December 04 2008 show notes

Thursday 04 December '08 show

  • Show live from Air America, New York.
  • The fate of the middle class.
  • Guest: John Berlau, director of the Center for Entrepreneurship at the Competitive Enterprise Institute (CEI), in the studio. Thom challenges John who says - DE-regulation is the answer! Why do we have an economy? Do we the people, through the instrument of democratic/republican government, give all kinds of benefits to small and big business owners because business will somehow cause benefit to the citizens of the country, or is the purpose of the citizens of the country to serve the interest of business? It's like the First Amendment; economic liberty, the liberty of the individual to build his own livelihood, producing a product which, without force or fraud, benefits the citizenry. People like Bill Gates got rich but benefited a lot of other people. There's no free market about Microsoft; Bill Gates made his money because of copyright. He made his money because of government intervention. Property rights, land and intellectual, are important. The CEI is concerned that there are no barriers to the next Microsoft.

    There is a substrate of the rules, commons, which made it possible for Bill Gates and other entrepreneurs to be successful. We have a socialist public education system, public roads, fire departments, police departments. How can he say the way to solve the economic problems of this country is to deregulate? A completely deregulated economy produces a huge class of the working poor a very small middle class and a very small group very wealthy people. He said that you need the government to enforce the rule of law, to prevent fraud. So does he want the government to pay for people to go to school? School vouchers give more freedom of choice, the barriers to people going to college should be got rid of with things like 529 savings accounts. The social contract. College is an investigation which was doing well until Ronald Reagan shut it down in California, leading to wealth.

    Is it important to make sure there's a middle class? Teddy Roosevelt's notion that if you work a full week and you are good citizen, you should make enough to put your kids through school, cover your health care costs, have enough money to retire when you when you get old having paid off your home, take a vacation: a living wage. The minimum minimum wage. The Second Amendment. The constitution is a list of negative rights. Franklin Roosevelt in his 1936 acceptance speech said, "An old English judge once said: 'Necessitous men are not free men'." How can he claim that somebody who knows that they are one paycheck away from being homeless or one illness away from being bankrupt for the rest of their lives can consider themselves free? He said, with the help of a mutual network of support. Edmund Burke. Portable health savings accounts - but these cannot be enough for an illness like cancer. He said freedom doesn't always mean that it is perfect. So freedom is the freedom to just die a miserable death? Encourage people to save. The story of the ant and the grasshopper. But the ant is a collective social animal.

    Deregulation and the nature of the economy. Clinton's economic policies. Tax cuts, bubbles and crashes. Raising taxes and booms. The S&L crisis. Living wages. Isn't the point of regulation to prevent creditors being screwed? Barrier to entry for small businesses. Sub prime mortgages. Glass Steagall Act. John took phone calls.
  • Bumper Music: Good as Gone, Little Big Town (video).
  • Bumper Music: Who Do You Think You Are? Brett Dennen.
  • Bumper Music: Crazy, Gnarls Barkley.
  • Article: Tobacco Smuggler make an Ass of Himself.
  • Article: Italians who use name of Mussolini offered cash.
  • Bumper Music: Let the Day Begin, The Call.
  • Guest: Wall Street Journal editorial page's senior economics Stephen Moore, founder and former president of the Club for Growth, co-author, "The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen". Tax hikes - help for the middle class or death for the economy?

    Contrary to his book, if you look back from 1913, tax increases have caused a strong, stable economy whereas tax cuts have led to bubbles, crashes, bank failures and depressions or recessions. He reads history different to Thom. He said the 20s, 60s and 80s had the fastest growth when there were big tax reductions. Kennedy closed loopholes so his tax cut did not lead to the rich paying less. Thom said he made Thom's point; in the twenties we took the top marginal tax rate from around 90% to around 25% which produced a period of boom of about eight or nine years and then a crash. The same thing happened under George W. Bush and Ronald Reagan. He said the stock market had regained everything lost. Bank failures. He said the 1970s was the worst decade for American income. Inflation. This was due to running the Vietnam war on debt and LBJ trying to have his great society, and then the bill came, which has got nothing to do with tax policy. If you own a company and know you will pay a high rate of tax if you earn more, you will plough the money back into the company instead of taking it out. How can he say otherwise? He is in favor of reinvestment. He said a very high tax rate means the incentive for somebody to go out and reinvest money is very low because you only get to keep a low percentage on the dollar. Thom said the company is the prime vehicle of creating wealth.

    Thom said tax cuts lead to mergers and acquisition mania and wipes out small businesses. Many local high street businesses have been replaced by chains. He said he thinks liberals look at the 1970s as a golden age, but 1977 - 1981 was the worst period for family income because of high inflation and loss of jobs. Thom said that was paying for Vietnam, not tax policy, and it will happen again when the Iraq war has to be paid for. He agreed about the cost of borrowing. He said it was complete insanity to talk about a $500 billion spending program next year. Thom said it depends on how you spend it, and that f it was invested in college education for our kids, hospitals and schools and public infrastructure we would make fifty times that over the next 30-40 years. That's very different to spending it on bombs. He said if dropping a bomb saves us from terrorism, it has a high value. Thom doesn't feel that either Vietnam or Iraq kept the USA particularly safe. He said that under George Bush the education budget at the federal level doubled, but Thom said much of that went on No Child Left Behind, which led to an entire testing industry worth four billion dollars a year; a huge transfer of money from the government sector to the private sector for cronies of Bush and his brother Neil.

    This is a crisis for, if not the death of, the middle class. Undo the Reagan tax cuts to bring back manufacturing. CEOs are operating in the short term interest of shareholders rather than the long term interest of the company and workers. He said capital would leave the country; today we're living in the global market place, there would be a reduction in jobs. Thom said capital will go where there is an opportunity to build something to sell to people. As long as there is demand for products, there's going to be people are going to satisfy that demand. Stephen said to think about about a poor country like Bangladesh. He said they have a lot of demand, but Thom said they have low wages, and wages lead to demand, supply comes from productivity. Thom said supply will only meet demand when demand can can acquire supply, and that means wages. Stephen invoked Say's Law which says you can't consume anything until somebody produces something; supply produces demand. Thom recalled Adam Smith and the axe handle; you take a piece of wood and you put labor into it and then you have something of value. When that something of value is sold, then that labor is reimbursed and then you have wages, that wage will produce more demand. Really what we're arguing is whether manufacturing or non manufacturing industries are more efficient at creating wealth. Hamilton's industrial policy. How wages and productivity stayed in line until Reagan and debt has made up the difference since then. We have now the illusion of a middle class but in fact it's been hollowed out; it's dying.

    He agreed it had taken a complete hit in the last year, but he doesn't think bashing businesses or rich people is the way to get those jobs back. Thom said the stock market collapse was the result of people speculating, and the reason that they're speculating is because of the tax cuts. He asked why (and there's a chapter in his book about it), if you look all over the world, countries are cutting their tax rates, even Sweden? We are all chasing after investment capital, which flows to wherever it is treated most kindly. Thom said most of the cuts are fairly modest, and the same thing is going to happen to them down the road - bubbles and busts. Stephen mentioned Ireland's success - Thom said that was because they provide free education to anybody in Ireland, and they actually collect their corporation taxes.
  • Bumper Music: Sweet Dreams (Are Made Of This), Eurythmics (video).
  • Bumper Music: Hey Mr. President, Warren Brothers.
  • Article: Pets Compete To Be Biggest Loser.
  • Article: 76% of American Middle Class Households Not Financially Secure According to New Report .
  • Book: Democracy in America, Alexis DeTocqueville, 1831.
  • Economics rant, middle class, American dream.
  • Bumper Music: Save The USA, Andrew Bayuk.
  • Bring back made in USA. Tariffs. Two years ago 40% of "international" trade was within companies.
  • Book: An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776.
  • The Iron Law of Wages David Ricardo, 1817.
  • "Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth."
    Friedrich List, "The National System of Political Economy".
  • 'Creating a middle class' rant, part I. Transcript.
  • Guest: Carrie Lukas, Vice President for Policy and Economics, Independent Women's Forum. Author, "The Politically Incorrect Guide to Women, Sex, and Feminism". Would she agree that the middle class in America is facing a crisis? Sure, retirement savings going down, house prices. Thom's take on how to save the middle class. We have a minimum wage that is bubkis, why not raise it to $13-14 an hour, which is where it would be if wages had increased at the same rate as productivity since 1980.

    She said we all wish that salaries could be higher and people could be making more money, but there is a trade off. She says increases in minimum wages make some people better off, but that money has to come from somewhere, and unfortunately some of it comes from other peoples' jobs. Thom said that had never been demonstrated; studies show that GDP goes up and job growth increases, in spite of what seems logical. She said we can toss back competing studies. 10% of the adult work force is earning the minimum wage; thirteen million workers. If you took the minimum wage from 1979 to today, the minimum wage in real dollars is 19% lower than it was when Reagan came into office and there hasn't been an explosion in jobs as a consequence of that. She said the United States has had incredible job growth, taking in many people but having low unemployment until the recent uptick. There is so much going on tin the economy that it is hard to isolate the effects of one policy. It's rational and economists across the board understand that there is a relationship between salaries and the number of jobs, then why stop at a living wage of $12-13 an hour or Obama's $9.5?

    Thom said that that the rationale for a minimum wage is simply that a middle class in America is a desirable thing because it's an essential precondition for democracy, number one, as Alexis DeTocqueville wrote in 1836,in America, and there's a social good for us all. Number two, the economy is here to serve we the people not we the people here to serve the owners of the economy. So the premise of a minimum wage is that if a company cannot afford to pay somebody a living wage, they have no damn right to be doing business in this country; it's not a company that's viable by definition as viable companies serve the public interest as well as make a profit. The minimum wage should be a living wage. She believes that people have a right to make decisions about their own lives and what they are willing to go out and work for.

    Thom agrees with her if we're talking about a contractual agreement between consenting adults in a world where there is a variety of options. But if the only jobs out there are for three dollars an hour, the worker is not making a consensual agreement; they simply have no choice, and that is a version of slavery. John McCain offering $50 an hour to pick lettuce got many American applicants; Americans are willing to do the work for a reasonable wage. Thom would be perfectly willing to pay 20% more for pretty much everything if his paycheck was 40% larger. The wage increase is only a small piece of the overall economy and there is not a 100% concordance between wage increases and price increases.
  • Bumper Music: Let's Put Congress on the Minimum Wage, Eskit, on "When the Chickens Come Home to Roost" CD.
  • 'Creating a middle class' rant, part II. Transcript.
  • Article: Paulson in last stand against weaker renminbi.
    "When Hank Paulson launched a series of bi-annual economic summits with China two years ago, the US Treasury secretary was under intense pressure from Congress to press Beijing for a rapid strengthening of its currency.

    As he arrives in Beijing for his last government visit, the challenge he faces has come full circle: to persuade China not to devalue the renminbi in the face of the global economic crisis.
  • Thom:
    So anyhow, in today's Financial Times, here, Henry Paulson's off to China and he's begging; the headline, "Paulson in last stand against weaker renminbi", ... the currency in China. China, this is an example, again, you know. China is building a middle class, actually, by protecting their domestic economy. And they're using trade legislation to do it, to a large extent. By sacrificing trade legislation what we've done is, we've said, 'we're gonna do this instead with what's called monetary policy. We're gonna drive down the value of the dollar, drive up the value of other currencies and therefore it'll be more expensive to import things and therefore there will be an incentive for domestic manufacture.

    The problem is, it's like trying to trying to attack a fly with a shotgun rather than a, you know, a fly swatter. I mean, because it changes the entire spectrum of goods that are being made. So Paulson's going over to China to beg the Chinese not to change the value of their currency relative to the dollar, knowing that if they do, you know, Chinese goods could become even cheaper in the United States, which is going to destroy even more of our jobs because we're relying on a stupid monetary policy as a way of regulating trade rather than a trade policy that says, as it did from 1791 until 1980s, here's 22,00 different items that we're gonna have specific tariffs on. I mean, this is, China is getting; they're building a middle class, we're destroying ours.

  • Bumper Music: Tommy Can You Hear Me? The Who.
  • Bumper Music: Crazy, Gnarls Barkley.
  • Article: Woman calls police after hubby, 82, takes Viagra.
  • ABC 20/20 people were in the studio filming Thom and Thom was due to go and talk with John Stossel.
  • People do have the right to be poor - monks take a vow of poverty - but not the right to harm another person.
  • Thom:
    There is this religion, and it's really a religion because it's a belief system that is not based on evidence; in fact, it contradicts evidence in most cases. And it's a utopian belief system. It's one of those belief systems that starts out with a phrase, 'if only everybody did', right? And the libertarian, conservative, you know, there's different flavors of it, objectivists, you know, we have the folks from the Ayn Rand Institute on the show frequently.

    There's this belief system that if only everybody only behaved in their own personal self interest, that that would create a universal self interest that would work. Alan Greenspan believes this, and in fact just, you know, a couple weeks ago came out and said, 'I guess I was wrong'. He said it never occurred to him that people, when they get together and work at the level of an institution, might behave in a way that wasn't in the self interest of everybody, even though it was in their own self interest.
  • So, ... the world view that suggests that, is a world view that actually is trying for the best. I mean, these people who truly believe that they're creating a better world. The problem is the evidence doesn't support that their techniques work.

  • The Laffer curve is predicated on the assumption that if people are facing, after that $3.2 million on which they're paying a relatively low income tax, a high income tax beyond that, that the they're going to stop being productive. Thom would submit to you that 90% of people who are up there are doing something they love and will continue doing it, as they did in the forties and the fifties and the sixties and the seventies and the early 1980s. People didn't stop working just because they hit the 90% income tax bracket, number one, so it's not going to harm productivity as Laffer said. Number two, what high top marginal income tax rates do do is build the middle class. It gives them an incentive to keep the money in the companies and to pay better salaries to the middle class.
  • Thom learnt in Denmark that when the taxes on working people, on the middle class, go up, assuming that they're getting some value for it, for example two years of unemployment benefits, free college education, free national health care plans, a good infrastructure, things like that, then their wages go up. Your boss knows what minimum level of net take home pay you're willing to work for, because you have got to pay your mortgagee, etc. If your taxes are cut, he's going to cut your wages, as has happened in the United States.

    It's a completely different equation when you're talking about the income taxes for the top 5% the wealthy people. A large portion of their income gets invested or saved. When their tax rate goes down they simply have more money to save. When their tax rate goes up they have less money to stash away and if they are in business, they are more likely to plow that money back into the business.

  • Franklin Roosevelt in his 1936 acceptance speech said, "An old English judge once said: 'Necessitous men are not free men'." If you want to have a free people, you have to have a social safety net, else people won't take chances and start businesses.

  • Bumper Music: What You Give Away, Vince Gill.
  • Bumper Music: You're a Mean One, Mr. Grinch, Dr. Seuss, Thurl Ravenscroft.
  • Article: Ikea accused of animal cruelty for selling reindeer meat.
  • Article: Time to give something back, Bob.
    "In Robert Rubin
  • ADHD: Hunter in a Farmer's World

    Thom Hartmann has written a dozen books covering ADD / ADHD - Attention Deficit Hyperactive Disorder.

    Join Thom for his new twice-weekly email newsletters on ADHD, whether it affects you or a member of your family.

    Thom's Blog Is On the Move

    Hello All

    Thom's blog in this space and moving to a new home.

    Please follow us across to - this will be the only place going forward to read Thom's blog posts and articles.