There's one other point that needs to be made about any income inequality studies where the US is compared to, say, Europe. In putitng together the comparative statistics, the normal methodology is to include in the European statistics the impacts of broad-based welfare safety nets, but to exclude from US statistics the impacts of our more focused means-based programs. So, the Swedish data would typically include payments from their social welfare programs, while the US stats would exclude the impact of food stamps/WIC, Medicare, or any other of our programs that are handled on a case-by-case basis (as almost all are). That's a perfectly reasonable approach to take from an abstract methodological standpoint, but it is not without its impact upon comparative results.

Also, if the studies are done on an after-tax basis, they tyipically exclude the impacts of consumption taxes (which supposedly fall most heavily on lower incomes) and therefore the European systems will look far more favorable for lower incomes than is actually the fact.

I don't know whether that's the case for the data in this article, since the authors were pretty stingy with explanations of methodology and assumptions. But that would be the default case, and in analyzing any US-European comparison it should be made clear how these issues are handled, and the results discounted accordingly.

I'm a big believer that we should go with a more broad-based social welfare safety net, like Europe, and that we could pay for a lot of it by eliminating a lot of the high-priced administrators that our system necessarily employs as gate-keepers. In return, also like Europe, I'd pay for it with lower tax rates applied over a broader tax base. In particular, I would make significant use of a consumption tax. I have no problem telling everyone--rich and poor--that we're going to have a system that benefits every one of them, instead of just the specifically-favored few (usually special interests of one sort or another), and in return we're going to expect everyone to pay for it. I'm not advocating that just because it would make us look far better in comparative studies, but that is not an altogether unworthy objective.

(10-09-2010 12:02 PM)emmiesix Wrote:  I do buy that massive inequality drives resentment and hostility, and frequently begets crime/fraud, etc. It's not good for society. When you can bring up the living conditions of many by reducing the wealth of a few (say from extreme to moderately so), I think that is a worthy end.

I am not trying to put words in your mouth, but when I read this my initial raction was... so what amounts to envy creates resentment and hostility and frequently crime... and the solution is to effectively pay one group of people more than their labors are worth by paying another group of people less than their labors are worth... nobody would/should resent that?? I don't want people to starve... but I note that there are illegal immigrants in this country working for minimum wage who can afford to clothe and feed themselves and still send money home to clothe and feed their families for years. Maybe the problem isn't so much the wage, but the level of expectation??

Quote: Pretend you can play god - would you reduce the United Health CEO's salary and give working parents at minimum wage a raise? I would.

But herein lies the rub. When you raise taxes ion "the top 2%", you aren't raising it on the UHC CEO and his ilk alone, but on people making a miniscule fraction of what he makes. You have people making 25-50mm/year subject to the same rules as people making 250k... and to make matters worse... the guy making 25mm can afford to take ZERO in income next year and still live quite well, while the guy making 250k can't. Trust me, I'm resentful as HELL that John Kerry can not only afford ten times the boat I can, but can save enough in property tax by mooring it out of state to afford to hire a captain to live on it and bring it to him whenever he wants... If you want to raise taxes on the rich, then you need to create a dozen more brackets. Even when Obama says, at some point I think you've made enough... I CERTAINLY hope he doesn't think that is 250k/yr??

(10-10-2010 11:04 PM)emmiesix Wrote:  Now as to this particular paper, I agree the methodology seems lacking, and this may ultimately lessen the impact of the study. I don't think it invalidates the result.

Any time an economics paper claims to have a result, you should question it... not saying they did... just pointing out that this isn't a result... merely an interpretation... If economics had results, then we could more accurately say... do this, and the economy will grow at x%

(10-09-2010 12:02 PM)emmiesix Wrote:  Pretend you can play god - would you reduce the United Health CEO's salary and give working parents at minimum wage a raise? I would.

Absolutely not.

Because you start doing that, and that CEO is going to decide that he'd rather be CEO somewhere that the taxing authorities aren't out to steal your money. Maybe not specifically the United Health CEO, since his business demands to be located close to sick people. But CEOs whose businesses can be moved will move, and I don't know how you single out the United Health CEO without impacting all CEO's. If those CEO's leave, with them will go jobs. And once that happens, those minimum wage working parents that you started out trying to help will be worse off. That's what's been happening here for 50 years.

Policy analyses that come from the left tend to prefer static analysis--meaning that no reaction to any change in policy is assumed. In reality, people almost always react. Those reactions are not always rational, and thus they can be hard to predict. That's the classic argument against dynamic analysis--in which the impact is adjusted to reflect expected responses. But I would argue that the dynamic analysis has a chance to be right; static analysis doesn't. Here the static analysis may suggest that it's a good thing--those minimum wage earners are better off and the CEO is not that much off. But when the CEO has had enough and pulls up stakes, dynamic analysis says that it's the very person you started out trying to help who is worse off.

This Friday at 9:00 central on either Fox News or Fox Business chanell, John Stoessel with present a show that speaks to this issue. Stoessel is a Libertarian who presents the facts in a very Freakonomics-type way, with interviews of proponents of both sides of an issue. Whether you are prejudiced against or for Fox, I think it would be an interesting take on this topic.

(10-12-2010 09:42 PM)Owl 69/70/75 Wrote:  

(10-09-2010 12:02 PM)emmiesix Wrote:  Pretend you can play god - would you reduce the United Health CEO's salary and give working parents at minimum wage a raise? I would.

Absolutely not.

Because you start doing that, and that CEO is going to decide that he'd rather be CEO somewhere that the taxing authorities aren't out to steal your money. Maybe not specifically the United Health CEO, since his business demands to be located close to sick people. But CEOs whose businesses can be moved will move, and I don't know how you single out the United Health CEO without impacting all CEO's. If those CEO's leave, with them will go jobs. And once that happens, those minimum wage working parents that you started out trying to help will be worse off. That's what's been happening here for 50 years.

I don't buy this argument for 10 seconds. It's the "I'll take my ball and go home" threat that is never backed up. How many thousands of MBA students do we graduate yearly? How many upper-middle managers that could take that CEO position? You're telling me either A) NONE of them can run a company or B) ALL of them will say "You know, screw that $300k, I'm going to Dubai". Well sorry, at some point, there won't be enough jobs in Dubai. Someone has to take them here. With all the companies worried about profitability, I think cutting executive pay ought to be an obvious place to start. And don't tell me these people have some mystical set of "skills" that no one else does. What, did they go to secret CEO-ninja school? Where's the reality show dedicated to showing off how amazing they are? How come these amazing rare people capable of being CEOs (so rare they have to be paid 50x the lowest wage earner in their company) can't seem to get the economy on track? OR is their skill set really somewhere else - perhaps, maintaining personal wealth and deluding the nation into thinking they're worth the money?

(10-12-2010 09:42 PM)Owl 69/70/75 Wrote:  Policy analyses that come from the left tend to prefer static analysis--meaning that no reaction to any change in policy is assumed. In reality, people almost always react. Those reactions are not always rational, and thus they can be hard to predict.

I agree with this part. It's what makes all of this difficult, of course.

(10-14-2010 01:51 PM)emmiesix Wrote:  I don't buy this argument for 10 seconds. It's the "I'll take my ball and go home" threat that is never backed up. How many thousands of MBA students do we graduate yearly? How many upper-middle managers that could take that CEO position? You're telling me either A) NONE of them can run a company or B) ALL of them will say "You know, screw that $300k, I'm going to Dubai". Well sorry, at some point, there won't be enough jobs in Dubai. Someone has to take them here. With all the companies worried about profitability, I think cutting executive pay ought to be an obvious place to start. And don't tell me these people have some mystical set of "skills" that no one else does. What, did they go to secret CEO-ninja school? Where's the reality show dedicated to showing off how amazing they are? How come these amazing rare people capable of being CEOs (so rare they have to be paid 50x the lowest wage earner in their company) can't seem to get the economy on track? OR is their skill set really somewhere else - perhaps, maintaining personal wealth and deluding the nation into thinking they're worth the money?

I think this happens every time you see a company move their headquarters, or "staff up" at an overseas division. As far as profitability is concerned... the Stock market is actually doing pretty well... because the CEO of GE (or whatever) isn't really worried about the US economy. He's worried about GE's economy. Based on the stock price, I'd say he's doing MUCH better than Congress.

I don't generally disagree with your contention that some of these people are paid a king's ransom... BUT... I'd point out that MUCH of executive compensation is actually tied to performance... and often the performance of the stock specifically. Is it a stretch to say that the CEO contributes 50 times (and I realize it's actually many times 50) what the janitor contributes to corporate profitability? Not saying that is the metric... but it certainly COULD be. They make 25mm because they took 2/3rds of their income in stock and made the company $2byn. I mean, compare that to a baseball player or movie star. Do they go to secret Ninja "star" school??

I know I sound like I'm arguing with you and I apologize... I agree a LITTLE bit with what you're saying... but I can't seem to find a reasonable way to get behind some sort of arbitrary cut-off point. If the BOD of GE thinks their CEO is worth $25mm, and there's some guy who would do just as well for 20, or 15, or 5 or 500k... then they can submit their resume... Right off the bat, they'd be saving the company tens of millions.

Emmie,

It may surprise you, but I really don't disagree with any of the argument you made. What may surprise you further is that it doesn't change my position a bit. How can that be? The arguments you made don't refute the point I was making. Perhaps I assumed you had read more of what I've posted in other threads, and understood the context in which I meant it, so I should probably elaborate.

The US is just about the best place in the world to be a CEO, precisely because we allow the excesses that you describe to occur here. Other places don't put up with it. We should not either, as far as I'm concerned.

The problem is that the US is no longer the best place in the world to operate a business. It was when my parents (your grandparents, I presume) were running things, and it was when my generation was growing up. It's not any more, and that's a huge change. There are several different evaluations, most prepared annually, of the best places in the world to do business. We used to be #1 in all of them. We're not any more. We've fallen out of the top 10 in some, and we're dropping about 1-2 places per year in almost every one. Look at most any multinational headquartered in the US, and it would have greater shareholder value if it were located elsewhere. Our tax policies and our legal and regulatory system are the big detriments, but things like quality of primary education and infrastructure also contribute.

So, we have the situation where some CEO's are keeping companies here, against the best interests of the shareholders they are supposed to serve, in order to keep their own perks and hijinks going. I agree with removing the wretched excesses, but if you do that without fixing the structural problems that penalize businesses for staying here, then ALL of the incentives will favor leaving. In that situation, I'm quite certain that a huge hunk of them (my best guess, 200-300 of the Fortune 500, for starters) would leave. Whether it's the existing CEO's or the whiz kid MBA's calling the shots, the realities are the same. I'm guessing the whiz kid MBA's would actually be more disposed to leave than some of the older CEO's. So it's not a case of going to Dubai to take a job, it's a case of moving my job to Dubai--and my company (and thousands of other jobs) with me.

If my company is penalized hundreds of millions a year by staying in the US, but staying in the US allows me to keep my multimillion dollar bonus plan that wouldn't fly overseas, and if I put myself ahead of my shareholders (and an alarming number do), then my company and I are staying here. That's why the mad rush that you dismiss has never occurred. But change things up, so that it's still bad for my company, but it's no longer good for me, and that alters the decision process substantially. We haven't seen that happen yet, but we are getting alarmingly close. Watch how the economic recovery proceeds. The longer we lag behind places like Germany, the more that supports the point I'm making here. My own expectation is that we aren't pulling out of this until 2020, if ever.

What needs to happen is that we need to curtail the CEO hijinks (on which point we agree) at the same time as we remove the disincentives for the companies (on which point you may not agree). That's the only way that we are going to bring jobs back. The world is a smaller place and we have to compete for things that we considered our birthright a generation ago. Pretending that we can remain uncompetitive and still prosperous is kidding ourselves. Look at the steady stream of jobs overseas since the 1960s (and note that with that start date, it surely was not NAFTA or the "Bush tax cuts" that caused it).

You may disagree with this analysis. If so, I'd be interested in knowing whether your disagreement arises out of disagreement with the factual situation that I describe, or out of a feeling that even the facts are true you don't agree with the conclusion. Are any disagreements philosophical or factual?

As for your comment about static/dynamic analysis, I assume you cherry-picked the part you agree with and that you disagree with me regarding the rest. Tell me, what do you think we SHOULD do about the issue.

Who has more to do with the success or failure of a movie, the director or a limo driver? who has more to do with the success of a baseball team, the manager or the waterboy? Who has more to do with the success of any enterprise, the leader or the follower? There is a reason why the pyramid gets smaller at the top, and that compensation increases as you go higher.

If the CEO can be replaced by just any MBA, then i guess it follows that a general can be replaced by any West Point grad on the day of graduation.

CEOs, like generals, managers, and directors, have survived and proven themselves over a period of time by their performances. Generally speaking, the best rise to the top, the lesser ones don't.

Do they deserve a given multiple of what a janitor makes? I don't know. I certainly don't know which multiple it should be, or why that is the golden nyumber. I am still trying to figure out why some actors are worth $20mm/picture while the limo driver makes much less, even at union wages. I am still trying to find out why some football players are worth seven or eight figure salaries, when high school coaches make make less. Maybe we should take the money from the players and give it to the coaches.

All I come up with is scarcity. A scarcity of those who can do and have proved it. I am one of those millions of MBAs, so if you are going to run all those silly achievers out of office and need just any old guy with an MBA, call me.

But please, please, don't replace the generals with second lieutenants.

(10-14-2010 03:56 PM)Owl 69/70/75 Wrote:  Emmie,

It may surprise you, but I really don't disagree with any of the argument you made. What may surprise you further is that it doesn't change my position a bit. How can that be? The arguments you made don't refute the point I was making. Perhaps I assumed you had read more of what I've posted in other threads, and understood the context in which I meant it, so I should probably elaborate.

The US is just about the best place in the world to be a CEO, precisely because we allow the excesses that you describe to occur here. Other places don't put up with it. We should not either, as far as I'm concerned.

The problem is that the US is no longer the best place in the world to operate a business. It was when my parents (your grandparents, I presume) were running things, and it was when my generation was growing up. It's not any more, and that's a huge change. There are several different evaluations, most prepared annually, of the best places in the world to do business. We used to be #1 in all of them. We're not any more. We've fallen out of the top 10 in some, and we're dropping about 1-2 places per year in almost every one. Look at most any multinational headquartered in the US, and it would have greater shareholder value if it were located elsewhere. Our tax policies and our legal and regulatory system are the big detriments, but things like quality of primary education and infrastructure also contribute.

So, we have the situation where some CEO's are keeping companies here, against the best interests of the shareholders they are supposed to serve, in order to keep their own perks and hijinks going. I agree with removing the wretched excesses, but if you do that without fixing the structural problems that penalize businesses for staying here, then ALL of the incentives will favor leaving. In that situation, I'm quite certain that a huge hunk of them (my best guess, 200-300 of the Fortune 500, for starters) would leave. Whether it's the existing CEO's or the whiz kid MBA's calling the shots, the realities are the same. I'm guessing the whiz kid MBA's would actually be more disposed to leave than some of the older CEO's. So it's not a case of going to Dubai to take a job, it's a case of moving my job to Dubai--and my company (and thousands of other jobs) with me.

If my company is penalized hundreds of millions a year by staying in the US, but staying in the US allows me to keep my multimillion dollar bonus plan that wouldn't fly overseas, and if I put myself ahead of my shareholders (and an alarming number do), then my company and I are staying here. That's why the mad rush that you dismiss has never occurred. But change things up, so that it's still bad for my company, but it's no longer good for me, and that alters the decision process substantially. We haven't seen that happen yet, but we are getting alarmingly close. Watch how the economic recovery proceeds. The longer we lag behind places like Germany, the more that supports the point I'm making here. My own expectation is that we aren't pulling out of this until 2020, if ever.

Well, here is where I will perhaps surprise you and say what you say here makes sense. I don't claim to have the experience and insights that you all do (part of the attraction of arguing here), but I can see that this argument works in explaining the movement of companies. However, I don't know if I agree that the end result is a wrecked economy. Supposed Toilet-seats-are-us is a company that moves to Taiwan. What is to stop a new company from starting here to fill that gap? Or several smaller ones? Do you really think that a regulatory or legislative decision can really make Taiwan > US, such that NO business enterprise can exist here making that same thing? If so, then the economy is a lot simpler than I thought. I would tariff the hell out of Taiwanese toilet seats.

(10-14-2010 03:56 PM)Owl 69/70/75 Wrote:  What needs to happen is that we need to curtail the CEO hijinks (on which point we agree) at the same time as we remove the disincentives for the companies (on which point you may not agree). That's the only way that we are going to bring jobs back. The world is a smaller place and we have to compete for things that we considered our birthright a generation ago. Pretending that we can remain uncompetitive and still prosperous is kidding ourselves. Look at the steady stream of jobs overseas since the 1960s (and note that with that start date, it surely was not NAFTA or the "Bush tax cuts" that caused it).

You may disagree with this analysis. If so, I'd be interested in knowing whether your disagreement arises out of disagreement with the factual situation that I describe, or out of a feeling that even the facts are true you don't agree with the conclusion. Are any disagreements philosophical or factual?

As for your comment about static/dynamic analysis, I assume you cherry-picked the part you agree with and that you disagree with me regarding the rest. Tell me, what do you think we SHOULD do about the issue.

I agree we don't want companies to move, and there may be some that do if the environment favors it. I am still trying to learn about the various options we have. Unfortunately I do favor making it "harder to do business here" if you mean real (economic and jail) penalties for corporations that break laws or cause "negative externalities". If these companies move to another country where they can exploit and pollute and generally run amok, I say good riddance. Start a national sense of responsibility in where you buy - buy from local companies. Of course that would require us to run counter to the ridiculous levels of consumerism in this country. Or you can wait for those countries to come up to our standards and also say enough is enough. Or tariffs.

We are running up on 7 billion people on this planet, and to me it seems that maintaining the world-wide split in wealth is becoming harder to do without actively working to keep most of the poor, poor. Otherwise you have to submit to a scenario where there is equalization - and we (the rich end) will take a big hit. I'm not looking forward to it, but it seems inevitable.

(10-14-2010 03:55 PM)Hambone10 Wrote:  I don't generally disagree with your contention that some of these people are paid a king's ransom... BUT... I'd point out that MUCH of executive compensation is actually tied to performance... and often the performance of the stock specifically. Is it a stretch to say that the CEO contributes 50 times (and I realize it's actually many times 50) what the janitor contributes to corporate profitability? Not saying that is the metric... but it certainly COULD be. They make 25mm because they took 2/3rds of their income in stock and made the company $2byn. I mean, compare that to a baseball player or movie star. Do they go to secret Ninja "star" school??

I know I sound like I'm arguing with you and I apologize... I agree a LITTLE bit with what you're saying... but I can't seem to find a reasonable way to get behind some sort of arbitrary cut-off point. If the BOD of GE thinks their CEO is worth $25mm, and there's some guy who would do just as well for 20, or 15, or 5 or 500k... then they can submit their resume... Right off the bat, they'd be saving the company tens of millions.

The problem I have with the "tied to performance" bit is twofold: 1) the "golden parachute" system seems to make it a null point (NONE of these guys are going homeless after they get fired) and 2) tying pay to the stock price may seem reasonable, but it encourages the kind of extreme short-term thinking that seems to cause us major problems, and also encourages unethical behavior even more (pay a $100,000 fine for a transaction that nets $10 Mil? done.)

I agree "how" to do it, which is not something to be glossed over, is difficult. Does it make sense to tax it at a greater and greater level? perhaps, but then that money goes to the gov't. Do we put strict caps in place? At what price? Does it move as time passes? I don't have a good answer, honestly.

(10-15-2010 08:34 AM)emmiesix Wrote:  

(10-14-2010 03:55 PM)Hambone10 Wrote:  I don't generally disagree with your contention that some of these people are paid a king's ransom... BUT... I'd point out that MUCH of executive compensation is actually tied to performance... and often the performance of the stock specifically. Is it a stretch to say that the CEO contributes 50 times (and I realize it's actually many times 50) what the janitor contributes to corporate profitability? Not saying that is the metric... but it certainly COULD be. They make 25mm because they took 2/3rds of their income in stock and made the company $2byn. I mean, compare that to a baseball player or movie star. Do they go to secret Ninja "star" school??

I know I sound like I'm arguing with you and I apologize... I agree a LITTLE bit with what you're saying... but I can't seem to find a reasonable way to get behind some sort of arbitrary cut-off point. If the BOD of GE thinks their CEO is worth $25mm, and there's some guy who would do just as well for 20, or 15, or 5 or 500k... then they can submit their resume... Right off the bat, they'd be saving the company tens of millions.

The problem I have with the "tied to performance" bit is twofold: 1) the "golden parachute" system seems to make it a null point (NONE of these guys are going homeless after they get fired) and 2) tying pay to the stock price may seem reasonable, but it encourages the kind of extreme short-term thinking that seems to cause us major problems, and also encourages unethical behavior even more (pay a $100,000 fine for a transaction that nets $10 Mil? done.)

I agree "how" to do it, which is not something to be glossed over, is difficult. Does it make sense to tax it at a greater and greater level? perhaps, but then that money goes to the gov't. Do we put strict caps in place? At what price? Does it move as time passes? I don't have a good answer, honestly.

Aren't even things like coaches salaries tied to performance?? Most salesmen are tied to performance. It's a toughie, I agree. The problem always is, if you tell people...do "this" and you get "x", they'll likely do "this". There are just so many things that could be put on that list that you can't envision. It's exactly what happened with the sub-prime securities. Do this, and you get a AAA. And then we're surprised when they do it, but do it in a way that you didn't expect and is ultimately harmful (either intentionally or not).

To the point you're making with Owl... what is stopping that now?? What I mean is, while we can certainly understand that Wal mart can buy 1mm calculators cheaper than Droomgool's can buy 500... Target can certainly buy 1mm calculators. So if they did exactly what you suggested... and paid their lower workers a little more and higher workers a lot less... and maybe gave their customers back a few pennies on every sale, couldn't they conceivably still outperform Wal-Mart to their board and shareholder's delight, get the BEST employees for the money and "force" Wal-Mart to change to keep up???

i'm not saying i'd do this, but a nation could certainly make it extremely uncomfortable and uneconomic for a US citizen to follow his job abroad if it is outsourced to another country.

(10-15-2010 08:24 AM)emmiesix Wrote:  Supposed Toilet-seats-are-us is a company that moves to Taiwan. What is to stop a new company from starting here to fill that gap? Or several smaller ones? Do you really think that a regulatory or legislative decision can really make Taiwan > US, such that NO business enterprise can exist here making that same thing? If so, then the economy is a lot simpler than I thought. I would tariff the hell out of Taiwanese toilet seats.

This is called protectionism. It has been tried before.

So Toilet-seats-are-us decides that the company can make seats in Taiwan for $10 less than they can in California, and they move. Their competitor, Soft-sit, stays in California but starts losing business to TSAU. They complain to Senator Emmie, who says, we can't have that. Let's put a $20/seat tariff on seats from Taiwan. Who wins?

Not the buyers of the seats, which includes all the lower income people you profess to be trying to help. Yay. They get to pay extra.

In this particular scenario, soft-sit would not only be protected, but they would raise their prices about $10/seat, as they can do that and still beat the competition.

(10-15-2010 08:24 AM)emmiesix Wrote:  I agree we don't want companies to move, and there may be some that do if the environment favors it. I am still trying to learn about the various options we have. Unfortunately I do favor making it "harder to do business here" if you mean real (economic and jail) penalties for corporations that break laws or cause "negative externalities". If these companies move to another country where they can exploit and pollute and generally run amok, I say good riddance. Start a national sense of responsibility in where you buy - buy from local companies. Of course that would require us to run counter to the ridiculous levels of consumerism in this country. Or you can wait for those countries to come up to our standards and also say enough is enough. Or tariffs.

We are running up on 7 billion people on this planet, and to me it seems that maintaining the world-wide split in wealth is becoming harder to do without actively working to keep most of the poor, poor. Otherwise you have to submit to a scenario where there is equalization - and we (the rich end) will take a big hit. I'm not looking forward to it, but it seems inevitable.

You are working from a stereotype when you say exploit and pollute and generally run amok. Sure like most stereotypes, there are a few that fit the frame, and like most stereotypes again, most don't.

One man's exploitation is another man's Godsend. For the cost of one union worker in Detroit, maybe six families in Guatamala get a big bump in their standard of living. Are they exploited because they make less than the Detroit guy? They will fight you vigorously to keep on being exploited. If your frame of reference stops at the US border, fight for that Detroit guy's job. But it encompasses the whole world, all humanity, then just a minute....

Maintaining the world-wide split in wealth is a myth. Wealth is creatable - don't treat it a limited resource that must be distributed in some intellectually pleasing way. How much wealth was in the world 300 years ago? We had many less people, and most of them were poorer than the average human being now. Where did all this extra wealth come from?

(10-15-2010 08:24 AM)emmiesix Wrote:  Well, here is where I will perhaps surprise you and say what you say here makes sense. I don't claim to have the experience and insights that you all do (part of the attraction of arguing here), but I can see that this argument works in explaining the movement of companies. However, I don't know if I agree that the end result is a wrecked economy. Supposed Toilet-seats-are-us is a company that moves to Taiwan. What is to stop a new company from starting here to fill that gap? Or several smaller ones? Do you really think that a regulatory or legislative decision can really make Taiwan > US, such that NO business enterprise can exist here making that same thing? If so, then the economy is a lot simpler than I thought. I would tariff the hell out of Taiwanese toilet seats.

The answer depends a bit on the phrasing of your question. I don't think that ONE regulatory or legislative decision can make Taiwan that much more desirable than the US, but a whole bunch of them can. And we've been inching up on that for a while. At some point--and here's the trick, I don't know when we reach that point, but if current trends remain unabated then eventually we will--the collective weight of everything we've done will lead to precisely the situation you describe.

The tariff solution unfortunately has three serious flaws. To illustrate, let's assume that in the absence of a tariff, the toilet seat made in Taiwan costs $5 and the one made in the USA costs $10:

1. We may not get away with it at all. Whenever we try to do this sort of thing, the other country hauls us into the world court, and we almost always lose. Our best chance might be to levy a $3 tariff and push "buy American," but that runs a huge risk of p!$$!ng off the rest of the world.

2. Suppose we impose a $5 tariff. Now the Taiwanese and US toilet seats are competitively priced in the US market. That means that in selling anywhere else BUT the US, the Taiwanese company still has a $5 advantage, and there is absolutely nothing we can do about that. That means that the Taiwanese competitor is going to be able to sell worldwide, while the US company is pretty much going to be confined to the domestic market. With that differential, the Taiwanese company will be able to realize economies of scale that will allow it ultimately to drive the US company out of business. This was not nearly as great a factor a generation ago, before improved transport and communications made the global marketplace a reality. As a result, this is not addressed in many classical economic analyses, but it is a huge problem now.

3. Look at the impact on the rest of the economy. A toilet seat that used to cost $5 now costs $10. That drives up the cost of living. That in turn drives up salaries and wages for everybody. That means that the guy making light bulbs, who used to be right on the edge of being able to compete on price with foreign competition, is now no longer able to do so. If we've saved jobs in the toilet seat industry at all (and see above, it's questionable whether we did), it's come at a cost of jobs in the light bulb industry.

That reduces our choices to (1) close our markets like Japan 1650-1850 and become an international pariah, or (2) recognize that we are in a global competitive market, and make the changes necessary to compete, or (3) give up. I find it ironic that this present administration has placed such emphasis on being an international player in the political arena, but at the same time has espoused some economic ideas that will pretty much make us hated even more than we are now, or were under Bush.

As for not wanting to attract bad corporate citizens, a few points. First, the number of truly bad corporate citizens is far fewer than you think, particularly if you've bought into what a lot of the news media are putting out. Second, you can fix the godawful regulatory processes tht we have, without lowering the standards; in fact you probablly raise them. Norway, for example, is a much "greener" country than the US, but their procedures for doing things like getting permits to drill for oil offshore are much more streamlined and cooperative than the adversarial process we have here. Third, you can hold corporate officers more responsible individually. The idea behind limited liability for corporations is to protect the shareholders, not management. Particularly if you fix some of the nightmare regulatory procedures, you aren't really going to drive anybody offshore by making them accountable. But you do have to make the tradeoff. If you keep our "jackpot" tort system and start holding people individually responsible for corporate acts to a greater degree, you are going to run folks off. But it doesn't have to be that way.

I recorded the Stoessel program, just watched it tonight.

Lots of good points, well illustrated by either actual people (business owners, government aid recipients) or authorities (economists on both sides). If you missed it, too bad. probably could get it off the website.

Some things were mentioned that support the idea that higher taxes will make businesses move away.

Maryland enacted a millionaires tax, expecting to increase revenues by $106mm - 30% of the state's millionaires moved away, resulting in a revenue loss of 257mm.

One billionaire was interviewed. When New York raised it's state income tax on millionaires, he moved to Florida - no state income tax. The tax was about $5M - doesn't seem like a lot to a billionaire, but it was enough to make him move. BTW, the man started his business iwth $3,000 and 1 employee. Now employs 13,000. Wealth is creatable.

Donald Trump was interviewed. He said lots of rich will move to avoid taxes. When it was noted he still hadn't left, he said "Not yet".

Granted, these are indivduals, not companies, and it is states, not the US, but the parallel is clear.

Entities will react to unpleasant stimuli. Poke a cat and it will move.

This only covered about 7 minutes of the hour.

(10-17-2010 10:30 PM)OptimisticOwl Wrote:  One billionaire was interviewed. When New York raised it's state income tax on millionaires, he moved to Florida - no state income tax.

John Kerry tried to move his boat to save 500k in sales tax and 70k/yr in property taxes

Quote:Poke a cat and it will move.

ESPECIALLY if someone is shaking a bag of cat food in the other room.

(10-18-2010 06:16 PM)Hambone10 Wrote:  

(10-17-2010 10:30 PM)OptimisticOwl Wrote:  One billionaire was interviewed. When New York raised it's state income tax on millionaires, he moved to Florida - no state income tax.

John Kerry tried to move his boat to save 500k in sales tax and 70k/yr in property taxes

I'll bet that if he were retired from politics, it would have been to hell with the little people, I want to save the 570,000.

I imagine he regards the money as a cost of doing politics.

A big-picture historical note on protectionism: Of all the measures by which the standard of living of the vast majority of people today is many times greater than it was just a couple centuries ago, the most staggering difference is in the cost of food. Food has gone from being an enormous proportion of most people's income to a miniscule fraction. And of all the reasons for this world-changing improvement, one of the most important is the dramatic worldwide reduction in barriers to food trade. This globalization of food has had the additional effect of making famine essentially impossible -- except in places where barriers to trade remain.

And that's really something. When you think about it, the near-eradication of worry over food sufficiency is at least as big a triumph of modern history as the near-eradication of certain diseases. Arguably, it's an even greater triumph, for while people still marvel at smallpox eradication when they think of it, no one even thinks about the fact that man's most fundamental need was scarce for nearly all of human history, and is now abundant.

On the other hand, if for some reason one considers it a BAD thing that ordinary people no longer have to worry about having enough to eat, then I can see how one would long for the return of economic fragmentation, including tariffs.

Another thing Stoessel approached was welfare and unemployment. Star parker, who was on welfare seven years, talked of her time on welfare. she said that you just had to essentially tell them you were dpomng nothing to get off welfare, and it would be extended. Have you gotten a job, saved money, gotteen married> No, no no, OK you get more to stay on welfare. With cirecare subsidy, rent subsidy, food stamps, etc, it was just too much to give up by getting a job. Better to spend here days at the beach, which is exactly what she did.

he showed that when unemployment was limited to 2 years, most people found jobs in about 2 years. when it was extended to 4 years, then it took about 4 years for most people to get a job. Now that unemployment is at almost 5 years, most people are finally finding employment at at around 5 years unemployed. One man was interviewed, said he could have had 10-12 jobs at good salaries during his 5 years, but he couldn't afford the cut in pay. He has taken one, one similar to the many he passed on, because the end of his benefits is approaching. he would not have taken it if his benefits had been extended again.

I had a personal experience similar to this. Times got rough. I had to lay off my office manager, and assume her duties myself. She was a old friend, someone I had known since I was 12, and I was loath to do it, but it had to be done. She had 6 months unemplyment benefits, which she took as a six month padi vacation (her words to me). Two weeks before they ran out, she put on her best clothes, went out and in two days had a better job than the one she had left. she could have done that before she even left my employ, but who can pass up a six month month vacation on someone else's dime?