question to Free Market(sic) ideologs

Is $500,000 a Year Enough?

A common response from the Right to President Obama's capping of CEO salaries and bonuses at $500,000 a year in companies that take big USG bailout money has been to warn that it will be difficult to attract the best management talent to run those firms.

Uh, wasn't it those geniuses, the 'top management talent' making $20 million a year who ran those companies into the ground in the first place?

Tell you what, just promote a good middle manager who had been making $100,000 a year, and she or he will be very grateful for the job. And before you let them take over, you just give them a three-part test:

1. Fill in the blank:

Buy cheap and sell _________.

2. True or false:

A loan should not be offered to a prospective buyer if the monthly mortgage payments will come to more than 28 percent of the buyer's monthly income.

3. True or false:

A mortgage loan should not be given to a prospective home buyer unless the buyer can put down at least 10% and preferably 20%.

If the incoming CEO can get those three right, the person will be heads and shoulders above the $20-million-a-year screw-ups who destroyed the American economy.

From the: "So much for Free Trade" department

It appears that controls on capital flow, like we had during the Bretton Woods era is allowing for growth in economic times that have open economies falling off the cliff. Go figure?
The Upside to Resisting Globalization

Kenneth S. Rogoff, the Harvard economist, noted at the International Monetary Forum in Davos, Switzerland, last week that India, which has “comparatively stringent restrictions on international capital flows,” also seemed to have the most optimists and seemed to be in line for economic growth in a year when few countries are.

“Thank heavens for the strong regulatory framework we have in our financial system,” he quoted one Indian corporate executive as saying.

In contrast, the countries that opened the most to the international capital markets, and that sought to bring in business with relatively lax regulations, now are suffering the most. Iceland was the wonder economy of the world; now it is broke.

The metaphor that comes to mind is that of a large ship. A single-hull ship will cost less to build and operate than a similar ship with a double hull. It will therefore earn more money on every trip, but it is more likely to be sunk if it encounters a severe storm or large iceberg.

on the global collapse

Capitalism's Self-Inflicted Apocalypse
by Michael Parenti

After the overthrow of communist governments in Eastern Europe, capitalism was paraded as the indomitable system that brings prosperity and democracy, the system that would prevail unto the end of history.

The present economic crisis, however, has convinced even some prominent free-marketeers that something is gravely amiss. Truth be told, capitalism has yet to come to terms with several historical forces that cause it endless trouble: democracy, prosperity, and capitalism itself, the very entities that capitalist rulers claim to be fostering.

Union busting

Pro-Business Group Sinks Over A Million Dollars Into Ad Linking Blago To Senate Dems And "Union Bosses"

The ad makes a bunch of guilt-by-association connections that take you from Blago all the way to the Employee Free Choice Act and are a bit difficult to track. First it hits Blago, the "corrupt Illinois Governor." Then it brings up SEIU, "the union" which discussed the "Senate seat payoff." And then it describes the Employee Free Choice Act as "payback" for "union bosses" who helped elect Dems to the Senate:

The idea, obviously, is to use the alleged Blago dealmaking to tar the Employee Free Choice Act, which is a pretty big leap. This will be one of the biggest fights of the upcoming legislative season, so expect much more like this.

Unions are evil because they allow human beings to use the purchasing power that private companies like Walmart get applauded for. Fact is markets are markets, they work. Private sector likes it when it keeps costs down, but when human beings use it to improve their own quality of life--well... thats another story.

Dean Baker pointing out the obvious:

While many rich people are in fact working quite hard to lower their tax burden (with considerable success), most of their benefits from government actually come on the before tax side of the equation. This should be especially obvious now, when the government is backing up trillions of dollars of questionable debt incurred by the wizards of Wall Street.

This is the story whereby Henry Paulson (in his Goldman Sachs days), Robert Rubin and other Wall Street luminaries made hundreds of millions of dollars trading on a free government insurance policy known as “too big to fail.” These brave wizards of finance were able to get others to risk money with their banks because their investors rightly believed that the government would step in if the banks messed up too badly.

The financial shenanigans, that made so many of our richest people rich, would not have been possible without this free insurance policy from the government. Anyone doubting this should ask how many people would have invested with Goldman Sachs and Citigroup if they were told that there was an ironclad commitment from the government to let these institutions fail if they got into trouble?

Of course even wealthy people outside of the financial sector generally can trace their fortune to the hand of government. Bill Gates is one of the richest people in the world because the government gives him a monopoly on Windows. It will arrest anyone who sells the product without his permission. The patent protection that makes the pharmaceutical companies hugely profitable is also a gift from the government.

Copyrights and patents do serve a useful purpose beyond just making some people very rich, but where is the analysis that shows that these government granted monopolies are the most efficient mechanisms for supporting creative work and innovation? In fact, such analysis does not exist.

There are many other ways in which the government structures the market to redistribute income upward. Read my non-copyright protected book, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer to get more of the picture.

The basic story is that the government’s tax and spending policy is just a small part of the distributional picture. Samuelson is wasting his readers’ time when he implies that they are the whole story.

Lets put away 102 Trillion dollars this week...

I should be studying for my theories of democracy final but this is too much fun...

Jason responds again:

How can you say that it's not true with any certainty? These programs will be consuming almost 20% of GDP in 30 years. The current budget, not including bailouts, is around 21% of GDP. You're talking about adding another entitlement to these boondoogles programs.

It doesn't make any sense.

I believe markets work.

And I'm assuming we're speaking to the medicare issue and the market competition that the government can bring via a plan you can buy into as the entitlement you are speaking of?

Does anyone really believe cutting into profit margins of other firms doesn't lower costs and makes markets more efficient?

Does anyone believe that government purchasing power won't lower costs of medicare by providing cheaper drugs? We're not currently allowed to negotiate prices by purchasing in bulk thanks to Republicans.

We have to waste revenue subsidizing private companies who already get protectionism from patents. I'm on board with getting rid of wasteful spending--who isn't by the by?

If one doesn't think purchasing power would push down costs why is the purchasing power of walmart so effective for lowering costs?

Also note a clever chess move in the NCPA study Jason cites...

"Looking indefinitely into the future, anticipated benefits, over and above expected premiums and dedicated tax revenues, amount to $102 trillion. This is about 7 times the size of the U.S. economy. It is the amount the government needs to have set aside today, invested and earning interest, to fund these programs indefinitely"

Look at social security... its set up so the workforce today is paying for the current benefits going out. So its a straw man to say anyone is arguing we put all that money away today.

And once again... are there any other government programs we project 70 years into the future? Why not project the military expenditures for the next 1000 years? Might as well throw up the white flag, cut and run so to speak... we can't afford it.

I don't know of anyone saying we save all of it up today? Err... aside from ncpa. No wonder they are worried about it... (on second reading my hyperbole doesn't work... of coarse they don't.)

update: also check this... they state:

Congress often passes legislation that benefits current generations by imposing costs on future ones — Social
Security and Medicare are prominent examples.

Question... are there any government programs whose sole goal is to benifit future generations?

In what democracy could a politician possibly get elected by saying: "We need to spend x amount of dollars so that every child in 2085 has a robot of their own--I don't care about helping citizens today... we need to think about our future first." Whose gonna vote for that? People are greedy and selfish (i.e. people work on incentives--the reason markets work so effectively).

Obviously the social security surplus was about thinking about the future... but it was for the future in the sense that its our economic sustainability that is important--and people do have incentives to give a decent quality of life to their kids...

if you stopped to blink...

Jason responds to my blog post on the "crisis" myth...

The answer to funding shortfall with entitlements is not adding more entitlements.

You can't raise taxes because it risks economic growth and you cannot put off the bills coming due years down the road.

Europe has had so many economic problem because of the welfare state and excessive taxation to fund it.

You're essentially asking for more problems.

If you blinked you'd miss the quick shift to other issues. I admire it as a good "chess move" but I responded in the comments page by trying to go back to the essence of my post...

"Europe has had so many economic problem because of the welfare state and excessive taxation to fund it." Then why do they have longer life spans and higher quality of life? We were hit with the global economic crisis just as hard--if not more--than they have been. So you're not possibly arguing our economy is stronger are you?

"You're essentially asking for more problems." Actually I was responding to the myth of the crisis.

I didn't say we should raise taxes necessarily nor i'm I completely closed off to privitization efforts.

I was pointing out the "sky is falling" is not true and is more ideologically driven.

These are manageable problems.

Do you not think increasing our work force through increased immigration there by pushing down wages will stimulate growth and help get economic growth? Then you don't raise taxes and help address the issue.

Do you not think more competition in the market place would help get rid of needless bureaucracy and force the private sector to lower wages and provide better service?

What about getting not wasting revenue and using the governments purchasing power to get cheaper medications for those on medicare and medicaid?

these all address problems you highlight in this blog... using markets... cutting down on wasteful spending... free flow of labor...

We aren't going to do something between now and 2041???

Jason Pye posted on the social security/medicare crisis stating:

These two programs are cause for serious concern and it is irresponsible of our leaders, Republicans and Democrats, to keep avoiding the issue. But like Sullum says, there is no political will to take it up and we'll pay the price in the long run.

I hate the corruption, red tape, and slowness of a Republic. Our founding fathers consciously put slow reform as a top priority... but I don't seriously believe we won't do something about the health care crisis within the next 10 years or address social security funding between now and 2041. I may be cynical about government but I'm not that cynical.


There is so much here... I don't know where to begin. Both in the description of the problem and then from a political theory perspective...

The 2008 trustee's report:

Social Security's current annual surpluses of tax income over expenditures will begin to decline in 2011 and then turn into rapidly growing deficits as the baby boom generation retires.

First we knew that, its not a shocker. In fact we've been taking in more taxes--building the surplus--for that very reason. So its not going bankrupt in 2011... its turning towards the surplus we built up for this very reason:

Growing annual deficits are projected to exhaust HI reserves in 2019 and Social Security reserves in 2041.

Not exactly top priority in the way of "major drains on the budget" (i.e. the Iraq war boon-doggle)

On the "crisis" itself. You'll often see Medicare and Social Security lopped together... to talk about the "crisis." One reason is that the trustee's are mandated (I think it's a mandate) by law to address them together as if they are one program, but this plays right into those who want to drum up business for their fiancial industry buddies. Medicare's crisis is one built on the house of cards we call our health care industry. We pay 2 to 3 times as much as other industrialized nations for health care and get worse quality care for it--we rank 37th in the world for health care according to the world health organization.

Back to the trustee's report:

Medicare's financial status is even worse. This year Medicare's Hospital Insurance (HI) Trust Fund is expected to pay out more in hospital benefits and other expenditures than it receives in taxes and other dedicated revenues. The difference will be made up from general revenues which pay for interest credits to the Trust Fund.

Two things... If we brought competition into the health care market--by way of a government plan that people could choose to buy into if they wanted--we would bring down costs and remove the excessive bureaucracy that runs up your doctors bill and gives you and your doctor headaches dealing with the insurance companies who make money by denying coverage. But there are a lot of people making money off our status quo so the obvious fix, universal health care is off the table of discussion for the "crisis" crew.

So problem one is not only a medicare problem... its a huge private sector problem that has put health care reform on the table for discussion (finally). Meaning we will get some kind of reform soon--many in the business community who opposed the Clinton effort in the 90's are now on board... See here.

If you care about Medicare check out is The Impact of the Medicare Drug Benefit on Health Care Spending by Older Households
December 2008, Dean Baker and Ben Zipperer

So the health care crisis is part of the drag on the long term "crisis" we face with Medicare. Keep in mind its 2008 not 2018... lets fix the health care system now! It'll save the lives of people who are falling through the cracks, save you time and money personally, and help with our fiscal woes. Joining the rest of the industriziled world on this issue is going to be a dynamic long term fix to many problems we face.

Secondly if we aren't taking in enough revenue and needing to dig into the general budget thats a revenue problem (i.e. we are paying enough taxes towards it... gasp!!!) At least the increasing revenue to deal with this problem should be on the table as one solution--but its not even on the agenda of the "crisis" folks.
Further from the report:

The Medicare Report shows that the program could be brought into actuarial balance over the next 75 years by an immediate 122 percent increase in the payroll tax (from 2.9 percent to 6.44 percent),

There is also a demographic issue in the form of the baby boomers getting old (which means I'm getting old... sigh...).

But there's a very simple solution to that. Increase the workforce. Increasing immigration--for those who are concerned about the demographic aspect of the "crisis", has got to be a top priority--there is no way around that one (that or heavey subsidies to promote technological innovations that will make our workforce more productive which we used to create this new fangeled thing here i'm typing on, not to mention the internet these words are crossing through).

The majority of these folks do not support free markets, therefore they do not believe in open borders to allow for the free flow of labor--one of the fundamental aspects of "free market theory". In polite society the immigration reform required-- in regards to the demographic crisis--though necessary, is also not on the agenda and therefore is not to be discussed.

Also... and this seems absurd but maybe i'm just not educated enough on such things--how many government programs are projected 75 years!!!

Its hard for economist to project into next year let alone 75 years. It is the dismal science! Thats why the trustee's do three predictions... from bad to rosy. If I remember correctly, the historical long term economic growth we've seen in this country--which we have no reason to believe will change--leans towards a more optimistic forecast. I can't source it off the top of my head--trust me on that one!

There is another fact we often forget. In 2041 its not like there will be zero benefits. Its like 75% of promised benefits--which is adjusted for inflation better benefits than currently received by people on social security.

Bottom line 2041 is a long ways a way and you'll still be getting more bang for your buck. Social security has been in far worse buget situations in the past which we addressed. Don't lose any sleep over it.

Now onto the theoretical questions which I think are very concerning for those of us who believe in democratic principles and living in a civilized world where we are our brothers keeper. If you don't believe we are all in this together--which is an incoherent concept to begin with. Or don't believe in a basic quality of life for your fellow man nothing I have to say will be of any relevance to you. We just disagree. But for those of you concerned about living in a civilized world, where we combat and reject the dog eat dog pathology of our popular culture, I think there are some unstated premises that pop up in regards to this question.

I'll point to two that come to mind from the comments on Jason's post

Again it is all about personal responsibility ....BUT the government with its arrogance and stupidity on the economy have made it all but impossible for the average citizen and I am talking about those who hold legal citizenship to plan,save and execute a workable plan to save for their own future.

incoherent conception of government and market systems. Also I disagree on the question of representation of the population. Social security and medicare are very popular programs. If you believe in democracy in some form or fashion it is an obvious truism that you support fixing not gutting these plans. From the tone of the comments i'll infer this person does not. Difference of opinion. Also note that they state "legal citizenship" therefore this person obviously is not a proponent of free market theory so some of the easy fixes will not be on the table for him. Free flow of labor, as noted above, is an important step in the demographic crisis involved in this issue.

I agree that individuals need to plan for their retirement--these programs are saftey nets. But market systems by definition will cause some people to not thrive. These programs keep millions above the poverty line and provide a basic standard of living for all of our citizens. Freedom means responsibility... and those of us who have benifited from the economy--it is a collective effort mind you--should from an ethical standpoint in my mind provide basic subsitance for others. Take John Rawl's veil of ignorance that sets out to show that

principles of justice would be manifest in a society premised on free and fair cooperation between citizens, including respect for liberty, and an interest in reciprocity.

In the state of nature, it might be argued that certain persons (the strong and talented) would be able to coerce others (the weak and disabled) by virtue of the fact that the stronger and more talented would fare better in the state of nature. This coercion is sometimes thought to invalidate any contractual arrangement occurring in the state of nature. In the original position, however, representatives of citizens are placed behind a "veil of ignorance", depriving the representatives of information about the individuating characteristics of the citizens they represent. Thus, the representative parties would be unaware of the talents and abilities, ethnicity and gender, religion or belief system of the citizens they represent. As a result, they lack the information with which to threaten their fellows and thus invalidate the social contract they are attempting to agree to.

back to the commentor...

We have a government that is out of control and will not change its ways of stupidity and waste until the citizens see the food from their table going to feed the do nothings in Washington.

I'm not really sure what this means.

When are we going to demand Washington,Atlanta and in my case McDonough stop the wasteful,non essential spending habits they are so fond of?

once again these are popular programs. Therefore the bums in DC actually are--this in situation--representing the people. So it can't possibly be nonessential spending. Again if you don't accept my two theoretical premises this will not logically follow.

So in both the actual facts on the ground... and from a theoretical standpoint--which is quite common and has been for a long time--see moreal teachings of christianity, judaism, Islam, buddhism... for examples--just ask someone on the streets at random. 9 times out of 10 they like democracy and believe humans should have food, shelter, and opportunities to thrive beyond abject poverty.

Also most of the "crisis" folks don't mention they are often just pushing privitization for theoretical reasons and are just looking for any reason to attack these programs. These programs are founded on the belief that we owe citizens of this country a safety net. No one gets left behind.

Some people bleive in an abstration that states its every man for themselves and that a privitized world where your neigher is a consumer and an object of labor who sells themselves on the market for the highest bidder.

Though i'm not necessarily opposed to privitization plans as an add-on to create incentives for further savings beyond the safety net the unmentionable by these types is that the transition costs are huge. If they want to talk about some kind of add on to create incentives for individuals to actually save for their future (which is think is not done enough these days) then you ought to start talking about the way we bring in the revenue to pay for this program. Once again this question is not on the table for discussion.

Anyways that was my two cents for now. I'm sure I left something out...

Just don't worry social security and medicare will be okay if we join the rest of the industrizlied world and fix our health care system. And social security won't be gone tomorrow--at least if we are smart enough to do something about between now and 2041...

by the by if you want to see a cool tool that helps put our health insurance crisis into perspective and helps us look at the buget issues more objectively, check out CEPR's Health Care Cost-Adjusted IOUSA Deficit Calculator which

allows you to see what the projected U.S. budget deficit would be, as a percentage of GDP, if the United States had the same per person health care costs as any of the countries in the list below, all of which enjoy longer life expectancies than the United States. All of the other budget assumptions are the ones used by the Congressional Budget Office (CBO), which form the basis for the scary deficit numbers in IOUSA. Each country is listed with its life expectancy in parentheses.

Or on the question of privitization: Accurate Benifits Calculaor which

compares current-law Social Security benefits to the Bush Plan based on "Progressive Indexing" and the 2005 State of the Union proposal, which includes private accounts paid for by 4 percentage points of the employee's payroll tax

And if your worried about the economy. Call your Representative and demand a fiscal stimulus plan (see the open letter from over 375 economist calling on a quick, effictive bill which "should be in the range of $300 to $400 billion per year and should be geared toward targets that inject capital into the nation's economic system immediately" )

update: Jason responds with a good chess move...

update part deux: ah the en passant

Ahhh the Free Market...

To watch the free market work is truly a marvel.

WHEN EVIDENCE FAILS.

Diuretics sales jumped, but only by a few percentage points. "[They] should have more than doubled," says Curt Furberg, who chaired the study. And in a world where doctors prescribe medications based on a simple reading of the latest evidence, maybe they would have doubled. But we don't live in that world. We live in a world where pharmaceutical companies have big budgets and sophisticated public relations teams. Pfizer, for instance, put up $40 million to ensure that their Cardura, their alpha blocker, was included in the study.

Nothing like the free flow of information, capital, and labor; to make a guy like me feel ignorant for thinking "free markets" never have and never could be a sucessful, sustainable, or ethical economic policy...

Ahh... Mr. Westmoreland at it again...

on the auto bail out: "Competition makes people do a better job,"
Except we don't want to bring competition to the health insurance market... or remove patent protections... or create a free flow of labor for workers...
All of these protectionist policies are supported by Westmoreland.

Learn to walk the walk if you talk the talk (I still have to learn this myself from time to time....) Else ye are just condescending, hypocritical, or uneducated on your own policies positions. I'm not a mind reader so I can't speak for Congressman Westmoreland on this issue gaff...