Monthly Archives: August 2011

Stranger, part 5

The man waited for Joe to compose himself, then began. “You likely aren’t aware that William Pierce owns a home only a few blocks from here. He uses it occasionally. He also has a number of business partners who wish not to meet him in public. This is not a matter of legality, simply discretion. Mr. Pierce has expressed an interest in using this establishment for such purposes. He requires your availability on short notice after hours, and that you personally guarantee the discretion of yourself and any other staff who are present.”

The man stopped, and for a moment Joe didn’t realize that the man was waiting for a reply. “Oh, well yes, of course, I’m sure I can provide whatever Mr. Pierce requires in terms of privacy, and I’d be more than, um, very happy to do business with him.”

Joe felt completely at a loss as they worked out details. Rates, availability, ways for Mr. Pierce and his associates to enter without drawing unwanted publicity. It all happened so fast and with such finality he felt as if he’d only watched it happen. But over the course of the next weeks and months, he met, served and talked with very wealthy and important people. He found they tended to like him, once he stopped being intimidated, and as they started to consider him and his restaurant safe he found he had a wealth of connections and favors available to him. It was scarce months before he began to use them, and barely a year before he had moved himself and his wife to a huge house far away from his restaurant, and had staff doing all the days work for him.

What do deficits mean? Part 1, taxes.

I want to write some responses to common comments I hear about economics. I’m no expert, but I’ve been reading a lot about this the last year or two, so I’m at least moderately well informed.

Let’s start with something very basic, the relationship between taxes and spending. I have been told that we need to cut government spending so that we can pay lower taxes and the American people can spend more money. While this may seem to make sense, taxes and spending don’t work that way. When spending increases nothing forces taxes up, and when taxes drop nothing forces spending down. The government needs to do those things independently. The deficit is the money we’re borrowing to cover the gap between the two.

The first thing we need to know is that taxes are extremely low right now. I’m sure some people will find this hard to believe, especially given the conservative claim that we have a spending problem, not a revenue problem. Lets start with the simplest measure, marginal tax rates.

tax rates chartThis is straightforward enough: while the country has had lower rates in the last hundred years, we’re currently very near the bottom in all categories. But marginal rates aren’t the whole story, there’s a lot more going on with deductions and such. So lets look at what actually gets paid. First, there are two important things to adjust for. We need to remove inflation to get a fair comparison. One dollar doesn’t mean what it did 30 years ago. Second, we need to compare how much tax revenue was lost with how much the economy dropped to see what is tax policy and what is just economic forces. The simplest way to achieve these is to look at tax receipts as a percent of the total economy.

tax receipts as percent of gdpWhat we end up with is tax revenues currently the lowest percent of our economy they’ve been since the 50s.

All of this is to say, simply, that taxes have gone down, not up since the recession began. Stimulus has gone into the deficit, not come out of the pockets of Americans. In fact a portion of the stimulus was tax cuts, contrary to popular belief. And likewise, cutting spending will reduce the deficit, but it won’t reduce taxes. What that means is that cutting spending will take money out of, rather than putting it into, the economy. The key here is that any money the government borrows it also spends, so cutting spending means taking money out of the hands of whoever was going to receive it.

Of course that begs the question, what about the national debt? Isn’t that doing more harm than cutting spending would? Big question, and I think this post is long enough. Part 2 coming later.

Stranger, part 4

Joe woke up the next morning unsure what the day would bring. He might be out of money, but there was no reason he couldn’t run his restaurant a few more days. And besides, he didn’t know what else to do. Joe was a man of routine. But the day didn’t go according to his routine. His regulars came and went, but so did new people, and it seemed that every person who left was happier than the last. There seemed no pattern or explanation, the new people had little in common, but for every one that left two more entered. By the end of the day, he’d done more business than the entire previous week. He and his small staff were much too busy to reflect on the oddity of it, and by the end of the day he could do little more than close the shop and drop into a seat. He went home and slept, and the next day started much the same. Mere hours had passed before he was forced to close due to an empty kitchen.

He spent the rest of the day scrambling to pay bills and restock his kitchen. That evening he and his wife talked about their unexplainable fortune, and dreamt together of success.

The rest of the week went much the same, and it wasn’t until then that he learned that he had been mentioned glowingly by a local newspaper. Days and weeks went by likewise, with people spilling out of his tiny restaurant. Joe was nearly as overwhelmed by this level of success as he had been by his near failure, until one evening, after seeing the last of the staff out and starting to clean up, a man in an expensive suit knocked on the glass door over the closed sign.

Joe waved away at the man and yelled “Closed!” through the thin glass. The man simply knocked again. Irritated, Joe unlocked the door and set his foot behind it, just enough to allow him to talk through the opening. “We’re closed, you want something come back when we’re open.”

“You’re a busy man, and I’d prefer to have your attention. I’m here to talk business on behalf of William Pierce.”

Joe could hardly open the door and stammer welcomes fast or enthusiastically enough. William Pierce was well known as the younger brother of one of the richest and most influential men in the city, possibly the state. Joe stammered and tripped over his tongue as he offered the man a seat.

Stranger, part 3

Joe wasn’t sure if he was more confused or frightened by the little man.. He backed up a step as he answered. “What do you know about my problems or my business? I haven’t said a word about it.”

“Oh, but you have. Not to me, no. But the empty streets have ears, even if most have forgotten, and there are still those who they’ll speak to, rare as they are nowadays.”

Joe was now very uncomfortable, and he decided that it would probably be wise to get as far away from the stranger as he could. But as he moved to walk away the little man under his pile of cloth nimbly stayed in his way. Before Joe could protest the little man continued “I ask only that you listen to me a moment longer, and consider what I offer.” Joe was trying to find a way past the strange little man without getting too close, and he wasn’t having any luck. The man made his pitch quickly. “Listen, you open up the little place of yours the next week, and you won’t be able to help paying all your bills. You keep it up for the next year, and that place’ll be known all over the city. You’ll have more money than you ever thought. And if it goes that way, then you just have to remember this little talk, and the next time you see me you pay me back the favor.”

Joe didn’t really pay attention to what the man was saying, but the man wasn’t asking him to hand anything over, so he hastily agreed. The words were barely out of his mouth and the man quickly backed into the shadows and was gone. It happened so quickly that being alone again wasn’t a relief, but another mystery. It felt as wrong as the stranger’s familiarity with him. But a few short blocks later and he was once again walking familiar streets, and by the time he’d found his way home he had nearly forgotten the few unsettling moments.

Stranger, part 2

It wasn’t long before he was jogging and muttering curses under his breath, though, as he discovered just how out far of his way he’d gone. He was walking into a small industrial district, which seemed to be in the way of the familiar parts of the city. His jog quickly returned to a walk as his long wandering caught up with him and his legs began to ache. He walked slower through the dark buildings and empty warehouses a bit before he decided to sit down and catch his breath. He leaned up against the wall of a building and slowly slid down, letting his legs relax and his head thump against the wall.

“You look like you’re having a rough night.”

After being alone with his thoughts for so long, the sudden breaking of the silence, and the sudden realization that he was no longer alone, startled Joe badly enough that he choked on his breath as he scrambled to his feet and looked around wildly for the speaker. The voice was an odd mixture of high pitched and gravely, worn with age but also young sounding. The speaker, stranger yet, was a very small person piled high with shirts and coats and blankets, so much so that you couldn’t make out anything of the person buried beneath. The man shuffled around the corner and into the light and pulled down the hood that covered his head, revealing a stocking cap, which he also removed.

Joe regarded the small man cautiously, still edgy from the surprise of his arrival, and not exactly sure what to expect from him. The man took a few more tiny steps forward.

“The empty streets haven’t solved your problems for you, have they wanderer? Maybe you’ll allow me to help?” The man’s face, now visible through the light hood remaining on his head, was round, his skin leathery and wrinkled. But while his face seemed worn with age his eyes still had the twinkle of youthful mischief.

Joe relaxed just a bit, figuring he’d found a beggar hoping to talk money out of him. The man didn’t seem like much of a threat, but he still remained on his guard. Not that he could help it, with his heart still sounding in his ears and adrenaline racing through his blood after the shock of the mans appearance. “Oh, I doubt you could do much for me. Not unless you’re going to pay my bills.”

The little mans eyes twinkled. “Oh, I know, I know. But you know the obvious answer isn’t always the best. You think the solution to all your problems is money, but there’s other ways.”

Stranger, part 1

Joseph Mitchell sat in his office and stared at the papers on his desk. Well, he liked to call it his office, but anyone else would probably call it a closet with a chair and an end table inside. Regardless of what you call it, the papers he was looking at still meant the same thing. After only three years of running his small restaurant he was bankrupt. Joe sat back in his chair and sighed. He had, of course, known this was coming, but he thought he had more time.

In the nearby kitchen the phone rang. Joe slowly stood up and walked over to it. He figured it was probably his wife, she knew he would be going over the month’s business tonight, and was probably anxious to know how they had faired. He stood above the ringing phone for a moment, listening to it. He then picked up his keys, walked out the front door and locked it behind him.

Joe was an honest man, and he had no intention of hiding their troubles from his wife, but he wasn’t ready to tell her yet. He needed time to come to terms with it himself before he could stand to say it out loud. And so he started walking. It was late, and the streets were quiet.  Joe smiled and took a deep breath. He enjoyed the solitude of the city late at night. As long as he stayed in residential areas, and away from the bars, he could feel like he had the city all to himself, alone except for the odd passing car. It was a warm summer night, and the breeze felt pleasant and inviting.

Joe wandered for a long time, lost in thought. His mind wandered from memories of his restaurant to wonderings of what he might have done to avoid his fate to how he would tell his wife, and what they would do next.

After a great deal of wandering and thinking, and a few hours, it occurred to Joe that his wife was probably worried about him. For the first time since he began his walk he looked around and he discovered that he didn’t recognize the houses or the names of the streets around him. Annoyed, but not worried, he turned around and began walking back the way he had come, figuring he’d see something familiar soon enough. It wasn’t long before he could make out the silhouette if the city skyline above the trees. He turned towards the city, figuring that the closer to it he was the more likely he was to find himself on familiar ground.

 

Buffett, Frum and logic

I’m sure most everyone has seen Warren Buffett’s New York Times piece by now. He presents a number of very good arguments about the fairness of our current tax system, and the absurdity of the Norquistian “no new revenues ever” policy. His argument is, essentially, that the political demand for “shared sacrifice” has hit the middle class, but not the mega-rich. He supports this by explaining why people who make the majority of their money through investment end up paying a smaller percent of their income as taxes than upper middle class people who gain income through payroll. (this is true) He asks that Congress make good on the calls for shared sacrifice by asking something more of him and those like him, who make money through investment and have more than 99.7% of Americans.

David Frum wrote a response on his site. He brings up some valid points, but I don’t think he’s right to direct it at Buffett.

Frum first claims that unemployment is a more pressing, and much larger, concern than our deficit or tax problems. I agree with him on this. He also argues that the vicious objections to monetary expansion, like the one Gov. Rick Perry recently voiced, are both incorrect and born out of self-interest. I agree with this as well. But he doesn’t simply make those points. He uses them as a counterpoint to Buffett, suggesting that what Buffett said is somehow devalued because he should have been talking about monetary policy instead.

Buffett’s piece is clearly addressing the incredible political and public anti-tax sentiment, which is a real problem that played a huge part in the recent debt ceiling crisis. Frum, on the other hand, is talking about objections to the Fed and quantitative easing. While the two share a common topic, they don’t actually have any direct cross over. I agree with the point Frum is making, he’s just not really engaging what Buffett said at all.

For those of you who disagree with everything I’ve said I agree with here, I do intent to write about taxes, the Fed and tight money specifically in the near future. Unfortunately, those are larger topics that will probably take more time and care to properly cover.