Foreword:
Once in a while I write about income inequality. If is a very popular topic among progressives.
But - why?
I don't care how much Warren Buffet makes. And I know that many people do not care either. People do not think about the ration between Jeff Bezos' income and theirs. What people think and worry about is - their own income. If the money they make is sufficient to provide to the family a decent living. And if that is not a case, people do not think "Bill Gates is too rich", no, people think "I don't have enough money, my income is not sufficient".
For regular folks income inequality is not even a problem.
The problem is income insufficiency.
I already wrote about it (as one of several themes) in
The Degradation of The White Male American Elite.
Now I just want to address a question - why no one want to talk about income insufficiency, and everyone talks about income inequality?
There may be three main reasons for that.
1. Progressive strategists and pundits are idiots. They do not understand the difference between inequality and insufficiency.
2. Progressive strategists and pundits do not really care about the issue. They care about being in a spotlight. Talking about income insufficiency is not hot, no one cares about it because no one knows what to about it. But talking about income inequality is fashionable. There are data to present, graphs. Everyone uses the same data and the same graphs, but makes a different spin on it. Cool.
3. Progressive strategists and pundits cannot write about the issue because their bosses do not let them a taboo. Talking about income inequality does not shake the status quo. Because it is debatable. Some economists say it exists, some sue different numbers and say it's no so bad. So, the discussion can go on and on' people can get confused. Income insufficiency is a fact; no one can debate that fact; talking about it means starting searching for actual solutions. And the bosses do not want that.
If we want to solve income insufficiency, we have to start from a discussion about the mission of a government. I addressed it in many posts, including (see Appendix I)
Monetary Feudalism, State Capitalism, or Why Does Putin Smile?
As I describe in that post, the solutions proposed by progressives will not make the difference they hope for. Because they do not understand the true role of a government. The main function of the government is NOT forcing people into doing what government officials want them to do, but creating conditions that incentivize people - including very rich ones - into a behavior from which all citizens will benefit. This function requires the deep knowledge of human psychology; some examples are described in this post.
Part I (short): Who are the real wealth creators?
Once in a while I write about income inequality. If is a very popular topic among progressives.
But - why?
I don't care how much Warren Buffet makes. And I know that many people do not care either. People do not think about the ration between Jeff Bezos' income and theirs. What people think and worry about is - their own income. If the money they make is sufficient to provide to the family a decent living. And if that is not a case, people do not think "Bill Gates is too rich", no, people think "I don't have enough money, my income is not sufficient".
For regular folks income inequality is not even a problem.
The problem is income insufficiency.
I already wrote about it (as one of several themes) in
The Degradation of The White Male American Elite.
Now I just want to address a question - why no one want to talk about income insufficiency, and everyone talks about income inequality?
There may be three main reasons for that.
1. Progressive strategists and pundits are idiots. They do not understand the difference between inequality and insufficiency.
2. Progressive strategists and pundits do not really care about the issue. They care about being in a spotlight. Talking about income insufficiency is not hot, no one cares about it because no one knows what to about it. But talking about income inequality is fashionable. There are data to present, graphs. Everyone uses the same data and the same graphs, but makes a different spin on it. Cool.
3. Progressive strategists and pundits cannot write about the issue because their bosses do not let them a taboo. Talking about income inequality does not shake the status quo. Because it is debatable. Some economists say it exists, some sue different numbers and say it's no so bad. So, the discussion can go on and on' people can get confused. Income insufficiency is a fact; no one can debate that fact; talking about it means starting searching for actual solutions. And the bosses do not want that.
If we want to solve income insufficiency, we have to start from a discussion about the mission of a government. I addressed it in many posts, including (see Appendix I)
Monetary Feudalism, State Capitalism, or Why Does Putin Smile?
As I describe in that post, the solutions proposed by progressives will not make the difference they hope for. Because they do not understand the true role of a government. The main function of the government is NOT forcing people into doing what government officials want them to do, but creating conditions that incentivize people - including very rich ones - into a behavior from which all citizens will benefit. This function requires the deep knowledge of human psychology; some examples are described in this post.
Part I (short): Who are the real wealth creators?
I
want to start from a copy of the Facebook post by Dr. Reich (@RBReich)
"This
morning Trump tweeted: "We are the highest taxed nation in the world -
that will change."
Baloney.
The most meaningful measure is taxes paid as a percentage of GDP. As you can
see from the graph below, the U.S. has the 4th lowest taxes of any major
economy. (Only South Korea, Chile, and Mexico ranking lower.)
And
the wealthiest 1 percent in the U.S. pay the lowest taxes as a percent of their
income and total wealth of any country anywhere – and lower than they’ve ever
paid even in the U.S.
Once
again, Trump and the Republicans are dealing with a non-problem, while ignoring
the biggest problems. What do you think?"
An advanced followup is posted recently in
Monetary Feudalism v. Authoritarian Capitalism, or Why Does Putin Smile?
Let’s use our brain to do what it is supposed to do, i.e. think.
Monetary Feudalism v. Authoritarian Capitalism, or Why Does Putin Smile?
Let’s use our brain to do what it is supposed to do, i.e. think.
Imagine
that one day all Wall Street brokers disappeared, the NY Stock market isn’t
open, all bankers are gone, too. And everyone who owns more than a hundred
million bucks is out. What would happen?
Well,
at first – confusion, chaos, even panic, but soon enough new people would come
and make the wheels run. It would have been a bumpy ride, but at the end a new
structure would be put in place and functioning.
Now
imagine that all low and middle level working folks are gone. No more baristas,
drivers, nurses, teachers, professors, policemen, firemen, engineers, etc.,
etc. The world is left with only people who own more than $100,000,000. I am
pretty sure, soon enough most of them would just die from starving.
This
mental experiment is an illustration of the important fact, that people who own
a lot of money are NOT wealth creators. People who work every day helping each
other and creating new things – food drinks, cloth, devices – those people are
wealth creators. The only reason riches are rich is because they collect from
everyone – from every single one – some of the wealth created by that one (I named
it “Monetary Feudalism”). And the portion they collect has been growing and
growing – disproportionally, without any reasonable explanation. Simply
because the rules have been bent in such a way that the most of the wealth
created by people is taken away from them – the distribution of the wealth is
being skewed greatly to the benefit of very few. And taxes play a huge role in
this distribution. Not to see it means being blind, or bought, or brainwashed.
Part II (long)
A trivial straightforward taxation of the super rich has been proven to be controversial in Europe. Will the wealth tax work in the U.S.? The debate is hot. Conservatives say - definitely NO. They list many reasons, starting from super rich will leave the U.S. and renounce U.S. citizenship. This is easily solvable - if you do that you lose all privileges to do business in the U.S., that includes any company that employs you in any capacity. Harsh? So what - that solves the issue. And keep in mind - irreplaceable people don't exist, there is always a colonel who dreams of kicking out a general. America is a huge country, if Jamie Dimon will quit and leave, his chair will not remain empty for long. And he will have to pay a heavy tax before he will be allowed to use the rest of his money. Any argument like "rich people will get upset and will not help us anymore" is stupid, especially in America. Maybe it's time to start hiring top managers via an open competition - who will offer a plan to maximize the stability of a company with the minimal payment for themselves?
Will the wealth tax do what it is dreamed to do?
That's a different conversation. If should start and end with one question - what is the most important number one criterion of that a government does a good job? I touched this discussion in various publications; the latest one is
Monetary Feudalism, State Capitalism, or Why Does Putin Smile?
This part was Originally posted on 11/14/2017.
What to do with the tax code? What to do with the Federal budget? How to pay for the Medicare, Medicaid, Obamacare/Trumpcare, and many other government funded programs? How to close the budget deficit?
Will the wealth tax do what it is dreamed to do?
That's a different conversation. If should start and end with one question - what is the most important number one criterion of that a government does a good job? I touched this discussion in various publications; the latest one is
Monetary Feudalism, State Capitalism, or Why Does Putin Smile?
This part was Originally posted on 11/14/2017.
What to do with the tax code? What to do with the Federal budget? How to pay for the Medicare, Medicaid, Obamacare/Trumpcare, and many other government funded programs? How to close the budget deficit?
These
questions are not new, but for at least two decades no major political party
have been even trying to start a serious discussion about changing the tax
code.
Until
now!
It
is interesting to think about why, in order to start tackling such a difficult
problem like a tax reform, did the Country need to elect as the President of
the United States of America such an odious figure as Donald Trump?
I
have published several posts on the matter, so I will not be addressing this
issue in this post (e.g. “Why Did Clinton Lose The
Race?”).
But
what also caught my attention is the fact that the conversation about taxes is
stuck in the fight between two ideological dogmas.
The
dogmas, which have been developed about forty or fifty years ago, and do not
reflect any more the current economic and social realty.
That
automatically means that no matter which one of the two dogmas prevail, 99 % of
American people will lose anyway (unless the third path will be found).
The
first dogma states that cutting taxes boosts economy, it leads to a drop in
unemployment and to a growth in wages. Based on this dogma, no tax can be ever
raised; a tax raise in any form is forbidden.
This
dogma was developed before the globalization, the Internet, the WWW, the AI
boosted robotization, and before restructuring of the global powers. Hence, it
is outdated (and there are numerous data proving that it does not work anymore).
The
second dogma states that only broad federal regulations can keep the balance
between the needs of regular Americans and the needs of big corporations and
wealthy individuals. Based on this dogma, government has to widen its
regulatory actions, and grow its regulatory entities.
This
dogma is also outdated due the same reasons, especially due to globalization.
The
problem with dogmas is that they prevent people from searching for solutions
outside of the mainstream views. Any idea which does not fit into the limits
placed by a dogma is automatically rejected without being given any
consideration.
It
is worth to take a closer look at what a dogma is, and how a dogma evolves (a
short detour into the philosophy of science and the theory of human activity).
First,
a dogma is just a commonly accepted statement (or a set of statements) about
certain principles which govern peoples’ actions.
Those
statements have not been written in the sky, or unearthed from underground.
Those
statements have been developed “by the people, and for the people”.
Dogmas
have not always been dogmas.
At
the beginning of their time, they were paradigms, beacons of the new ideas.
Initially, only few people used them in their everyday life. In time, more and
more people accepted those principles as the governing principles for their
actions (because they worked!). Eventually, people have forgotten that those
paradigms have been developed under specific circumstance for answering
specific questions about life, to solve specific problems of those times.
Eventually, the paradigms have become statements which had to be accepted
without any questioning – i.e. dogmas. Time passes, life changes, but dogmas remain
still, and soon some people start noticing a divide between the needs of the
life and the dogmas, which only grows with time. When that happens, the society
starts to experience the need for new paradigms.
When
that happens, people who are willing to think beyond the dogmas begin offering
new ideas, new approaches to solutions to problems at hand. Many of those ideas
may be silly, or crazy, but they create a fertile soil for a new paradigm, and
one of those ideas becomes a seed from which that new paradigm eventually grows
up.
Now
one can predict which new idea will eventually outlive all other ideas and
become commonly accepted as the new guiding principle.
That
is why it is so important to not just shovel away anything which does not fit
in the limits set by the current dogmas, but give a fair consideration to many
of them. Of course, without some filtering, scientists, researcher,
politicians, political strategists may be drowned under the shower of views,
ideas, propositions. Currently, the filtering is based on the “halo effect” (https://en.wikipedia.org/wiki/Halo_effect), which is
basically asking “who says that?” instead if “does it make sense?”.
The
better process of selecting new ideas for a further deeper consideration should
be based on the answers to the questions like:
–
what do we want to achieve?
–
what is our ultimate goal?
–
what is wrong with what we have now, and what do we want to fix, what change do
we want to see in the end?
–
how will we know that our goal has been achieved?
I
like to summarize this strategy in a concept map. I like using mapping for teaching
physics: but mapping is a universal way of representing connections; learning and thinking in general is basically making or exciting connections in a brain - nothing else.
This map was used and proven to be very effective for designing various professional practices, including professional practices in the field of education.
BTW: the result of reflective actions heavily depends on how good is the person’s imagination (everything is happening in his or her mind!), and imagination is best developed via reading and writing (not via watching TV, or playing video-games, which also can help with development of some psychological functions, but NOT imagination; learning physics is also greatly boosts imagination).
BTW: the result of reflective actions heavily depends on how good is the person’s imagination (everything is happening in his or her mind!), and imagination is best developed via reading and writing (not via watching TV, or playing video-games, which also can help with development of some psychological functions, but NOT imagination; learning physics is also greatly boosts imagination).
When
I listen to news, the first thing I notice every time, is that neither party
offers specific measures to assess the success achieved as the result of their
proposals. I cannot get a hand on any specific data which would be related to
the future of my life. This makes me feel afraid of that no matter which plan
will win, my life will be negatively affected.
This
is when my imagination starts acting out, because I don’t understand what is
happening.
When
I don’t hear a clear reason, when I don’t see a clear picture, my mind starts
creating its own arguments, which would make sense to me.
When
those arguments become relatively clear, I write them down, and publish on my
blog (my way of venting out, I suppose).
There
is nothing special about that.
By
design, all a human brain does, is absorbing information, processing
information, reacting to information, and producing new information. Then, consciously or
subconsciously, the new information affects human actions. If the new
information stays inside, it affects actions of only one person. If the new information
is brought outside (in the form of a speech, a gesture, a picture, written
words, signs, symbols, songs, a physical contact), it may affect several
people, or even a massive number of people (an example of such effect is the
case of Facebook and Twitter political ads of 2016 elections cycle).
But
let’s return back to our conversation about taxes, and apply the described
strategy to designing a new approach to a tax reform.
What
is the ultimate goal of the tax code?
Everyone
involved in the debate must give an answer to this question.
My
answer is:
“The ultimate goal of the tax code is regulating wealth distribution
in such a manner that all citizens would be able to live a decent life”.
This
answer has two words which are more important than all other, which are “all”
and “decent”.
These
words need a further description, a further detailization.
For
me “all” literally means “all” – no exceptions under any circumstances.
The
meaning of “decent” is not so easy to establish. For example, it may be
different for people who currently serve a conviction due to a committing a
crime.
For
this conversation, the exact meaning of “decent” is not important.
What
important is that my definition of the goal for the tax code immediately
differentiate all people into four categories: the ones who agree, the ones who
disagree, the ones who are not sure, and the ones who do not care.
There
is no point in trying to make people who disagree or don’t care to change their
mind. That would be just a waste of time and energy. The main goal is finding
people who are agree, and the main target should be people who are not sure,
i.e. who could be swung (a.k.a. swing voters).
If
you and I are agree on the main goal, we can start talking about details.
For
example, what does “decent” mean?
How
much does one (anyone) need to maintain a decent life?
What
are the biggest obstacles to achieving the goal?
What
are the biggest threats to achieving the goal?
Etc.
The
other day I watched an interview with one of the Nobel laureates in economics
(do not remember the name). He said that he sees only two options:
1.
eventually all taxes will have to be raised,
or
2.
eventually all federal programs will essentially be closed.
That
made sense to me. That statement represented a clear model:
1.
more money into federal chests, and keeping working federal programs.
or
2.
no money into federal chests, and having no federal programs.
Closing
all major federal programs would be disastrous for the Country, because that
would significantly lower the quality of life for many Americans (that is my
belief).
That
would be moving away from the goal.
That
means, that whether we like it or not, but the biggest threat to achieving the
goal is low taxes.
That
means, that whether we like it or not, but we have to call for higher taxes
(and, of course, simpler and more transparent tax code).
Calling
for raising taxes is exactly what all politicians are afraid the most (except for progressives who want to place extra tax on the rich).
The
reason they are scared of calling for higher taxes is that they do not believe
that American people are wise enough to use a common-sense logic.
Simply
saying, many American politicians believe that American people are stupid.
From
my point of view, that makes many American politicians to be unwise (at the
least).
For
example, talking about “income inequality” is unwise.
People
who talk about various aspects of “income inequality” do not know what people
with a low income actually want. If all those pundits would ask anyone who
lives a paycheck to a paycheck what do they think about “income inequality”,
those pundits would learn that people do not care about how much Warren Buffet
makes a year; they care about how much they make a year, and that it is not
much at all.
Instead
of talking about “income inequality” those pundits should have been talking
about income insufficiency.
That
was just an example of the fact that many politicians and political analysts do
not know psychology of a common man.
Naturally,
saying “your tax will go up” will not gain any support.
But
I am sure that most people would at least think about options, if they heard:
“To save the economy from a crash, to keep the safety net provided by the
government, everybody will have to pay a higher tax. Every American will have
to do his or her part. Well, people who are well below the “decent life” line,
will not be affected, and the raise will greatly depend on the individual
income, and for the most of Americans the change will not be significant.
However, this action will allow us to restructure our economy in such a way
that we will not only prevent economic crash, we will be able to gradually move
all Americans above the poverty line. People with an insufficient income will
be getting help from government to sustain their life at the “decent” level,
but with the help of the government and in collaboration with the businesses
the number of Americans with an insufficient income will gradually decline to
zero. That is the ultimate goal of the tax reform!”
Can
this be done?
I believe it can (also, read “Basic Income: From an Ideology to
The Working (!) Mechanism”).
Our
politicians also do not know the psychology of the wealthy Americans. That is
why they treat them either as enemies (the Democrats), or as gods (the
Republicans, who call them “job creators”, although I doubt that it is a
correct name for people who in ten years closed about 60,000 factories!)
Of
course, wealthy Americans are neither gods nor enemies; they are just people
who want to maximize their wealth, or to preserve their wealth by affecting the
political process into their favor. Which is absolutely natural intention for
such people. This intention should be used in order to navigate their energy
into the direction leading to general social gains.
A
tax reform cannot happen without addressing two big problems: healthcare
spending and entitlement spending.
The
Republicans want cut the programs to save money, the Democrats want to increase
the spending.
They
cannot find a common ground because they see or do not see those spending as a necessary part
of the federal budget.
Hence,
let’s move all the healthcare and entitlement related spending outside of the
budget (radical, but doable! more on this matter is in this post: “Conservative Liberals –
future Porgs of the political America”).
In
that case there will be no problem to discuss (well, tax code still will have
lots of loopholes to be fixed, but that requires a different conversation).
Note,
I do not suggest to eliminate healthcare and entitlement programs.
Of
course, we have to keep them and make them effective and broadly accessible.
Of
course, we will need money to pay for them.
But
those money should not be regulated by the congressional or White House
budgetary committee (or whatever committee regulates the budget).
Instead,
the Congress needs to establish two more “federal reserve”– type entities: a
“healthcare federal reserve”, and an “entitlement federal reserve”.
Each
“reserve” will be run by the board of independent appointees.
Each
year each board will be calculating the amount of funds needed to pay for the
related spending.
Then,
that amount will be distributed among “income holders” (individuals or
establishments/corporations) accordingly to the equation the board will come up
with (higher income means more money).
Each
“income holder” will have to send a specific amount of money directly to each
“reserve”.
That
money cannot and will not be called a “tax”; it will be a “fee” every “income
holder” will need to pay.
That
individual amount of money, each “income holder” will have to send to each
“reserve”, will depend on the total amount of funds the reserve will need to
accumulate on an annual basis.
Hence,
every year that amount of money may be different, depending on the needs of the
“reserves”.
That
means, everyone paying this “fee” will be interested in decreasing the amount
of funds needed for each “reserve”.
Everyone,
including big corporations!
Imagine,
one runs a big company, and one has to pay a healthcare cost for one’s
employees, and it is huge. Maybe one will begin to reaching out to insurers and
hospitals and start pushing them to drop the cost down?
Imagine
one runs a big company, and one pays the employees so little, that they have to
apply for federal help from the “entitlement reserve”. Maybe one will begin to
think about raising their wages?
The idea behind this proposal is simple - people do what intensives "force" them to do. Intensives! Not other people, like government officials. It is a subtle difference, but a huge one.
Government has to create such rules of engagement that make business want to pay more, ans to take care of the health of their employees.
It is not easy - "I don't want you to do the dishes! I want you to want to do the dishes!" - but it is possible.
The goverment basically should tell the businesses - OK, you pay as little as you want to, and we will take care of the expenses for the people to have a decent life. But then we will charge you for ALL those expenses, using special funds created just for that. So, you better gather together up and find out a way to pay decent salaries - you should do it (not us, government people), and you can do it, you are smart (how else did you get so rich?).
What government needs to do fast and independent of any tax-related discussion is making all shareholders to transfer 5 % of share into a "Tax Reserve". Progressives always complain that the majority of population cannot participate in wealth sharing because they do not have stocks. If the government represents people - the government needs to have in its vault its share of shares.
Naturally, the path from an idea to a legislation takes long time and a lot of effort, but someone somewhere sometime should start trying out creative approaches.
Government has to create such rules of engagement that make business want to pay more, ans to take care of the health of their employees.
It is not easy - "I don't want you to do the dishes! I want you to want to do the dishes!" - but it is possible.
The goverment basically should tell the businesses - OK, you pay as little as you want to, and we will take care of the expenses for the people to have a decent life. But then we will charge you for ALL those expenses, using special funds created just for that. So, you better gather together up and find out a way to pay decent salaries - you should do it (not us, government people), and you can do it, you are smart (how else did you get so rich?).
What government needs to do fast and independent of any tax-related discussion is making all shareholders to transfer 5 % of share into a "Tax Reserve". Progressives always complain that the majority of population cannot participate in wealth sharing because they do not have stocks. If the government represents people - the government needs to have in its vault its share of shares.
Naturally, the path from an idea to a legislation takes long time and a lot of effort, but someone somewhere sometime should start trying out creative approaches.
And
that requires imagination, creativity, knowledge of human psychology, and
ability to step outside of the well-established dogmas.
Dr. Valentin Voroshilov
Dr. Valentin Voroshilov
BTW:
that requires a good education on a massive scale (e.g. “Backpack full of cash”).
FYI:
that requires reforming the way education is being reformed (e.g. “Education Reform Needs a
New Paradigm”).
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