Reality Checks of Conservative & Liberal Rhetoric

As an absolute independent (i.e. not democrat or republican) looking at things void of those "filters" I usually get people on both sides upset as they accuse me of being from the side they oppose. Anyway, here are a few reality checks irt often brought up rhetoric:

1) The mantra that "taxing the rich" kills job creation and, similarly, "tax breaks" create jobs.

Reality check- This one does have some truth to it but not nearly as much as some would have you believe. Yes, the rich do account for many job creations but it's nowhere near the levels that purveyors of this rhetoric proclaim when they infer "every dollar" kept by the wealthiest is used for job creation. Top tax rates would have to be MUCH higher iot impact reinvestment policies of an already successful businesses. Anyone with business experience will tell you that the most important factor when considering business expansion or hiring is demand. Regardless of any tax breaks/incentives that may be offered, a business will fail without demand "period".

However, the alternative options of stimulus packages for extended unemployment, state aid funds, etc, are no better. While they sound nice and actually "do" ease a painful downturn, they don't spur on meaningful, long term, job creation... Current and potential employers "see through" the temporary nature of stimulus packages and will not do any real expansion or long term job creation based on temporarily manipulated demand that has little long term impact.

2) Taxes, in general, prevent job creation by innovators/inventors.

Reality check- This one does have "some truth" to it but not nearly as much as some would have you believe. Top tax rates would have to be much higher iot have a "seriously dramatic" impact on already successful businesses reinvestment policies.

The vast majority of innovators/inventors are focused on the challenge of creating or improving something and aren't even thinking about "taxes" they may eventually pay. That's especially true on the young innovator side because taxes aren't even a concern to most young inventor/innovators. Microsoft, Apple, Google, Facebook, MySpace, Yahoo, etc. were started without worrying about what the tax code was and they created a whole lot of jobs...

3) Arguments that big oil tax break are necessary.

Reality check- The argument is so weak that people touting it consistently contradict themselves. They'll say: 1. "The dem's want to blame gas prices on oil co's but the oil co's margins are tiny so they're not responsible for high gas prices!

Then, during a different tirade, they'll say 2. "Look how expensive gasoline is...Can you believe the dem's want to take away oil co's incentives?...In who's world does that seem like it will help bring prices down?!"

Number 1 indicates they have practically no impact on pump prices while 2 indicates the exact opposite (contradictory). #1 is correct (they make little per gallon)., various taxes and fees push up prices (as well as demand obviously). #2 is a smokescreen in favor of "not removing" the tax breaks. Tax breaks/gov't incentives have a place in helping along various industries during specific conditions and for limited time periods. Things Oil co's haven't been in those conditions for a long time and some of them had even said (when oil was around $30/barrel) that there would be no reason for them to need tax incentives if oil was above $50/barrel...

It's also very disingenuous to hear petroleum lobyists & supporters say "we should take away tax breaks & incentives from everyone so we all have an EVEN playing field". That's like having a race to the 50th floor and saying "we should all have to use the stairs so we have an even playing field" (after having used the elevator to get to the 30th floor)...

Obama's "Bottom up" vs. "Top down" stimulus?

Realistically, it's just as easy to argue for bottom up as it is for top down. People like to argue both sides of but it's sort of like the chicken & the egg argument and in reality we need both.

Bottom Up- Stimulating the lower 90 percentile (where most people reside) generates spending which equates to demand. That demand influences co's to hire more people and increase expenditures on growth and innovation. This can work tremendously well under the right circumstances when people are spending any extra money you give them. However, it won't work very well, if at all, when people are saving too much of what they're given due to a lack of consumer confidence. When this occurs, demand doesn't pick up and most companies won't increase spending or hiring. This is where we are now and why the January bottom up stimulus doesn't look promising for creating a timely economic recovery. People are just going to keep the extra money they get as a rebate and in their paychecks... People will spend less of their 09' rebate checks than they did with their 08' rebates and that's not good (for the economy at least). Yes, it's good for people to increase their savings from a personal budget point of view but if we're ever going to repay our increasing debt obligations we need to increase revenue. That's done with an expanding economy and we need that sooner than later.

Top Dn- Stimulating the top with tax breaks, credits, etc. can encourage companies to invest in growth & innovation which can create jobs and thus generate income that can be spent in the economy. However, "most" companies won't make those expenditures when there's no visible demand from the bottom. Some companies do spend when things look a little bleak because they believe they'll be better prepared for the eventual recovery. Currently, fewer companies are willing to do this because they realize people aren't going to be spending as much and there's a fear that this recession could last longer than a typical one.

--> Unfortunately, the stimulus package passed in Jan had too much bottom up and not enough top down. You have to blame whichever party is in charge for this happening and right now that's the democrats (led by Pelosi). They really needed to add more top down stimulus to balance the package and make it successful but they allowed the political "axe to grind" politics get in the way of doing what was needed for America. The republicans have done similar "axe grinding" things in the past but with what's at stake it sure would've been nice to see "SOMEONE" be the bigger person... Is Pelosi "really" the best person that could be picked to be "the leader”…? Good grief

More economic fix thoughts

We could have fixed the economy already if:

the almost $1T already (in direct recapitalization and guarantees to financial co’s) had been spent on buying mortgages directly(at avg of .50 on dollar), lowered interest rates to 4%, wrote down mrtgs where necessary, and sat on those loans for the 5-10 yrs it would have taken to clear up the mkts.

The govt could have done this with 10yr bonds at an avg rate of 4% so the interest write down would cost them nothing.

The principal write down would most likely avg out to "a wash" between the mrtgs that turned out to be worth less or more than the .50 they were bought for.

Net-Net this would have been MUCH less expensive in the long run IMO but too many people refuse to be willing to do what they see as helping "others" when in fact it "helps them" (and everyone else) as well.

If someone wants to argue this idea by saying "we had to re-capitalize the banks" please realize that buying the mrtgs from banks "would" (in and of itself) be recapitalizing them (twice, in fact). Once with the money used to buy the mrtgs and once by the fact that removing those assets from their books means they don't need as much offsetting capital (re-capitalizing them by default).

The only reason a majority of people tend to think it would be a mistake for the Govt to buy MBS's is that those "avg Joe's" have no idea how the economics of the situation plays out and they are simply basing their opinions on visceral responses (emboldened by many in the media) to the thought of someone, other than themselves, getting help they "may" or "may-not" deserve.

To think otherwise about the reasoning of the so called overwhelming majority is to give those "avg Joes" (people who don't follow the markets or economics "at all") far, far too much credit. For Pete's sake, even some of the "masters of the universe" don't understand the economics of the past or current situation (that many of them played a part in)...

--> Original Economic fix post

-mydowntoearthblog.blogspot.com

Political Blame Games & Puppet Leaders

Some people want to blame the economy on the administration of the past 8yrs but that’s a fundamentally incorrect viewpoint. If people did some actual homework they’d learn that the root of this problem was spread through the yrs of Regan (too much deregulation), Clinton (requiring mrtg lending to non-credit worthy borrowers), and Bush (allowing excessive leverage). Obviously, financial companies and consumers played a key part of the problem as well (plenty of blame to go around). In actuality, a given President has less impact than the House/Senate in causing these problems but most people will always give credit (or assign blame) to the most recent President they’ve had.

IMO, it's really unfortunate that we have democratic parties at all. We'd be better off if we had no specific parties. That way we could get past all the preconceived notions associated with being labeled a "democrat" or "republican" and just let people concentrate on "the issues" rather than the tiring and old "partisan politics"...

It’s amazing that some people actually believe that if someone's a republican or democrat they will obviously perform exactly like all other R/D’s. One of the big reasons votes seem to be "aligned" on one side or the other is due to the political bartering going on behind the scenes that sways the vote of weak politicians who base their votes on political favors or re-election concerns rather than what they truly believe in. You have to realize that plenty of politicians feel equally split between many of the issues that "traditionally" defined people as liberal or conservative. Unfortunately, those people are forced to be associated with and "pick" (R) or (D) because they'd lose if they ran as independent...

We need actual compromising legislation and so far, the Pelosi led congress is doing anything but be bipartisan. Even my Father-in-law hates Pelosi and he’s one of those people I referred to who will only vote for someone if they’re in his party (democrat in his case). The majority rules idea also fails to support having elected officials in the first place. Why? Well, if that were the case we could just post all the legislation online and have secure internet votes using the concept of “majority rules”.

Sure, your elected official should agree with your viewpoints most of the time but there are times when they should go against the wishes of their constituents because those constituents don’t understand the topic and are basing their support on “gut feelings” more than facts. The first bailout is a perfect example. I’m not talking about the way it was executed, I’m talking about what it was “supposed to be for” at the time it was being discussed and voted on. Most Americans were against it purely because of their visceral response to what they perceived to be going on. The problem was that the issues were complex enough that the typical “avg Joe” didn’t understand the economic interconnections of “wall street” and “main street”. Actually, many congressmen don’t even understand those interconnections. In reality, most politicians are just “avg Joes” who’ve been elected to make politics their main job. Part of that job includes being more familiar with legislation than the typical avg Joe who’s too busy with their normal lives to keep up with all the legislation being voted on. A leader is someone who can vote “against” the majority when necessary. A puppet just does whatever the majority of their constituents want (even if it’s not the right decision). “Majority rules” is a concept that supports puppets. We need fewer puppets and more leaders who, when necessary, have the fortitude to make the tough decisions…
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mydowntoearthblog.blogspot.com
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Economic fix that should've been done months ago

Job loss is a by-product of the problem not "the problem". Here's an explanation of why, imo, removing the so called "toxic" assets (toxic due to an illiquid mkt) would stimulate the economy:

In a nutshell...
1. It would allow banks to stop accounting for those assets (this is, by default, bank recapitalization).
2. The actual money paid for the assets would be a direct recapitalization.
3. Private equity would invest once the question mark associated with those assets was gone (additional recapitalization).
4. 1-3 would enable the financial co's to provide huge amounts of lending capital to businesses & consumers. This would generate a lot of growth and, as a by-product, JOBS.
5. Those jobs cause increased consumer confidence and spending.
6. Increased spending causes increased demand which causes increased production, more jobs, and housing stabilization. This becomes a self feeding circle of recovery.
7. This recovery causes the "toxic" assets to rapidly become "non-toxic" and the gov't makes money on most of the assets it bought.

I believe we'd be in much better shape today if this had been done 5-6 months ago.

Regarding politicians: The same people demanding passage of a quick (an ok, but not perfect) stimulus plan should be demanding we buy those non-trading "toxic" assets for a "reasonable" price! A reasonable price should be one that is reasonably assumed to be correct with a certainty of 70-80 percent (i.e. paying an ok, but not perfect price). That price would probably be somewhere in the .50 range.

Do you agree? Disagree? Don't care and just hope we'll eventually crawl out from this problem?

P.S. I'm also in favor of 1. Mortgage modifications and 2. A Social Security stimulus that would basically give SS recipients 3yrs worth of check increases "up front" (as in now). They'd get their next check increase after this "advance" was accounted (approximately 3yrs from now). These two things could add “oomph” to the recovery process. The SS stimulus is practically no cost to the gov't because it's basically "an advance".

Economic Fix Part Two

(I oiginally wrote this months ago (before I used this blog) but the info is still pertinent.)

-mydowntoearthblog.blogspot.com