How our economy is more like a poker game than a restaurant

Recently, while I was cleaning a hairball out of the P-trap under my bathroom sink (I couldn't afford to call Joe the Plumber -- his agent wanted too much money) I found this link to a simple story entitled A Dinner for 10 Men: A Parable of Tax Cuts.

It opens like this:

"I'm opposed to those tax cuts," the retired college instructor declared, "because they benefit the rich. The rich get much more money back than ordinary taxpayers like you and me and that's not fair." "But the rich pay more in the first place," the businessman argued, "so it stands to reason that they'd get more money back."

Actually, they don't "pay more." Warren Buffet has famously pointed out that his secretary pays a higher tax rate than he does -- and he thinks that's wrong and has called for the system to be changed to make it right by her.

No matter. The parable goes on to prove the "professor" wrong and the businessman "right" by creating an analogy so idiotically simplistic that it makes my head hurt just thinking about how to summarize it. Instead, I'll simply include the closing paragraphs. You can reverse engineer the story from there if you want:

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They were $52 short!

And that, boys, girls, and college instructors, is how America's tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table any more.

How do I put this in a respectful way? F#@k you and the horse you rode in on.

This is the sort of after-dinner story-fantasy I'm sure Ronald Reagan enthralled his corporate audiences with back in the early 60s before he became governor of California. It was stupid then and it's stupid now. Unfortunately, we had to live through this fantasy for more than 30 years to see how stupid -- and destructive -- it truly was.

I like a different analogy, one that is more down-to-earth, simpler to follow and much more concise. It's part of the 1951 memoir of Marriner Eccles, the chairman of the Federal Reserve circa 1934-48. In describing the causes of the Depression, he says this:

...[A]s in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

There you have it -- a brilliant flash of insight from 1951. True then, true today. In other words, giving more and more tax breaks to the wealthiest among us, relying on a free market to "trickle-down" wealth to the rest of us, does not work.

So how did we get here, in this horrible place? How did this happen? Well, I'd say that it is a feature (not a bug) of the unregulated free market system. The tendency is for capital to cut its expenses ruthlessly -- on things like labor. As a result, wages (the real engine of the economy) go stagnant and the middle class borrows more and more just to stay ahead. After a while, the amount of debt far outweighs the amount of real assets that the middle class holds. Then credit dries up -- and the bubble pops. Everyone loses.

Cutting taxes again won't solve the problem. What solves the problem is building an economy where people have jobs that produce real, tangible benefits -- infrastructure improvements, energy independence, higher education and universal health care.

That's why I voted for Barack Obama: because he gets it.

Grown-ups Vs. Gramps

Did anyone notice the sharp difference in tone and approach between John McCain and Barack Obama's statements this morning on solutions for our Trillion Dollar financial crisis?  You should have.

McCain came out this morning, well in advance of Secretary Paulson's press conference, guns blazing.  "McCain all but blames Obama for the crisis."

He's a Maverick, by golly, and he'll fight, fight, fight the evil enemy dudes who conspired with Barack Obama to create this mess that makes him look bad for his lack of understanding of the economy when he'd rather be talking about lipstick.

How absurd.  I won't rehash the idiocy of someone who supported the policies that got us into this mess for 26 years blaming they guy he calls an upstart for a mess whose roots are founded in years of neglect, malfeasance and corruption.

The contrast with Obama this morning, flanked by respected financial leaders like Volker and Rubin was striking.  Calm, thoughtful . . . Presidential.  Here's what Perry at Young Turks had to say about it.

McCain went first at about 9 am. As I watched I saw him throw barbs
at Obama and speech in a very stilted, rehearsed tone. What message
would any passing very get from this speech? Its your average stump
speech that any candidate would give.

Obama came on
sometime after 11 am, and his had a completely altered tone. He came
out, flanked by economic advisors, and answered questions from the
press in a very serious manner. He expounded on points and sounded very
knowledgable. Then he said him and his advisors were going to get
together and come out with a more specific, detailed plan in the coming
days to deal with this. He also struck a very bipartisan, "we gotta
pull together and get through this together" chord, as well.

I think this is important, more important that what we in blogtopia (y!sctp) always say is important.  People decide these things by tone, what they see, hear and feel in their gut.  It's something that Obama exudes and McCain has forfeited with his gimmicks and slimy tactics -- gravitas. 

McCain's type of side show often works, but right now it's the wrong message at the wrong time.  It's like going to the movies when you're in the mood for a good laugh only to discover that the comedy you just paid for is some film noire with foreign subtitles.  It just doesn't sit well.

Mind you, both candidates are playing the hands the financial crisis dealt them, but Obama's demeanor, his careful "less is more" approach is masterful.  Amazing that the younger, less experienced candidate is the one who comes across mature and filling us with just the right emotional impression -- here's an unflappable guy who looks like he's in charge and knows what he's doing. 

Face it.  He's good.

For the life of me I couldn't figure out how it was possible that McCain won the GOP nomination when he was such a sniveling douche that had pissed off half of the Party.  It wasn't what he said or what his record showed.  It was all about reputation.  It worked for many in that field as well.  Guilliani was only there because of the image the public had of him as he filled the leadership vacuum left when George Bush disappeared during a crisis -- a pattern he repeated during Katrina and again this last week.

But at that moment, a wholly different type of crisis, Guilliani's gung-ho kick ass style is what we needed-- then.  We were scared on 9/11, but also pissed.  The look on Rudy's face, the way he marched through the streets, taking charge and too tough to wear a face mask so we saw the anger.  Yeah!  Let's kick some ass!

This crisis is different, a numbers crisis, although it's just as threatening to our way of life.  We again are scared, and pissed, but in a way we're pissed at ourselves.  Remember how even the thought of America in any way being responsible for the circumstances that lead to 9/11 where met with swift and decisive derision.  Certainly something you dare not utter let alone think, whether you were on the left or the right.  Truthers and Falwell types who blame teh gay are still ostracized for such irrelevancies.

Insisting that now was not the time for partisan squabbling showed me (at least) that Obama "gets it."  Going out of his way to tie Obama to the crisis diminished McCain's standing as a serious man who could provide thoughtful crisis management. 

At a time every Wall Street expert and leaders in Congress and the Administration were putting partisanship aside to avert a crippling depression the likes of which no one alive can contemplate, John McCain stood alone, maverickly demanding Obama give up "the lectures and just this once admit" his responsibility for something that is obviously systemic involving the decisions of hundreds of thousands of homeowners, investors, bankers, politicians, lobbyists and several presidents from both parties.

A sad and selfish display.  At times like these it's hard not ascribe to a certain amount of High Broderism, much as I usually detest such attitudes as fake and self-serving.  McCain simply didn't need to go there, not now.  This just wasn't the time for the cheap shots, not when he was presenting his plan to save us all from ourselves.  But with a the likelihood of adding another Trillion Dollars or two to the national debt, and we don't really know how many mortgages the taxpayers are going to buy or what they'll cost us, just this once John McCain could have acted like a grown-up.

At this stage of the game anyone who is swayed by policy proposals, governing philosophy, or adhering to their tribal roots has made up their minds.  Right now, as usual, it's up to the 5%, 7% or 9% who are unfathomably undecided, who really don't pay attention and might not figure it out until they walk into the polling booth.  And in a race that is still tight (much to the delight of the cable news networks), these folks who don't pay attention unless they're hit over the head will pick our next president on the most trivial and irrelevant of criteria.

These folks, to the point they are persuadable (and I think they're paying attention, finally) can no more visualize a Million Dollars let alone a Trillion.  Who really can?  They've no interest in learning why a "derivative credit-default swap" matters, because it doesn't touch their lives in the least.

More importantly, where Obama and McCain propose completely different tax and spending priorities, events of this past week have thrown those plans out the window.  By January there'll be a completely different financial landscape, and that reality will come crashing down upon both candidates' platforms. 

Knowing that, maybe those low-information voters are on to something.  When the dust settles, the character of our choice of who will lead us will matter a great deal more than any agenda they want to implement.  Our choices as a people just got narrowed considerably about what we are to do moving forward.  The how, and the ability to confidently inspire us to achieve that future matter much more than they did when this thing got started.

She's a Witch!

I hope someone else caught the crowd reaction when John McCain announced at a campaign event his personal scapegoat for almost thirty years of “conservative” laisse faire economic policies. Do you suppose that even five of them knew what the SEC Chairman does or who Chris Cox is as they cheered “BURN ‘ER!”?

These people really shouldn’t be allowed to gather in public.


\"She's a Witch!\"


[Cross-posted at E Pluribus Unum]

Here’s the Plan

by shep

Shorter bi-partisan wisdom from the leaders of the most powerful capitalist nation on earth: So we’ll borrow from the Chinese and give that money to individuals and businesses so they’ll buy more from the Chinese and they’ll lend us more money. Pass it on.

[Cross=posted on E Pluribus Unuml]