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Forum Post: Keynesian Economics: the stimulus solution

Posted 2 years ago on March 1, 2012, 12:47 p.m. EST by francismjenkins (3713)
This content is user submitted and not an official statement

Watching Europe sink into recession – and Greece plunge into the abyss – I found myself wondering what it would take to convince the chattering classes that austerity in the face of an already depressed economy is a terrible idea.

After all, all it took was the predictable and predicted failure of an inadequate stimulus plan to convince our political elite that stimulus never works, and that we should pivot immediately to austerity, never mind three generations’ worth of economic research telling us that this was exactly the wrong thing to do. Why isn’t the overwhelming, and much more decisive, failure of austerity in Europe producing a similar reaction?

http://krugman.blogs.nytimes.com/2012/02/18/austerity-and-growth/

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I know Krugman is right on this point, we could stimulate our economy through fiscal stimulus. The Keynesian approach has worked well in the past, and even in our modern economy, it's still the gold standard (in terms of reigniting robust economic growth). We know this because there is an ongoing stimulus, it's just monetary (versus fiscal), but still Keynesian in nature.

Of course we face many problems, none of which seem to have simple solutions. While austerity in the face of economic decline is the worse possible approach, we also have to recognize that unchecked growth of the state can become a threat to liberty. The line in the sand (the point at which the danger arises) is unfortunately abstract and difficult to quantify, further complicating things. Nevertheless, a fiscal stimulus does not require growth of the state apparatus (for the most part, government will not directly rebuild physical infrastructure, private companies and union workers will do the rebuilding).

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As Congress debates how to meet the nation’s long-term transportation needs, decaying roads, bridges, railroads and transit systems are costing the United States $129 billion a year, according to a report issued Wednesday by a professional group whose members are responsible for designing and building such infrastructure.

http://www.washingtonpost.com/local/decaying-infrastructure-costing-us-billions-report-says/2011/07/27/gIQAAI0zcI_story.html

Still though, not as easy as it sounds. There's numerous complicating factors that need to be considered. For instance, we obviously need to modernize our infrastructure, but if we're to rebuild our electrical grid and improve our roadways, wouldn't we want to accommodate alternative energy? I think it's safe to say the answer is yes. The next question is, which alternative energy options should we choose? Here's where it get's messy.

Sure, many would agree that burning fossil fuels, like coal, is extremely dirty and harmful to our environment. However, coal miners are real people, who have real families to feed, and without coal mining, they would likely suffer economic despair.

However, there are "cleaner" (albeit not clean) ways to burn coal. We could gasify coal and convert it to syngas. We could even produce natural gas from coal. While these are viable ideas (from a technological perspective), it would only serve to further entrench coal. There is one "sort of" bright spot. If we began gasifying coal at the electrical plant, the same gasification process could use waste as a feedstock (versus coal). This would give us the ability to gradually shift away from coal, and transition coal miners to new careers as they become displaced.

More importantly, nuclear power currently provides us with about 20% of our energy needs. Many of these plants are nearing the end of their life cycle. If we don't want dirty plants that burn fossil fuels to replace these aging plants, then we need an alternative. While building a smart grid that could facilitate things like wind generation sounds like a great idea, the places where we have the most wind (the middle of the country) are also the least populated parts of our country (and there are physical limits to how far electricity can be transported). So we need something like Thorium reactors to fill the gap.

There's also other great ideas. Electric cars could replace gasoline cars in most urban and suburban areas (where most Americans live). Of course this requires much more electricity and infrastructure. Natural gas engines and fuel cells could replace dirty diesel in large trucks and buses. However, again, this requires infrastructure.

The point is, energy is much more complicated than most people give it credit for. While transitioning to alternative energy should be something we collectively work towards, it is a decade long project (at least), and so energy shouldn't be viewed as a stimulus engine (a conventional Keynesian stimulus requires spending on things that can be started immediately, not in 5 or 10 years).

So what can we do "immediately"? We have something like 70,000 bridges that need to be repaired or replaced (and however we fuel our vehicles in the future, we'll still bridges, and we don't need to worry about building electrical fueling stations on bridges). Many of our school facilities are in disrepair. Our state university systems require new and expanded facilities. Many of our major airports are crumbling. These are things we can do now.

Also, about 42,000 factories have closed, and 5.5 million manufacturing workers have lost their jobs, since 2000. Why not create a loan program that allows workers to buy and reopen these plants? For anyone who thinks the "employee owned" (ESOP) model isn't viable, here's a link (the National Center for Employee Ownership's list of the top 100 employee owned companies in America):

http://www.nceo.org/main/article.php/id/11/

75 Comments

75 Comments


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[-] 1 points by DayumShame (148) 2 years ago

We're all screwed if our economy is run by Kenyans.

[-] 1 points by MattLHolck (16833) from San Diego, CA 2 years ago

the the government ran the grid,

the people would have a say in its fair distribution

[-] 1 points by aflockofdoofi (-18) 2 years ago

Keynesian economics has been utterly discredited. We have been running a "Keynesian" economy for the entire Obama term and it has failed completely. Krugman is the laughingstock of serious economists.

You cannot find one example of a Keynesian success. Please link ANY example of a Keynesian success.

[-] 1 points by francismjenkins (3713) 2 years ago

Really, I don't have a problem with Barro's view, I just think he examines this question too narrowly. I used Krugman because he's closer to my view than most economists, although I don't find his explanations completely satisfying (but he did win a Noble Prize in economics, while Barro, to my knowledge, has not).

The past actions of Italy or Greece cannot be described as stimulus. Deficit spending as a standard operating protocol (even during good times) is obviously disastrous, and indeed cannot be called Keynesian (since Keynes' General Theory called for the repayment of debt during economic boom periods). We cannot say that the long term multiplier is equal across the board. If we invest in something, like say modernizing our electrical grid, we reap the benefits for several generations. Also, how can anyone say with a straight face that the multiplier derived from building our national highway network was less than one? 50 years later, we're still driving on those highways. Those highways fueled an entire automotive industry, fuel industry, and all sorts of industries that serviced those sectors. Financing the Transcontinental Railroad ushered in the guilded era, while spending vast sums of money maintaining overseas military bases (where there's no real risk of imminent conflict) offers virtually no benefit to our domestic economy. How do we examine a stimulus, accounting for inefficient spending (such as spending on overseas military bases)? It's very hard to do on a dollar for dollar basis, by just looking at debt (since some of that debt, and underlying spending, is being used inefficiently).

I'm not talking about borrowing to sustain welfare benefits (although I don't oppose social programs, what I'm specifically talking about is physical infrastructure). It's probably true that social programs gobble up so much in administrative costs, that any potential multiplier is washed away. Moreover, I think the last stimulus we had was a giant waste of money. It was spent on dubious projects, and I don't see the kind of return on investment coming from those projects that we reaped from better thought out endeavors (like building a highway system).

Yet, our airports are crumbling, our bridges are crumbling, many of our schools are in disrepair, etc. These are projects where the return on investment is naturally high. We will continue to need airports (and they will continue to provide us with enormous economic benefits). Likewise, we need bridges and schools, and frankly, the merit of these type of projects should be self-evident to any reasonably intelligent person. I tend to think the first stimulus was the traditional grab bag of goodies all our Presidents seem to give away to their friends when they take office (like the gift of a few hundred billion dollars Bush gave to his military contractor buddies). Yet, critics of Keynesian economic theory (like Barro) use this monstrosity to critique his economic theory, which I view as lacking intellectual integrity. Additionally, there is rigorous research regarding a multiplier, Romer and Bernstein puts it at 1.6. However, I'm not necessarily confident in that number. I don't think we can say all stimulus is equal. Investing money in solar panel manufacturers who lack a viable business plan, is obviously not as stimulative as say rebuilding an airport (that already has a viable business model), and sustained (but "needed") construction projects, where economic benefits are reaped for generations.

However, even if the "immediate" multiplier is slightly less than one, at least we get more investment in our economy (as opposed to companies, who are hoarding capital). Furthermore, the idea that consumers make purchases based on expectations regarding future interest rates, is borderline ridiculous (and this is the underlying idea that Barro and his progeny relies on in their critique of Keynesian theory, and its various hybrids). If deficit spending created a perception that future interest rates will rise, why is consumer borrowing suppressed? There's better explanations for this (but you won't hear them from Barro). Information asymmetry. In other words, average consumers are not as sophisticated as professional investors, and they lack access to detailed information (and even if they had it, they lack the training to properly analyze it).

[-] 1 points by francismjenkins (3713) 2 years ago

The New Deal lowered unemployment (until the New Deal was weakened by the conservative coalition in congress). Reagan was a "military Keynesian" ... but of course it doesn't really matter whether steel mills are manufacturing steel to build more battleships, or to rebuild bridges, it lowered unemployment all the same. Japan avoided the worse of the Great Depression, because she instituted a Keynesian stimulus early and quickly.

So Keynesian economics has proven itself repeatedly. The Krugman is a laughing stock comment, is laughable (considering he won a Noble Prize in economics).

[-] 1 points by aflockofdoofi (-18) 2 years ago

I can provide scores of limks, however we dont need them. The past 3 years we have been spending (increasing aggregate demand in theory) with no decrease in unemployment. KE says reducing interest rates increasing employment, it has not. KE absolutely depends on a multiplier effect, which no one can confirm exists.

Greece has been running an unwitting KE model and is utterly bankrupt. So is Italy, Ireland, perhaps Spain and now France. If government spending had any effect on unemployment, those countries would be at full employment, instead, they have intolersble unemployment.

Now prove me and monetary theory incorrect.

[Deleted]

[-] 1 points by aflockofdoofi (-18) 2 years ago

No, it is not well establshed. There may be a small .8 multiplier in war time, but no one can find one in peace time. I am willing to listen to substantive proof of a multiplier effect, but I cannot find ANY rogorous research that confirms a ME.

Here is a paper by a HARVARD economidt thst completely discounts a KE ME. Harvard is no right wing kooky site.

http://www.economics.harvard.edu/faculty/barro/files/09_02_VoodooMultipliers_EconomistsVoice.pdf

Unless you refute this, you are lost, defeated.

[-] -1 points by Jflynn1964 (-206) 2 years ago

Milton Friedman won a Nobel Prize and actually won it for this topic - monetary policy. He disgarees with you.

Krugman won his prize for trade theory.

[-] 1 points by francismjenkins (3713) 2 years ago

That's all well and good, but I'm not talking about monetary policy, I'm referring to "fiscal" policy. Ironically, I sort of disagree with Krugman's views on trade policy (but yes, he is a great trade economist, or at least that's how he's viewed by his peers). Friedman, he is the ten ton gorilla of monetary theory, but again, monetary and fiscal policy is two different things (and although Friedman certainly had plenty to say on fiscal policy, his expertise was monetary theory).

[-] 0 points by Jflynn1964 (-206) 2 years ago

monetary policy was the primary effect of the depression and impacted us in the is downturn and recovery as well.

[-] 1 points by francismjenkins (3713) 2 years ago

I agree with monetary theorists on that point (at least in part), but again, we're talking apples and oranges. Hoover could have done more in the area of monetary policy to stop our slide into the abyss (and in fact, Bernanke is largely following Friedman's play book). But again, fiscal policy and monetary policy are two very different things (and I'm only addressing the former).

I think with regard to monetary policy, Bernanke is out there with both guns blazing. But pretty soon he'll be out of bullets (and at that point, fiscal stimulus will be our only alternative, unless we're willing to resign ourselves to a lost decade).

[-] 0 points by Jflynn1964 (-206) 2 years ago

The economy suffered a shock to the system due to liquidity drying up. This need for liquidity caused velocity to decrease to abnormal levels. If you do nothing, velocity will come back to median and that is what is happening. Gross at Pimco and Westbury at Claymore have nailed this correctly in calling it a new normal. We will get 2-3% growth but not above 3%.

Bernanke has done a great job however I would like to see him adopt a price rule so that we don't have that easy money in the system again.

[-] 0 points by FriendlyObserverB (1871) 2 years ago

Francismjenkins, the profit cap would have been applied on home sales. This would have prevented the hyper inflation.

There were no more reply buttons this is in response to your previous concern.

You must realize there are two types of business. Distribution and production. The cap only goes on distribution. Not on production. Not on salaries but only as a allowable percentage cap on markup between buy and sell. This has many effects on all aspects of the economy.

[-] 1 points by francismjenkins (3713) 2 years ago

I'm not sure why that happens (the whole no reply button thing), but it's happened to me a few times (wasn't something I did, just so you know). Ummm, I do think the wealthy need to pay more taxes, but mostly because we need more tax revenue (I'm more of a utilitarian as opposed to having any inherent beef against rich people, although I do have a beef against banksters, but that's another story I guess).

We might think if we limited income at the top, or profits (the way you're structuring this, it's the same thing really), we'd have a more equal distribution of income (definitely not a bad thing in its own right), and maybe if people had more money, they could afford those mortgages more easily (so that's one way I can see your idea working). Also, the incentives for all the malfeasance in our financial sector would have been reduced. So yeah, not a bad idea I guess.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

Just to quickly add. The whole stimulus the profit cap would create by reducing consumer pricing, and encouraging sales would also generate tax revenue.

The profit cap is the economic silver bullet. It affects all aspects of the economy. And yes levels the distribution of wealth. Making life a little easier at the bottom. It's all good. And honestly the wealthy would hardly even notice a difference in their lifestyle. Anything over a billion is too much to spend right.

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[-] -1 points by FriendlyObserverB (1871) 2 years ago

Just to add a thought. Stimulus would have worked if there was a cap on profits but without the cap the stimulus money went right through the economy and landed in wall street.

[-] 1 points by francismjenkins (3713) 2 years ago

This is certainly speculative, and the stimulus did at least prevent more serious decline (so it partially worked, it just wasn't big enough). Nonetheless, with regard to Wall Street, without restoring Glass Steagall, nothing will work in the long run. We will have another 2008 in the future.

If you cap compensation, they'll probably find a way around it. If you break up financial firms, there's no way around it. If a bank is too big to fail, they should be too big to exist.

Like I said, I don't have a problem with your idea (I think it could "maybe" solve a number of problems), but it's not, by itself, enough.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

Well, a cap on profits will create a rising tide. All will be affected by this and all the mechanics of capitalism will remain intact.

Please tell me which problem you think it won't solve.

I admit the cap is a patch on an old outdated system. But it will refloat all vessels. Including Greece Europe and USA.

[-] -1 points by FriendlyObserverB (1871) 2 years ago

A regulated cap on sales profits would have prevented the economic recession.

Unfettered profits have bled the capitalist economy to near death. A cap would have stemmed the blood flow.

Right now , if we cap sales profits , there may still be time for recovery.

[-] 1 points by francismjenkins (3713) 2 years ago

I have no idea how something like that could have prevented a recession? I mean, those sort of schemes have never worked. This is very similar to price controls (something we have experience with). When we tried to institute price controls on gasoline, it resulted in rationing (and economic disaster). So with respect, I don't think the evidence supports this view (although I'm certainly willing to listen, if you can explain how and why this would be effective)?

I think when it comes to the question of profits, we're talking about something very technical and complex (and I'm not sure how wise it would be to wrap something like this into a stimulus, since it would likely be disruptive, exactly what we don't need right now). Nevertheless, there are valid questions when it comes to profits, and really our entire system. For example, the heavy focus on quarterly profits really does create significant problems for our society. I think, however, the solution is to move towards more employee owned and managed firms (rather than trying to trying to engineer a top down solution).

[-] 1 points by FriendlyObserverB (1871) 2 years ago

This is not the same as what was experimented with price control.

The profit cap would only go on the middlemans profit markup. Between points of buy and sell. For example: the retailer purchases an item from the manufacturer and sells to the consumer for a markup of profit. It is this markup that would be capped at a percentage of original cost.

The cap would also go on banks and investors. Because they are middlemen. Banks buy and sell money. How would have this prevented the recession? Great question. The borrowed money that created the recent boom is mostly now accumulated at the top gained by unfettered profits. Had there been a cap on those profits. The accumulation would not have occured. And money would have remained in the hands of the consumer functioning as demand.

[-] 0 points by pewestlake (947) from Brooklyn, NY 2 years ago

I agree, price controls don't work. It's not excessive profit that's the problem, it's excessive profiteering. The top executives are paid so disproportionately more than everyone else, it skews the metrics in every corporation. A typical example is needing to close a $3 million budget via layoffs, reduced hours, union busting, attrition, etc, while the CEOis paid $30 million per year, not including stock options. They could simply get the money from one excessive salary or they can drive the company into the ground trying to maintain that salary. Guess which they always make.

An enterprise wage ratio regulation would address the issue of runaway profits and force companies to either reinvest in their businesses, raise salaries across the board or give more money back to shareholders as dividends. Right now, the tax code is designed to reward corruption at the highest levels of the professional manager class. Change that and we'll never talk about price controls again.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

A wage ratio would send manufacturing packing overseas.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

As if that wasn't already happening? It might, at first, send a few big manufacturers overseas but the demand created would spawn new manufacturing and bring other old jobs back for the first time in decades. There are other ways to prevent companies from expatriating their capital. This situation was created. It isn't the natural order of things. That's what the charlatan "free traders" would have us believe but there's no such thing as a free market. The only things preventing us from implementing pro-labor policies in America are corporate personhood and money as speech.

http://www.change.org/petitions/pass-the-human-rights-amendment

[-] 1 points by FriendlyObserverB (1871) 2 years ago

Think it through. Not half way.

A salary cap or an increase in taxes would send manufactures packing. And huge job loss would o cur. Yes it has been happening( without high taxes or ratio salaries )

I say leave the manufacturer alone and Capp the middleman. This will do the trick.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

A profit cap enforced at the register would put many retailers out of business because they often operate at a loss for substantial portions of the year and make up the difference during seasonal surges. A profit cap enforced in tax returns would be avoidable through balance sheet gymnastics.

In contrast, Germany already employs a voluntary code that means the average executive is paid far less while rank and file workers are paid substantially more than their respective American counterparts and their assembly lines seem to be humming along just fine.

I have actually thought this the whole way through and even provided an example of where other people have thought it all the way through, too.

Happy reading! :)

[-] 1 points by FriendlyObserverB (1871) 2 years ago

Think this through: a profit cap would create a surge at the register. What the retailer may lose in profit per sale he will make up in volume. And it is the sales volume that will stimulate jobs. You should beable to see the rest. Jobs brings in more consumers. And more sales. Of course all this brings in more tax revenue.

A cap on sales profit is an economic silver bullet.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

Unless you're assuming that all products and services in our economy are significantly overpriced, a profit cap will not lead to a surge at the register. Capping profits doesn't necessarily spur demand. If anything, all it does is lower a few prices but that doesn't automatically generate an uptick in economic activity.

If you want to generate economic activity, you have to increase demand. Lower prices aren't nearly as reliable as higher wages. We just spent the last thirty years trying to spur the economy through lower prices -- coinciding with the rise of Walmart, Home Depot, etc -- and it hasn't worked. All it's done is depress wages and reduce demand. There are real-world examples of what you're talking about out there. I suggest you study some of them.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

Your examples are surfacy.

Look what happens on black Friday and how lower prices generate a surge at the register.

As for walmart. They have made high profits at the expense of domestic jobloss which escalated the loss of consumer demand.

The cap on profits at the register would affect every aspect of the economy. It is the silver bullet.

Give this a little more consideration , and you will discover the chain of reactions to profit cap.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

Black Friday sales are more myth than reality. The best deals occur long after, in the middle of December. The highest prices are right before Christmas Eve followed by Black Friday. It's tradition and the long weekend that creates the surge at the malls on the day after Thanksgiving, not the sales.

Profit cap is not a magic bullet. It's actually a cap on economic activity more than anything else. It's the professional management class siphoning that profit away from companies, investors and labor that crushes the economy. Let the money flow, just make it flow back into the economy instead of away into private bank accounts.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

The cap will solve the economic crisis practically overnight.

[-] 0 points by pewestlake (947) from Brooklyn, NY 2 years ago

Believe in fairies if you like.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

Profit cap = increased sales = economic stimulus

[-] 1 points by FriendlyObserverB (1871) 2 years ago

A profit cap is not a price control. At least not in the original sense. And a profit cap would eliminate excessive profits shared at the top.

[-] 1 points by francismjenkins (3713) 2 years ago

Ahhh, okay (well ... I definitely misconstrued your remark). That is an interesting idea (it's not really a profit control, but rather wage regulation). The only thing that would give me pause with something like this is the 1% (or really, a small fraction of the 1%, more like the top 0.001%) always manages to find ways around these sort of regulations. It could maybe be a short term solution, but I think unless we move towards more employee owned and managed firms, we'll never really get at this problem. Our regulations are always chasing "after" the schemes invented by those at the top, and we never seem to get in front of the snowball (so it keeps growing).

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

Didn't misconstrue anything. Different guy. ;-)

All legislation is subject to the encroachments of the 1%. We can't let that stop us from trying, especially when popular opinion is on our side.

[-] 1 points by francismjenkins (3713) 2 years ago

To quote Rick Perry ... oops -:)

But yeah, I agree with that. But I also think a much more effective solution would be to promote more employee owned and managed firms (although of course, we could also do both).

[-] 2 points by pewestlake (947) from Brooklyn, NY 2 years ago

I agree with encouraging employee-owned businesses and also legitimate labor representation in the boardroom with voting rights, regardless of ownership. Democratize the workplace. But I also think the wage ratio would be huge. Limiting top salaries to 50 times the lowest paid employee would result in a massive infusion of capital into any of three areas: low-level employee salaries, capital reinvestment and/or dividend checks.

Forcing the entire business world to comply over a set period would be like pouring octane on the economy. Higher wages for low-level employees would stimulate demand, leading to new businesses and more jobs. Capital reinvestment would result in more jobs and higher quality or improved efficiency, etc, leading to higher productivity and more profits. Bigger dividend checks speak for themselves but incentives to reinvest in other businesses for the long-term would keep the cycle going.

Won't happen without legislation. That won't happen without staunching the flow of money and power of corporations in politics. Of course, the businesses with the most to gain are managed by people with the most to lose. The people who tell their employees that everything is done for the good of the company are the most likely to be siphoning off massive piles of cash into their numbered Swiss bank accounts.

"It is difficult to make a man understand a thing when his paycheck depends upon his not understanding it." ~Upton Sinclaire

[-] 1 points by FriendlyObserverB (1871) 2 years ago

You are definitely advocating a salary cap.

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

While I agree with every syllable of your post, capping pay would most likely be unconstitutional. The workaround is to tax the shit out of them. That way, the incentive to pay themselves at 200-300 times the rate of their workers is gone. By limiting their incomes, they also limit their tax liability. It worked that way from 1945 to 1980, and did for the economy more or less what you predicted: the largest, fastest, and most sustained period of economic growth in which ALL boats rose in the history of the country, if not the world.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

So they are going to pay themselves lessjust to avoid taxes ? What reality do you live in !

[-] 2 points by epa1nter (4650) from Rutherford, NJ 2 years ago

If they take home the same after taxes at 30x base pay as they do at 300x base pay, the incentive for outlandish pay evaporates. And boards of directors would know that, incentivizing them to reinvest in the company instead of inflate a salary that wold not enrich the CEO, but would only take away from shareholders. It is how it worked for many years before the Reagan revolution changed the incentive structure via the tax code.

[+] -4 points by DKAtoday (34850) from Coon Rapids, MN 2 years ago

Especially if the boards of directors and shareholders ran into the same kind of taxes on their gains. Whatever they like to call them.

[-] 1 points by francismjenkins (3713) 2 years ago

What would be unconstitutional about it? I mean, I support the idea in principle (although I still need to think about the technical/economic aspects of the idea), but from a legal perspective, congress has this authority under the commerce clause.

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

AS far as I know, it would be a violation of basic rights. The government has no legal authority to tell anyone they may not make as much money as they want or can. But it does have a right to tax that money.

[-] 1 points by francismjenkins (3713) 2 years ago

Which "basic right" are you referring to? Indeed, government has demonstrated the right to set minimum wages, tax based on level of income, it has eminent domain authority, and it "has" (in fact) set wage and price controls in the past (albeit it was an economically flawed approach, but there was no constitutional defects with these initiatives).

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

Hmmmm. Perhaps I am wrong about the legal hurdles. I think the wage controls in the past were for federal workers only, since the government has jurisdiction over them, but I don't think the private sector can be controlled in that way. Price controls are another matter, and the last time that was done on a large scale was by Nixon. Since it was temporary and in response to a specific crisis, I don't think it was challenged. But given the current make-up of the courts, long tern controls like that would likely be struck down. Indeed, in terms of compensation, remember how the current administration could do nothing about the Wall Street bonuses in the midst of the bailout? It could not legally interfere with private contracts regarding compensation.

Setting a minimum wage is quite different than setting a maximum one. And setting tax rates is different from limiting pretax income. At least that's my understanding.

[-] 1 points by francismjenkins (3713) 2 years ago

It's not that the administration couldn't do anything, it just couldn't do anything unilaterally (without an act of congress), and good luck getting congress to go along with that sort of idea (which I assume was why the administration didn't pursue it). Wage controls of the type being suggested here is an untested concept (as far as I know), but it is at least theoretically possible under the commerce clause and the 16th amendment. There is certainly no specific constitutional prohibition against this sort of regulation.

I'll give you an example of how it could work (without any constitutional defects). Congress could pass a "tax" that simply taxes 100% of any amount earned in excess of the earning ratio being proposed. Under the 16th amendment, congresses power to tax is pretty much unlimited.

A challenge would likely be mounted under a claim that this is a "taking" within the meaning of the eminent domain clause. However, a very long line of cases restricts application of this reasoning in this particular case. The "taking" must be of virtually "all" the property at issue, and that's not what we're talking about here. So I think this "could be" done, whether it's realistic or not is another question.

[-] 1 points by FriendlyObserverB (1871) 2 years ago

With most of manufacturing moving overseas an increase in taxes or salary cap would send the rest of them packing. And huge job loss. Think it through.

A cap on sales profit between Points of buy and sell would not affect the manufacturer negatively. Instead the manufacturer would see an increase in orders due to high sales volume at low retail( capped profit) prices.

The cap on middleman profits is the silver bullet that corrects the whole system.

As to your question earlier. An example how a cap would have prevented a recession. Home prices would have remained within reason with the profit cap. And we would not see the foreclosures we see today.

[-] 1 points by francismjenkins (3713) 2 years ago

I'm not sure how that's true? I mean, maybe it is, I just can't see how the mechanics work? Assuming CEO salaries were much lower, or worker salaries were much higher, or corporations paid more in dividends (or all of the above), how would that have prevented hyper-appreciation in real estate? It seems like the opposite would be true (after all, I'm sure 99% of all homes purchased were not purchased by overpaid CEO's, it was average people buying those homes, and their irrational expectations pushed prices up to exorbitant levels ... a classic bubble).

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

Yes, the 100% tax is in line with what I was saying. It is an indirect form of wage control, rather than a direct one and is done through taxation rather than disallowing pre-tax compensation above a certain level.

I still think there are likely some legal hurdles. I am not enough of a constitutional scholar to be able to point to it, but it seems to me that much of the foundation of America has to do with permitting private individuals the freedom to make whatever money they could. I do think the government has the legal right to directly cap salaries at any company that does business with the government directly since they receive government funds. I am far less sure about everyone else.

But, as we both said, taxation doesn't seem to have the same legal gray areas.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

[reply to your last comment below]

I think it can be argued that a ratios based on percentages instead of floors or caps based on fixed amounts qualifies as equal protection. Allowing the margins to be adjusted enterprise-by-enterprise qualifies as equal protection because they're all governed by the same rule structure and they each have the same flexibility to set wages that provide the best balance between profits and worker retention. Where a one-size-fits-all fixed amount can be harmful, a ratio can be beneficial to the long-term health of an enterprise, something overlooked in the "maximize shareholder profits at all costs" climate of the past twenty-plus years. I'm sure this is far too complex to be properly argued in a forum like this. But I don't think the idea is out of bounds.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

Well, technically, all businesses receive government funds. It's just hidden in the form of police and fire protection, hospitals and sewers and roads, etc, etc. Enjoying the trappings of civilization that enables business to thrive is essentially receiving government money. So if that's the criteria, then it's 100% constitutional. Plus, the commerce clause. All dollars are interstate eventually.

[-] -1 points by Jflynn1964 (-206) 2 years ago

You are an out and out communist.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

I think that's a solid analysis. It is possible to implement in a number of ways, it seems. Whether any decent legislation can pass such a polarized congress and survive the Supreme Court gauntlet is very much in doubt at this moment in history.

That's why I keep coming back to non-partisan, process-oriented amendment language to strip first amendment protections from the simple act of spending money. Politicians fear retaliation from big business when they fail to toe the line. Passing a good amendment would be the equivalent of a mutiny but the politicians would be indemnified from the type of retaliation they normally get by virtue of their new powers to control spending in politics. It could work and might even have a better chance than any new attempts at campaign finance reform legislation. And it's certainly better than trying to legislate via amendment as groups like Move to Amend are trying to do.

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

Reply to your post above the last one.

Yes, I believe you're right that all business is subject to the interstate commerce clause, but it's not that simple. I don't think the courts would uphold it, since, as far as I know, a compelling, airtight case needs to be made that interstate commerce wold be inhibited without salary caps. Proving that would, in my opinion, be virtually insurmountable. If it would be that easy, all private sector unions would be either required or prohibited, since they place different burdens on employers and profits, and the interstate commerce clause demands a level playing field. These laws are very complex, and arguing them is a challenge even among experts.

I know that Barney Frank tried to introduce some legislation to this effect on businesses that receive direct, rather than indirect moneys from the government. I don't remember what became of that legislation, though. I think it fail to gain traction.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

That's probably true. And even if it would pass muster constitutionally, the conservative Supreme Court would probably strike it down anyway. But the tax code could be structured to include write-offs for companies that adopt a wage ratio scheme and penalties that get increasingly stiff for companies that have extreme disparities.

It might even win some conservative support as a way to keep money in the private sector first while imposing higher taxes only on companies that are acting as drags on the economy due to their lack of reinvestment. We can even use Jack Welch's idiotic "maximizing shareholder value" mantra to make the point that the CEO and his cronies don't get to keep the money. At the very least it has to go out in the form of dividends to shareholders.

It would be the best of both worlds. Progressive taxation but only on companies that aren't contributing to the base economy. And for those companies that do reinvest, a lower tax rate that spreads out the tax base to raise revenue from more sources. And you know, it doesn't even matter that that conservative ideology is wrong, that fact that companies are spending back into the economy would have the same impact, only more effectively. It's a win-win. :-)

[-] 1 points by francismjenkins (3713) 2 years ago

The whole "conservative Supreme Court" idea is sort of a misnomer. I mean, yes, 4 out of 9 justices are conservative, but Kennedy is a moderate (at least by conventional standards). Citizens United may give the impression that the court is conservative, but when one reads the opinion, it's not altogether clear that it was a bad decision. I mean, it concerned a movie (about Hillary Clinton), and Citizens United is a public interest organization (albeit a conservative organization). Words like "corporate personhood" were never used in the opinion, notwithstanding public perception. And quite frankly, it's possible a more skillfully crafted campaign finance law could be passed, which accomplishes the same goals, while taking into account the constitutional defects found by the court.

We might need an amendment, but we shouldn't throw our hands up in frustration and believe all legislative doors are closed, because they're not (necessarily). Similarly, we shouldn't give up on the idea of passing legislation (like your idea for instance) in the belief that it would just be overturned by the court, because this might be a mistaken belief (and we'll never know unless we try).

If the court becomes totally obstinate, then Pres. Obama could always try to pull off an FDR (threaten to "pack the court"). Of course he'll need a democratic congress for the threat to be taken seriously. Okay, a very challenging scenario, but still easier than getting an amendment passed.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

I hear what you're saying about the court and Kennedy is definitely the X factor but it's not just CU v. FEC that I base that on. John Paul Stevens said that every single justice appointed while he was on the court was more conservative than the justice being replaced. Even the "liberal" justices were more conservative than very liberal justices they replaced.

Corporate personhood has been accepted as settled law by the courts since Santa Clara v. Southern Pacific, and expanded in successive rulings since the 19th century. Spending money as an expression of speech dates back to Bukley v. Valeo in he 70s. It's not THIS court, per se. It's the trend. I've never been a SCOTUS fan, but I was convinced that the conservatives can do whatever they want back with Bush v. Gore.

All that said, I'm not giving up on anything. It just occurred to me that the wage ratio may even work better implemented through the tax code rather than as a separate regulation. I'm also involved with a group trying to abolish corporate personhood and remove money as speech by constitutional amendment. And with the right amendment language, I think it's actually very achievable.

Here's what we're doing: http://abolishcorporatepersonhoodnow.org/2012/02/25/the-human-rights-amendment-tackles-corporatism-plutocracy-and-the-supreme-court/

And here's a petition: http://www.change.org/petitions/pass-the-human-rights-amendment

[-] 1 points by francismjenkins (3713) 2 years ago

Nothing here I disagree with ... and the slow erosion of our economy and democracy (since Reagan) is undeniable. You can even see it on the internet. When you try to search for accurate information, you're inundated with misinformation posted by conservative organizations (making it very difficult for average people to be well informed). This is what it's all about.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

Totally agree. With all the money corporations have been able to accrue to themselves through the tax code, they have all this cash lying around to use on things like massive propaganda campaigns and paid internet trolls. Why conduct business when you can just rig the system? It's all collapsing in slow motion and that's why the titans of commerce don't yet understand that they're self-serving policies have set in motion their own destruction. I just hope they don't take the rest of us with them.

[-] 1 points by francismjenkins (3713) 2 years ago

Perfectly stated!

[-] 0 points by Jflynn1964 (-206) 2 years ago

Here we go again, yeah the 70 were a great time. No Kennedy did not have to lower tax rates in 62 and 64. Those were just myths. Seriously, where did you go to school?

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

How about 1945 to 1970, asshole? That's when most of the expansion happened. And that's when the marginal tax rates were highest. Keep spinning your debunked supply side trickle down bullshit. Maybe you like the piss trickling in your mouth.

[-] 0 points by XenuLives (1645) from Charlotte, NC 2 years ago

There's websites for that...

[-] 0 points by Jflynn1964 (-206) 2 years ago

Can't win your argument so you have to start spewing venom. Why would Kennedy have lowered taxes twice?

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

You are a troll. there is no need to spew anything but venom in your direction.

During Truman's administration the top marginal rate was 84%. Eisenhower raised it to 91%. Kennedy did indeed lower it to about 85%. back to the level of 1950. By the time Reagan took office the rate was down to 70%. He lowered it to about 50%, and that's when the real problems began. That's when income disparity began to grow quickly to the same distribution last seen just prior to the Great Depression. And low and behold, we experienced ANOTHER depression.

But I would be willing to concede that Kennedy did the right thing, and we should return to the 85% top marginal rate he implemented.

[-] 0 points by Jflynn1964 (-206) 2 years ago

Kennedy lowered taxes to boost GDP and it worked. Reagan did the same thing. Most of the world recognizes this that's why more countries are employing a flat tax now than in any time in modern history. Go back to smoking your dope if you things were great in the 70s. Yeah, that's why Carter was re-elected.

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

Reply to your post below.

And THERE is your famous racism again.

Piece of shit.

[-] 0 points by Jflynn1964 (-206) 2 years ago

I love it. You hate the Catholics but can't tolerate any criticism of the President especially when it is true. The community organizer is learning on the job. How old are yo by the way that you have throw out a bunch of names.

What community college did you go to.

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

[reply to below]

The facts DO bear me out, 100%. And you essentially agreed with my point anyway. So what percentage do you think is optimal? 0%?

And hardy har har on your last point. If you're such a believer in self-sufficiency, why didn't make your own soap and wash your own hand-made clothing by hand with a rock in a river this week? Why did you go to school? Why did you get your immunizations against mumps, measles and rubella? Why do you eat food you didn't grow or kill yourself? How far do you want to take this stupidity?

[-] 1 points by pewestlake (947) from Brooklyn, NY 2 years ago

There's a point of diminishing returns with tax cuts. Lowering a marginal rate from 91% to 85% can indeed be somewhat stimulative. But lowering it from 39% to 35% doesn't, and didn't, do squat. Bush Jr's administration fostered the worst private sector job-creation of any modern Presidency. Carter's administration created more jobs in four years than Bush Jr's did in eight. Austrian school supply-side economics is a fallacy and a failure everywhere it's been implemented. Only self-serving elites and ignorant sheep still peddle that crap.

[-] -1 points by Jflynn1964 (-206) 2 years ago

Sorry, the facts don't bear you out. Lower taxes due work. Of course mathematically the lower the amount the lower the effect. Stong monetary policy has much more of an effect than the tax question.

If you are such a believer in government controlled economy why don't you give more of your money to the government.

[-] 1 points by epa1nter (4650) from Rutherford, NJ 2 years ago

GDP was increased and it was funneled almost exclusively to the top. Go back to sucking your Koch if you think things are great NOW.

[-] 0 points by Jflynn1964 (-206) 2 years ago

I never said things were great now. We have an affirmative action president who is learning on the job. Nevertheless, the economy will get better because velocity will return.