Not Every Damn Thing is a Morality Play

In his new gig at Slate’s Moneybox, Matthew Yglesias asks an interesting question.  The Obama administration has suggested that next year’s payroll tax extension be paid for by imposing a 3.25% surtax on all income over $1 million.  Predictably, the Republicans’ opposition to this measure rests in part upon the argument that imposing this surtax will “hurt small businesses.”

Yglesias asks

[W]hat difference does it make?  My assumption is that the guy who owns the liquor store across the street from my apartment is earning a pretty modest living with his modest small business.  But what if he’s actually earning $5 million a year?  Why would [the fact that he is a small business owner] matter for tax policy?

I think the question Matt asks is interesting because it highlights the truly dysfunctional manner in which we discuss things like tax policy in this country.  Specifically, while the rest of us are debating practical solutions to value-neutral problems, Conservatives seem incapable of debating anything but who are the sinners and who are the saved in some vast morality play that only they can see unfolding.  Consequently, large swathes of the American population – who think they are all talking about the same thing – are really talking past each other.

My sense is that most ‘reality-based’ economists (the mainstream press calls such people “liberals”) look at tax policy, monetary policy, and fiscal policy simply as the source of potential solutions to whatever particular economic problems – high unemployment, a sluggish economy, deflation, inflation, tight credit, etc. – we happen to be facing at the moment.  Such people suggest enacting policies that are designed to resolve technical problems with the economy, not to resolve moral imbalances in the economy.

Conversely, the more ideologically driven ‘conservative’ economists (and the politicians who channel such people) look at tax policy, monetary policy, and fiscal policy only through the lens of morality.  Taxes are punishment – not merely a way to raise revenue – and therefore should never be raised on the wealthy, because it is unjust to punish people for their success.  Monetary policy should be devoted only to stamping out inflation because inflation devalues the money owed by debtors, thereby allowing them to “evade” their obligations to their bettors.  And fiscal policy must never be used to assist the less fortunate, because the market in its infinite wisdom rewards the deserving and punishes the undeserving, and if some people suffer hardship then that hardship is undoubtedly the wages of their sloth and incompetence.

When Obama proposes a surtax on millionaires’ income, Republicans reflexively recoil from what they perceive to be a punishment of the Chosen Elect.  But they still haven’t been able to convince the rest of the country that to be Rich is automatically to be Good, and so they cannot oppose Obama’s proposal on those grounds.  Instead, they substitute “small business” for “millionaire” and then make the same argument.

It works like this:  (i) small businesses are “good,” and (ii) taxes are punishment, now therefore (iii) raising any tax that might impact small businesses would be wrong.  There are a lot of holes in this argument, but by far the most egregious one is (ii):  “taxes are punishment.”   Unfortunately, this is precisely how a great deal of the country views taxes.

Of course, if someone is earning more than $1 million operating as a small business, that person is still earning $1 million.  Yglesias is correct when he points out that whether we tax millionaire CEOs or millionaire liquor store owners (if such things do, in fact, exist) makes no difference at all.  The point is that we will be levying taxes on income so high that the small surtax paid will have no contractionary effect on the economy. 

But Conservatives have, unfortunately, persuaded a lot of us that taxes are somehow “punishment” and not “the revenue we need to keep the system going.”  I understand the very human impulse to explain things to ourselves via a narrative that has good guys and bad guys, right and wrong, but neither tax policy nor fiscal policy nor monetary policy decisions should be driven by such narratives.

We’d probably find it easier to act rationally if we didn’t always import into our decision-making the assumption that every decision must involve identifying and punishing some wrongdoer. 

The Banksters: Conspiracy or Confluence?

I have a very good friend, a guy I’ve known since Junior High School, which -- these days – means that we’ve been buddies much longer than half our lives.  (In fact – I just took the time to calculate this -- in only three years we’ll have been best friends for 2/3rds of our lives).  He is by far my oldest friend and most of our really funny, really weird stories involve things that happened when we were hanging out together and were both much younger and much, much stupider.  My buddy and I talk and debate politics and the economy often, and we agree about most things.  We are as close as brothers.

But we generally part ways when it comes to the perfidiousness of the 1%.  My buddy is convinced that the huge funneling of our nation’s massive resources to a smaller and smaller number of people over the past 30 years has been an intentional, meticulously planned scheme from the beginning:

“I’m telling you,” he recently told me, “when they look into this shit 100 years from now they’ll figure out this was planned from the start.  Cut taxes on the rich, cut government spending for the rest of us, and convince us it was for our own good while they whistle all the way to the bank.  There’s no way the last 30 years happened by accident.”

Me?  I have a higher disregard for people.  I distrust conspiracies and complicated plans.  I thrill to a good heist movie, same as anyone else, but I also know that any plan that involves more than 3 people and requires split-second choreography (“Adjust your watches on my mark . . . 3, 2, 1, Mark!”) never ever really works out in Real Life. 

People just aren’t that smart and – even if they were – they’re never that competent.  Generally speaking, Big Evil doesn’t result from well thought-out, complicated, secret conspiracies involving large numbers of people.  Big Evil more often results because a large number of small, greedy, grasping jackasses – working entirely autonomously – suddenly find a loophole to exploit, and subsequently use the leverage their initial exploitation gives them to twist and exploit the system even further until eventually they control that system completely.

But – sometimes – I get hit with something that makes me wonder if my buddy might not be right after all.  Maybe the past 30 years haven’t just been a confluence of events, driven at every step by nothing more than the blind grasping of the already overly privileged.  Certainly it isn’t too unreasonable to think that the public relations campaign they’ve launched over the past decade or so wasn’t just coincidence.

If that were the case then half the nation and all of our TeeVee pundits wouldn’t keep reflexively repeating that the 1% are the “producers,” the “achievers,” or the “job creators.” 

Instead, it’d still be the other way ‘round.

We're Hierarchical Creatures for a Reason

I swear I don't mean to keep harping on Occupy Wall Street today, but Matt Yglesias has something up today that raises another point that's been on my mind recently.

In trying to explain why the economic situation in Europe is proving so difficult to resolve, Yglesias asks us to envision a problem that has more than one potential solution. For example, he suggests, imagine a large group of people traveling in three cars to go on vacation together. One of the cars runs out of gas and another suffers a flat tire. Yglesias lists five different ways to resolve the situation, points out that these various solutions impact everyone involved in slightly different ways, and then explains that

the issue you're going to have isn't that the problem is "too hard to solve" it's that getting everyone to agree on one particular solution is difficult.

That's why normally human institutions are arranged into hierarchies. If a military convoy was in some kind of jam, the highest-ranking officer just picks a solution. In the White House, they'd have a bunch of meetings and then Barack Obama would pick. But Europe doesn't have a good process for making decisions. So since every possible option has various downsides, they keep not picking any particular option even though not-really-deciding is basically worse for everyone. And "everyone" in this case includes non-EU folk like you and me who suffer from the general panic. (emphasis added)

This has been bugging me about the "alternative communities" the Occupy protests are building across the country. They seem to take it for granted that any organization of humans into hierarchies is somehow inherently wrong -- hence the emphasis they place on being "leaderless," and making sure "everyone has a chance to speak," and "respecting the process." And this insistence on "respecting the process" already has led to some strange incidents.

For example, until only this past Monday there was some real fear that Occupy Wall Street might be turned out of Zuccotti Park because they were losing "the support of allies in the Community Board and the state senator and city electeds who [had] been fighting the city to stave off [OWS's] eviction, get [OWS] toilets, etc." Those allies were abandoning OWS because of the incessant drumming of the drum circles. Despite the fact such drumming might have ended up driving OWS out of the park completely, after "more than 2 weeks of mediation" between the OWS General Assembly and the drummers it seemed that no solution to this problem could be worked out until the very last minute. So . . . crisis averted, I suppose, but one gets the feeling that this shouldn't really have been allowed to develop into a crisis in the first place.

Another example is Occupy Atlanta's refusal to allow Congressman John Lewis to address them when he showed up unexpectedly. I've mentioned this incident before, so this time I'll just reproduce the explanation provided by The Daily Show's John Oliver in episode 168 of his and Andy Zaltzman's magnificent weekly podcast, The Bugle:

There was also a moment at a rally when Congressman John Lewis, the historic civil rights leader, attempted to address the crowd only for some moron to propose a motion that he shouldn't speak, as no one person was more important than anyone else in the movement. And -- to the frustration of the majority of the crowd -- Congressman Lewis was then unable to speak.

Now, whilst no one would claim that John Lewis was more important as flesh-and-blood than that protester, he is a shit of a lot more important as a human being, and when in his presence you might want to shut the fuck up and listen to him.

The thing is, humans haven't been organizing themselves into hierarchies for millennia because we're all a bunch of power-seeking jerks (well, not only because of that); we've been doing so because top-down organized hierarchies provide some necessary efficiency when it comes to decision-making, especially when dealing with unexpected circumstances where decisions need to be made quickly.

Of course, I'm not suggesting that top-down organization is the only way to organize ourselves, or even that it is always the superior way . . . only that it is sometimes the best way to make decisions. The Occupy Movement's unshakeable and total aversion to any hierarchical organization, under any circumstances, seems to me just as foolish and overly rigid a point of view as would that of someone who insisted on always following a strict top-down chain of command.

My Second Favorite Plutocrat

Sorry, Bruce . . . . You're cool and all but you still lose out to Warren Buffett because you're also, y'know, fictional.

By artist Anjin Anhut.

(h/t Matthew Yglesias)

They Are the 1% - A Really Scary Follow Up

Following up on yesterday’s post that was, in part, about how Americans were encouraged over the past 30 years to take on more and more debt in order to make up for the fact that nearly all income growth in the country during that time was being funneled to the few people at the very tippy-top of America’s economic pyramid, here are two additional factoids, below the fold:

Let's Devalue the Dollar!

I just came across a couple of different ideas in rapid succession that left me wondering if perhaps the easiest way to do something about the sputtering U.S. economy might not be to simply print more dollars. I'm no expert on the matter, so if anyone reading this has any insight on the subject or can point out things I'm mistaken about, I'd consider it a kindness.

First up is the upbeat article Doom! Our Economic Nightmare is Just Beginning, by John Judis. Judis draws parallels between the current global malaise and the Great Depression and observes:

[I]n contrast to the ususal post-World War II recession, our current downturn, like the Great Depression, is global in character. . . . During the typical recession, a country suffering a downturn might hope to revive itself by cutting its spending. That might temporarily increase unemployment, but it would also depress wages and prices, simultaneously cutting the demand for imports and making a country's exports more competitive against those of its rivals. But, when the recession is global, you get what John Maynard Keynes called the "paradox of thrift" writ large: As all nations cut their spending and attempt to devalue their currencies (which makes their exports cheaper), global demand shrinks still more, and the recession deepens.

The thing is, though, it is my understanding that today not "all nations" can devalue their currencies; this is because the EU nations have all joined in the Euro and no longer have national currencies to devalue.

Now, I do note that Judis's description of a typical response to a recession is to both devalue the currency and to cut spending; but what if we only did one? Is it possible to so devalue the dollar - through action by the Fed alone - that we can jump start the U.S.'s export economy by taking advantage of the individual EU nations' inability to control their own monetary supply? Would doing so even be legal, or would it subject the U.S. to sanctions for currency manipulation?

But setting those questions aside for the moment, here are some of the potential benefits I see:

First, increasing the money supply so as to devalue the dollar is doable - there would be no need, as there would be, say, with another economic stimulus bill, to try to get anything through the current do-nothing Congress.

Second, pumping sheer dollars into the system would devalue the dollar, causing domestic inflation to rise. If people - or, more importantly, corporations now sitting on about $2 trillion in cash - think that prices are only going to keep going up, that increases the pressure on those currently hoarding cash to spend money now rather than wait until later, thereby increasing national demand.

Third, if the dollar is devalued against the Euro, which lacks the ability to be devalued by any individual EU nation, then America's exports become more attractive to those nations and further increases demand for American goods and services.

Fourth, a jolt of inflation would reduce the real effect of the "overhang of consumer and business debt" described by Judis that also reduces effective demand. In other words, we could reduce the drag our current debt level has on the economy by repaying that debt with devalued dollars . . . freeing up more real money to spent on other goods and services, which also increases demand.

Fifth and finally, allowing for an inflation rate of - say - 4% would drive up nominal interest rates, which would provide a working margin in which the Fed could then subsequently work to increase or decrease real interest rates; as it is now, interest rates are too close to zero to allow the Fed much room to maneuver. See Karl Smith, Matthew Yglesias, and Keven Drum all writing in favor of this last point.

So, anybody? Is this a possible way out?