The following information comes from a report by the Committee for a Responsible Federal Budget  (CRFB).   The CRFB is hardly a liberal organization and is mostly considered a ‘centrist’ one that warns of impending doom if America doesn’t get it’s fiscal house in order–more along the Simpson Bowles channel in other words.  We disagree entirely, of course, because the ‘centrist’ theme takes aim at all the social programs installed beginning with social security during the Great Depression 80 years ago.  Our real problem is the crony capitalism we’ve developed the past 40 years where the wealthy are given all the tax breaks because of their money influence on Congress.  The result has been increasing deficits and debt due to lack of government funding.  It’s not a coincidence that the only administration to produce surpluses was a Democrat one, that of President Bill Clinton.

Gingrich’s tax and spending policies would add $7 trillion to the debt over the intermediate term.  Romney’s policies would add $250 billion.  Santorum’s policies would add $4.5 trillion.  Only Ron Paul, who would essentially entirely do away with Social Security, Medicare and Medicaid, the Environmental Protection Agency, the Food and Drug Administration–in short all discretionary spending other than that for defense, which he would also cut drastically by simply installing a non-involvement policy with the rest of the globe–actually cuts the debt by $2.2 trillion.

There are some interesting figures in the article.  One is that eliminating the health care reform law adds $80 billion to the debt.   Like most policy organizations, CRFB realizes health care needs structural reform in that the system needs to move away from a fee based business model to a health outcomes model.   All the GOP candidates ignore this truth and just shift the cost to families while doing nothing to control cost inflation created by the fee based model.

The big negatives for reducing debt in all the proposals comes from giving more tax cuts to businesses and the wealthy.

The take away?  The GOP is not now nor has it ever been interested in reducing deficits or debt.  The current crop (except for Ron Paul who’s policies would never be enacted for good reason) are all dissimulators, manipulators of data who know the mass media will never get around to actually studying the proposals so the public will be kept ignorant of the truth, if not completely mis-informed.

Beezer here.  From crony capitalism to journalistic malfeasance the country’s economic health is being systematically dismembered.  It’s a sad sight to witness.  Our only hope is that somehow the public will see through the circus and demand fairness in the tax system, and a restoration of social welfare as one of the nation’s top priorities.  Once again hat tip to economist’s view which linked to a Baseline Scenario article, which in turn linked to the CFRB research.

From the Bureau of Labor Statistics, as shown at the blogsite Modeled Behaviour.

Karl Smith, co-author of the blog is an economics and government professor at the University of North Carolina.  He cites this figure and maintains unskilled labor will never get paid much from here on out:  That the Industrial Revolution was unique in that unskilled labor made income gains.

I want to make the point that this consistent with my long thesis that we are returning to an environment where productivity gains do not accrue to unskilled labor because they are imbedded in the brains of the innovators.

A factory is really big and hard to keep secret. Computer code less so. When you simply write down the process you want or draw the object you want and the computer translates it for you the seep down will grind to complete halt.

What this chart hides, but I believe is also true is that capital is facing a similar collapse.

At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again.

The reality of this new world is that you cannot simply work hard and make a good living. Nor, should you expect that if you save for your future you can support yourself.

As for now, it is still in the interest of innovators to tap public equity markets and doing so means that they come under some – but not absolute – pressure to pay a dividend.

However, I have a hard time believing this will not come to an end. The money available in private pools will be sufficiently large that innovators can strike side deals that let them walk away with almost all the profits.

Beezer here.  Not sure I agree with Smith’s prediction that what we’re seeing now is the end of the Industrial Revolution.  But what I do obviously see is where the money went:  Right to the top where most of the money already resides.  Thus we get huge income gaps where the vast majority of working households (unskilled and skilled, something Smith seems to overlook) haven’t seen their real incomes rise.  And that’s a problem for the economy.  Whether innovators now possess the real stuff ‘embedded’ in their brains?? and can get all the capital they need anyway from private capital pools (Smith forgets what public markets are for–insurance!) is from our perspective unsubstantiated opinion.   Hat tip to Mark Thoma’s economist’s view for highlighting the graph and Smith’s blogpost.

There’s news today that Foxconn, the huge Chinese manufacturer of many high tech components and products, will soon be raising employee incomes by as much as 25%.   From the New York Times:

BEIJING — The announcement Saturday that Foxconn Technology — one of the world’s largest electronics manufacturers — will sharply raise salaries and reduce overtime at its Chinese factories signals that pressure from workers, international markets and concerns among Western consumers about working conditions is driving a fundamental shift that could accelerate an already rapidly changing Chinese economy.

We’ve long argued that income inequalities have come about due to a breakdown in Capitalism.  While there is little debate the capitalist model is the best designed one for producing gains in top line wealth, it has a couple serious flaws, not the least of which is that Capitalism consolidates income at the top of the income pyramid away from the middle and bottom layers of the pyramid.   If left unattended this natural consolidation will produce severe conflicts, both economic and political:  Conflicts that can produce real productive and wealth destruction.

In a broad sense Capitalism is like Democracy.  Both systems rely upon free will between participants.  Democracies rely on public votes.  Capitalism relies on private actors.  Labor markets are a part of Capitalism, and as with Democracy, employees who have bargaining power can be a positive counterforce against Capitalism’s natural tendancy to consolidate incomes and thus control, at the ownership and executive levels.   In both cases, non violent is better than violence.  Negotiation is superior to confrontation.

The Chinese are responding to this basic desire of labor to gain wage growth.  Doing so successfully will boost Chinese domestic demand and reduce the country’s reliance on export customers.  America faces the same problem but to a less severe degree.  Increases in global trade have disrupted America’s labor market and the country has yet to figure out what to do.  Wages are rising modestly among the lowest paid cohorts and are rising dramatically among the highest paid cohorts while the middle is being pressured with job and income losses.

Income needs to be raised in the middle, where most labor resides.  There’s no lack of work for this critical middle cohort and no real lack of funding to do that work either.  America needs to take a page from the Chinese model and adopt American policies that will raise incomes successfully.  The American model is one of negotiation, as opposed to the Chinese one which is still predominantly a top down, command structure.  But the goal is the same:  Raise incomes across a broad swath of the labor market.  If that is accomplished, economies will improve top, bottom and middle.  The economic ‘pie’ will grow and all will benefit, not just a few.

A young friend of mine, a painter by trade, has had a tough time of it during this recession.  Jobs are scarce and intermittent.  The pay, even for someone with more than 15 years experience, rarely exceeds $15 per hour.

Recently however things got better for my friend.  He was hired by a firm contracted to paint as part of a $46 million construction project.  The job pays union level wages of $37 per hour.  The project will last through the summer.   As with most labor of this type, a career can be made stringing jobs together that taken individually are ‘temporary.’

This is a government funded project, spurred in part because interest rates are historically low and therefore the overall cost is low as well in terms of interest rates on the bonds issued to fund the project.

If the nation got off it’s political butt these types of projects could be done across America and could hire millions of unemployed, or underemployed, artisans like my friend.  Interest rates are still low and will remain low as long as millions of able bodies sit idle.   There’s never been a better interest rate climate for this type of spending.  Instead of waiting for the ‘laissez fairy’ to come to our rescue, we could turn the economy around on a dime by implementing a massive infrastructure program.

The economy would rebound immediately, and the long term benefits from modern infrastructures would insure a healthy economy for decades more.

But no.  Conservatives in the GOP recommend we instead contract and liquidate further labor and their incomes.

The New York Times reports that those who complain the most about government spending are often the ones who benefit the most from that spending.

LINDSTROM, Minn. — Ki Gulbranson owns a logo apparel shop, deals in jewelry on the side and referees youth soccer games. He makes about $39,000 a year and wants you to know that he does not need any help from the federal government.

He says that too many Americans lean on taxpayers rather than living within their means. He supports politicians who promise to cut government spending. In 2010, he printed T-shirts for the Tea Party campaign of a neighbor, Chip Cravaack, who ousted this region’s long-serving Democratic congressman.

Yet this year, as in each of the past three years, Mr. Gulbranson, 57, is counting on a payment of several thousand dollars from the federal government, a subsidy for working families called the earned-income tax credit. He has signed up his three school-age children to eat free breakfast and lunch at federal expense. And Medicare paid for his mother, 88, to have hip surgery twice…..

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year….

Beezer here.  The article is interesting, to say the least.  Our take is that much of this trend comes from an underlying trend where income for the majority of working Americans has failed to keep pace with inflation.  Real incomes, in other words, are declining for most working Americans, and have been doing so for several decades.  For the top 1 percent it’s been an entirely different story.  This top cohort has enjoyed large real income growth.  The top 1 percent of the top 1 percent, a very small group of people, have seen huge leaps in income growth–even compared to the others in the top 1 percent.   This kind of lopsided income distribution portrays a breakdown of immense proportions in our economy.  Our current recession is a direct result of this.   The cure is to hire people by the millions rebuilding the country’s infrastructures and to pay them living wages and benefits to do so.  In combination with progressive taxation to redress the income disparities, and organizing labor as a counteforce, the economy could rebalance and become much healthier and sustainable.

My past two posts have discussed the problem of income distribution where Capitalism is concerned:  Capitalism naturally funnels productivity gains and income up from labor to the owners of capital.

My observations have been that progressive tax tables, and strongly organized labor, are two techniques that can allow a counterforce to Capitalism’s natural tendency to pass income up the ladder.

But in today’s New York Times, tax lawyer David S. Miller suggests a wealth tax based upon unrealized capital gains.  This tax, Miller argues, is aimed at the very wealthy among the population and it goes right after a tax avoidance technique only the super rich use.

WHEN Facebook goes public later this year, Mark Zuckerberg plans to exercise stock options worth $5 billion of the $28 billion that his ownership stake will be worth. The $5 billion he will receive upon exercising those options will be treated as salary, and Mr. Zuckerberg will have a tax bill of more than $2 billion, quite possibly making him the largest taxpayer in history. He is expected to sell enough stock to pay his tax.

But how much income tax will Mr. Zuckerberg pay on the rest of his stock that he won’t immediately sell? He need not pay any. Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. That’s what Lawrence J. Ellison, the chief executive of Oracle, did. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world.

If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death.

Consider the case of Steven P. Jobs. After rejoining Apple in 1997, Mr. Jobs never sold a single Apple share for the rest of his life, and therefore never paid a penny of tax on the over $2 billion of Apple stock he held at his death. Now his widow can sell those shares without paying any income tax on the appreciation before his death. She would have to pay taxes only on the increase in value from the time of his death to the time of the sale.

Beezer here.  It’s an interesting concept, and it allows for refunds when the value of equities decline–a stimulus when times are bad in other words.  So put this idea on the table in addition to progressive taxation and strong labor unions.