Inaugural Day Thoughts

Our friends, John and Lois, hosted a second Inaugural party, some thirty guests to witness the ceremonial swearing in of the President and his speech.  What a difference four years make.  Last time it was a euphoric party, imagine, a young black president, imbued with liberal ideals, but with an economy that had already shown signs of complete collapse the joy was somewhat restrained by worry.

Four years later, the intransigence of government compromise has given way to more temperate expectations.  However, none of this detracted from the day, a remarkable, very moving, and humbling exercise of the democratic process with the pageantry instilling a quiet pride and hopefulness in us and the sea of faces that swept across the National Mall.

Everything about it was just about perfect, even the weather cooperating.  President Obama's speech was aspirational and progressive, touching upon many of the themes of his presidency and introducing the sorely needed goal of combating climate change.  Perhaps he will make that the hallmark of his second term as universal healthcare was in his first.  In spite of the overwhelming need to face this issue realistically, action has been lacking.  Here is an interesting pro/con alignment of opinions on this subject (hat tip Barry Ritholtz's The Big Picture).

This will become yet another clash in Congress.  To fully understand the severity of political polarization, one only has to read comments about Obama's reelection such as Texas Representative John Culberson's: I grieve for the country....We’re going to throw the emergency brake on as best we can and fight him every step of the way.  Welcome to your second term, Mr. President!

A key phrase from the Inaugural speech, we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it, was also Obama's central point when he was campaigning and will probably be the fulcrum of budgeting and tax reform.  But this is going to be a more complex problem as there are systemic reasons behind this widening gap that go far beyond the reach of mere tax reform legislation.  The New York Times magazine section this Sunday carried a relatively brief but pointed article on "skill-biased technical change:" The rise of networked laptops and smartphones and their countless iterations and spawn have helped highly educated professionals create more and more value just as they have created barriers to entry and rendered irrelevant millions of less-educated workers, in places like factory production lines and typing pools.

Thus, workers having technology skills, mostly those in information industry professions, law, finance, engineering, and medicine, have disproportionately benefited from those skills at the expense of blue collar workers who have been forced into the service economy at lower wages.  Having technology skills is tantamount to buying on margin, being able to leverage those skills for much greater compensation.

So when President Obama tries to put through legislation to reverse this course, it has to take into account not only tax reform, but massive educational reform and the effects of that will not be immediate, but rather long term, maybe measured in generations, like the progress made in civil rights.  Do we have the fortitude and patience?

And, then there is the deficit and reducing the National Debt.  We could embrace the best parts of the Simpson-Bowles plan (so eagerly commissioned by both parties as the National Commission on Fiscal Responsibility and Reform, and then the results so immediately distanced by both)  No one wants to face up to their recommendations.  Our massive National Debt in part was incurred to save our financial system from ruin, but it did not occur overnight.  Quick and easy fixes are impossible. But, if we get the direction right, and gradually phase in some of the Commission's recommendations, perhaps we can then move forward on that front.

But do our politicians have the right stuff?  This is where presidential leadership is so sorely needed. President Obama threw down the gauntlet in his speech about the need for action -- even "imperfect" action -- a veiled suggestion of compromise.  There were two beautifully crafted paragraphs about the dangers of taking intransigent positions based on ideology in his speech:

That is our generation’s task -- to make these words, these rights, these values of life and liberty and the pursuit of happiness real for every American.  Being true to our founding documents does not require us to agree on every contour of life. It does not mean we all define liberty in exactly the same way or follow the same precise path to happiness.  Progress does not compel us to settle centuries-long debates about the role of government for all time, but it does require us to act in our time.  

For now decisions are upon us and we cannot afford delay.  We cannot mistake absolutism for principle, or substitute spectacle for politics, or treat name-calling as reasoned debate.   We must act, knowing that our work will be imperfect.  We must act, knowing that today’s victories will be only partial and that it will be up to those who stand here in four years and 40 years and 400 years hence to advance the timeless spirit once conferred to us in a spare Philadelphia hall.

Finally, a bit of serendipity.  Does life imitate art? I had noted that Aaron Sorkin's 1995 classic The American President, directed by Rob Reiner, was on TV the same night as the inaugural.  We've seen it before but Ann and I, in a "presidential inauguration mood," said, what the heck, we'll watch it again (thanks Encore, no commercial interruptions).  Talk about a feel good movie and how incredibly relevant although made almost twenty years ago.   The focus of fictional President Andrew Shepherd's administration is to pass a crime bill (with assault weapon gun control) and an environmental bill that mandates the reduction of hydrocarbon emissions. Meanwhile, a right wing political demagogue, Senator Bob Rumson, is running against Shepherd's reelection, appealing to "family values" of Americans, by attacking Shepherd's relationship with Sydney Ellen Wade (Shepherd is a widower in the film).  Have things changed so little in the almost twenty years since the film's making?  Unresolved issues of gun control, environmental protection, and campaign character assault go on and on.

The film's President Andrew Shepherd initially takes the high road, concentrating on the issues rather than the personal attacks until he appears at an unscheduled and impromptu news conference and gives an impassioned, unrehearsed speech.  Perhaps all our politicians should see this movie once every four years (I realize that Sorkin writes with his own political agenda -- even I think that eliminating handguns cannot be on the lumped in with assault weapons --  but taking that into account, still there is much to be gleaned from this wonderful and eerily relevant script).  Here is what "President Shepherd" says:

For the last couple of months, Senator Rumson has suggested that being president of this country was, to a certain extent, about character, and although I have not been willing to engage in his attacks on me, I've been here three years and three days, and I can tell you without hesitation: Being President of this country is entirely about character. For the record: yes, I am a card-carrying member of the ACLU. But the more important question is why aren't you, Bob? Now, this is an organization whose sole purpose is to defend the Bill of Rights, so it naturally begs the question: Why would a senator, his party's most powerful spokesman and a candidate for President, choose to reject upholding the Constitution? If you can answer that question, folks, then you're smarter than I am, because I didn't understand it until a few hours ago. America isn't easy. America is advanced citizenship. You gotta want it bad, 'cause it's gonna put up a fight. It's gonna say "You want free speech? Let's see you acknowledge a man whose words make your blood boil, who's standing center stage and advocating at the top of his lungs that which you would spend a lifetime opposing at the top of yours. You want to claim this land as the land of the free? Then the symbol of your country can't just be a flag; the symbol also has to be one of its citizens exercising his right to burn that flag in protest. Show me that, defend that, celebrate that in your classrooms. Then, you can stand up and sing about the "land of the free". I've known Bob Rumson for years, and I've been operating under the assumption that the reason Bob devotes so much time and energy to shouting at the rain was that he simply didn't get it. Well, I was wrong. Bob's problem isn't that he doesn't get it. Bob's problem is that he can't sell it! We have serious problems to solve, and we need serious people to solve them. And whatever your particular problem is, I promise you, Bob Rumson is not the least bit interested in solving it. He is interested in two things and two things only: making you afraid of it and telling you who's to blame for it. That, ladies and gentlemen, is how you win elections. You gather a group of middle-aged, middle-class, middle-income voters who remember with longing an easier time, and you talk to them about family and American values and character. And wave an old photo of the President's girlfriend and you scream about patriotism and you tell them, she's to blame for their lot in life, and you go on television and you call her a whore. Sydney Ellen Wade has done nothing to you, Bob. She has done nothing but put herself through school, represent the interests of public school teachers, and lobby for the safety of our natural resources. You want a character debate, Bob? You better stick with me, 'cause Sydney Ellen Wade is way out of your league.

I've loved two women in my life. I lost one to cancer, and I lost the other 'cause I was so busy keeping my job I forgot to do my job. Well, that ends right now. Tomorrow morning, the White House is sending a bill to Congress for its consideration. It's White House Resolution 455, an energy bill requiring a 20 percent reduction of the emission of fossil fuels over the next ten years. It is by far the most aggressive stride ever taken in the fight to reverse the effects of global warming. The other piece of legislation is the crime bill. As of today, it no longer exists. I'm throwing it out. I'm throwing it out writing a law that makes sense. You cannot address crime prevention without getting rid of assault weapons and handguns. I consider them a threat to national security, and I will go door to door if I have to, but I'm gonna convince Americans that I'm right, and I'm gonna get the guns. We've got serious problems, and we need serious people, and if you want to talk about character, Bob, you'd better come at me with more than a burning flag and a membership card. If you want to talk about character and American values, fine. Just tell me where and when, and I'll show up. This is a time for serious people, Bob, and your fifteen minutes are up. My name is Andrew Shepherd, and I am the President.

What a way to cap off Inauguration Day.

The Politics of Entitlement

Mitt Romney calls it the "politics of envy." "The rich are different than you and me" to quote F. Scott Fitzgerald, but, let me assure you, contrary to Hemingway's rejoinder, it isn't just because they have more money. There is a sense of entitlement, something one (they) can "talk about in quiet rooms" but never in public because the rabble might grumble. The full quote from Fitzgerald's, The Rich Boy, beautifully tells about this kind of wealth: Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft, where we are hard, cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand.

Oh, to be a fly on the wall of Romney's campaign headquarters, advisors pouring over his tax returns trying to determine if they should be released, and, if so, when, how many, in what detail, and what explanations (spin) should accompany them. Bring on the Madison Avenue types to brand and package his wealth as a sort of "Romney Success Cereal." I am "successful" (i.e. "rich"). Vote for me, and you can be like me with a nice looking Father-Knows-Best family thrown in for good measure!

His tax returns are probably hundreds of pages and there may be multiple returns depending on how he has set up Family Limited Partnerships, etc. They probably reflect some form of tithing as by "Commandment of God" Mormons are expected to pay 10% of their gross income to the church -- including income from trust funds and food stamps (no chance of the latter) to be a member of the church "in good standing" and therefore receive its "blessings."

While religion should not be an issue in this or any election, and I will vote for any candidate I think best suited for the job, no matter what the religion, even (gasp!) an atheist, undoubtedly this is an issue for the American electorate (which would never elect an atheist), and therefore what is revealed in Romney's tax return may have a bearing.

But, mostly, it will be about how his tax handlers may have manipulated the issue of earned vs. unearned income. And this cannot be determined by one year's return. When asked about his intentions to release multiple years' tax returns at a recent Republican "debate" he chortled with his patented disingenuous laugh, "maybe." In fact, every time his wealth comes up as an issue he looks like a deer in the headlights, trying to portray himself as having lived "real streets of America" and having come from modest means (father, president of American Motors, and later Governor of Michigan).

The greater the wealth the greater the opportunity to shift income between "earned" (taxed up to the maximum 35%) to "unearned" (income from investments and in private equity, "the carry" which is taxed at 15%) It was not long ago when those figures were approximately in equilibrium, but the Bush era changed all of that and Wall Street would like to keep it that way. Masters of the Universe, unite! A reasonable measure of economic equality has become a corpse of the American Dream.

This election year is conjuring up the most virulent politics in history, Super PACs having contributed to this, something that should be abolished. Here, in Florida, we are now being besieged by them on the airways, Romney having a presence in political advertising even weeks before. The Republicans would like us to believe that calling to roll back the Bush "temporary" tax cuts is the "politics of envy" and that "class warfare" is actually a tactic in an overarching strategy by Obama to make a "welfare class" dependent on the Federal government and therefore more likely to vote Democrat. Talk about conspiracy theories. Might as bring up the issue of his birth certificate again.

Ironically, if I had to hold my nose and vote for just one of the remaining Republicans, my default candidate would be Romney. But as much as I find wanting in President Obama, he has the right idea when he said "don't compare me to the Almighty; compare me to the alternative."


Jan. 24 Follow-Up: "The" Return was released -- as expected, hundreds of pages but everything legal and above board, an effective tax rate of 13.9 percent. Romney also contributed what would be expected to the Mormon Church, so, on both counts he is absolved of any wrong doing. But if there was ever a clarion call for a more sensible tax code, this is it. I've written repeatedly over the years about the issue of economic inequality and just clicking that label at the bottom of this entry will bring most of them up, so no sense going into great detail.

However, I will say the following fearing this point gets lost in all the rhetoric about what motivates people to work: the Republicans argue that lowering the tax rate for everyone (Gingrich proposes a zero tax rate for capital gains) will magically create jobs, economic growth, and therefore the necessary revenue for the Federal Government to do its job, albeit at a reduced level (with cuts in just about every area of social welfare as everyone would "then" be working). But if their theory is wrong, we will be right back onto the same economic precipice at the end of the Bush Presidency.

Romney says his success was due to "working hard." Did he do so because of an effective tax rate of 13.9 percent? At the end of the Reagan Presidency my effective rate was 33 percent. Did I work "less hard" as president of a publishing company than Romney did in private equity? My mistake was to work for a W-2 rather than for carried interest. This kind of tax code games the system so, indeed, the rich can only get richer while everyone else is mired in economic limbo at best.

Jobs do not "happen" because of the tax code alone. They come from education, a passion for working, jobs being valued by society no matter what they are, entrepreneurial vision, a host of other, more relevant, factors.

Pass It On

This is a must-read open letter to JP Morgan's President, Jamie Dimon, written by Josh Brown over at The Reformed Broker. It is in response to Dimon's comment “Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it.” Although Brown's entire letter is a must read, one quote strikes at the heart of the matter:

"No, Jamie, it is not that Americans hate successful people or the wealthy. In fact, it is just the opposite. We love the success stories in our midst and it is a distinctly American trait to believe that we can all follow in the footsteps of the elite, even though so few of us ever actually do.

So, no, we don't hate the rich. What we hate are the predators.

What we hate are the people who we view as having found their success as a consequence of the damage their activities have done to our country. What we hate are those who take and give nothing back in the form of innovation, convenience, entertainment or scientific progress. We hate those who've exploited political relationships and stupidity to rake in even more of the nation's wealth while simultaneously driving the potential for success further away from the grasp of everyone else."

Supporting articles I've written on related topics include one on the Occupy Wall Street movement, another on corporate governance and compensation, and one on the need for a "new economic morality" -- among others!

But, well done, Josh Brown, a brilliant letter to a typical corporate type and indeed, that is the problem, not compensation per se.

Pass it on!

Taking One for the Team

Ever since I heard that Hillary Clinton was planning to "retire" I've been thinking, what a waste of skill and experience. My thought was that Obama needs a new running mate, one that can handle the stalemated war of Republican and Democrat ideologues, and what better person than a former, and very effective, Secretary of State. Of course it means true sharing of power at the top, but Obama does not seem to be threatened by that, and as evidence he himself appointed his former rival to the position of Secretary of State.

Today the Wall Street Journal Op-Ed piece by Patrick H. Caddell and Douglas E. Schoen, both former Democratic pollsters, ups the ante with their article The Hillary Moment, which suggests Obama should actually step aside for the good of the Democratic party so Hillary Clinton can run for President, their argument being that Obama will not be able to run a positive campaign based on his [economic] record and even if he wins we will still be left with a highly charged partisan political landscape, something he will not be able to change. In effect, President Obama should take one for the team.

While I might agree with his difficulty in achieving bipartisan consensus (and that is why I thought Hillary would be the ideal running mate in 2012), I have a problem with ascribing every economic ill to Obama. It is impossible to prove an alternative reality, but if Hillary had run in 2008 and won, we would not be in a much different economic place. And if McCain won, we would have been as equally bad off, or worse ("you betcha" if you know what I mean). After all, the economic problems leading to today were long in the making: regulatory failures, ill conceived Federal Reserve actions, the housing bubble with the attendant rapacity of investment banking firms, Bush tax cuts, 9/11, and ill-chosen wars in Iraq and Afghanistan. When you live beyond your means for such a long time, it takes years to repair the balance sheet, especially when dealing with one the size of the United States'. It can't be done overnight and it can't even be done in one four-year Presidential term.

Making such repairs without doing further damage to the economy means compromise, spending cuts and tax increases, ones that do not further exacerbate the steadily growing division between the haves and the have nots, the one percenters and the ninety-nine percenters.

Expecting Obama to step aside is to concede an imaginary failure, undeserved and such a concession would only feed opposition blathering. And that is where you come in Hillary, perhaps you will consider taking one for the team by agreeing to become Obama's running mate in 2012.

I continue to have high hopes for the Obama presidency in a second term. Hillary, I still hear America singing.
PS: Barry Ritholtz's Presidential Blame & Credit, is well worth reading in conjunction with the above.
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Corporate Governance Gone Wild

Here is something for the Occupy Wall Street crowd to get specific about: CEO salaries have become obscene. Even new shareholder "say on pay" rules have not reversed the tide, shareholders being led by management's "recommendations" like lambs to the slaughter.

By 2009 the average CEO pay at S&P 500 companies was $9,246,697, including salary, stock and option awards, bonuses, pension and deferred compensation and other compensation (like the use of the corporate jet, when reported).

Compensation for these so called "job creators" has risen to 262 times that of an average worker by 2005, up from 24 times in 1965, about the time I entered the work force with my first job in publishing at $100 a week. If I had learned my ultimate boss earned 24 more times than myself, I think I would have understood, but 262 times? Today it takes the average S&P 500 CEO one working day to earn what his/her average employee earns in an entire year.

There are two issues that get wrapped around these facts for the Occupy Wall Street crowd. First how did salaries get so far out of balance? Then, why would a flat tax or any kind of reduced income tax at these lofty levels help the economy and create jobs?

Here is but one anecdotal example which helps address this issue, Eugene M. Isenberg's (the CEO and Chairman of Nabors Industries Ltd., a Bermuda registered drilling rig contractor) severance package of $100 million. (See the Wall Street Journal's A Very Rich Adieu for Nabors CEO)

This nifty package comes after compensation of "almost $750 million since 1992, including the value of his exercised stock options, according to Standard & Poor's ExecuComp," So that's about $850 million paid to one person over about twenty years, or about $43 million year after year after year. Meanwhile, "the Nabors stock has underperformed the S&P 500-stock index for the prior one-year, five-year and 10-year periods".

It is unclear whether the corporate jet is included in the compensation figures. "Records of Nabors-operated jets have shown frequent stops in Palm Beach, Martha's Vineyard, Mass., and New York, places where Mr. Isenberg has homes. A Nabors spokesman said previously that the company had offices in Palm Beach and Martha's Vineyard and that Mr. Isenberg is frequently in New York on business." Guess there is a need for off shore drilling offices at some of the most upscale neighborhoods in America.

This is but one example of corporate governance gone crazy, Boards rubber stamping their approval of insanely generous compensation packages for CEOs, justifying their actions based on the (wink, wink) peer review system. Hey, look at these other overpaid executives at competitors, we have to keep up with them! Meanwhile (wink, wink), Board of Director positions are in theory subject to shareholder approval, but in practice management has played a major role in selecting and retaining board members. Board compensation of S&P 500 companies is now $234k per year for a few hours work each month and frequently they serve on the Board of more than one company. This compensation package is up 10% from the prior year (how many average employees received 10% increases last year?). So reciprocal scratches of the proverbial back have to be commonplace. Shareholders and Occupy Wall Streeters, unite!

Then, is it reasonable to tax someone who "makes" $43 million a year at a higher rate than his/her average employee making (in this case) probably less than 1/500th of that salary? You bet it is. And is this executive, competent though he may be, creating more jobs because he is taxed less than he ought to be? No way. Innovators and entrepreneurs create jobs, foremost example of course being Steve Jobs, and they are not primarily motivated by compensation and are they are not deterred from their calling by taxes.

Let Them Eat Leftovers

Actually, this is closer to what he meant: "Let the idle poor buy the hand-me-downs of the job creators if they can't afford to pay a 9% national sales tax."

And the non-taxation of used goods is but one feature of Herman Cain's 9-9-9 catchy sounding "plan." Help, I find myself agreeing with Michele Bachmann: "the devil is in the details."

While his 9-9-9 plan is "transparent," it is also transparent that he fails to see it as a regressive tax. It sounds oh-so-fair on the surface, all individuals pay a 9 percent tax on earnings and a 9 percent national sales tax and voila, everything becomes an even playing field. One only has to run an equally simple spreadsheet to see how overwhelmingly regressive such a tax plan would be as at lower income levels, fixed expenses, such as food, shelter, transportation, insurance, health, and, of course, taxes, become 100% of one's earnings. Conversely, even with a national sales tax, very high income tax payers would have even a smaller share of their income taxed unless they spent every discretionary dollar at Tiffany's.

Even if all deductions are removed from the tax code, ones the affluent can more easily access, it is a long way from 9% to the current top 35% marginal rate. And eliminating the 15% capital gains tax is a net gain for those taxpayers. Doing away with the estate tax is another bonanza for the fabulously wealthy (no dispute on my part, though, the estate tax needs reform as outlined here).

Also if Mr. Cain is going to rely on reducing the payroll tax as a bone toss to the middle class, he is ignoring an increasingly large segment of the population -- retired folk who are living on non deferred savings accounts accumulated during their working careers (already subjected to payroll and income tax, and probably at a higher level). They don't get the offset of a reduced payroll tax and in effect this is a means of double taxing and further penalizing savers. And Mr. Cain likes to argue that the removal of the payroll tax is an offset for the average worker that would now have to pay "only" a 9% sales tax, failing to note that half of the 15.3% current payroll tax is presently paid by business.

Overzealous tax reformers advocating a flat tax, or a reduction in income tax, triumphantly use the "growth" card to fill in any revenue shortfall. "Trust me," they are saying, "reduce taxes and the economy will grow to such an extent that everyone will prosper." The "job creators" will work harder.

If, as Cain's supporters contend, the 9-9-9 plan raises as much revenue as the current flawed tax structure, then mostly it is on the backs of working stiffs. And while there are merits in simplifying the tax code, 9-9-9 is not one of them.

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Do You Hear the People Sing?

About a year ago I likened the US income distribution to a "parade," the wealthiest appearing only at the very end, demonstrating the parabolic nature of great wealth at the very extreme of the income curve. I was wondering when, finally, the middle class would wake up to this growing disparity and do something about it. Finally, the "Occupation of Wall Street" movement takes up the cause, hopefully all by non violent means.

At the time I said "to listen to the Tea Partiers, a roll back of taxes of the very wealthiest to pre-Bush rates, is an evil, evil thing. Just think of the trickle-down effect that would be lost to the little folk who stand in line for the crumbs falling from the tables of the fabulously wealthy. It is ironic that these dire warnings of the effects of a tax increase on the wealthy are carried into battle on banners hoisted by 'Joe the Plumbers' -- it shows the power of the conservative media and the most virulent impact of the Internet. It just makes no sense that the people near the middle of the parade should become pawns for the people at the very end."

It is sad that Steve Jobs should pass away at this time. I think of him not only as a visionary technology and marketing genius, but as the greatest entrepreneur the world has ever known. The grass root movements of today, such as Occupation of Wall Street, would not be possible without the mobile devices he had a key part in developing and popularizing. I feel a personal loss of his passing at such an early age, and of the same terrible disease that took my father. And I wonder, if we did have a fairer graduated tax structure, one that would have rolled back the Bush tax cuts, would he have worked any less hard? The "don't-tax-the-job-creator" crowd might so argue.

Steve Jobs worked as he did because it was his passion. Entrepreneurs work with a creative obsession that is not going to be railroaded by a higher incremental tax rate. They are the job creators, not the legions of corporate and banking types, raking it in, paying a lesser portion of their income in taxes than a dozen years ago when the US actually had a balanced budget, CEOs now being paid unspeakable multiples of the average income of workers in the same company. Are higher incremental tax rates and the closing of loopholes the only solutions to the deficit? No, but it's a beginning. And that, as well holding these people accountable for any fiscal malfeasance, is what the growing Occupation movement is all about, the middle class finally awakening to the issue of their being used as puppets by political ideologists.

Do you hear the people sing?
Singing a song of angry men?
It is the music of a people
Who will not be slaves again!
...............Les Misérables, the musical

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Play Ball!

Build it and they will come. But how? It took my first visit to the new Yankee Stadium in the Bronx to clearly see the growing disparity between the haves and the have-nots. We can build a stadium while our infrastructure is allowed to crumble.

My son, Jon, and I had been talking about going to the new stadium for some time, my having taken him to his first Yankee game at the old stadium. And when I used to go there decades before as a boy, I sat in the bleachers – 50 cents a seat. In those days my Yankee heroes, Mantle, Rizzuto, Berra, Ford, etc. made salaries that hardly approached six figures.

When we went to games with our sons in the 1980’s, occasionally we would go to the Stadium Club before the game and one time Bill White and Phil Rizzuto (after they became announcers for the Yankees) were having dinner at the next table. Phil was joking with Bill, calling him a huckleberry, when he asked the fellow diners whether anyone had some aspirin. My wife produced her handy pill box and offered Phil a couple so we talked for a while with him – my father graduated from the same high school as Phil and in about the same year. I wonder whether today’s players would be as friendly now that they are paid the same as elite entertainers.

The trip to the stadium on the New Haven railroad, changing at 125th street for a short express to Yankee Stadium at 153rd street, underscored the new two-world order, the trains the same ones I rode on to Grand Central some 30 years ago, on tracks that were built long before that, the air conditioning barely working, the transportation infrastructure hanging threadbare. The return trip was even worse, typical delays, waiting at 125th Street station, and making a connection that was so packed the standing room only did not even provide a space for putting down one’s bag. Amazingly, everyone just seemed resigned to this reality, along with the extreme shuddering of the train because of the poorly maintained track bed, conditions that would not be tolerated in most other advanced countries. Perhaps not coincidentally, the day we went to the stadium there was a major water main break in the Bronx, 100 year old pipes bursting and creating a river in the streets. Maybe we can get another 50 years out of them?

While the funds or motivation for rebuilding our infrastructure seem to be lacking, that does not apply to tearing down the old Yankee Stadium to rebuild one with Disney-like features. Good seats are now all corporate owned at astronomical prices and as an individual you can bid on those that are posted on such sites as StubHub, but with after tax dollars while corporate holders buy them as a deductible corporate expense. Why bother closing such tax loopholes that subsidizes professional sports?

The prices for food and drink are commensurately expensive, a cup of $12 beer or an $8 hot dog. A Yankee cap is a mere $27. Perhaps that is what is meant by trickle-down economics –corporations buy tax-deductible seats at preposterous prices, that revenue (with those from broadcasting) shifting to MLB owners and players, and then trickling down to those people employed at the ball park to move hugely inflated priced merchandise and food to the masses. Everyone wins!

But if one can look past those economic realities, there is the intrinsic beauty of the ball field, a near facsimile of the old stadium and its rich history, and that certain feeling when, after the national anthem, “play ball!” settles in one’s mind, harking back to a time of innocence. It is nice to remember, and to share the day with my son, but sad as a society we have become so divided, with no clear vision of economic priorities.

Substance and Talking Points

I try to set aside Sunday mornings for catching up on some newspaper reading and to watch political shows such as Meet the Press, keeping my eyes on the page/computer and my ears on the TV, drifting back and forth depending on what I'm reading or hearing. This week's Barrons', which I've read forever it seems (now online, having forsaken the print version), had a remarkably to the point article by Doug Kass, founder and President of Seabreeze Partners, and well-known "short-seller" which echoes some of what I've written about the subject of the growing abyss between the haves and the have not's and its impact on the misery of the middle class. Kass' term for this misery is "Screwflation" (combing inflation with the screwing of the middle class). Here are some of his bullet points although its best to read the entire article:

* While...corporate profits will soon attain a new peak, median real wages have made little recent progress....Moreover...an unprecedented four years of declining home prices have further weakened the confidence and purchasing power of the middle-class screwees.

* Unemployment has exacerbated screwflation's impact on all but the wealthiest Americans.

* Because there are few areas of the domestic economy that can replace the prerecession strength in real estate, a recovery in jobs will be more difficult than in previous cycles. Work related to real estate accounted for nearly 40% of U.S. job growth in 2001-06–almost all of it middle-class.

* Back in 1980, the richest 1% of Americans captured 9% of national income. Today, the richest 1% receive about a quarter of national income.

* [The] rise [ of commodity prices] falls more heavily on low- and middle-income families, who spend most of their money on the necessities of life. Add rising health care, education and other costs to commodity prices, and the result is a poor foundation for growth.

* Difficult fiscal decision...must be made this summer in Washington. The needs to accelerate job growth and to control the federal deficit seem irreconcilable.

* A shallow and fragile domestic economic recovery may be exposed to and be vulnerable to the need to cut spending–but drastic spending cuts will jeopardize the shallow recovery in jobs. Not moving on deficit reduction holds its own risks, of U.S. dollar weakness, soaring interest rates and higher unemployment....Partisanship already makes a real solution less likely.

Kass concludes with some excellent suggestions, but with Washington in gridlock, even on such major issues of raising the debt ceiling, and in the throes of pre-Presidential election rhetoric (see Meet the Press discussion below), one can't be terribly optimistic about implementing them:

* Policies that could help quickly include: extending the payroll-tax cut initiated by the Obama administration; reducing income taxes for the middle class; providing federal funds for infrastructure spending; creating incentives for businesses to make new capital investments; allowing tax-free repatriation of U.S. corporate earnings made abroad, if they are earmarked for the creation of American jobs; the launch of an energy plan that taps domestic resources; and the use of federal-housing financing to slow foreclosures and distressed sales.

While reading that article of substance, I was watching Meet the Press, particularly David Gregory's interview with Debbie Wasserman Schultz, the Democratic National Committee Chair and Reince Priebus, the Republican National Committee Chair. Talk about talking points galore. Here is the entire transcript.

Gregory immediately baits the debate with so called "facts:"

MR. GREGORY: All right. Well, let's talk more, let's talk more about the economy in some more detail. This is the president's standing in terms of handling the economy in the public's eye, and it's pretty negative right now. Sixty percent almost, 59 percent, disapprove of the president's handling of the economy . And there are facts that back that up that are difficult for this administration and for the Democrats: unemployment's up 25 percent since Inauguration Day for President Obama ; the debt's up 35 percent, over $14 trillion; a gallon of gas up over 100 percent, with gas $3.75, higher than that in certain parts of the country . Why should Americans trust Democratic governance right now on the economy , and particularly the president's?

The numbers might be correct but one has to wonder about the "cause" of the "effect." Naturally, both Schultz and Priebus jump on their talking points:

REP. SCHULTZ: ...when President Obama took office, the month before he was inaugurated, the economy was bleeding 750,000 jobs a month, David , and we were not headed in the right direction. Now, I know we -- and President Obama has said we have a long way to go . We'd like the pace of recovery to, to, to be picked up. But we have definitely begun to turn the economy around. You, you fast-forward two and a half years later now, and the economy has created 2.1 million private sector jobs, a million of those jobs just in the last six months. We've had 15 straight months of job growth .

Priebus has his talking points:

MR. PRIEBUS: David , the chairwoman's living in fantasyland. We know that the facts are the facts, and we can't get away from that. And Barack Obama is defenseless to the truth on what's going on in the American economy . We have lost as -- two and a half million jobs since Barack Obama 's been president. And of that two and half million jobs, almost 45 percent of those people have been out of work for six months. That number, that number rivals the Great Depression .

Back and forth, your talking points vs. mine. It is a sign of the silly season of an impending election, with the danger that the increasing polarity will result in a stalemate that leaves our economy on the edge of a cliff once again.

But, can they both be "right?" The Bureau of Labor Statistics' Employment, Hours, and Earnings from the Current Employment Statistics survey (National) 2001 -- 2011 confirm that, indeed, we've lost about 2.5 million jobs since Obama was inaugurated, and we've gained almost 1 million jobs in the last six months. But the BLS also shows about 4.4 million non-farm jobs lost in the 12 months before Obama took office. How's that for a talking point?

One can play with all these statistics any which way to "prove" a point of view. The fact of the matter is we had tremendous job growth in the three plus years before the collapse of the economy (and almost the collapse of our entire economic system) in 2008, but those jobs "created" were heavily real estate and construction related during a housing run-up which we now know was merely a chimera. These are jobs that would not have come into existence without the frothy, nothing-down, exotic mortgage real estate market and the complicity of the investment banks and Washington to get those deals done. We simply "borrowed" from the future. Now, those jobs our out of the system with no prospects of returning soon. It is going to be very difficult to have robust job creation if, as Doug Kass suggests, real estate represents 40% job growth without solving our foreclosure and distressed sales issues which is now on such an enormous scale.

And how fair is it to "mark" a President's starting point for job creation as the date of his inauguration? The economy is a leviathan which cannot be turned on a dime. And, by the time Obama was making some headway, he lost control of Congress. Now we have such a polarized government, it is a wonder that any jobs are being created.

And, really, what control does the President have on world oil prices? We could have an army of rigs in the Gulf of Mexico and it wouldn't make much difference in prices as it is a world market for oil. The US cannot effect prices much by creating marginally more supply. Now, controlling the speculative aspect of prices may be a different matter, but financial regulation is habitually resisted by Obama's adversaries.

Agreed, we should have a national energy policy, but for it to have any teeth it will mean some hardship. In Europe, gas is twice the price as it is here. People learn to drive smaller cars, take mass transit, etc. No one would agree to that here so a national energy policy is simply kicked down the road, by both parties.

Finally, the deficit. Does anyone really think that if McCain was elected it would be much different today? President George Bush's 2001 and 2003 tax cuts have been big contributors as well as funding for the wars in Afghanistan and Iraq. Granted, President Obama's 2009 stimulus bill is also in the mix. But that was enacted when the Federal Reserve no longer could cut interest rates (they were already effectively at zero) and there was general agreement that the economy was still in crisis and without a stimulus, it would slip off the cliff again. And one one argues the bill failed to create jobs as intended. No Republicans voted for the act and now that they control Congress, one has to wonder what they will vote for or block. We know the talking points, and Kass makes substantive suggestions, but can Congress even function any longer?

Rebels Without a Cause?

It was a "chicken-run" by the Republicans and the Democrats, drag-racing to the edge of the Bush Tax Cliff as the sun was setting, but who really bailed out of the car and who remained will be revealed in two years. In the movie, the adversaries, Jim (played by James Dean) and Buzz, check out the abyss of the cliff before climbing into their cars:

Buzz: This is the edge. That's the end.
Jim: Yeah. It certainly is.
Buzz: You know something? I like you. You know that?
Jim: Why do we do this?
Buzz: You got to do something, now don't you?

And that seems to be the nature of the "deal" between the two parties: "You got to do something, now don't you?" On the surface, President Obama caved in. Someone had to and it was pretty clear the Republicans were prepared to fly off the cliff to preserve the precious Bush tax cuts for "everyone," especially for the wealthiest, the old Razzle Dazzle 'em of trickle-down economics.

We now continue the drag race to the same cliff in two years but this one also includes the Presidential election. If the "compromise" just further expands the deficit without creating meaningful jobs, the Democrats will blame the Republicans who will be left in the car. Of course the American people will be in the passenger's seat. "This is the edge. That's the end."

Dueling Headlines

No sooner after writing the last entry of this same date, these two headlines from AP accosted my in box:

AP Extended unemployment benefits for nearly 2 million Americans begin to run out Wednesday, cutting off a steady stream of income and guaranteeing a dismal holiday season for people already struggling with bills they cannot pay. Unless Congress changes its mind, benefits that had been extended up to 99 weeks will end this month

AP GOP says it'll block bills until tax cuts extended. "While there are other items that might ultimately be worthy of the Senate's attention, we cannot agree to prioritize any matters above the critical issues of funding the government and preventing a job-killing tax hike."

Translation: if the peasants have no bread, let them eat cake! Translation for "job-killing tax hikes" for those in the highest income bracket: trickle-down economics with no basis in fact.

This was exactly my fear after the mid-term elections: If the Republicans and Tea Partiers interpret their gains to mean they now have carte blanche to keep the Bush tax cuts for the highest wealth tier -- people who would not be hurt by some roll back to pre-Bush tax levels -- the result will only increase the deficit further.

More posturing at our country's expense.

A Taxing Question

How rich is too rich? Actually, I published a book by that title almost twenty years ago and some of its ideas are as relevant today as it was then (How Rich Is Too Rich; Income and Wealth in America by Herbert Inhaber and Sidney Carroll: Praeger, 1992). Two points from that book stuck with me. First, there is the very descriptive opening chapter of looking at income distribution as an imaginary "sixty minute grand parade," tax payers being the marchers, grouped by their height which would be representative of their incomes, the first marchers having the lowest income and the last the highest, with "height" determined by the "average" taxable income being equal to the "average" height of an individual American. The "parade" in effect is an X/Y graph, the Y axis being the income (height), and the X axis being the minutes of the "parade." The first few minutes one sees no marchers even though we can hear some noise. These are people with negative height, those who report the loss of money in that taxable year. It isn't until about ten minutes into the parade that we see marchers between 10 and 24 inches in height and it isn't until 36 minutes we see the so called "average height" taxpayer march by. With about only 20 minutes left, heights begin to rise dramatically. With the last five minutes giants appear, people whose heads are so high we can hardly make out their faces without binoculars. The marchers in the very last minute of the parade are so tall we can only see their feet. These are people of accumulated, sometimes inherited, wealth and in the last few seconds the marchers are the size of sky scrapers. In effect, the parade shows a slowly rising gradient until the far right of the curve when it begins a parabolic rise and then shoots straight up off the graph.

While the numbers might have changed over the last twenty years, the concept has not. Probably, if anything, the "parade" has become even more dramatic, more parabolic, with a steeper rise at the end. And, those at the end of the parade pay now less as a percentage of their income to the government than at any time before.

To listen to the Tea Partiers, a roll back of taxes of the very wealthiest to pre-Bush rates, is an evil, evil thing. Just think of the trickle-down effect that would be lost to the little folk who stand in line for the crumbs falling from the tables of the fabulously wealthy. It is ironic that these dire warnings of the effects of a tax increase on the wealthy are carried into battle on banners hoisted by "Joe the Plumbers" -- it shows the power of the conservative media and the most virulent impact of the Internet. It just makes no sense that the people near the middle of the parade should become pawns for the people at the very end.

Actually, I think the converse is true: it is an evil thing for people who have benefitted from being able to accumulate wealth in the greatest of all capitalist democracies, not to give back more for that opportunity. The argument goes that asking these people to pay more will remove the incentive for them to work, and maybe if we're talking about 70 percent of one's income that might be true. But in 2000, people reporting AGIs of more than $1 million paid 28% of their income as taxes vs. 23% five years later. In 2005 there were 304,000 households reporting income of more than $1 million, more than a trillion dollars of income or $3.375 million per household. And mind you of those, there are a few at the very end of the "parade" with incomes that have so many zeros they would be hard to read. The latter are sports stars, entertainers, and, of course, very, very successful entrepreneurs. Are they going to work "less hard" by paying an additional five percent overall? That five percent would mean another $50 billion going to the US Treasury, at least a beginning to address the ongoing deficit. And, of course, if you look at the $250,00 level as the cut off as suggested by President Obama, there is much more to be gleaned, but given the midterm elections, that level is probably going to be raised if it is not eliminated altogether.

The alternatives that are occasionally pushed by the Tea crowd, such as a flat tax, is, in effect, a regressive tax, with the lower income people having to pay the same taxes on necessities as the wealthy, which just further splits the great economic divide in this country. A national sales tax does the same thing and as we are now so dependent on consumer spending, that could be the death knell for the economy. No, a progressive tax structure has been this country's basis for supporting it's national programs and we have been able to grow in spite of these supposed "disincentives" of higher taxes at a higher bracket.

No doubt the current tax structure is hopelessly and needlessly complicated and THAT is where the discussion should also be focused. There are so many loopholes, that a revised graduated tax structure would not have much teeth without addressing those as well. And then there is the issue of capital gains and dividends. We certainly want to encourage taxpayers to reinvest in our equity markets.

The other point I never forgot from that book was its commentary on the estate tax, arguing against the estate tax altogether, provided there was an alternative system of "estate dispersion." Rather than taxing one's estate at death, it suggested a tax-free dispersement up to a certain level per recipient (rather than per estate). For argument's sake, call that $1 million per recipient. Amounts exceeding that would begin to be taxed on some kind of graduated basis. Those would be life time totals, so if an individual receives money from different inheritances, they would be accumulated and taxed on that scale. "No longer would the estate tax system generate an American royalty -- those freed from the need ever to be economically productive. This alternative system would generate for all the incentive that most of us have in the outcome of our own economic lives. No longer would a large part of our national wealth be beyond responsive use."

Now, the incredibly wealthy could give a million dollars each to a thousand different people, all tax free (if those recipients also received no other inheritances in their lifetimes). The point is that those thousand people would put that capital to work, rather than vesting a billion dollars in one's immediate family who might decide to simply live off the income and pass it on to the next generation, and the next. Or he/she could still leave more to the immediate family, but it would be subject to taxation, perhaps substantial taxation on a graduated basis.

"Wealth great enough to entitle one to membership in the elite comes from two sources -- enormous earnings or inheritance. Prudent public policy should allow those, who, through individual ingenuity, talent, or luck, gain a fortune to use and enjoy it for life...but if these individuals have the power to transmit immense wealth to others after death...they can write the rules controlling this wealth, possibly many generations into the future. This breaks the chain of personal effort that is tightly bound, for most of us, to personal reward. Economic resources, controlled by rules set up by the dead, are denied to those who might well be more productive."

If the Republicans and Tea Partiers interpret their gains to mean they now have carte blanche to keep the Bush tax cuts for the highest wealth tier -- people who would not be hurt by some roll back to pre-Bush tax levels -- the result will only increase the deficit further. There would seem to be no upside to such an action; in effect it is a spending initiative something they claim to condemn. Failure to make tax reforms that lead to a more graduated income tax and closing loopholes, and not having a sensible inheritance tax also just further drives a stake between the haves and the have-nots.

On a related subject, the so called "wealth effect" the Federal Reserve is trying to engineer with its QE2, is still another factor favoring the haves. This is convincingly analyzed by my fellow blogger over at Fund My Mutual Fund in his posting Who Will Any Form of Intermediate Term Wealth Effect Really Help? Not the Masses. It is well worth reading.

A tranquil reprive from QE2 and the upcoming taxation battle in Congress