position, I was now resolutely against it. It made me so angry that I had to return to the The Melon after an extended sabbatical…

The Democrat-dominated Congress has come up with a new way for President Obama to violate his pledge to not raise taxes on families earning less than $250,000 per year. It’s a tax on securities transactions—trading in stocks, options, futures and so on.

And why not single out trading for special taxation? We levy special taxes on tobacco, alcohol and other vices. Except that trading isn’t a vice. The exchange and hedging of business interests is a virtuous—and utterly essential—activity in a free economy.

Apparently Messers. Luskin and Hynes aren’t aware that we tax more than just vices. We often tax income, gasoline, services, food, hell, we even tax suntan beds. If you buy a cell phone, there is a specific tax just for buying that phone, if you fly, there’s a specific tax just for your ticket.

But you’d never know it from the angry anticapitalist rhetoric of the tax’s proponents.

I love when idiots from the right call moderates anti-capitalists. If they were anti-capitalists, they’d want to end the existence of the stock market, you twits. They don’t. They want to raise money from it, BECAUSE IT ABOUT BANKRUPTED THE ECONOMY. The day you see DeFazio writing a bill that says “The New York Stock Exchange shall no longer exist” then you can call him an anti-capitalist.

Rep. Peter DeFazio (D., Ore.), who introduced the House bill establishing the tax—positions it as retribution for “the Bush administration’s cowboy capitalism, markets know best, deregulation at all cost policies.” Sen. Tom Harkin (D., Iowa), who introduced a similar Senate bill, says, “We need a shift in priorities in this country to ask not what America can do for Wall Street, but ask what Wall Street can do for America.”

Right on DeFazio! You go … older Oregonian Gentleman … who occaisionally sports an alarmingly awkward mustache.

Are you just an ordinary American who trades stocks? You probably don’t think of yourself as having much to do with “Wall Street,” or of your trading as a vice that ought to be singled out for a special tax. And you surely don’t think of yourself as someone who caused the recent financial crisis, which was, as Rep. DeFazio says, “brought on by reckless speculation in the financial markets.”

The reason most people, like myself, or those people who read this article don’t think of themselves as having much to do with Wall Street is that because they don’t have much to do with wall street. Less than 21 million households own free standing stock (not in mutual funds), which is less than 20% of America. In fact its worse than that, “Only 17 percent of households in the bottom 60 percent of the income spectrum own stock in taxable accounts.  In contrast, 73 percent of the households in the top 10 percent of the income spectrum own stock in taxable accounts.  Among those at the very top of the income spectrum — the top one percent — 84 percent own stock in taxable accounts.” This tax wouldn’t hit those below $250,000 income. Very few of them own stocks.

If anything, you probably think of yourself as a casualty of the crisis, not its cause. Why should a stock market investor like you—or for that matter, even an investor literally on Wall Street—pay a tax as punishment for a crime of which you were the victim, not the perpetrator? The crisis was caused by excesses in the mortgage industry, led by government-sponsored entities such as Fannie Mae and Freddie Mac. How did stock transactions—or transactions in options or futures—have anything to do with this crisis?

It is interesting that Hynes and Luskin purposefully avoid the true target of these new tax hikes. They are not meant to go on the average consumer. But they are meant to go towards High Speed Trades or High Speed Transactions. These are stock market trades made by computers in blinks of seconds trying to arbitrage prices, guess price moves as other computers trade. For example, let’s say that you, average investor, making $50,000 a year, decide to buy $10,000 of Microsoft stock, your broker places that trade order. The computers of these high speed traders will actually buy the stock – and then turn around and resell that stock to your broker in a blink of an eye, perhaps making one quarter of a penny on each stock sold, maybe less. But they do this millions of times a day, and make millions of dollars. By adding absolutely no value to the transaction. In fact, they are removing value because you are paying for that extra penny. And yet, they are taxed free.

Let’s dig into the rest of the that paragraph. First off, those companies that made the most money off of the mortgage crisis were not Fannie Mae and Freddie Mac, but the banks of Goldman Sachs, Morgan Stanley, Bank of America, Citi, AIG and other large financial institutions that repackaged loans and sold them on purposefully obtuse to the wretchedness of the investments they were selling. Those companies also dominate the trading on the stock market. They take orders from investors and execute the trades. They work with companies like Luskin’s and Hynes’ to sell and trade stocks using computers. They are making the profits, and the ridiculous horrible bets on mortgage companies. Fannie Mae and Freddie Mac only insure debt.

The proposed tax would apply to commodity transactions as well. So here we find another class of victims being punished. When excesses in the mortgage market blew up the world economy in 2008, commodity investors were hammered as prices plunged in everything from crude oil to gold to corn. Many of them were ordinary businesses—far from Wall Street—trying to hedge themselves against the rising cost of energy.

Cry me a river for lamenting the unfair plight of those poor speculators who drove the cost of oil up to $140 a barrel, just because they could. Those companies that are using arbitrage to price out commodities for future delivery won’t think this tax is all that much. But how much is that tax you ask? Well, why don’t we let these partisan hacks tell us:  If you were to buy or sell $100,000 worth of any stock or commodity the tax would be $250. Lordy lord! There is no way that American Airlines, or your local grain coop will be able to afford that tax of $250! on a bet of $100,000. That is DEBILITATING!

To be fair, the tax would apply to credit default swaps, which were closely associated with the excesses in mortgage speculation. But if it’s going to apply to stocks—which had nothing to do with the crisis except to be its victim—then why does the tax, as proposed by Rep. DeFazio, not apply to bonds? It was the bond market, not the stock market, that was the conduit for hundreds of billions of dollars of dodgy subprime mortgages. Could this possibly be related to the need for the federal government to issue Treasury bonds from here to eternity to finance the looming deficits from the cornucopia of programs being cooked up in Congress?

I don’t have a problem with this. Why the hell would the government tax itself?

Setting aside the critical issue of why certain types of securities are singled out for tax, and others are not, the tax as currently proposed does not even succeed in fairly targeting speculators as opposed to investors. In fact, like most tax schemes, it is riddled with arbitrariness and capriciousness.

Now you are just flat out lying. The tax specifically applies to trades over $100,000 then you are fine. How often does anyone you know whistle around trades of IBM for that much?

Suppose you buy a stock, and you hold the position for 20 years. You’re an investor. Suppose the person who sold it to you was a day trader—who might end up buying the stock again 10 minutes later from someone else and then selling it after an hour. You both pay the same tax.

You’re a joke! You pay the $250 tax (on a $100,000) trade when you sell it. They pay for their tax each time they make the buy or sell. Good job lying…again.

As proposed, you wouldn’t have to pay a tax to buy or sell mutual funds. Yet mutual funds themselves would have to pay the tax on any trades they make in stocks. So as the owner of the mutual fund, you still end up paying the tax. According to the Investment Company Institute, the average turnover for stock-market mutual funds in 2008 was 60%, which would add up to a lot of taxes.

You must fail at reading the newspaper in which you published this article:  ”The law would provide a $250 tax credit, effectively exempting everyone from the first $100,000 of all stock trades. And purchase and sale of mutual-fund shares would be exempt no matter how large, as would trading of assets held within personal savings accounts such as a 401(k).”

Transactions in retirement accounts would be exempted. So a corporation that invests to provide pensions to retired workers won’t face higher costs. But a retired individual who has just sold his business and is living off the invested proceeds will pay the tax.

See above

And don’t believe the proponents of the tax when the say it’s so small you’ll never notice it. At one quarter of 1%, that would be a cost of $0.33 on a share of IBM. If you were to buy or sell $100,000 worth of IBM (or any stock), the tax would be $250. Single taxpayers would get an annual exemption of that amount. But trade again, and you’re taxed $250. Again, another $250. Over and over. Each time, that’s about 20 times the commission that a typical online broker would charge you to make that trade—yes, the greedy broker, the one on Wall Street.

HAHAHAHAHHAHAHAHAHAHA.

Oh god, let me catch my breath.

HAHHAAHHAHAHAHAHAHA

More fundamentally, the proponents of the tax seem not to have thought through what effects it might have on America’s global competitive position as the world’s pre-eminent stock market. They simply wave away any concern with a flourish of moral indignation. Last summer, when Britain’s Financial Services Authority Chairman Adair Turner proposed a trading tax for the United Kingdom, and set in motion a global movement toward such a tax, he called trading “socially useless.”

We shouldn’t have to “socially” justify any lawful activity. But surely it is “socially useful” to let free people transact freely, without regulators and legislators micromanaging them. If anything, given the spectacular failure of every regulatory authority and legislator to detect and deter the abuses in mortgage markets that led to a near-meltdown of the global economy, it is their activities that would appear to be “socially useless” and deserving of a special tax.

I have no problem with the stock market acting. However, when the stock market and those on it take risks, when financial services companies put the future of the nation’s economic growth at risk, then I think that the society that creates a framework for them to exist has the right to tax them so that society can continue to exist.

It’s Economics 101 that the free actions of market participants cause supply and demand to reach equilibrium. And isn’t that what investors—indeed, even speculators—do? Don’t they try to buy things they think are cheap and sell things they think are expensive? Can they do it as well when facing the dead-weight costs of a transaction tax?

Ahhh, the false assumption that there is an equilibrium in a market. Someone hasn’t been reading their Minsky lately. The search for an economic equilibrium is a false search. Where is the equal point? Where does labor demand = the number of workers. At what point do prices for shoes equal the demand? If there is an equilibrium point, why is different at the same stores in the same city, or at across the nation? The demand is greater in Arkansas for product X than in Washington?

And yes, they can do it as well with that dead weight cost:  ”Great Britain, he said, currently levies a transaction tax that his higher than the one he proposes. `No one has fled London (stock market) because they’re paying twice what we’re proposing.” DeFazio also offered the support of British Prime Minister Gordon Brown, recently called for a global transaction tax.”

If not, then trading volume in our stock markets will fall. Beyond the tax, everyone—investor and speculator, great and small—who buys or sells stocks will pay more to transact in markets that are less liquid. And they will transact at prices that are not set as efficiently. In such a world, markets would necessarily be more risky, and the cost of capital for business would necessarily rise. The consequence of that is that innovation, growth and jobs would necessarily fall. That would be the full and true cost of the trading tax being proposed.

Oh shucks, some of the investment banks won’t be able to hire quite so many quants and they’ll be forced go into revolutionizing health care, or finding solutions to the carbon footprint. That is sooooo bad.

Mr. Luskin is chief investment officer at Trend Macrolytics LLC. Mr. Hynes is chief executive officer of Hynes Capital.

Ohhhh, that’s why you oppose this cost. Because YOUR taxes will go up. You are the idiots who will have to pay because your firms conduct thousands of these costs for your ridiculously rich clients daily. Tell the truth. This tax will never get anywhere near Main Street. This is a tax on the wealthy and your ridiculous friends.

Matt Stevens sells phones.

Professor Michael Heller’s book about the problems of property ownership and intransegence is at times interesting, and at times a pointless book. Its an argument that needs to be made, but its book form is up for question, and without a doubt, Heller’s solutions are not all that convincingly.

The Gridlock Economy:  How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives

Michael Heller

Basic Books:  July 2008

Heller’s book is a detailing of the many issues that exist for broad ownership within today’s western society. Specifically, Heller targets pharmaceuticals, bio-engineered products, music, and landed property, and the property rights that have developed around these industries. His argument is that because ownership is so splinted around a product, or a path to a product, that incentives encourage groups to work against each other, to not product valuable goods.

His best example in my mind was the massive problem with commercial airlines in this country, the number

of planes delayed, the sometimes brutal nature of using airports. Yet he cites that no

new large airports besides Denver have been built since the 1970s. And that is because groups (citizens) around established airports have adapted NIMBY (not in my back yard) policies and refuse to allow expansion, new airports, or any sort of development.

Heller also has a very interesting take on the pharmaceutical industries, biotechnology and the innovations that is creating. His argument is that numerous university scientists and for profit companies are using each other ideas to create cures for cancer or disease, or whatever. However, they can’t bring their solutions to market because they don’t own all of the underlying science technology. They would have to buy the patents or pay usage rights to the owners, and because the trouble with getting that done, they often simply don’t go through the effort, depriving the world of cures. This is immensely tragic.

As I said before, Heller has good examples. However, I come away from the book wondering if the problems he cites can be solved, moreover, I very much doubt the world he envisions would be better than ours. Property rights in America are sacrosanct; we have seen this be upheld in reaction to the New London ruling.

In the end, Heller doesn’t succeed at convincing me his solutions will solve the problems he has found.

Two Melons out of Five.

Michael B Oren was recently appointed to be Israel’s ambassador to the US. Born in America but having spent much of his life in the Middle East and still living there today, he should provide an excellent view point on how to judge America’s interactions with the Middle East and most importantly, what we can do to change our image their and get our priorities solved.

Oren is a noted historian, most famous for his book Six Days of War: June 1967 and the Making of the Modern Middle East. I have not read that book. And in the end, I did not read the entirety of Oren’s latest effort either. Because I gave up after about 100 pages. The book did not engage me. I felt bored. His stories of the evangelists who first ventured to the middle east and their difficulties there were somewhat interesting, but the style, the story, and the concept just did not capture me. He was developing the themes and the history of America’s engagement of the Middle East. But he wasn’t getting there quick enough for me, and the writing style wasn’t holding me close. I took it back to the library and dived into other books that I was much more interested in reading.

Power, Faith, and Fantasy: America in the Middle East: 1776 to the Present

Michael B Oren

WW Norton, 2007

One Melon out of Five.

Because I might pick it up some day later. But really, go find a book you are interested in reading elsewhere. This one isn’t necessary or even that great.

Christopher Hibbert’s Garibaldi:  Hero of Italian Unification is another example of why libraries and brick and mortar bookstores can never be replaced by online retailers. In fact, its an example why libraries have such an great value that even Borders or Barnes and Noble can match. You can read a book that you don’t necessarily want or need to read and would never ever purchase.

Garibaldi:  Hero of Italian Unification

Christopher Hibbert

Palgrave Macmillan:  2008

Hibbert wrote a biography of one of the more interesting people I could imagine, Giuseppe Garibaldi. Garibaldi was an Italian, who was banished from Italy for leading an insurrection, left for South America where he played a critical role in the independence of Uruguay and then returned to Italy, where he lead a series of unification attempts in Italy, often with the help of more political influential leaders while he saw himself as the military leader.

Garibaldi is that unique character in that he is seen as a spectacularly successful guerrilla military leader, achieving a mythical quality by his compatriots and the peasants who he claimed to be leading/serving. Hibbert’s books traces Garibaldi’s exploits after his return to Italy. He only touches on Garibaldi’s tours in South America when it has direct impact on an event in Italy, such as the death of his wife (who was from South America) or when former comrades joined his banner.

In the end, this book is interesting, and I’m better off for having read it, but its very specific focus on Garibaldi is limiting. It talks very little of the broader picture that is going on throughout Italy, the different unifaction drives that are taking place in the disparate regions and cities. It gives rather short change to Giuseppe Mazzini and Giulio Benso, Count of Cavour (more commonly known as Cavour).

The most interesting part of the book to me is when Garibaldi and 1000 followers set off for Sicily to conquer the island and restart the push for unification after it had been stopped. Its a story of ridiculous faith in an extremely charismatic man, of amazingly poor training for his soldier who yet overcome a large, better trained, better armed force and in spite of some natives siding with the Bourbons. The story is so ridiculous and illogical, the characters all bigger than life and act with unseen motivations that could only be told by Neal Stephenson. And yet, Garibaldi succeeds.

As I said above, this is story about Garibaldi, not about the Italian Unification. If you are new to the history, as I was, this is not the book to start. If you want to know much more about a thoroughly complex and interesting individual, then read this book. But find it at your library. Its not a book to reread. But its a fun one.

Three out of Five Melons!

Justin Fox, an economic columnist and blogger for Time, released a book in June 2009 detailing the rise of the Efficient Market Hypothesis. His tear down of the failures of theories is an interesting read but only for his writing ability. Fox does such an efficient job of pointing out the market’s inefficiencies and irrationality that the book seems almost like a study in restating the obvious. Fox succeeds at telling the story well by using clever anecdotes. However, the book is not a must read except for who are caught up in the stock market.

CJ Sansom, a British historian turned mystery novelist released his fourth Matthew Shardlake mystery in February and it proves once again to be an engrossing and excellent historical murder story. I first discovered Shardlake and Sansom when I was wandering aimlessly through used book stores in Singapore during my 23 hour stopover there. I grabbed the third Shardlake book Sovereign which I finished by the time I my flight landed in India. When I had returned back to the US, I quickly ripped through books 1 and 2, Dissolution and Dark Fire. Sadly, I was only able to get my hands on Revelation a couple weeks ago.

Sansom’s stories revolve around the lawyer Mathew Shardlake, an experienced (but not old) lawyer in the early 16th century who continues to get caught up in murder mysteries. They usually involve heavy political and religious overtones as this is during the reign of King Henry VIII and his push away from the Catholic Church and the creation of the Church of England.

Revelation

CJ Sansom

Viking Adult (February 5, 2009)

Sansom’s book reminded me slightly of the The Left Behind series and also of Umberto Eco’s The Name of the Rose. In this version, Shardlake, our lawyer and detective who is cunning but a “crookback” encounters his good friend who has been murdered and left for display in the Lincoln’s Inn, the court where the lawyers have their offices. The murder is quickly hushed up by the King’s Coroner but Shardlake is apart of the detective team to get to the bottom of the problem. Shardlake is a former hot gospeller or reformist who was an avid Protestant. But he has slipped away. The coroner, Harsnet is a new found and devout reformist and they are working with two more famous nobles who are unimportant for this review. Initially they fear that the murders are connected to threats about Jane Seymour, she who has recently caught the King’s eye. But upon some investigation, they quartet discover that the murders are in fact a plot to live out some symbolism of The Book of Revelation.

The murderer uses the seven vials and their imagery from the Book of Revelation to kill seven different people. At the end of the book, he also sets his eyes on two rather prominent individuals to kill as well as the seven vials. His targets are all fallen reformers; individuals who sought to reform the church to the Protestant Ways, but have fallen and are no longer serious reformers. As we learn early in the book, Shardlake was himself a reformer but years ago moved away and is not as apolitical as he can be.

Sansom as always does a great job setting up the book and is imagery is fantastic. By giving Shardlake an interesting fellow detective (Harsnet) who is plodding, slow and a bit stuck on the murder being possessed by the Devil, we see a more interesting detective. Shardlake does not suffer from moments of epiphany, we get to follow his thought processes and we as readers can be annoyed as he misses different clues that we ourselves can pickup. Sansom’s writing is also quite grim and bleak. We get a full view of the racism and elitism of the age; we understand the death and the horrible misunderstandings that plagued the doctors and mental patients of the time.

Sansom’s best trait might be his realism, his ability to paint a realistic, dirty, muddy, smelly scene that is interesting, but one I’m glad I can read while sitting on a couch with smooth jazz on the radio and not walking down the muddy streets with people dumping out their chamber pots on to my head.

Four out of Five Melons!

I recently finished this tour-de-force of a book that relates the life of Alexander Hamilton starting with his obscure birth in the Caribbean to his death at the hand of the rogue Aaron Burr. This book is a fantastic read, beautifully written. Chernow takes pains to make arguments against many of Hamilton’s detractors throughout history, and he often succeeds in defending Hamilton and in bringing his brilliance into today’s world.

Alexander Hamilton
Ron Chernow

Penguin Press: 2004

Most of Chernow’s previous writing consists of biographies or histories of financial greats such as J.P. Morgan and John D Rockefeller Jr. In this tome (and it is a tome at 852 pages long and even more notes), he turns his face to the first great financial wizard of America, Alexander Hamilton. Throughout the book, Chernow’s writing is clear, excessively coherent, and at times very fun to read.

Before reading the biography, I knew almost nothing of Hamilton– save the fact that his death resulted from a duel, at the hand of the vice president no less! This biography alerted me to the brilliance, the sheer talent and drive that possessed Hamilton throughout his life. But also Hamilton’s amazing ability to infuriate and turn people into enemies. That attribute eventually caused his downfall.

Hamilton was born on a Caribbean Island and later immigrated to New York at the age of 17. After failing to get into Princeton, he attended Kings College (later Columbia University) and was an early adopter of the Revolution Spirit, giving speeches on the college lawn. At the outbreak of the Revolutionary War, he became an Artillery Commander which eventually led him to meeting General George Washington. Washington soon took Hamilton as an aide-de-camp and, eventually, Hamilton acted as Washington’s chief of staff, writing numerous correspondence for the General and in some ways, acting like the son Washington never would have.

After the war, Hamilton was a key figure from New York at the Constitutional Convention and eventually wrote The Federalist Papers with John Jay and James Madison. Though at the time it was known those three wrote them, it has only become apparent that Hamilton wrote the majority of them years later. After the adoption of the Constitution and the election of Washington as President, Hamilton followed his long patron into the Treasury Department and began to make enemies as fast as possible. Hamilton saw America as a united republic, a great power waiting to be born. He believed in the industrialization and powerful merchants as the leaders of America. This brought him into powerful conflict with history’s most notorious idealist, Thomas Jefferson, and his disciples James Madison and James Monroe.

Jefferson saw America’s path as a small agrarian society. Sadly, Jefferson’s idea of America only worked with legalized slavery, an institution he claimed he detested and yet kept slaves throughout his life. During Washington’s presidency, two political groupings started to develop: the Federalists led by Hamilton, and the Republicans (Democrat-Republicans who would later become today’s Democratic Party) led by Jefferson. Both groups saw their viewpoint (a strong union backed by a powerful national government with a very strong executive branch for Hamilton, an intensely weak federal government with unbelievably powerful states rights and most power gifted to the House of Representatives for Jefferson) at what the revolution truly meant. They were unable to understand the other side’s viewpoint, and too often, they sought to distort their enemies’ arguments in atrocious ways.

Hamilton succeeded in convincing Washington (who usually did his best to stay above politics and simply choose better policies) that a strong Treasury, with the ability to tax at the federal level and restricted from the states was the best way to grow the nation. Hamilton served five years at the Treasury and quickly built its size in terms of manpower to be larger than the rest of the executive branch combined. When he left, he returned to his law office and often tried cases before the Supreme Court. He was also still very active in politics. In 1800, he worked too diligently to have his party member, John Adams voted out of the presidency and was soon persona non grata with much of the political establishment. The ascension of his arch-rival of Jefferson to the presidency and Madison (who since he had written the Federalist Papers with Hamilton had moved to oppose most of Hamilton’s positions) to Secretary of State, left Hamilton out in the cold.

Just four short years later, Hamilton would be engaged in a duel after Aaron Burr accused Hamilton of slandering him in private conversation. Hamilton, Chernow argues, threw away his first shot and Burr shot Hamilton. Hamilton died the following day, ending the life of one of America’s most interesting and complex characters. Hamilton has left us millions of words on his political thinkings, and much of it is still very important today. We still use the Federalist Papers in cases before the Supreme Court and we still use his reports on manufacturers to understand the progression of the American economy.

Throughout his life, Hamilton was often demonized by the Jefferson faction as an aspiring monarchist with connections to Great Britain with hopes of bringing back the King. Throughout his life, Hamilton was notoriously thin-skinned and took these assertions personally, which often led him to act completely irrationally in his attempts to put them to bed. There is no evidence for this, however. In fact, there is a complete lack of evidence that Hamilton was anything other than a brilliant financier and writer who was one of our greatest patriots. Because he fought poorly against Jefferson, he came down on the wrong side of history when Jefferson led his Revolution in 1800 and he tried to push America away from the Hamilton Empire and back towards an agrarian backward, nonfunctional society.

Chernow’s book does a great service to rehabilitate Hamilton and, more importantly, to portray this multi-sided character very well.

Five out of five Melons!

Matt Miller’s latest book, The Tyranny of Dead Ideas is an interesting and enveloping read. I finished it in just two short days. Miller, who writes for Forbes occasionally and has consulted for various companies lays out his ideas on why America is in trouble, and then, the opposite (or corresponding idea) that would solve the problems that these ideas have led us into.

The Tyranny of Dead Ideas

Matt Miller

TIMES BOOKS, New York: 2009

While Miller’s tale is eminently interesting, he sadly fails to convince me on the face that the ideas he claims are dead, are truly dead. I come away from the book more often remembering him simply repeating the same mantra over and over again, and not necessarily arguing that it was dead. The first of these “Dead Ideas” is that our children will earn more than we do, or that rephrased, incomes will continue to go up. Miller cites evidence that since the 1970s, the median income in America has actually gone down or stayed falt while the wealthy have grown at ridiculous and preposterous rates thus making the ‘average’ income in America increase. But that’s the whole extent of his evidence. Sadly, it left me unconvinced. I’m not sure I could argue the other way, that I see a path to ensure that I make more than my parents, that my kids will start off better than I did right out of college, but I sure as hell don’t buy his argument. I come away going “mehh” which really isn’t a good way to start your opening chapter.

Miller’s other Dead Ideas are:

“Free trade is ‘good’ (no matter how many people get hurt)”

“Your company should take care of you”

“Taxes hurt the economy (and they’re always too high)”

“Schools are a local matter”

“Money follows merit”

I come away after reading this book that I don’t really buy on face much of Miller’s

arguments. I understand his criticism of free trade, and it is a good criticism, but I don’t know of any economist who defends free trade absolutely, but that those who endorse as a general rule. Miller’s next straw man is ridiculous to anyone of my generation, and should be to anyone with any understanding of business.

In his chapter detailing how businesses are getting out of managing health care and pensions and how government will be forced to step in. I don’t know anyone who holds true to this idea besides ideologues who’s arguments we should be discounting. He acknowledges that its ideology mainly driving the debate, not reality based views. Conservatives on Capitol Hill are resistant to a national health care solutions because politically they must be, but they don’t offer other solutions, they can’t because they are stuck in this Dead Idea. (Okay, so i give in, this Dead Idea is still valued by a rapidly decreasing amount of the population.)

Miller’s focus on schools is particularly interesting. He discusses how the creation of independent school districts and how the recent government actions in education have created 50 state standards and even more ways to define who is meeting those standards. Miller’s final endorsement to solve the education crisis which he claims to be embroiling America is to create national standards but then give schools, teachers, and superintendents the ability and resources to meet them. He advises increasing federal dollars in school to make the education moneys equal across the nation, and perhaps even more money to the poorer more distressed districts (often inner-city) than the suburbs and rural districts. I don’t have issues with this at all. He also advises curtailing the power of teachers unions. I know I’m quite biased, as my father has long been the president or negotiator for his teacher’s union, but I see teacher’s unions as quite valuable. However, we must remember that teacher’s unions don’t always look out for the best of the students; they look out for the best of their members, often fighting to keep jobs for teachers who don’t deserve them.

If teachers (and their unions) really want to help their cause and stop being black-guarded by moderates and conservatives, they need to do more to turn bad teachers into good teachers, or simply get rid of them-and not defend them to the nth degree.

The weirdest part of Miller’s book is his section on meritocracy and his classification of the Upper Middle Class (bankers, doctors, well-paid lawyers) and their hatred and envy at the Ultras (the super rich, investment bankers, hedge funds, oil barons). Miller’s dead idea is that “that market capitalism is a meritocracy-that is, a system in which people basically end up, in economic terms, where they deserve to.” Another ridiculous straw-man. People have known for centuries that the railroad barons, or the oil barons, or other super rich weren’t significantly smarter, or faster, or better than the other very well off but not super rich. The super rich are lucky. They have been throughout history. Miller at times seems to be worried about some sort of super-rich vs. upper-middle-class class war. And its kind of weird.

Where Miller stridently excels is when he talks about the conservative (REAGAN!) argument that taxes are always bad and that they must always go down. Miller argues strongly and fluently that the middle class is demanded more services and that they will (and are) willing to tax themselves for those services. Miller calmly explains that right now, the US is spending about 20% to 21% of GDP, is bringing in revenues of about 19%, but to make future entitlements (Medicare, Social Security) sure, we need to bring in revenues of about 24%. He displays numerous reality-based conservatives (sadly few and far between in the tax debate) who endorse this view and have publicly argued for it.

Miller in the end argues for business leaders, who he sees as inherently practical, to change their viewpoint, advocate higher taxes, social spending by the state and thus move America back to a leader in the world. I think I agree with Miller, though I don’t know if he argues his point as well as he should have.

One area that I think Miller sadly misses is that how bigger government can actually create a more robust capitalist state. In this country, as millions of jobs are being lost the economy collapses, we have a major problem. Our government policy is actually discouraging people from attempting to start a new business, or leave failing companies to start out on their own. Because so many individuals depend on their employer for health care, they need to keep their jobs to keep their medicines, to keep their children healthy. They can’t leave and attempt to start a new business because they can’t get health care. At the same time, numerous companies are cutting health care to compete with rivals and with other countries that have health care managed by the state. Our capitalism would be more vibrant and would allow more people to pursue their dream to open a pizza parlor, to start a bicycle repair shop, to start up their own company if the government was there to help them with health care costs.

Miller doesn’t make the above argument, at least, if he does, it is quite subsumed in his text.

Overall, this book simply doesn’t delivery on its premise to demolish these dead ideas. As I said above, I read it quickly, and found some points interesting, but sadly, this book isn’t really worth the time. Read something more interesting.

Two out of Five Melons!

That’s right; we’re back. And we’re going with a big old beer this time around. We were out wandering at the new local beer store, The Cellars in Eagan, Minnesota. (Sadly, your correspondent has temporarily left the Pacific Northwest.) There we stumbled upon this seasonal brew released by our one of our favorite breweries. We love Ommegang because it makes great Belgian beers, but more importantly because they brilliantly founded their brewery just outside the greatest small city in America–Cooperstown, NY.

But, we better get to the beer, because that’s why we’re here, right? Ommegang describes Ommegeddon as “Funkhouse ales with brettanomyces.” A “Belgian-style ale with a wild twist; a dose of Brett yeast, and a blast of dry-hopping. Its dryness and funkiness begat the name – now, let the forces of light and dark meet to battle for dominion of the world.” Of course, we must now translate. A Belgian-style ale (to obtusely stereotype the “style”) is usually light, crisp, and more so than the average American beer, sweet, often with fruit or citrus flavors. Brett is a short hand term for brettanomyces yeast. Brett yeast is more often associated with wines because it gives an off flavor that is unwanted in wines and was originally discovered in some English Ales by the Carlsberg scientists at the turn of the century. In beer, Brett yeast is often used by some Belgian Breweries specifically to get those funky flavors of sourness.

Dry-hopping is a technique in which the beer while sitting in the fermenting tags has additional hops added to it. In all beers, hops are added during the brewing phase when the wort (the substance beer is before yeast is added and fermentation begins) is boiling. In many IPAs, some pale ales, and in various other specialty beers, the brewer will dry-hop the beer, or add the yeast during the fermentation process to provide a more citrus and drier, crisper flavor.

Now, doesn’t that just make you thirsty! I know I am. On to the rankings! (I told you there were more exclamation points.)

Rating: Possible Points

Aroma 10
Appearance 5
Flavor 10
Palate 5
Desire fo’ ‘Nother 5
Overall 35

Appearance: This beer is light but cloudy. Light as in very light in color, like the shade of Grandma’s homemade applesauce with plenty of cinnamon. It is yellow with hints of brown but quite cloudy–as a delicious, unfiltered Belgian-style beer should. Sadly, the beer pours out with much head, but it has been sitting in this lovely bottle since March 2008, so it is quite well aged and fully charged. We’ll forgive them. Five out of five.

Taste: The taste is oddly disconcerting, because it is so different than I expected. The sour smell is everywhere as I lift the glass to my mouth, but this beer has only hints of the sourness of the Brett that I expected. The hops come out much more in the sip and it is amazingly crisp, clean and strikingly dry. Sadly, it not funky in any way. It has a fine citrus taste. But this beer pales in comparison to any of the components that make up La Folie or many of the other sours I’ve had before. As I dig more into the beer (empty the first glass and start to pour the second) the Brett starts to come out slightly more, and the hops start to blend with the malts and pull back. But still, we don’t have that same upfront, sour flavor. The beer is nice, but kind of flat or boring in some ways. Six out of Ten.

Palate:  The beer is excellent, a high quality beer. It is smooth, and very dry and crisp. I cracked the beer just a few moments after pulling it from the fridge, but it never felt cool or cold in my mouth. It was very crisp and dry, just running off my tongue and out of my mouth. A very good beer but sadly, not that great of a Palate. Three out of Five.

Desire Fo’ ‘Nother:  Now, let’s get this right. This is a big beer. Coming in at 8% alcohol and 650 mL (but you skip out on about 10 mL because you don’t drink the yeast left at the bottom of the bottle) this thing starts to hit you about halfway through the second beer. Just Two out of Five Melons for this one. I don’t see myself ever purchasing this beer again.

Overall, this rating comes out to 25 out of 35 Melons, which is our worst performing beer ever on By Yeast Alone. This beer which celebrates its use of yeast, doesn’t deliver on our hopes and dreams of an imaginative, fun beer. It left of us kind of sad. In the end, this beer reminds me of that blind date you get set-up on when its an ex-girlfriend of one of your buddies. He’s cool with you dating her, and he’s got some good stories of her being “very interesting.” But when you get to the date, you realize that well, your buddy made a pretty good choice with the brunette he’s got hanging off his arm most of the time because the girl you went on the date with is kind of boring and wishes she was just a little bit more. So, if you got $13 dollars to spend (as I apparently did) this beer won’t ruin your night, but there are plenty more you can take home that will make you a lot happier, like pretty much any decent six-pack you’ve had before.