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.

During the 2008 Presidential elections, the Obama campaign rightly identified queer people and their straight allies as a crucial liberal base to be pandered to. Upon taking office, however, the Obama Administration seems much more interested in expending a lot of effort claiming that it has policies that expand and entrench GLBT rights while not doing much in particular. Sure, the James Byrd/Matthew Shepard Hate Crimes Prevention Act was a great thing, and Obama took the opportunity of signing the bill to compare himself to another leader with dubious human rights claims, President Johnson. (However, the bill includes gender expression as a category of protection, an advancement that is hugely important for the transgender community, and one that the gay community is too often satisfied to leave out of other anti-discrimination legislation.) The HIV travel ban, which prevented HIV-positive foreigners from visiting the United States, has been finally lifted.

Yet these are merely tokens compared to what the Obama Administration could really do for queer rights, if they were actually an interest. Not even a priority – merely a sideline. Dan Savage, for instance, suggests that the president should order Don’t Ask Don’t Tell to not be enforced, an action that would free up important personnel and time from ridiculous investigations into gay soldiers’ personal lives. This has something that the President promised but has not gotten around to it. Lt. Dan Choi’s recent visit to University of Puget Sound has magnified that particular issue in local news, but there is a huge list of things the President could do – and isn’t. This inaction has not played well in the gay community, and the administration has been on the defensive, mostly to secure funding for Democrats from its liberal base. The gay community has become the fundamentalist Christians of the left: we get pandered to, but the deliverables are scanty.

Therefore, in order to promote the advancement of legal rights for the GLBT community, I am writing this open letter to Malia Obama.

To:

Malia Obama

1600 Pennsylvania Avenue

Washington, DC 20006

RE: Your Future Sexual Orientation*

Dear Ms. Obama,

At eleven years old, you will soon begin to experience certain…changes. Aside from growing hair in weird places, you will soon have uncontrollable and frequent sexual thoughts and fantasies. As you begin to develop an adult understanding of your sexuality, I urge you to consider going gay.

Women have a lot to offer as sexual partners. Aside from the capacity for multiple orgasms, the huge and interesting variability in tastes between women, and our generally more attractive bodies (though men are okay, I guess), women have better communication skills and are more likely to take care of you if you become sick. Thus women offer great advantages for short- and long-term relationships.

As you explore your sexuality, I urge you to share your thoughts on the desirability of women with your parents, particularly your father, the President. One advantage that men can offer you in all states is spousal rights – insurance coverage, equal custody of children, medical decision-making, burial rights, inheritance rights, financial rights and protections, and so forth. You can change this. One hint that one or both of his daughters have the hots for ladies and your father President Obama will suddenly take a huge interest in the status of lesbians and other sexual minorities in this fine nation. I am sure that your parents have instilled in you the values of equality and justice for all, but there is nothing like the possibility of injustice to a family member to motivate those in power to rethink the status quo. This is the benefit and purpose of coming out: to change the hearts and minds of those that love you.

But, Ms. Obama, you only have a short window in which to do this: before Inauguration Day 2013, on the off-chance that your father does not get re-elected. Many people choose to come out in college, but you would be joining a new wave of young people exploring and discussing their minority sexual preference with their parents and communities. Even, after a short period of contemplation, you conclude that men rather than women tingle your clitoris, the good you could do for the queer community may be substantial. In one day, you could accomplish what your father would not do for ten months. Think about it: your adolescent bi-curiosity could produce the same number of rights for American queers as every gay rights activist since Stonewall. Isn’t that a fine goal for any right-thinking American daughter of the President?

Sincerely,

Glynnis Kirchmeier

Queer Citizen

*Note: I am not, other than posting this on the internet, actually sending this to Malia Obama in any way. Because she is a child.

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.

Your last chance to vote is today and tomorrow so get your ballots in the mail and make your voice heard. Even if you’ve been burnt by national elections in the past, voting on the state and county levels is crucial to making a real impact.

For those of you following The Melon, we’ve done a lot of work in Pierce County writing and interviewing for the election. You can find all of our great interviews with candidates and advocates as well as links to articles in our:

2009 Election Headquarters

Here are some direct links to articles:

• -Eight Years Is Enough – Reject Amendment 1 by New Takhoman
• -My Positions 2009 by Chris Van Vechten
• -Interview with Paul Jacob, Krist Novoselic and Kelly Haughton on RCV and Reject All Three
• -Interviews with all Pierce County Candidates (excluding the Port)

Turkey and Armenia are set to normalize relations today by signing a treaty that would reopen the border between the two countries which has been closed the entire duration of the Armenia’s post-Soviet existence. The treaty seeks to “develop good neighborly relations in mutual respect and progress peace, security and stability in the entire region,” who could be against that right?

Indeed, this is quite clearly a step forward for regional security. With relations normalized cooperation may begin in promoting peace in the caucuses, namely with Azerbaijan and the disputed region of Nagorno-Karabakh. However, despite the clear gains available to Turkey and Armenia in promoting security and economic prosperity one cannot help but be troubled by the underlying moral dilemma inherent in this agreement.

Aremenian president Serzh Sarkisian claims that this move in no way takes the pressure off of Turkey to admit to what Armenia and much of the world has labeled the Armenian Genocide. Looking at this move though it is difficult to agree with Sarkisian. In allowing relations to normalize without Turkey admitting or apologizing Armenia is losing the bulk of the leverage that they currently have over Turkey. International pressure for Turkey to admit to genocide will surely plummet and Turkey will lose all incentive to do so. With normalized relations and a decline in international pressure how can this be perceived as anything but a removal of pressure on Turkey?

Of course, in the short term physical needs, increased security and economic prosperity may take precedent over moral abstract needs. As Turkey and Armenia place the pen to paper they both understand what is at stake, the Armenians are sacrificing an abstract desire for justice in exchange for real benefits. As protests rock the Armenian Diaspora it is clear they understand this as well.

In the end though, it is clear this is the right move for Armenia. Pragmatism must win out. Not only does it bring gain for Armenia and the region but it also represents progress on a troubled issue which I believe has no other resolution. Turkish nationalism is both highly visible and embedded within the Turkish Republic. Speaking out against the state, “acting in a manner disrespectful of the flag,” or speaking ill of Ataturk, the founder of modern Turkey, are all serious offenses. It is difficult to comprehend any movement by Turkey on this issue when such pride exists in the Turkish republic. Accommodating Armenian demands for recognition of the atrocities of the declining Ottoman Empire would quite clearly be political suicide for Turkish elected officials, and so is currently unforeseeable in Turkey today.

Normalizing relations with Turkey is the right move. It is certainly far from a perfect solution, but it is the best option available in the foreseeable future.

Like many of our readers, I’m currently struggling to find a job.  This means that I spend most days on the web, where I recently found the following Merritt for Mayor YouTube commercial, Jim Merritt A Leader We Can Believe In, with current school board candidate Jerry Thorpe providing the voice-over.

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!

The latest results from Iran’s recent presidential election featured Mir Hossein Moussavi, the primary opposition candidate, in a disappointing and suspicious loss to incumbent President Mahmoud Ahmadinejad. Ahmadinejad, considered by many Iranians to be at fault for the years of economic instability during his presidency, enjoys staunch support from rural communities and is to some an enemy of the wealthy and “champion of the poor.” In contrast, Moussavi is believed to be a more moderate candidate, advocating greater cooperation internationally and engagement with the United States. While Moussavi was predicted to win by the vast majority of Iranian media, his loss is suspicious due to large number of what are being referred to as irregularities.

Even before polls had closed Moussavi condemned the election as unfair. Within hours, the United States and Canada both expressed “concern” over the potentially unfair nature of the elections. From the amount of skepticism both inside and outside the state of Iran regarding the elections it’s fairly clear that something at least marginally democratically improper occurred.

Thinking critically, the important outcome of the election is not a presidential candidate, but the progress of Iranian democratic values, the traditional precursor to democratic institutions.  After election results were announced Iranians gathered in Tehran and chanted “Death to the Dictatorship,” and Mousavi supporters conducted sit-ins. While most gatherings were peaceful, some turned violent involving clashes with the police and burning buses. With Iranians who publicly denounce the government often disappearing, this is an intriguing turn of events.

All governments rule through a combination of legitimacy and coercion. No state exists solely through either legitimacy or coercion, but rather through a combination of the two. Generally, the more coercion required to maintain state control the more unstable that state becomes. (An example of this could be the Soviet Union’s control over the Warsaw Pact, as legitimacy of the Communist ideology eroded it became increasingly necessary to execute coercive control over the Warsaw pact countries, In 1991 Gorbachev refused to use the necessary force to retain Soviet control and the Warsaw Pact disbanded.)

Iranian elections began, with relatively little at stake, as a means to create a more legitimate form of government. (It remains unclear how much power the elected executive branch truly has, and all candidates must be cleared by the Supreme Council before being allowed to run) This week’s election may symbolize a turning point in Iranian politics. The population is becoming so upset over the potential irrelevance of their vote that in order to restore order and stability the government will have two options for future elections; choose to conduct fairer and freer elections (a turn towards more legitimate rule), or choose to continue elections with predetermined results, a turn towards greater coercive rule. Although one is clearly favorable, either outcome could prove positive in the long-run. Less legitimacy domestically generally translates to less legitimacy internationally, and the Iranian regime appearing illegitimate would be useful for creating international support to slow or stop a proliferating Iran. In contrast, a free and democratic Iran would surely translate positively for US-Iranian relations.

The evolution of the Iranian political system to a point where an inherent assumption exists that the will of the majority creates legitimacy is far more encouraging than the election of a moderate on what is a very limited political spectrum.

I conclude with a statement one voter made to the Tehran Times following the election:

Despite all the country’s problems over the years, we see that the culture of democracy is beginning to take root in Iran, and the people are becoming confident that they can control their destiny by casting ballots. And the people are happy. These are good signs that augur well for the future.

( Source: http://www.tehrantimes.com/Index_view.asp?code=196629 )

Last week over at The Melon, my friend and old classmate Elliot Trotter wrote an interesting piece on how he views the evolution of media. In a nutshell, FOX News embodies an emerging new type of media, one that represents a certain perspective (in this case America’s conservative wing). Although grossly biased and slanted to the right, Elliot comments that a “fair and balanced” state will result from a counter-balancing perspective, meaning that something akin to FOX should emerge on the opposite side of the spectrum. He considers The Daily Show and The Colbert Report as potential candidates for this role.

Given most people’s vehemently negative attitude towards FOX, this is a very interesting and rather fresh perspective on how media is changing. However, it is incorrect to assert that mainstream media has only figured out that entertainment sells better than news in the last few years. While things may have become more slighted in recent years (a claim that is by no means beyond dispute), it is undeniable that the disproportionate fixation on entertainment value – usually represented by “blood and guts” aspects of news stories or some form of dramatized human suffering – is very much a product of the modern communications revolution. The first mass communications revolution is usually considered to be the invention of the steam-powered printing press in 1830 which allowed news to be much more timely. Within a few years the first mass-circulation newspaper was being produced in the US.

The second great revolution – which initiated the shift from news to “infotainment” – began in 1968 when the US launched the first television satellite. With this technology, stories could be transmitted from local studios back to network news headquarters for editing and broadcast far more rapidly than previously possible. This was further supplemented by three critical pieces of TV equipment available by the early 1970s: the Minicam (a portable, lightweight video camera), a battery-powered video recorder (also portable), and the time-base corrector (by which video footage was converted into transmittable output to be broadcast over the airwaves). With this combination, live TV could be made directly from remote locations and transmitted instantaneously into the homes of viewers across the globe.

These advancements had consequences for the content of the news. The ability to beam a breaking story live gave rise to intense competition among rival networks to “scoop” one another. There were basically two ways to do this: being the first on the scene or being the first to report some hitherto undisclosed information. Although the first is perhaps the most sought-after prize and honor of journalism, it is also inherently evanescent as an advantage. Since the dawn of modern communications, the trick to keeping ratings up has been not-so-much capturing attention by breaking a story, by rather holding it with equally gripping follow-up reports.

The result has been a world of sound bites and “spin.” Dramatic footage and pointed phrases specifically designed to grab viewers’ attention have gradually displaced detailed analysis (or at least the former has become more synonymous with “good journalism”). The concrete effects were easy enough to see. Eleanor Randolph of the Washington Post pointed out in 1985 that the mainstream news coverage of the TWA Flight 847 hijacking was driven purely by a rush for ratings, at the detriment of important substantive coverage. As TV increasingly became the primary source of news for most Americans, the relevance of this bias correspondingly became more influential.

To some degree, the shift towards “infotainment” is independent of increased politicization of news networks. There are arguments that the US as a whole has become more divided along party lines. This may or may not be true since it is hard to disaggregate the reality from the filter of the media where most people get their information. However, especially in the last decade or so, major news networks have gradually recognized that politicization is a good source of high ratings. While many people roll their eyes when they hear Al Franken or Sean Hannity, it is important to realize that there are many others who flourish listening to these programs. Most people prefer to listen to commentators and news reporting that more-or-less validates their already established viewpoints. It is much rarer to find someone sincerely open to a variety of different opinions.

This last point is somewhat along the lines of what Elliot is identifying in the emerging new media: news sources that embody particular values and principles. Elliot argues that counter-balancing from the liberal side of the spectrum will establish “fair and balanced” amongst a variety of biased sources because each side will be roughly equal in their bias to the left or right. This is problematic for a couple reasons. First, it is improbable that most programs will accurately embody a person’s entire belief set. There are many people in the US who have a variety of views that do not neatly fall under ideological (much less party) lines. Of course there are those who are extremely liberal or conservative – and it is these people, not the moderates or those with mixed views – that tend to capture more nationwide media attention.

Second, the notion of biased networks balancing against one another places too much emphasis on the capacity of conventional news programs to maintain themselves in the future. Personally, I think that most signs are pointing to a decline in major centralized news agencies. Internet-based and open-source resources are revolutionizing the ability for broad mass-movements to communicate, inform, and organize. This is clear in the variety of effects such technology has had on protests in New Zealand, Moldova, Thailand, and at the G20 summit in London. The impact is particularly pronounced in Egypt where Facebook, Twitter, Flickr, and other online networking mediums were used in organizing the food riots last year and establishing the April 6th Youth Movement (their blog can be viewed here). Newspapers, radio, and TV will remain important sources of news for many people. But since their traditional territorial power is being slowly eroded by these new sources of information, it is difficult to imagine this scenario of biased counter-balancing news networks being the embodiment of new media.

This emerging trend may, however, become more pronounced before it sputters out. But that it is happening is a different issue from whether or not it is desirable. For me, the role of journalism and the news has always been to attempt to report the truth as objectively as possible – making this new media (as Elliot envisions it) an unwanted development. Of course there has always been, and will always be, bias in reporting. But Elliot’s conceptualization is purposely biased to the preferences of a particularly viewership. Such flagrant disregard for any standard of objective reporting is not only detrimental to the quality of journalism – which has already suffered in the mainstream due to the impacts of the communications revolution – but also contrary to any notion of a greater public good. A polarized arena of news agencies split along ideological lines and competing over who can “scoop” one another the best will only serve to divide the country.

It may be that the supposed fracturing of American society along political lines is more a result of media portrayal. Unfortunately, it’s hard to see how this imagined politicization would not become a clear reality should new media be truly defined by ideological media wars.