Obama Speaks French Economist
Two of them, Piketty and Saez, are "rock stars of the intellectual left," writes WSJ editor Daniel Henninger:
Their specialty is "earnings inequality" and "wealth concentration."Messrs. Piketty and Saez have produced the most politically potent squiggle along an axis since Arthur Laffer drew his famous curve on a napkin in the mid-1970s. Laffer's was an economic argument for lowering tax rates for everyone. Piketty-Saez is a moral argument for raising taxes on the rich.
As described in Mr. Obama's budget, these two economists have shown that by the end of 2004, the top 1% of taxpayers "took home" more than 22% of total national income. This trend, Fig. 9 notes, began during the Reagan presidency, skyrocketed through the Clinton years, dipped after George Bush beat Al Gore, then marched upward. Widening its own definition of money-grubbers, the budget says the top 10% of households "held" 70% of total wealth.
...Turn to page five of Mr. Obama's federal budget, and one may read these commentaries on the top 1% datum:
"While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not."
"Prudent investments in education, clean energy, health care and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected."
"There's nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few. . . . It's a legacy of irresponsibility, and it is our duty to change it."
This is the least "tilted" country in the world. Anybody can become somebody, and not just somebody, but somebody really big, and wealthy and famous. Just look at Oprah and all the other people who came from nothing.
It's not like that where Monsieur Picketty and Monsieur Saez hail from.
Gregg and I, through a friend of ours, know this amazing retired master woodworker in France. I don't even know if he finished high school -- he grew up during World War II, and lived in a flat with no bathroom on rue Princesse. There was a toilet in the building, and pay showers down the street.
And he became a master woodworker because that's the level of society he was born to. And that's how it goes in France. You don't really get to cross the lines. It's just not done.
Yet, here's this guy, a brilliant student of human nature -- nothing gets past him -- who can probably tell you more about world history and even American history than most Americans. I don't know what else besides woodworking he might've done, had he be offered the opportunity, but he wasn't and wouldn't have been, and not just because of the war. You're born to the "peasant" class and you stay there, and so do your children, and their children, and their children, barring an accident or a miracle (not that I believe in such things).
Getting back to this country, I'm not for an abolishment of government but for as little government as possible. And I find it immoral to punish people financially -- really, to steal from them -- for either being lucky enough to inherit wealth or for making something of themselves in a really big way.
Finally, the thing I can't understand is that from a party that professes to be about equality, how they can be so blatant about treating people unequally at every turn. Oh, sorry -- only men, especially white men, and rich people.
Accordingly, here's one of the comments I liked on the Journal's site:
Using the President's definition of fairness, shouldn't all the "A" students be forced to give some of their A's back to help some of the poor C and D students? Isn't that "fair" even though the A students probably worked a lot harder than the C & D students.Andy Schultz
Tampa
The top 1% owns 22% of the wealth. So what? They also, at least here in the US, pay around 95% of the taxes. How is THAT fair?
momof3 at March 13, 2009 6:08 AM
Leftists believe relative wealth is more important than absolute wealth. They also evaluate poverty that way. It's ludicrous but that's how they think.
I would also note that most European countries have very rigid class structures. North American is generally an aberation on the world stage.
Charles at March 13, 2009 6:30 AM
Just saying - the serial financial killer Madoff came from modest circumstances (indeed, that lore is part of his legendary 'American Dream' rise) who took criminal advantage of lack of regulation to enrich himself fabulously.
Perhaps if there had been less rapturous regard for people "making something of themselves in a really big way", the Madoff fiction would have been rumbled earlier?
Jody Tresidder at March 13, 2009 6:31 AM
Point well made, Charles.
For instance, the typical "poor" person in Kenya lives in a mud hut and gets heat from burning cow dung. Kinda like Obama's half-brother George.
On the other hand, the typical "poor" person in America lives in a third-story walk-up with steam heat and electric lights. They have a television, and automobile, and a refrigerator.
And that's the ones that DON'T work.
Are there dirt-poor beggars in the US? Sure. And raising taxes on everyone else isn't going to cure the mental problems that landed them there.
This isn't about fairness, it's about punishing wealth. The only thing missing from Obama's argument is the claim that "das Juden" have stolen it all from "das Volk".
I suppose we'll see that soon enough.
brian at March 13, 2009 6:34 AM
Jody - it was lax regulation, not lack of regulation.
The SEC looked right at him and didn't see the criminal activity taking place right under their noses. Someone was asleep at the switch there.
brian at March 13, 2009 6:35 AM
>>The SEC looked right at him and didn't see the criminal activity taking place right under their noses. Someone was asleep at the switch there.
Brian,
You're usually incredibly patient with me when I reveal my idiocy so...sure, the amazing slumbering of the SEC was one aspect, I know. (And I've read how the SEC's meaningless free pass was actively - and incorrectly - waved around to reassure investors all was well.) But I thought it was also a lack of regulation in other more arcane areas that Madoff and his tweedeldum "accountants" mined to the max?)
Jody Tresidder at March 13, 2009 7:13 AM
Regulation or no there will always be criminals. Even in socialist countries (ok, especially in them) people will always enrich themselves at the expense of others. It's life.
momof3 at March 13, 2009 7:20 AM
>>It's life.
Yes, yes, yes. Fine, momof3.
There is messy old life. And then there is stuff you can prevent.
Madoff is not the Wall St equivalent of an under-the-radar psycho student with access to his dad's gun collection.
Given there is doubtless another Madoff out there right now - with a similar, but not identical career resume - who could be nipped in the bud with the right regulation, I don't feel a world weary shrug is the only response possible to the inevitable meltdown.
Jody Tresidder at March 13, 2009 7:32 AM
Jody,
The problem is that Madoff and his ilk will always be smarter than regulators. Regulators are generally lawyers and accountants that simply have no idea how the industry operates. I'm sure new regulations will come out of this. The problem is the fraudsters will find a way around them.
The solution is investors better educating and protecting themselves. Don't put all your money in the same basket. When someone promises you something that is too good to be true ... it probably is. Madoff was being named the Jewish Bond because he made about 1.5% per month every month for 15 years. That's simply impossible.
Charles at March 13, 2009 8:24 AM
Jody -
Madoff blatantly violated the regulations, and then lied to the regulators about what he was doing. In fact, that was one of the things he pled guilty to - lying to the SEC.
Just like lack or regulation had nothing to do with the mortgage collapse. Everything was being done precisely the way the regulations said it had to be done.
The problem with regulation is that it is often used as a substitute for sense. When something is potentially harmful (subprime loans, credit default swaps, short selling), but allowed by regulation, and everyone does it, you get the housing collapse.
And when something is potentially harmful in the edge case (selling an asset below market), and you regulate it out of existence (with "mark to market"), you get the housing collapse.
The present situation we find ourselves in is not for lack of regulation. It's because of over-regulation and the unique holes it creates for the unethical and the immoral to squeeze through.
And it is those such as you who believe that with the "right" regulation, nobody will ever be able to do something wrong who will be to blame for the next bubble and its inevitable burst.
If the people that Madoff had bilked were more involved in their investments, or if they'd heeded the old adage "if it sounds too good to be true, it probably is", then Madoff wouldn't have gotten away with it. The story I hear over and over again is "He told us that he'd come up with a way to beat the market".
Nobody beats the market forever.
brian at March 13, 2009 8:35 AM
> Given there is doubtless another
> Madoff out there right now -
There's an old joke about liberals here: "Government has completely fucked this up... Let's get some more of it!"
Crid [cridcridatgmail] at March 13, 2009 8:52 AM
You'll know the government is serious about fixing this mortgage mess when Dodd and Frank are the ones being questioned instead of asking the questions.
This is inadvertent comedy, akin to Jamie Gorelick asking how 9/11 could have happened.
My wife managed to talk some lady out of wiring a few thousand dollars to Canada a month ago. She needed to pay taxes on her prize. The one she won in a contest she didn't enter... The papers have reported on this scam for years. They want the money wired so it is not postal fraud.
Nobody can save people who will not save themselves.
MarkD at March 13, 2009 9:33 AM
the interesting thing about giving somebody everything they want, is that eventually nothing is ever enough. Some people are so jealous of wage earners at the high end that they are willing to force those people not to make as much money, even though doing so will actually give them less money in taxes. Big green monster. Oddly, there is a whole intellectual group for whom the very idea that somebody could go off and do their own thing [be rich, be gifted, make stuff] is anathema. They want everyone to be the same, never realizing that if that were the case, they'd have to have a lobotomy too.
Dogbert says: "BAH!"
SwissArmyD at March 13, 2009 9:48 AM
Brian/Charles,
Thanks for thoughtful - courteous - responses.
Brian wrote:
>>Everything was being done precisely the way the regulations said it had to be done.
I understand this argument.
I also wonder - idly, I guess - whether it would have made a difference if NO commissions could be collected on mortgages until repayments had been met for a specified time - say two years.
(Though I guess it would only have created a brisk market in reselling less than two-year-old loans...)
Jody Tresidder at March 13, 2009 10:32 AM
Jody,
Madoff launched his Ponzi scheme almost 20 years ago. It just kept getting bigger & bigger as he hooked more & more suckers, regulation or no regulation. Alarms were raised at the SEC as early as 1999, but they chose to do nothing much about them. No amount of regulation can keep fools & their money from being parted, and any regulation is pointless if no one is willing to investigate & enforce it.
Pathological swindlers like Madoff are not exclusive products of free-market capitalism. The Castro brothers are multi-billionaires, while the average Cuban monthly salary is about $ 25. In the free market, Madoff has just been sent to prison for the rest of his life, and the people who gave him their money are sadder but wiser. In socialist paradises, the swindlers get to keep their palaces & their billions, while their victims get shot or locked up.
The mentality of Piketty & Saez is about the same as that of the people who are more outraged over the fact that Warren Buffett & Bill Gates have 80 billion dollars than that Stalin & Chairman Mao murdered 100 million people.
Martin at March 13, 2009 10:46 AM
You answer your own question, Jody.
I sell the mortgage to Fannie Mae (who is obligated by law to buy it regardless of its underpinnings) for a small (1%) profit.
If I do this 10 times a month with $500,000 mortgages, I'm pulling in 50 large A MONTH.
Which is enough for me to clear a half-mil a year and take two months off in the Bahamas.
What, exactly, is my incentive to not sell mortgages to bad risks? I'm not going to lose a penny on the deal. I've got no skin in the game once FMLA purchases the loan.
The whole problem here was a regulatory environment that encouraged poor behavior in the name of "affordable housing" (or the "ownership society", if you prefer the Bush term to the Frank term).
And yeah, Society has been well and truly owned.
brian at March 13, 2009 10:47 AM
>>What, exactly, is my incentive to not sell mortgages to bad risks?
I hate that question, brian!
(It's a good one, of course. I just had a quick trip to Key West & even after all I've read, I was still stunned to see the rows upon rows of empty, visibly deteriorating, luxury condos crouching hideously in the sun beside the highways out of Miami...just one part of this mess.)
Jody Tresidder at March 13, 2009 11:20 AM
Jody,
Governments, through F&F, guaranteeing mortgages is a giant exercise in moral hazard. The solution is to remove government from the equation not add more regulation. In essence, if you tell banks and mortgage brokers that they can originate mortgage loans, not put down any capital to protect against losses, and sell it to the government and make an instant riskless profit, don't be surprised when the situation gets out of control. You've given them a free ride.
Think about it. How is it fair to you that banks and mortgage brokers get to juice their profits and ROE's when times are good, and you, as a taxpayer, get to pick up the tab when it falls apart?
Charles at March 13, 2009 11:22 AM
Charles,
I can only throw up my hands at your trenchant analysis of what's gone wrong - and offer you - (I promise it's a fab read! Just on Metafilter) - this:
http://www.portfolio.com/executives/features/2007/04/16/The-Pirate-Pose?print=true
Jody Tresidder at March 13, 2009 12:25 PM
Trust me Jody, I know what hedge fund managers are like. I help manage pension funds and I have crossed paths with many of them over the years.
Here's a twist for you ... where did all this money come from anyway? These people need money to be able to speculate with. The answer is simple. Mr. Greenspan and his magic money tree known as the FED. When you keep interest rates at 1% for almost 3 years, that's what you do, you throw money in the system. The problem is a good chunk of this money ends up in the hands of these nasty hedge fund managers. And what do they do? They certainly don't buy T-bills at 3% for 10 years. They buy all kinds of investments (stocks, bonds, MBS, commodities, CDO's, etc. etc. etc.). Can you say asset inflation? ;)
Here's a link for you. http://crisisofcredit.com/
Charles at March 13, 2009 12:56 PM
>>Here's a link for you. http://crisisofcredit.com/
Just to say - made it through, Charles!
Thanks - that was about my level & now I'm going to stick my head in the fridge for a spell:)
Jody Tresidder at March 13, 2009 1:58 PM
Piketty and Saez are the Howard Zinns of comparative economics. They've used two different definitions of income when comparing the US to European countries. The US income basis ignores types of income, typically received by low and middle income individuals, that are included in the analysis of incomes within European countries. When you utilize this definition of personal income for the US, and factor method of accounting differences, the proportion of 'National Income' to the top 1% of earners in the US drops to about 10% IIRC.
That's not to say that the top 1% of earners don't receive a significant proportion of the total value of personal income in the US. But it's not as dramatically disproportionate as their analysis claims. It's actually pretty close to the average for the countries that they'd looked at.
Mack at March 13, 2009 4:51 PM
After nearly 40 years of secondary
teaching, I have to say that those classes where the A and B students really cared about the C and D students, and gave of their time and energy to raise the general level resulted for a higher success level for all involved.
northcountry at March 14, 2009 9:37 AM
Northcountry,
There's a difference between caring about the people doing more poorly than me and my resources being given to them.
If I care about the people worse off than me then I can help them however I choose. I can give them money, help build them build some infrastructure, help out at a soup kitchen, or just provide moral support.
Simarlarly an A student can help a D student in many ways. Help them study, teach them to take better notes, cheer them on, or whatever else they can think of. BUT THE A STUDENT KEEPS THEIR A.
What the government wants to do is take the points away from the A student and give them to the C student. The A student becomes a B student and the D student becomes a C student.
The A student has no choice in how they help. Their grade gets damaged. They lose resources. Because they get screwed by succeeding and their friend gets rewarded for failing, two things happen
1) The A student has no incentive to work hard. They will slack off and wait for the teacher to take points from another student and give it to them.
2) The A student will resent the D student and have no interest in helping them. If the A student decides come hell or high water he's going to keep his grades up he will put all his time into doing whatever he can to bring his grade up (cheating too. Why play fair if you have to give away half your points anyhow). And he will have no time or inclination to help the D student.
Citizens caring about the less well-off is fantastic and beneficial to society as a whole. But you can't force them to give up their hard earned resources and not have them get pissed off and resent it. They will stop caring and be disinclined to give any more help.
How the hell is this not common sense? Are people that squishy brained?
Elle at March 15, 2009 3:47 PM
The value of persons of US origin has been a red herring. The CPI does not include the cost of living, taxes nor user fees. When we exclude all these factors we also are fiscally deluded especially when we do an apples to apples comparison to other peoples or cultures quality of life.
This pathway to individualism works if you define and admit yourself as a true consumer and care little for anything beyond your own relativity. Big Gov, Big Ed and Big finance are forerunners to the pinnacle of modern industrialization. In the words of our greater sages, we no longer require functional individualism, nor do we require of the people their input or even the production of future stars in any field. It would behoove many to consider the yellow brick path we are bound to follow.
Global imperatives demand it. Since WWII our die was cast, our true humanity removed and replaced by socialistic type engineering. For those who attempt to traverse the higher echelons of thinking or are initiated into the multinational think tanks. Choices for the future are limited by the scope and depth of what is often required of the participants to lead their sheople. We live in very interesting times, as we have lowered the bar standard year on year in every discipline by politicizing them. I believe the bureaucrats word is to recenter the standard. As Americans we actually own nothing. Do we actually yet still have any rights ? nor does it appear we care enough to do anything about it. As exemplified by Voltaire's statement, 'It is dangerous to be right, when the government is wrong', words that to me appear to echo the despair and hollowness of many.
For all this to succeed it was necessary to destroy and polarize functional communities, familial infrastructure and the creme de la creme present the lowest common denominator as the legal standard. Masterful but an age old practiced form subjugation. I believe what we see unfold before us was laid out by a phase II Marxist by the name of Antonio Gramsci in his 'long march through culture' theory, the catalytic seeds are self evident. As are the empirical results. Obama represents nothing other than a populist mouthpiece. He never represented us but stood the test of what is the systems effective method of presenting democracy. For one thing he is an attorney and our whole country is ruled by them.
AndrewEss at April 14, 2009 10:22 PM
Wonderful blog! Do you have any tips and hints for aspiring writers? I'm hoping to start my own website soon but I'm a little lost on everything. Would you suggest starting with a free platform like Wordpress or go for a paid option? There are so many options out there that I'm totally confused .. Any suggestions? Kudos!
mastercard at July 5, 2011 12:16 AM
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