In just a few weeks I will begin the next phase of my intellectual career: graduate school. It’s a hazing ritual, rite of passage, cognitive fitness program, and clan indoctrination all rolled into one! But right now in the academic world, there is talk going around about whether or not graduate school is what it should be.

The most interesting argument about graduate education is Just Don’t Go. Particularly pushed by English Professor William Pannapacker of Hope College, he has most recently published an article in Slate on reforming higher education. Briefly, Pannapacker’s argument is the following:

Yeah, I will be doing this for the next 7 years

1. Graduate students in the humanities are both naive and typically mislead about the job opportunities available after graduation – namely, that there are very few, and getting one is a matter of luck rather than skill.

2. The academic system is an exploitation racket wherein an overglut of underpaid grad students and Ph.D teach undergrads, who do not deserve inexperienced teachers.

3. As such, the system needs to be updated, through pressure from the grad students (unions) and from the undergraduates (demanding colleges who use full professors for teaching). The system is unwilling and unable to change itself.

4. Graduate school in the humanities does not do an adequate job of giving students skills which are useful outside the humanities, thus trapping them.

5. You can’t make money or get job security from graduate school in the humanities and this fundamentally makes it a scam.

Now, I believe that Pannapacker is making a lot of astute points. He is taking a lot of heat at least in part because he is challenging the fundamental vision of what graduate school is. It is supposedly a place where reasonable adults discuss exciting things and add to existing human knowledge. It is hard work, of course, but very rewarding. Pannapacker bluntly points out that one of the implicit rewards – that the student will get paid to do this sort of thing for the rest of professional life – simply doesn’t exist anymore.

However, he swings the pendulum too far toward a monetary valuation of a graduate degree. Grad school is a scam in his mind both to the grad student (who loses the chance to earn high wages or advance in another fulfilling career elsewhere) and the system in general, because of the resounding negative effect the oversupply of qualified graduates has on wages for everybody. Plus, undergrads shouldn’t be taught by inexperienced grad students. A lot of other grad students I’ve discussed this with are offended by this particular point, because new teachers have to start somewhere. If they are thrown to the lonely front of the classroom with no support from a professor immediately out of the gate, that speaks to bad practices in general at a university and not to grad student teachers in particular. A comparable example is that new doctors perform surgeries under the guidance of more experienced surgeons; ideally, this is the practice in for university teaching as well.

Personally, I think of my TA position as job training, not Pannapacker-esque exploitation. Admittedly, I probably won’t get a job in academia, but if I didn’t go to grad school at all my chances of staying in the academy would be zero, so there you go.

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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.

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.

Kevin Phillips’ latest book, written in order to influence the 2008 elections, aspires to much, but succeeds at little. The story of the growth of debt in America, its impact upon the society, and America’s place in the world is interesting (and Phillips has much right in his book) but he over extends himself. As a result, his overall argument comes out lacking.

Kevin Phillips

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism

Viking Adult, April 2008

Phillips is a former Republican Strategist who became quite estranged to the Bush family, having published three books about the Connecticut natives and their interesting ties to interesting people throughout the world. This book is much in the mold of the others, a diatribe against the ridiculousness of Republican spending. Though he doesn’t pull many punches from Clinton’s inept handling of the housing boom and his helping to create a badly subsidized housing market.

The basis of Phillips tale is simple: since about 1980, individuals in the US have dramatically increased their debt and decreased their savings rate. Over the same time period, wages for median income worker and family stagnated, while the rich and super rich increasingly consolidated their gains. The argument is that while the US was getting richer overall, only a small percent, about 10% of the population, was in fact seeing those gains.

However, during this time period the consumers did not decrease their rate of consumption growth, so they had no choice but to start saving less and increasing their debt. The expansion of 30-year home loans, rare before the 1950s and seven- or eight-year car loans, the growth during the 1990s of the 2^nd mortgage, and perhaps most importantly, the credit card boom created easy to access debt instruments for US consumers.

This expansion of debt eventually led to sky-rocketing asset prices, first the stock market bubble in 2001 and then the ridiculous housing run-up from 2001-2006. People eventually believed that 10% year-over-year was guaranteed and bought houses at ridiculous rates or took loans out that few had hope of repaying.

Phillips does an excellent job laying out this structure and the antecedents that led to the growth in debt. His examination of the Reagan debt policies is particularly skewering in how the expansion of US Debt coincides with massive expansion of individual debt.

As Phillips expands these ideas, he decides to take his argument off in a different realm. He starts to compare the rapid growth of US debt to the expansion that happened during the 1920’s and eventually helped lead to and extend the Great Depression. The worst part of both Phillips initial argument, and his comparison the Great Depression is that he does only the most preliminary research. This is a short book, and Phillips wrote it in a short period of time, hoping to put out a pop-economics book in order to impact the 2008 US Election (the book first appeared in April 2008).

Phillips weakness is that he doesn’t tie all of his arguments solidly together. He makes an interesting case relating to Reagan and the birth of debt-America, but it’s not sound proof. A reader can not accept the entire argument on its face. I heartily believe that Reagan is highly overrated by most conservatives for his Presidential accomplishments, but that doesn’t mean that today’s economic collapse can be traced to his expansion of Star Wars.

Phillips’ arguments bottom out when he decides to try to apply the expansion of US Government and Consumer Debt since the 1970s to the expansion of Debt incurred by the previous hegemony: Spain, United Provinces (Holland/Netherlands) and England (UK). First off, including Spain along with the United Provinces and England is kind of ridiculous in the Hegemonic Transition World as many people don’t believe they ever projected their power over the entire world the way that UP and the UK did, and more importantly, like the US does today.

Spain simply stole money from the New World, they weren’t traders that truly dominated the entire world like the other nations. With his Spain argument, and also that of UK and UP, Phillips pushes those nations towards some sort of purity, both of race and religion during then end of their reigns. Sadly, this argument goes nowhere as the reactionary forces in every great power ebb and flow throughout the reign. As the power of the anti-reactionary forces wanes in every aspect, the power of the reactionary forces come to more power. That doesn’t mean that they won, it means that the normalizing forces lost their power economically so that the cultural warriors can rise up.

The worldly Brits who kept the Puritans at bay lost the ability to keep them hidden in the fields. The Internationals of Spain, who had been to America, lost the wealth and the Inquisition destroyed the country. But the Inquisition rose not because of its own strength, but because of the inability of the rest of society to put it down. But most important in this entire argument is the fact that the intolerant sector of society, the sector that rejects internationalism is not and will not be in power for a number of years. The crazy left wing Democrats who want to dismantle the US military cannot win. The Libertarians who want to return to the gold standard are laughed at by 95% of the country.

Even if one disagrees with mainstream Democrats or Republicans, they are still internationalist, and they still express a desire for America to remain the dominant political player. There is no walking away by either party. Phillips’ attempt to portray America as too weak to meet its commitments is simply years ahead of its time.

In the end, I say this book should have been written sometime in 2010, and Phillips should have stuck to his original argument: the expansion of debt led to the downfall of the US-and thus the world-economy. It should be a text book, for some high level undergraduate courses at good economics programs. There is an argument in there, but Phillips’ ramblings about the rest of the examples that predated the US downfall simply are poorly done and there exist many better out there.

Two out of Five Melons!

E Ray Canterbery’s history of Economics is more a history of the ideas and the characters who came up with them and truly a tracing of economics. But it is a good read. Canterbery has fun telling the stories and anecdotes of the differing characters that created our economic understanding.

A Brief History of Economics: Artful Approaches to the Dismal Science

E Ray Canterbery

World Scientific Publishing Company, July 15, 2001

Canterbery starts out with what everyone considers the father of economic thought, Adam Smith, and then progresses through the history of thought in Europe, finally arriving at the next great thinker, John Maynard Keynes. Then the Americans take charge with Milton Friedman, JK Galbraith, and the return of neo-classical economists in the form of President Ronald Reagan and UK Prime Minister Margaret Thatcher.

Canterbery’s book is easy to read and fast paced, and most of the economic ideas are very well explained, up to the point where the in-depth discussion of Keynes and his impact on how we thought about economics occurs. At that point, the ideas start to get complex and the explanations and differences between competing groups becomes rather pedantic and minuscule such that a non-studious follower of economics could get lost in the mumbo-jumbo.

Also, when Canterbery finally gets to his discussion of the revival of the neo-classical school, his biases start to become overly prevalent. Canterbery is not a fan at all of the monetarist arguments of the Chicago School led by Milton Friedman, or of the Supply Side Economics that Reagan pushed through in the 1980s. His argument is that it created the greatest unequal wealth distribution in the history of man, and it wasn’t needed to grow the US economy. Basically, the workers got shafted, and the rich got insanely rich.

But his most interesting argument has significant impact on the world today. He argues that the deregulation and growth of the Wall Street Economy of the 1980s created a Casino Capitalism, in which America moved away from industrial production and to making money off of financial instruments. People ceased to create physical items cars, bikes, shoes, anything and simply became service managers. This Casino Capitalism thus created an artificial wealth and should have long term impact on the economy.

The book was published in 2001, and it apparently just took 7 years for him to get it right. Canterbery also argues that the rich financiers needed the growth of free trade, and thus pushed it to create a downward trend in product pricing, further driving down wages. And he cites the best argument that wages of those making below $200,000 have grown only slightly above inflation since 1980, while those making above $200,000 have grown at 1000s of percentages. They have reaped the benefits at a disproportionate rate to the rest of the country.

However, my biggest complaint with Canterbery is not his outstanding biases (I can live with those), but it is his ability to completely ignore any economists not from Great Britain or America (except JB Say from France) in his entire treaty. He also completely ignores the economic developments and theory that might have been happening around the world. His discussion of Marx is there, but he focuses little on the differences between USSR, China, and Yugoslavia and India, all socialist countries with wide variation. He talks not at all about the failed development in Latin America, or the growth of the Asian Tigers. His analysis of the state directed capitalism of Japan is extremely lacking. it is simply a too brief of a focus.

In conclusion, Canterbery’s book is a great read to understand the economics theories and the progress of economics to this point. He of course leaves out the Bush Administrations’ additions to the Casino Economy (which I imagine he would argue there are many). Take his theory analysis, and take his hatred of the Reagonomics with a grain of salt, and you’ll learn a lot. I do recommend a somewhat brief background in Economics, especially for the post-Keynesian readings, as they get complex.

Three out of Five Melons!

Now, let me start off as a voice of reason, Trickle-Down is not ALWAYS a stupid idea, it just is in America. Just look at history of the great Trickle-Downers.

People always say “trickle down worked great during the Reagan administration!” Well, alright, maybe they don’t always say it, but I’ve heard it somewhere from someone, cuz I sure as hell didn’t just guess that was his policy. But did it really work? The poor got no tax cuts and they hate Reagan (“Ronald Reagan was the devil! Ronald. Wilson. Reagan. Each name is six letters, six six six, the mark of the beast!”- The Boondocks). The Keating Five scandal McCain was a part of, that happened during Reagan’s administration because of the Savings and Loan collapse. On Black Monday the stock market crashed like a drunk driver on an icy road with tires made out of pudding. The National Debt exploded from under 1 billion to 3 trillion. Eventually Reagan broke down and raised taxes. Seven times.

Then Bush tried trickle down again, and what happened? Unemployment is up, AIG, Lehman Brothers, Fannie and Freddie all collapsed, our stock market is tanking, and the national debt got so big they had to remodel the national debt clock.

There’s actually a displayable reason why Pump-Priming kicks the shit out of Trickle-Down in terms of economic stimulus. Alright readers, prepare yourselves, because there’s some math a-comin’. For the weak of heart and those pregnant or nursing, I’ve bolded the most important pieces so you can skim my article and ignore most of the mathematics

In our country the top 20% of people control 84% of all the wealth.  If you cut their taxes by 10%, this will in theory lead to a decrease in the costs of goods and services based on the cut relative to their total revenue.

10% off a 35% tax rate is a 3.5% drop, they already had 65% of their revenue so 3.5% / 65% is a 5.4% increase in available revenue, which, in theory, would translate into a drop in the cost of their goods and services.

So you achieve a 5.4% drop in prices by reducing total tax revenue by 9.2% through trickle down tax policy.

3.5% (the upper tax cut) * 84% (total upper income) / [35% (original upper tax rate) * 84% (total upper income) + 22% (lower tax rate) * 16% (total lower income)]

=3.5% * 84% / [35% * 84% + 22% * 16%]

=9.2%

However, if you take that same reduction in tax revenue to the lower classes (the bottom 80%) you can give them all a significantly bigger tax cut of almost 86% over the multiple brackets.

Because that bottom 16% is taxed at a lower rate than the top 84%, it is a significantly smaller portion of the tax revenue (the tax rate ranges from 15 to 28%, so I’m going to use 22% as an approximation). At 22% the bottom 80 would provide just under 11% of total tax revenue.

16% of total income at a 22% tax rate divided by 84% of income at a 35% tax rate plus 16% of total income at a 22% tax rate

=(16%*22%)/(84%*35% + 16%*22%)

= 10.7%

So for the same cost (9.2% of total tax revenue) you can reduce the taxes on the lower class by 85.9% which then increases their buying power by 24.2%.

9.2% decrease in total revenue / 10.7% of total revenue = 9.2/10.7 = 85.9%

85.9% off a 22% tax rate is an 18.9% drop, they already had 78% of their revenue so 18.9% / 78% is a 24.2% increase in available revenue, which translates directly into an increase in buying power.

Just to recap, AND FOR THOSE OF YOU SKIMMING, STOP IT! READ EVERYTHING FROM HERE OUT: for the same price in total revenue, you can give a 10% tax cut to the top class and increase buying power by 5.4%, or you can give an 85.9% tax cut to the bottom class and increase buying power by 24.2%.

When, for the same price, you can give almost nine times the amount of tax cuts to the lower classes, and increase buying power as by almost five times as much, arguing tax cuts on the top brackets makes you either selfish (if you’re in that bracket) or stupid (if you’re in that bottom 80%).

Three things of note:

1- No one is proposing a 10% tax cut for the top bracket, that’s stupid from every angle, but the proportions all stay the same whatever the number, 1% 5% 30%, it is always ~nine times the percentile cut and ~five times the increase in buying power.

2- If the top X (<50) percentage of America had less than 50% of the total income, the numbers would reverse themselves (with the current tax bracket schedule) and trickle down would be a valid theory. But they don’t, so it’s not.

3- Additionally, not all of the top 20%’s tax cuts will go to cost reduction, most of it will actually just be saved and accumulated or reinvested in the company, and people are not venture capitalizing quite like the used to. Whereas the people who have to decide between health care and new school clothes for their children will immediately use their increased buying power which will stimulate the economy.

Last thing, my apologies that there isn’t too much humor in this, so I’ll make my next one is twice as funny. Or half as unfunny. I forget how that math works.

Juvenile Chinook Salmon

Fishery scientists in Denmark and other nations which draw from the severely depleted North Sea have long known about the need for sustainable catch and fish farm practices. Recently several scientists of SINTEF Fisheries and Agriculture laid out the issues of demand for fish, technological and ideological advancements in the fishery industry, and approaching efficiency in seafood markets.

The linked article discusses more of the supply side changes that need to be made if we want to keep eating fish tomorrow (by “tomorrow,” I mean within this generation, as opposed to “some far off abstract generation” which is what economists often mean when using this word).

The problems of unsustainable fishing practices – that is, harvesting more fish than can be replaced by natural reproduction – are varied, and it is a problem humans have never been forced to deal with on a grand scale.

Causes of Fish Depletion

One cause of fish depletion is technological. For most of our existence, humans have used small nets, spears, or line fishing as tools to allow extremely selective take at a very limited scale. Now we have dynamite, cyanide, and trawlers  as tools, not to mention machines to haul up loads of fish that manpower could not have matched. These modern methods allow relatively easy take of extraordinary pounds of biological material, but they are not selective and result in vast quantities of by-catch. So where before we had limited selectivity with no impact on fish or habitats, now we have an unlimited general take which damages the general habitat, including juvenile fish. Another issue is the huge population boom of the last two centuries. Demand for fish has risen simply because there are more people now.

The motivations and incentives fishers face often causes another problem. If one fisher adopts trawl technology, then that fisher will make a greater profit simply due to more mass caught at less effort. Other fishers will see this and want part of that profit as well, and will switch from the older technology of line catch to trawl until all fishers are trawling. Even if this depletes the fish supply in the near future, all of them will choose to do it, because one must pay the bills today even though the means to pay the bills may be gone in twenty years. But who cares? The bill is for today, not twenty years from now.

This is especially disturbing in nations with unregulated fishery practices, because they often have the problem of one or several large firms (companies) competing against small firms (individuals, often with a subsistence need). The short-term survival needs almost always outweigh the health of the fishery or the general environment. This is not so in the United States, as there are a limited number of individual fishing boat licenses sold, so even companies with more boats are not necessarily better off than individual fishers because they must also have one of the licenses.

Finally, while there is some distinction in prices between kinds of fish caught, this is almost exclusively due to species differences. Generally, differences in fishing practices translate into higher or lower prices which consumers respond to as though price is the only important factor. There is some difference in consumer response – say, some consumers will prefer more expensive Pacific wild-caught salmon to Atlantic farmed salmon – but most will see no reason to pay higher prices for what they see as essentially the same good. So fishers with more sustainable practices therefore have higher costs, since consumers are unwilling to basically subsidize their practices by paying more.

So what can we do to address this issue?

There are, of course, two sides and several approaches for each. I’ll start with the supply side, which would be the response of the fisheries, and then address the demand side for average consumers.

The first and best response would be to adopt new (or old) sustainable fishing and fish farming practices, and by doing so create demand for the development of more efficient sustainable fishing technologies. “Efficient” in this case means both market efficiency and getting the greatest return from a fish population given the environmental limitations. I cannot emphasize this enough. The key difference between the “efficiency” of return from trawls and the “efficiency” of sustainability is that the sustainability accounts for the limitations of the environment. Salmon aren’t going to reproduce any more quickly no matter how high the prices are, so we must account and adjust.

Yet this is extremely difficult to do. For one thing, the same force that made fishers switch to trawlers still operate, so that any fisher that tries to switch away will lose money. Only as a group can they switch and still be well off relative to each other. Plus even one fisher that uses trawls while everyone else uses sustainable methods will reduce the future catch of all the suppliers, because trawls damage the environment generally.

Another problem is the lack of good alternatives that still make a profit. This is because the sustainable fishery technology market still lacks the capital to invest in biological research, innovate, and produce sustainable goods in mass quantities. This movement lacks money because not enough fishers are demanding sustainable technology, and they aren’t demanding it because it’s not very good (e.g. cheap, effective) relative to the unsustainable alternative.

There are some short-term changes in practice that could work – the 90 degree method of trawling, for instance. But in the long term they won’t have much difference.

Another reason that reducing profit margins is so difficult is the current high price of fuel. Now there is less room for fishers to operate without losing money, since simply getting to the fish is so expensive. This could have mixed effects: if more fishers go out of business due to high fuel costs, then there will be less pressure on fish populations. However, the ones that do stick around will have a greater incentive to use unsustainable, high mass and high by-catch strategies. And fishers going out of business is not a desirable goal if we can keep them around and save the fish (which we can).

There needs to be a restructuring of the way that suppliers think about their product. It is mostly the case that short term price and revenue/profit are the ONLY measures by which a fisher decides to fish or not. Thus we have people fishing at greater and greater rates as the fish are getting smaller and younger. Fishers need to think about tomorrow. Of course unless the fishery is on the verge of collapse, it is not reasonable to expect them to because what do they care? They’ll retire in five years anyway, so if it collapses in ten they won’t change their practices. But if it risks collapse in two years, then they will care.

Here, I think, is a place for government to set protected areas for juvenile and spawning areas and to enforce limited catches. There are a variety of methods for the industry to be regulated, but depending on the government is not a good idea in the long term due to changes in leadership and the power of fishing lobbyists. In the end the most permanent solutions will come from within the industry.

What can consumers of seafood do?

Probably the simplest solution is to reduce demand by not eating fish. However, this is also the most difficult, because unless one is a vegetarian or vegan, there’s a huge temptation to slip.

More practical (and enjoyable) ways to reduce/change demand is to be an informed consumer with sites like Seafood Watch. You can also refuse to buy fish whose origins you don’t know about, like the frozen stuff in boxes. Instead go to farmer’s markets and talk to the fishers: ask them about where they fish and how.

You must be willing to pay higher prices for this fish. If price and species are the only ways you assess the quality of the good, then you will never see a change in the fishing industry.

This doesn’t reduce demand for seafood per se, but what it does is shift the nature of the demand from price-based only (e.g. “a shrimp is a shrimp is a shrimp”) to a demand that requires numerous conditions in order for the sale to happen (e.g. “a farmed shrimp is not a wild-caught shrimp is not a wild-caught shrimp caught with cages instead of trawls”). This is the thing that will eventually move suppliers en masse to sustainable technologies, because they won’t be able to sell anything if they aren’t sustainable.

This may seem like a daunting task, as of course each consumer is just one person. But if many people change their buying practices, then the whole market will be changed; and it is impossible for many people to change without each individual changing, too. Plus, as demand for sustainable fish goes up, the price of said fish will go down as fishers shift to new practices and supply more, while the price of unsustainable catch will go up. Hopefully it will become an industry standard and prices will reflect the true cost of catching fish without destroying the environment.

As I am stuck here on the otherside of the world (I am currently in India on work) I have some ideas on how to best survive the financial crisis that has set on the US and world economies.

1.  Don’t pay attention to Wall Street. Seriously, DO NOT follow the Dow Industrial Average.

That stat has almost no impact on the average American’s life. Throughout the 2000′s, I heard arguments from good friends, who were conservatives, arguing that because the Dow was going up, the economy was obviously well. The Dow is one of the worst indicators of the status of the economy that we use. It is easy and everyone understands what it means, so it is over used. However, whether the stock price in GE and Google went up or down today or this week has almost no impact on how the economy is going to do over the next 3 months.

What we should be looking at is unemployment numbers. Though they have risen lately (and at a steep rate) they are still at 6.1% throughout the US. Until about 1995, when Alan Greenspan and Bill Clinton were credited with creating a “New Economy,” many economist were scared that unemployment below 8% was dangerous. They argued numbers that low would lead to rapid inflation as there were too few people looking for work, leading employers to have to pay higher rates to retain skilled people, thus destroying their salary structure. During much of the Clinton and Bush administrations, we have had unemployment below 5%.

What we should also be looking at is increases in real wages. Throughout the Bush Administration, real wages decreased. Real wages is defined as inflation adjusted take home pay. Basically, the wage increases did not keep up with take home pay, so that it was a bigger burden on hourly workers in 2007 to buy a car or finance a house (bigger burden meaning it took money away from other discretionary spending) than it was in 1999. That is bad.

So, what is my point? That there are much more valuable factors to evaluate ahead of Wall Street. Wall Street traders are begging for even more bailouts from the governments of the world. But them surviving is not a indication on the future success of the US and world economies.

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