Posted by Marc Hodak on June 4, 2008 under History | 
That headline contradicts most people’s view of the history of Social Security, the most visible, surviving legacy of the New Deal. But it’s true.
Roosevelt, of course, promoted and signed into law the original Social Security Act of 1935. But that law set up a forced savings/redistribution program for limited portion of the population (* details below the fold). It used the contributions from the participants to set up reserves, and it paid beneficiaries from those reserves. The plan was more or less self-contained. In 1943, President Roosevelt vetoed legislation that would turn Social Security from the forced savings/redistribution program it was set up to be into the pay-as-you-go program that, once his veto was overriden, we know today.
The 1943 debate on this law centered on governance. For Roosevelt, good governance meant continuing the Social Security program as it was originally envisioned–actuarially self-financing. To Arthur Vandenberg and other Republicans, it was clear that Congress was simply using the “reserve fund” as a cover to squander money on pet projects. In their minds, shutting down the “reserve” was just a way of restoring fiscal discipline.
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Posted by Marc Hodak on under Politics |
Barack Obama had flatly rejected the idea of being Clinton’s VP during the primaries. I don’t recall that Clinton has ever rejected the idea of being Obama’s VP nominee, though most people had assumed during their battle that she wouldn’t condescend to be anyone’s VP.
In game theory, Obama’s position would be considered to border on brinkmanship. “If you want me, you’d better vote me to the top of the ticket.” Clinton’s position would be considered as hedging. “I want to be the presidential nominee, but I won’t rule out the second spot, just in case.” In a sense, Clinton’s position doesn’t seem as strong; her hedge opened up the possibility of voters who are on the fence going for Obama; that way, they might get both.
On the other hand, Clinton has known for a while now that she was likely to lose the presidential nomination. She has been arguably playing for “rebound position” since Super Tuesday, where if the shot doesn’t go into the basket, i.e., Obama has a serious slip up, or worse, she’s ready with her sharp elbows to catch the rebound. Angling for the VP slot might simply be a continuation of the rebound positioning, which could continue right through an Obama presidency.
That might work better for Bill, too. I never believed that Bill was rooting for his wife in this campaign, no matter what he said or did. His multi-million dollar earning power would be lost for the most productive period of his life. Screw that. Bill would probably find being second-husband far less constraining than first-husband.
Posted by Marc Hodak on June 2, 2008 under Executive compensation |
In the latest issue of Directorship, Amy Borrus of the Council for Institutional Investors says,
Additional sunlight is chasing some perks away at some companies. That’s a good thing–perks are the polar opposite of pay-for-performance.
So is salary. Is CII advocating that CEOs be paid purely on variable compensation? That kind of runs counter to the oft-stated desire to bring down overall CEO pay. Surely, institutional investors can’t expect CEOs going all-variable to forego extra compensation for the extra risk they must bear. Their investment clients certainly would accept such a trade-off. Who would? The “it’s-not-pay-for-performance” critique of perks is too simplistic for an organization like CII.
There is only one good reason to cut perks: They look bad. It looks bad that a CEO who is making millions of dollars per year has the company paying $20,000 for a country club membership, or $15,000 for tax planning. It makes the CEO look grasping, when in fact these perks long preceded their accession from a time when they made perfect sense. It looks bad for the board because it makes them look like a bunch of stooges who can’t say “no” to the smallest thing.
The fact is that most boards can say no. They’re really not all incompetent or corrupt. They have been saying no for years. The fact is that these perks were generally good for the shareholders. They came about, admittedly in a more innocent age, because they represented tax-efficient ways to compensate their executives. If a board takes away $100,000 worth of perks that can legitimately be offered for business reasons, such as country club memberships (for business development), tax planning (to avoid personal financial issues, or fraud), or car and driver (for security), then the executive paying for those items with their own after-tax dollars would have to have their pay increased by about $200,000 to make them whole, especially if the board expected the CEO to retain many of these services.
But, since perks look bad, boards take them away, executives largely replace them at their own expense, and shareholders pick up the tab anyway, except twice over.
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Posted by Marc Hodak on June 1, 2008 under Collectivist instinct |
This is amazing (not in a good way):
Your head will explode when you’re done. Really.
From that fringe, left-wing cult–the Australian Broadcasting Corporation–telling the average Aussie kid that they should die at about 9 years old to make way for the “good” kids who don’t use energy or have money. Where is the outrage? We’ll check back.
HT: The awesome Coyote Blog
Posted by Marc Hodak on May 30, 2008 under Politics |
Examination of a Witch, Thompkins H. Matteson, 1853
The government’s witch hunt for those behind the surge in oil prices continues. The CFTC, a regulatory agency, began its own investigation:
“The Commission is taking the extraordinary step of disclosing this investigation because of today’s unprecedented market conditions,” CFTC Acting Chairman Walt Lukken said in the statement. The Washington-based regulator, which generally conducts inquiries on a confidential basis, didn’t say when the probe will end. The CFTC did not name any companies being targeted and said details of the investigation were confidential.
Translation: “We’re publicly announcing our investigation of the oil markets because this is the most effective way for us to communicate to Congress that we’re ‘doing something’. We can’t actually tell you anything about this investigation because it’s supposed to be confidential. Actually, it’s because we’ve got nothing, but can hide that fact by claiming confidentiality. Even though we’re talking to you in front of cameras and microphones. Confidential, you see.”
Of course, this new phase of the witch hunt won’t be costless:
The regulator will require traders to give monthly reports about their index-based trading and it plans further reviews of how these traders are classified, how they report their trading activity and how they behave, according to the statement.
Like that won’t have any effect on spreads.
Posted by Marc Hodak on May 29, 2008 under Unintended consequences |
I want to follow up on my last post with the unintended consequences of Congressional policy on global taxation of U.S. citizens. As I mentioned earlier, many U.S. citizens living abroad are tiring of dealing with the IRS and renouncing their citizenship. This NYT article includes some excellent vignettes along those lines.
The legal ritual of renunciation is largely unique to the United States because other countries base taxation on residency, not citizenship, according to Ingmar Dörr, a tax lawyer with Lovells in Munich.
“We don’t have that issue,” he said. “We only have the problem that rich people who don’t want to pay taxes in Germany just move to a lower-tax country in Switzerland.”
That’s precisely the choice that the U.S. Congress wishes to deny its wealthy citizens. So, beginning in 1996, they have enacted increasingly draconian laws to make renunciation for tax avoidance purposes as difficult and costly as possible. They are, in a sense, trying a Berlin Wall solution.
To understand why Congress feels it needs a Berlin Wall strategy for American taxpayers, one only need look beyond the populist rhetoric about our wealthy paying their “fair share” to realize that our top 1 percent of households pay 28 percent of all taxes collected by the U.S. government. Congress will complain all day about “the rich,” but it does not want to let these people go.
The problem with this strategy, of course, is that what looks like a Berlin Wall to your own citizens looks like a Hotel California to outsiders who have a choice of where to check in.
How has that been working? Well, it used to be that everyone I knew from abroad was looking forward to American citizenship. Now, not a single one of my professional acquaintances wants it. They don’t mind paying their taxes while they’re here, but would just as soon be left alone by the IRS once they have departed to Toronto, Dubai, Shanghai or wherever opportunity might take them in this big world.
This is more than just an anecdotal trend. In the five years before the 1996 change in the law, the ratio of professionals to total immigrants was a steady 15-16 percent. In the five years afterward, which included the dot-com boom that attracted so many of the world’s entrepreneurial types here, that ratio dropped to 12 percent. It is currently below 10 percent. In fact, the raw number of professionals naturalizing here in recent years is below those from the mid-1990s in the lead up to the new tax laws.
In other words, the new rules that have kept an extra few hundred of our professional class from checking out have likely scared away tens for thousands from checking in. I’ve done the math, and it’s crazy.
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Posted by Marc Hodak on under Collectivist instinct |
The philosophy behind the Berlin Wall was straight-forward: Your person and your property belong to the state. Couldn’t happen here, right?
Well, Congress has just passed a law that goes half way–you can leave if you want, but we’ll tax everything on your way out, even if you haven’t realized the gain, even if that gain occurred in a foreign bank while you were living and working outside of the U.S., even if you have spent most of your life in another country–perhaps your birthplace–where you are also a citizen, from which you have filed a U.S. tax return because ours is virtually the only country on earth that taxes its citizens no matter where they earn their money.
Now, the only way to escape U.S. taxes is to leave the country and renounce your U.S. citizenship. The U.S. then refers to you, who gifted us with a lifetime of talent, hard-work, and tax payments as a “tax traitor,” bans you from re-entering the U.S., and claims tax on your future income, or all your assets upon death at a 45 percent rate, for the next ten years. What is about to change is that silly “next ten years” loophole. Congress no longer wants to wait; they intend to tax all unrealized gains immediately, and will tax your American children on your gifts at the 45 percent rate whenever you die.
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Posted by Marc Hodak on May 28, 2008 under Politics |
In an article entitled Obama, Clinton campaigning in different races, Obama is quoted as follows:
“(The high rate of foreclosures) is a serious problem all across Las Vegas, all across Nevada, all across the nation,” the Illinois senator said. “A lot of this wouldn’t have happened if we would have done a better job regulating banks.”
Later, talking to supporters here at the College of Southern Nevada, Obama returned to the theme, noting that McCain said early in the campaign that “economics is not something I’ve understood as well as I should have.”
Obama is accusing McCain of being weak on economics? Maybe the article should have been titled “Economics, Obama campaign on different planets.” Obama is clearly failing to distinguish economics and politics.
Economics is about relationships between X and Y. For instance, it might be economically true that greater regulation of banks would have led to fewer foreclosures. On the other hand, it’s at least as possible that the degree of bank regulation had no net impact on foreclosures, or that the regulation that existed may have enhanced the likelihood of foreclosures. I can 100 percent guarantee that Obama doesn’t know which is true. He is only asserting something that sounds good to his audience. That’s politics, an area in which Obama is clearly strong. McCain at least admits he is ignorant about economics, which may or may not be good politics.
Politics is about government intervention in private decisions. Such intervention has economic consequences, but it is not itself “economics.” For instance, let’s assume that Obama is right that better bank regulation might have forestalled the mortgage crisis; two questions remain about the wisdom of such regulation. First, all government interventions–like treatments for an ill patient–have central effects and side effects. The side effects of government intervention are generally known as unintended consequences. Assuming they are known, however, it’s a reasonable question to ask if the side effects will be worse than the central effects in this instance. Second, all government action is subject to non-economic considerations. So, what makes Obama so certain that better regulation in this instance will even create the intended central effects? Maybe that’s what he means by the audacity of hope.
Posted by Marc Hodak on May 27, 2008 under Irrationality |
This gem comes from Henry Stern, New York City’s living institutional memory:
When James Wechsler was editor and Dorothy Schiff was the owner of the New York Post, there was a dispute over whose articles were more popular, Wechsler’s editorials or the paper’s regular columns. At the time the Post had two magnificent columnists, Murray Kempton on public affairs and Jimmy Cannon on sports. These men were great writers and if you can find any of their books in print or articles about them on the web, you should read them.
At any rate, Ms. Schiff was persuaded (which was not easy) to spend some of her money on a survey to find out the most popular column in the Post. The study discovered that it was the daily horoscope that most people read. That is understandable, the rest of the paper tells you what is happening in the present, or what took place in the past. Only the horoscope will tell you the future.
Stern, a stickler for facts, doesn’t assure us this is true (he heard this second-hand). Unfortunately, it sounds plausible. You can’t find this on Snopes.
Posted by Marc Hodak on May 26, 2008 under Unintended consequences |
Clinton or Obama? Obama has the nomination in his pocket; even Hillary knows it. Still, the super-delegates must make their choices known, and it appears that they will be compelled to choose the most popular candidate of their party–Obama–even if he is less likely to prevail in November.
Hillary, of course, has been arguing all along that she is more electable than Obama against McCain. The evidence shows that she is right: According to polls tracked by the non-partisan electoralvote.com, Obama is barely ahead of McCain, and neither has enough to claim an electoral majority. Hillary Clinton versus McCain is a lock. She owns every major state with over 15 electoral votes except Texas. She could lose every toss-up state and still win the presidency.
One can imagine the agony it must be for Hillary to know this, and yet face an almost certain upcoming defeat in her party’s primary. What I wonder, though, is how her party’s leaders feel about this? They must know the numbers, too, and yet have their hands tied. Many of them are probably telling themselves, “Screw it. Obama will win, too.” The Iowa Electronic Market is on their side, for now. But that market is thin, and doesn’t necessarily reflect the best bet for the Dems.
My choice remains:
