Stop George Bush

Policies

The Estate Tax

The right likes to call the Estate Tax a "death tax", because it is paid only when somebody dies.  However, I prefer to call it a "silver spoon tax" because it is paid only when somebody inherits.  How do avoid your heirs paying estate tax?  Easy: just leave an estate worth less than $600,000.  That's right, the first $600,000 of your estate is exempt from tax. Since most americans are not worth $600,000, that is the end of the discussion.  Most Americans will not benefit from reducing estate tax rates, because most Americans do not pay estate tax.

Except that some Americans are worth more than $600,000.  These people take care of their children while they are still alive, by making sure that they are housed and fed, get good medical care, and get good educations.  They frequently also plug their children into their networks of people they know.  Finally, there are mechanisms in place for passing property to children without going through the probate process.  This can be done through trusts, by making gifts while they are alive, by hiring them to do nominal jobs, and other means.  These people are priveledged, and they want the best for their children, which is fitting and proper.  But many times, these privileged people are actually not the best qualified for the jobs that they get.  Because they have lived a life that is isolated from some of the harsh realities of life, they themselves become soft and out of touch.  They then find themselves in decision making roles, and because they are unable to see beyond their own self interests, they make decisions that are bad for the rest of us.  For example, we do not know how well Mr. Bush did in college, because his grades are sealed.  But I can speculate: if he had done well in college, then he'd trumpet that fact.

What would be the effect of increasing the estate tax rate?  There are several advantages:

1. It tends to equalize wealth.  The wealthy pay more tax.  The poor tend to pay more tax.
2. Most people do not need an inheritance in order to live.  The inheritance is more like a windfall.   $600,000 is easily enough money for a single parent to raise a child and put them through college.  It probably is not enough money for an orphan, however, orphans get some money from Social Security and they get some support from the states.  Also, a lot of people have life insurance, which is another way to funnel money to children without going through probate.  So raising estate taxes really do not hurt.
3. The right argues that by taxing estates, it deprives the economy of working capital.  This is a specious argument.  What happens is that the money is pumped into the economy at a different point, driven by policies created by the political process.   For example, suppose it costs $100 to vaccinate a kid with all the shots they need.  I have no idea if this number is reasonable or not.  A $1M estate, taxed at 25%, will generate $100,000 in tax revenue (remember, $600,000 is exempt), which can be used to pay for a thousand such kids.   The heirs get $900,000 to spend as they see fit. By way of contrast, reducing the estate tax rate to 10% will generate only $40,000 which is enough to vaccinate only 400 kids.  Of the 600 kids not vacinated, it is likely that a couple of them will die of preventable diseases such as tetanus or polio.  Meanwhile, the heirs get $960,000.  The million dollars still winds up in the economy, but different people derive different benefits from it.
4. The right argues that inheritance taxes discourage family businesses and encourage corporations.  That might be true, but so what?  A parent might be a hard driven enterprenurial type, but the child might not be.  The advantage of corporate ownship is that there is a class of people, called executives, who are really good at running businesses.  An enterprenure can create a business and build it, and then sell it on his or her death, with the proceeds of the sale going to the heirs and the government.  The corporation can then operate the business, and fire the executive if they turn out to be incompetent.

A personal note

The Healthy Forests Initiative

American Energy Policy, such as it is

There are about 6 billion people on this planet, of which about 250 million are Americans (which is to say, citizens and resident aliens in the United States).  Or, about 4% of the  people on this planet.  Yet, the United States uses almost 25% of the world consumption of energy.  While it is true that large numbers of people use almost no energy other than cooking fires and animal transportation, does it have to be so disproportionate?

Obviously, the answer is no, it need not.  One need look to Europe, where clearly they have a comparable standard of living

Aggresive War

Philosophers make a distinction between a war of defense and a war of aggression.  This distinction goes back to the book of Deuteronomy.  In general, a war of aggression is characterized by an attempt by one nation to take over land or wealth from another nation.  It is not easy to characterize all wars: the American civil war did not really have an aggressor or a defender and both sides had aggressive moments and defensive moments.  The Vietnam war was a civil war, the only reason why the United States got involved was a geopolitical theory called the "domino theory" that suggested that communism would take over the world, country by country.  The south was said to be democratic (actually, a privileged elite had seized power and become corrupt), so the United States came to their aid.  The south and the United States lost the war and today Vietnam has a thriving capitalist economy.

However, some wars are easy to characterize.  King David invaded Syria and expanded Israel all the way to the Euphradis river.  David was Israels greatest king in terms of his abilities as a warrior, but because he fought aggresive wars, his son Solomon was the man who built the first temple.  World War II was an attampt by Germany and Japan to  expand into Europe and Asia, respectively.  Every war starts with a single attack, and the naive historian would conclude that whoever launched the first attack would be the aggressor.  Many times, this is correct (Japan's attack on Pearl Harbor, Germany's attack on Poland).  But sometimes, a country will launch a preemptive strike even though it is the defender.  In the 1967 6 day war, Israel fired the first shot, blowing up the Egyptian air force on the ground.  In the 1973 Yom Kippur war, to make sure everybody knew who the aggressor was, Israel let the arab countries attack first.

The United States has fought wars of aggression.  The Indian wars of the 19th Century were shameless wars of aggression.  The United States essentially displaced an indiginous people.  The United States fought a war of aggresion against Spain in 1898.  Germany declared war on the United States in 1917 and again in 1941.  Because the world turns to the east, Britain, our steadfast ally, declared war on Japan hours before we did after the attack on Pearl harbor.  The United States has not made a formal declaration of war since December 8th, 1941.  However, we have fought several bitter wars including Korea and Vietnam.  Ever since world war II, American defense policy has been that the United States will use its strength only to fight defensive wars.  Thus, in the 1980s, the United States invested heavily in nuclear cruise missiles and the Peacekeeper land based ICBM system, so that we would have a credible "second strike" capability.  The theory was that the United States would be able to survive a nuclear attack and retaliate after the smoke cleared.

However, FINISH THIS

The Perfect (Economic) Storm

Every once in while, weather circumstances come together to make a perfect storm, which is to say, a storm that is as violent as a storm can be.  Sometimes, conditions occur in economics that yield the same result: a perfect storm where the economy is as dismal as an economy can be.  Could that be happening now?

Some elementary economic theory

In economic theory, there are generally two directions an economy can run.  It can be inflationary (where prices and wages tend to go up) and it can be deflationary (where prices and wages tend to go down).   One way to think about this is that there are only so many goods and services out there; but the amount of money out there can increase or decrease.  If there is too much money, then the value of the money goes down, and if there is not enough money, then the value of the money goes up.

Inflation

The problem with inflation is that it tends to discourage investment, because the money that the investment will be paid back with will be worth less than the money used to make the investment.   The nice thing about inflation is that it tends to encourage people to spend money now because if they wait, the thing they want to buy will be more expensive.  If people spend money, then the economy tends to work better.  This is a very important point.  If the rate of inflation is low, say, not more than 1 or 2 percent, this is not a big deal.  However, if inflation becomes large, then that causes a great hardship on people who are on fixed incomes (including people with labor contracts). Their costs increase, but their incomes do not increase.

Deflation

The opposite of inflation is deflation.  While a low rate of inflation is acceptable, deflation is a disaster. The problem with deflation is that since prices are going down, people tend to wait to buy, because the thing they want will be cheaper later.  However, the economy works only if people buy things.  Most things that people buy, they don't really need.  You don't really need to buy a new car every year.   So, during deflation, instead of buying a car now, you can keep the car you have and buy a new one in a year.  The reason why this is a disaster is because if people do not buy cars, then the people who make cars will be out of work.  Then, the people who are in a position to buy a car will look at the rising unemployment rate and thing "Gee, I might lose my job soon, so maybe I should hold off buying this new car".  Deflation is A Good Thing if you have money.  But it is not a good thing if you own property, including stocks.  And it can be disasterous if you have money in the bank.  

Consider: a young couple buys a house for $200,000, putting 10% down ($20,000) and getting a mortgage for the other $180,000.  After a year, the balance on the mortgage is $178,000.  But suppose that deflation sets in, and lots of people start losing their jobs.  It becomes a buyer's market, and home prices drop like a stone.  After two years, the house has lost 20% of its values (In Seattle, housing prices have been going up at about 10% a year for years, so it is reasonable to assume that housing prices can go down that fast, too).  So the house is now worth $160,000.  Our couple loses their jobs and can't make payments.  The bank reposes the home.  But... the home is worth less than the balance of the mortgage, so the bank eats $18,000.  Now, if this happens once or twice, it is not a big deal, but if it becomes common, then it is a big deal.  What would cause this to become common?

Technology

One of the unanticipated consequences of The Internet is that jobs need no longer be done in a certain place.  When I first started thinking about the economic impact of the internet, I thought in terms of how people could work from home, or they could work from an office near their home.  I thought that The Internet would be a disaster for places like Manhattan in New York City, because it would be possible and cheaper to do the same work in New Jersey, Conneticutt, Vermont, and New Hampshire.  New Dehli was not on my radar, and it should have been.  There is lots of white collar work that can be done from anywhere, so why do it in the United States when you can do it overseas for much less.  Incidentally, a lot of blue collar work can also be farmed out with the appropriate technology - my favorite example is crane operator.  This trend is aimed - squarely - at the college-educated middle class.  Engineers, some technicians, clerks, computer programmers (ain't that ironic?), some machinery operators are all at risk.  Physicians and lawyers are not at risk (Lawyers make the rules, and I am sure they are working on legislation that says that to be a lawyer, you have to live in the jurisdiction you are practicing in, or something like that).

The perfect storm, finally

However, it gets worse.  The circumstance that causes inflation is when the federal government spends more money than it takes in in taxes.  The federal government can print money (and it can create money using computers, thus throwing a bunch of printers out of work).  When the government spends more than it makes, then more dollars go chasing after the same amount of goods and services.  So each dollar becomes worth less, which means that things cost more.

So there you have the perfect storm.  The United States government is fighting a very expensive war of aggression in Iraq and Afghanistan.  The American people become cynical about the government: they don't trust it and they won't do what the government suggests.  Meanwhile, the government is reducing the estate tax rate, which helps rich people but drives the government into a deeper deficit.  The deficit, in turn, causes inflation, which causes prices and wages to rise.  Meanwhile, the technology trends cause increasing unemployment.  Rising unemployment cuts tax revenues (because the unemployed don't make money, which creates income tax revenue, and the don't buy things, which creates sales tax revenue), which worsens the deficit.  But that's not the perfect storm, not yet anyway.

The United States is a debtor nation, which means that people in other countries invest in the United States.  The reason why they invest here is because the US, for all of its warts and foibles, is still a stable country with wise leadership and a healthy balance between changing too radically and not changing at all.  We have a reasonably just system of justice, and a reasonably responsive government.  The foreign investors have confidence that the money they invest here will be returned to them, with interest.  However, if there is perception overseas that the United States government takes foolish, expensive, risks, then they will stop investing in the United States.  Remember the run on the bank in the movie Mary Poppins?  It will be just like that, only bigger.  Much bigger.  That, then, is the perfect storm: an expensive war and regressive tax policies create a deficit which causes rising prices.  Meanwhile, technology changes, higher prices, and a government that doesn't care creates rising unemployment and cynicism, which in turn means that anything that the government doesn't require people to do, they won't do.  Finally, there is a lack of capital to invest in the country and work our way out of this mess.

I have children, neices, a nephew, and a grandchild.  I am deeply concerned for their future.  In all likelihood, the decisions we make (or avoid making) now will have a vast impact on their future.

George Bush is a Coward

George Bush is a coward.

George Bush grew up during the Vietnam era. So did Senator Kerry. Kerry served in Vietnam. While there is controversy whether he should have got 2 medals or 3, by way of comparison, George Bush served in
Alabama.

George Bush should show his courage by the following:

1. Start debating the actual issues.
   1. Our health care system doesn't work very well. It costs too much (in terms of percentage of GNP devoted to health care), it doesn't work very well (in terms of health care outcomes), it isn't very fair (wealthy people have much better health outcomes), and a lot of it doesn't make sense (e.g. we spend more money on antidepressants than we do on drugs for TB).
   2. Disparity of wealth appears to be increasing This is A Bad Thing, because it will lead to a two-class nation, which will probably have widespread social unrest.
   3. Our reliance on fossil fuels is bad for our planet. Unfortunately, there are few fuels which are as efficient in terms of energy per unit mass or energy per unit volume as carbon compounds. However, research and development should be funded to develop alternatives.
2. Stop dredging up ancient history. Senator Kerry voted with the government on the war resolution because he was misled by bad intelligence. That intelligence came from the executive branch of the government. The president is responsible for the gathering of intelligence.
3. Fund research. All over the executive branch, the president has been cutting budgets for reserach. Part of the reason for these cuts is that the government is running a deficit, but another reason is that a lot of the researchers are developing information that our current practices are bad news! We are discovering that global warming is getting worse and it will require substantial changes in infrastructure to reverse the problem. The "Healthy Forests Initiative" is not economically viable. America needs to do more research on computer technology, and this research should be open, not for the profit of private companies.

   The president doesn't have the courage (or the brains) to argue with the best thinking of science.