Many people across this great (again?) land are finally joining the pot legalization bandwagon. I like the groundswell though I have never touched the stuff myself and hope never to do so. I wish, however, that more people could extrapolate from marijuana to ... LIFE.
Why did we ever let the government tell us what we can legally put into our own bodies in the first place? Are we a free people or not? If X's actions endanger no one except X (and maybe not even X him or herself) what business is it of anyone else's? Americans should be free to smoke pot, take experimental medications, change their genders, work for any sum of money they can negotiate (including volunteering), and pay whatever rent or interest rate they think fit, so long as they aren't hurting anyone else in the process. (Yeah, abortion gets a bit tricky so I won't discuss it here.)
Oh, you say, but the people who do Y need more assistance from Public Program Z. That may or may not be (they might cost Medicaid more but never collect Social Security, for example) but did you ever think that maybe Public Program Z shouldn't exist in the first place? Cardi B wants to know where her taxes are going. The short answer is ... the Upside Down, the Sunken Place, the Onion's bottomless money pit ... doing things that most Americans don't want done at all, or wouldn't want done if they would simply think about their negative effects on the economy and our individual freedoms.
So I won't thank Trump for reducing taxes, but I will thank him when he cuts total federal expenditures by getting rid of wasteful stuff, like the enforcement of federal marijuana laws.
Tuesday, March 27, 2018
A Non-Lethal Solution for Mass Shootings
It is 2020 and about twenty twenty-somethings are in an open office setting that looks like an updated Houston mission control station. In front of each of these modern day "Top Guns" sits a monitor and joystick and a huge screen, currently black, looms at the front of the room. The young men and women joke and jibe with each other, various limbs akimbo as friendly insults and soft objects crisscross the room.
Suddenly, an alarm goes off and Stacy's monitor lights up. In a flash, her hands are in control of a drone just released from a liar so secret that only a few know of its existence, let alone its exact location. The others don't even flinch and some look bored until Stacy blurts out, it's a school, and this is not a drill. Almost instantly, a supervisor buzzes into the room and the Top Guns take up their stations as the big monitor at the front pops into life.
Some take control of drones from nearby buildings and race them to the scene, just in case. But Stacy has this. The shooter, barely 15, is wearing goggles so she deftly switches from mace to Taser and is on him so fast that he barely gets a shot off at the drone as three of his classmates scamper to safety. A split second later, he is on the ground, convulsing. Stacy instructs the school's security system to sound the all clear, a unique series of sounds only the teachers know the meaning of.
Just as she does so, however, another Top Gun, a geeky looking male who got his job by winning an international first person shooter video game tournament, shouts "Second shooter, 6 o'clock!" He's too far for her second Taser so Stacy switches to the tranquilizer gun and puts one into the assailant's chest, toppling him. Meanwhile, the supervisor has switched off the all clear chime, alerting teachers to remain on lock down. Stacy then hits the first shooter, who is starting to recover from the Taser, with a tranquilizer.
The backup drones begin to arrive but both shooters remain motionless until later revived by EMTs, after law enforcement personnel secured them to ensure that they cause no harm to themselves or others. The Top Guns then return to a typical boring day of false alarms, equipment tests, and training drills.
Like other first responders, the Top Guns actually want their days to be uneventful, but as employees of an entrepreneurial company, they know full well that their success will only induce those with evil intent to change tactics. The big boss is already adding electronic bomb sniffing devices to the drones and thinking about ways to stop truck attacks with a level of violence far short of RPGs.
Monday, March 19, 2018
U.S. Tax Policy, Inflation, and the Euthanasia of the Individual Investor in the 1970s: The Views of Gadfly Journalist Wilma Soss
U.S. Tax Policy, Inflation, and the Euthanasia of the Individual Investor in the 1970s: The Views of Gadfly Journalist Wilma Soss
By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University for the Philosophy, Politics, and Economics Society Annual Meeting, New Orleans, Louisiana, 16 March 2018.
Since the financial fiasco of 2008, some U.S. investors have been subjected to a subtle but invidious injustice: they have paid income taxes on interest earnings that are below the rate of inflation. Although they enjoyed nominal gains they suffered real, by which I mean inflation-adjusted, losses. This has not become a major policy issue because many such investors did not itemize their deductions and many fewer will do so under the “Tax Cuts and Jobs Act” of 2017. Moreover, the difference between the savings and inflation rates was just a few percent at most and interest rates have been so low that interest earnings typically pale compared to income. The stakes are simply too low to get riled up about the situation.
But what if the U.S. economy were to suffer a major bout of inflation? Although the Federal Reserve has found it difficult to increase inflation to its target, key policymakers and economists have admitted that they do not understand why that is the case. The Panic of 2008 and Great Recession basically broke their models, and all the Fed chairperson’s economists and all the Fed chairperson’s computing power has not been able to put the econometric Humpty Dumpty back together again. Nobody seems much concerned about this but the last time the Federal Reserve was as clueless about the causes of changes in the price level was in the wake of the shocks that occurred in the early 1970s, including the end of the Bretton Woods gold exchange standard and the oil crises. Those events triggered a decade-long bout of inflation unparalleled in peacetime America. That episode, commonly known as the Great Inflation, exposed the grave injustices of a tax code built upon nominal values.
Bracket creep is a fairly well understood injustice from the era, a time when tax protesters “sent in band-aids with their returns to show it hurts … a lock of hair to indicate that they’ve been scalped … and a piece of shirt off their backs” (PN, 4/12/70). Basically, as inflation drove up nominal incomes, taxpayers in essentially unchanged material circumstances were forced to pay a higher percentage of their incomes in taxes, as if their real incomes had increased. The euthanasia of fixed-income investors, who saw their real incomes decline as nominal prices rose, has also been studied by researchers such as Niall Ferguson in his classic The Cash Nexus (PN, 95/1973). Less well understood is the fact that the financial death of investors in bonds and stocks was aided and abetted by a tax code that treated nominal income from coupons and dividends as income even when it sagged far below the rate of inflation and that did not adjust asset prices for inflation when computing capital gains.
One of the leading popular critics of the nominal tax code was Wilma Soss, a corporate activist, or “gadfly” in the parlance of the day, and the host of a radio show called Pocketbook News that ran weekly coast-to-coast on NBC Radio from 1954 until 1980. Although less famous than Sylvia Porter, Wilma, a 1925 graduate of Columbia’s then new school of journalism, wrote and produced the show herself and kept its quality high throughout her career. In fact, her show’s final decade was arguably its best, as Wilma leveraged her long investment experience and vast network of professional contacts, which ranged from big banker David Rockefeller to monetary expert Franz Pick, to help her listeners to understand the titanic shocks that rocked the American economy throughout the 1970s. Born in 1900, she finally gave up her show at age 80 and died just a few years later.
Although not formally trained in economics, Soss had studied the subject in college and was constantly interacting with economic experts for her show and as founding president of the Federation of Woman Shareholders in American Business, an NGO dedicated to corporate governance reforms aimed at aiding small investors, over half of whom were females in many companies. A Republican in politics, Soss gravitated towards standard neo-classical theory infused with practical understandings gained over decades of managing her own investment portfolio.
For the most part, Soss jousted with the corporate grandees who had seized control of American big business and turned companies into personal piggybacks to be raided at will, always at the expense of stockholders, or shareowners as Soss came to call them to stress their proper relationship to management as she saw it. When government policies threatened the value of her investments, however, Soss turned on the responsible parties in Washington. That included Republican president Richard Nixon, whom Soss at first admired, after it became clear that his New Economic Policy price controls included de facto ceilings on corporate dividend payments (PN, 10/10/1971) and that he favored Big Labor over small shareowners (PN, 11/20/1971).
Soss, who took the last name of her husband Joseph, enjoyed what appears to have been a very modern marriage. The childless members of the Soss pair enjoyed relatively lucrative and interesting careers. Soss even commuted weekly from their apartment in New York to her P.R. job in Detroit during World War II and to a similar position in Philadelphia after the war, both by train of course. She claimed on air that Joseph did the couple’s shopping but that she paid many of the grocery bills (PN, 10/15/1976). Soss undoubtedly at least worked with Joseph on their taxes and she may have filed an individual return in some years. In short, she had working knowledge of the individual tax code and personally felt the pressures caused by rising prices and lagging returns. On 18 March 1977, for example, she complained on air that she “received a $6.00 3 months dividend on 12 shares of International Paper at the same time as a bill for $7.10 for two veal chops!”
Soss understood that “inflation is in itself a tax” on money balances (PN, 12/24/1972) and at least twice even called it the “greatest tax of all” (PN, 9/8/1973; PN 3/16-17/1974) and considered it a “cruel tax” (PN, 7/15-16/1974) or even the “cruelest tax” (PN, 3/25/1976?). She argued that any inflation above 2 percent was “terrible” though “not too terrible” if held below 4 percent (PN, 06/25/1972). But other inflation costs lurked, virtually unseen, in the nation’s tax code.
As early as 18 January 1970, Soss warned investors on air that their after-tax yield on bonds was likely less than the rate of inflation. On 25 July 1971, Soss, who had been born in San Francisco but spent much of her life in New York City, went on an anti-New York City tirade that included the complaint that the 7 percent city sale tax rate when “you get 5% for your money in the savings bank” was “immoral.” “It should be illegal,” she argued that day, “to have a sales tax higher than the people’s basic interest rate on savings on which they have to pay income tax besides.” She left off that somewhat nonsensical line of reasoning but on 23 January 1972 she noted that all of the gain in personal income in 1971 had been erased by increases in inflation and taxes. That was no good because, as Soss noted in her broadcast of 9 December 1973, “there is an old axiom that the cost of money has to be twice the cost of living if, after taxes, the lender [i.e., the investor] is to stay ahead of the money game.”
And Soss meant the actual cost of living. The government’s own inflation statistics, she believed, had a discernible downward bias. On 7 October 1973, she told listeners that “there is generally suspicion that government statistics have become politicized and cosmeticized. The official index for the rate of inflation seems hardly to match anybody’s family budget.” Years later, she claimed that she kept a bust of British Prime Minster Benjamin Disraeli on her desk to remind her of the claim (whether it was actually his or not) that “there are three kinds of lies -- white lies, damn lies, and statistics” (PN, 3/25/1976?) She also realized that changes in the price level could affect states, regions, and metro areas differently (PN, 4/27/1974). She knew, for example, that in the early 1970s the cost of living in New York City rose four times faster than the national average (PN, 3/20/1971).
Soss also understood that risk requires compensation so on 21 January 1973 she challenged her listeners to imagine a 10 percent increase in stock prices but then to deduct “the rate of inflation, your taxes, worry and risk. Try that on your pocket calculator and see what you have left.” A week later she complained that Exxon’s common stock yielded only 4.7 percent “while bank interest is 5 to 6%,” a very bad bargain indeed given the risk involved. “Stockholders are not an eleemosynary institution,” she reminded corporate executives and policymakers. “We invest our savings to add to our earnings or as a pension,” not as a charitable donation.
To her listeners, Soss also explained that rising stock prices might reflect nothing but fake profits generated by antiquated or even improper accounting methods. The latter stemmed from the ability of managers to manipulate financial outcomes. “Earnings,” she warned listeners on 18 January 1970, “are what management and the accountants want them to be.” (She also noted that the Ford Foundation was “critical of corporations that achieve earnings gains through liberal accounting practices” [PN, 6/7/1970]). The former was due to using inventory accounting techniques (PN, 10/14/1973; PN, 11/25/1973; PN, 12/301973; PN, 5/7/1977; PN, 4/14/1979) like FIFO, or “first in, first out,” instead of LIFO, or “last in, first out.” FIFO, she explained, “is likely to beef up profits and make earnings look better than they really are” (PN, 7/20/1974). Soss even went before the Financial Accounting Standards Board (FASB) to argue for what she called “price level accounting” in the name of transparency and full disclosure. As she explained to listeners on 11 July 1975, “if a dividend hasn’t been raised, say, since 1971, it has been cut, since the dollar has lost about 24% in purchasing power since then!” She lauded the Indiana Telephone Company for stating its earnings in constant dollars, using the GNP deflator, one of only a handful of companies to do so (PN, 4/24/1974).
All of those considerations led Soss to advocate a tax credit based on a realistically computed CPI. She never made the details clear but obviously she believed Americans should be compensated for the lost purchasing power of the dollar and inflation-adjusted capital losses. She argued on 5 March 1973 that “19% devaluation of your dollar within fourteen months means that some, possibly many of you will be paying capital gains taxes on what are capital losses, not to mention the universal tax of inflation on your income, for which there are no tax credits.” And on 12 August of that year: “Women investors are beginning to ask what good is 8% and even 9% interest on your money on which you have to pay taxes when the price of food is going up 20%?” And on 24 April 1974: “Many of us are paying taxes on non-existent profits and income.” And so forth, on and on and on (PN, 5/18/1974; PN, 7/13/1974; PN, 7/15/1974; PN 6/1/1975; PN, 3/24/1979; PN, 4/7/1979), culminating on 10 March 1978 when she reiterated her call for an inflation tax credit and argued that “it is outrageous to have to pay income taxes on five percent interest when the rate of inflation is 8 and 9%, not to mention double digit!”
To provide an income tax credit for actual inflation and to calculate capital gains on a real basis would of course reduce the government’s incentive to cause inflation in the first place, so Soss’s proposal was a political non-starter. Political economists today, however, might consider trying to work such inflation disincentives into the tax code while inflation remains relatively tame. Ensuring that the government’s revenue automatically will decrease if it tries to inflate away its debts could do more to protect future generations from another Great Inflation than the Federal Reserve’s ever tenuous political independence.
Soss had plenty else to say about taxes. For starters, there were too many of them. She recalled for her listeners, for example, a study conducted in the 1950s that showed that bread was taxed 151 times before its consumption (PN, 9/17/1972). Even worse were taxes on tobacco products imposed at the same time that the federal government heavily subsidized tobacco growers (PN, 1/13/1978). Soss also reminded listeners that taxes, once implemented, almost invariably trended upward, like a teaser interest rate. “Remember how low the income and social security taxes started?” she asked on 6 February 1972 in response to calls for a European-style Value Added Tax of just 2.5 percent.
America’s tax codes, Soss argued, aided and abetted margin speculators while discouraging savings and promoting a “borrow and spend” mentality. “So long as interest rates are less than the inflation rate and the interest [paid on debts] can be deducted from taxes,” she noted on 2 February 1980, “people will borrow and spend.” Or, a month later, “there is little incentive to save under our tax structure” (PN, 3/?/1980).
The most insidious taxes of all were those that threatened corporate democracy, Soss’s antidote to Soviet communism and European-style socialism. “The whole capitalistic dogma falls apart,” Soss argued on 24 April 1974, if investors were not able to earn decent risk-adjusted returns after taxes and inflation. By the time Soss retired in early 1980, the end of corporate democracy was already well underway. At the end of 1968, individuals owned 80 percent of all corporate shares (PN, 2/1/1970). During the 1970s, individual investors began to pour out of the securities markets (PN, 12/26/1975; PN, 7/2/1976) due to higher commissions before the May Day 1975 brokerage deregulation (PN, 2/15/1970; PN, 7/12/1970), poor real returns -- the annualized nominal growth rate of the Dow Jones Industrial Average between 1 January 1970 and 31 December 1979 was a mere .47 percent (MeasuringWorth.com) and dividends dropped from 75 to 40 percent of corporate earnings (PN, 11/7/1971; PN, 4/24/1974; PN, 12/11/1979; PN, 12/29/1979) -- and also the continued double taxation of dividends and other anti-small investor tax policies. On 3 September 1972, contemplating a victory by Democratic presidential candidate George McGovern, Soss noted that a “McGovernment” would not end the double taxation of dividends and would likely impose the capital gains tax on inherited stock, prompting one irate listener to wonder “why do they hate children in this country?” Soss also noted that the 100 percent deductibility of short term stock market losses, compared to the 50 percent allowed on longer term investments, “encourages speculation” and “discourages investment” while it fattened brokerage commissions (PN, 9/17/1972).
Soss became hopeful in August 1973 when the Senate began “studying tax changes to spur more people to invest in common stocks” (PN, 8/5/1973), again in July 1975 when Treasury Secretary William E. Simon made some noises about tax reform, and in the summer of 1976 when double taxation was again discussed in high policy circles (PN, 7/16/1976; PN, 9/17/1976). But ultimately nothing came of any of those attempts (PN, 7/22/1977) because, as Soss noted, “the moral aspect of double taxation appeared to bother no one” (PN, 7/11/1975).
When individual investors came back into the markets after the rise of discount brokerage firms like Schwab, most did so as so-called day traders, or short-term speculators. “Inflation with a couple of stock market crashes in the seventies,” Soss explained to listeners on 11 December 1979, “killed investors’ appetite for stocks. The shift has been from long term investment into short term speculation.” Traditional, buy-and-hold value investors switched from direct ownership of shares to low cost mutual funds, most of which refused to intercede in matters of corporate governance. After sundry poison pills killed off leveraged buyouts and other forms of market discipline, corporate executives were virtually unchecked. The accounting scandals of the early Third Millennium AD and the financial fiasco of 2008 were direct results. Soss was long dead by then but would have turned over in her grave had she not ordered her remains, like those of her beloved Joseph, cremated.
 The author gratefully acknowledges the aid and input of Jan Traflet, a professor in Bucknell’s Freeman School of Management and his coauthor of a forthcoming full-length biography of Soss. Any errors of fact or interpretation found herein, however, remain Wright’s sole responsibility.
 References in this form refer to the transcripts of Soss’s Pocketbook News radio show, followed by the date of broadcast, all of which can be found in Box 9 of the Wilma Soss papers housed at the American Heritage Center, University of Wyoming, Laramie, Wyoming.
Friday, March 02, 2018
Let’s Not Kill Two Birds with One Stone
A Technological Solution to America’s Twin Firearms Crises
Two firearms crises currently haunt America, the specters of mass and police shootings. An inventor-entrepreneur could solve both and become a millionaire, if not a billionaire, overnight.
What America needs is an affordable, long-range, non-lethal weapon no bigger or heavier than a handgun. A gizmo easy enough for even a teacher to use that can reliably incapacitate a threat at 50, maybe even 100, yards with very low mortality risk.
Such a weapon would greatly decrease the costs of mistakenly shooting an innocent and could be used without hesitation by law enforcement personnel or citizens, in public or at home. For many people, taking a human life, even the life of someone shooting at them, is not an act easily contemplated, much less carried out. Few hesitate, though, to spray mace in an attacker’s eyes, or to tase him.
A technological intervention makes both political and common sense. Deployment of non-lethal weapons does not infringe anyone’s Second Amendment rights but can mitigate the threat to human life from the millions of firearms already in private hands. It also does not preclude stronger gun control regulations. Law enforcement personnel can still use firearms but can be trained to use the non-lethal option in many situations that now entail the use of deadly force.
Existing personal self-defense weapons only work at very close range. What we need is the equivalent of setting our “phasers to stun.” Phasers do not yet exist and probably will not for some time but some very real, well-understood technologies could be adapted to cause incapacitation instead of death.
The weapons I have in mind will not solve all of America’s problems. They will not be able to stop snipers, bombers, or drivers but they will be effective against suspects, home invaders, and school shooters. Muggers and rapists will want to use them to facilitate commission of their dastardly deeds but the weapons will not be firearms and hence can be tightly regulated without violating the Constitution.
The fact that engineers have not already provided a long-range, non-lethal technological solution for America’s twin firearms crises is largely attributable to the odd, polarized discourse surrounding both mass and police shootings. We all agree that we do not want innocent blood spilled but all we seem to talk about is guns, guns, guns. If we put half as much effort into developing a practical, workable solution, entrepreneurs would have the incentive to invent one, knowing full well that they will be rapidly rewarded with brisk sales.
If I have underestimated the development costs or overestimated the size of the market, let the federal government and/or some corporation or foundation fund an XPrize. By 2020, we should all be able to incapacitate shooters less than 50 or 100 yards away for long enough to close the distance and physically restrain them before they regain enough of their consciousness or senses to pull the trigger again.
Wednesday, February 21, 2018
It’s Time to Release the Kraken … of Competition
Repeal? Replace? How About Step Aside and Let Entrepreneurs Work? Especially in Healthcare.
Do you remember the great chewing gum crisis of 2005? When chewing gum cost $367 a pack on average, was only available in two inconveniently located stores, and tasted like sawdust? Of course you don’t, because it never happened. That is because the production and sale of chewing gum is left largely to market forces: supply, demand, innovation, and, ultimately, consumer choice.
Healthcare and health insurance are more complex than chewing gum to be sure but that is an argument for decreasing the government’s role in it, not turning it over to distant, unaccountable bureaucrats and, perhaps worse, politicians jockeying for position in the next election.
I am already on record with my own business plan, a mutual insurer offering combined life-health-disability policies that can begin in utero. I think it will work, but I do not know for certain. Other social entrepreneurs, like the trio of Amazon, Berkshire, and Bank of America, have their own plans, equally uncertain. Health insurers and healthcare providers, like Sanford in the Midwest, also have ideas percolating. The only real test is to offer rival plans to consumers and see which they prefer.
Right now, health insurance entrepreneurs are almost completely stymied by the dictates of the Affordable Care Act (ACA). Idaho is attempting to sidestep ACA but potential insurance entrepreneurs know that a state government cannot readily protect them from the federal government. (Look at how the Feds stomped on Colorado marijuana sellers by denying them access to the banking system.)
What entrepreneurs need is a credible commitment by the federal government to allow them to experiment with health insurance and healthcare delivery systems for the next 10, 15, or 20 years. That would require passage of a law requiring healthcare organizations to pay the same taxes on the same basis as their peers but otherwise giving them free reign to experiment in an environment that no longer favors employment-based group health insurance.
Releasing the Kraken of competition will allow providers, insurers, and consumers to negotiate with each other directly, rather than via the government. If market forces are truly allowed to determine the results, they will almost certainly be better than ACA or any single payer or universal health system. If they are not, the political path to some system of socialized medicine in America should be clear. Before America goes down that likely irreversible path, however, it needs to do something that it hasn’t done since World War II, allow consumers to decide what type of healthcare and health insurance they want without distorting markets in favor of the largely pernicious employment-based variety.
What about the impoverished? It is quite possible that (social) entrepreneurs will find a way to adequately meet their healthcare needs, just as they do their needs for clothing, entertainment, food, refrigeration, transportation, and, yes, chewing gum. If not, the proper policy is to provide vouchers and let them decide which healthcare and insurance plans work best for them.