A Different View – Part 2
Same rules as the last post. Ambiguous to distraction. As a reminder:
What follows in this post and the next one will be email exchanges between us that highlight our very different view of the political situation in which the United States finds itself.
Warning: The personal names have been xxxx’d out and place names are disguised.
First, I believe that you, I, that our high school classmates and/or the citizens of the State of New England have far more in common than we have differences.
Second, I also view you as reasonably intelligent. Probably more than reasonably, but I’ll defer that discussion for now.
I harbor no pro-Obama sentiment because of his skin color. I was living in Illinois during most of his rise up the political ladder. Although I lived about as far away from him as was possible and still be in Illinois, I probably had more exposure to him than someone living in a different state, not neighboring Illinois.
I suspect that there are people that ace the LSAT (max score = 180) and still not get an invitation to attend Harvard Law. His being editor of the Harvard Law Review must indicate some measure of accomplishment. Certainly, they do not pick a student with a 2.0 GPA.
The reason a person may vote for Obama comes more from their individual backgrounds, i.e. people who are salaried may tend to vote for a Republican candidate while an employee compensated on an hourly basis may vote for the Dem candidate. (If I was living in Massachusetts, I would have voted for Elizabeth Warren.)
I do not think we are broke, as a country. We have many, many large businesses sitting on hundreds of billions of dollars in retained profits. We have witnessed the reduction of the top marginal tax rate to the point that we cannot afford the most basic services. Paul O’Neill, Bush IIs first Treasury Secretary, put $60 million in the bank between 1987 and 2000 as the CEO of ALCOA Aluminum. Yeah, he saved the company, but how much is enough?
For the last three years of the second Clinton administration, the country had three budget surpluses.
Bush II, had an unpaid for tax cut, then Bush II had 5 or 6 years of an off-budget war in Iraq, that I do not believe was justified by the evidence the vice president put forward. As the bubble broke in 2008 and the country had a recession caused by excesses of Wall Street and the banking industry, we handed the reins to a new president.
In the last few months of the 2nd Bush administration, the country was hemorrhaging more than 600,000 jobs a month. Obama reversed that trend and by the end of Obama’s first year in office, there were monthly job gains every month and no months (after 1 year in office) where there were job losses.
Part of the problem we face as a country is that a lot of the middle-class jobs have been moved overseas. A lot of jobs have been eliminated by technological advances. A lot of other jobs have been eliminated because they could be done cheaper in India, Pakistan, China and many other countries.
When JFK cut taxes, the top marginal rate was 91%. And the USA put a man on the moon by the end of the 1960s. Greatness costs money. We will never be great (again), if we are not willing to pay for it
I see no economic reason why going back to the Nixon rate would be bad which would be a top marginal rate of 70%. Even a top marginal rate of 50% like Reagan had would work. The argument that the conservatives have made is that if the “job-creators“ have a lower rate, they will create more jobs. They haven’t done that. They’ve chosen to sit on their retained profits.If you are at a marginal rate of 91% and you want to take some money out of your company to buy a yacht to cruise the Caribbean, it will cost you — well say you take $20 mil out of the company treasury, out of that $20 mil, $18.2 Mil goes to Uncle Sam and the owner gets to keep $1.8 mil for his yacht & trip.A good businessman might think two or three times before he decides the price of the vacation at $20 mil is too high.If the marginal rate is 40%, and you want to take some money out of your company to buy a yacht to cruise the Caribbean, it will cost you $3 mil out of the company treasury to fund the yacht and trip. $1.2 mil goes to the U.S. Treasury and $1.8 goes for the yacht and trip. The decision might be different now.I am sure that I have not addressed all of your points and I am equally sure that I will not convince you the see the world the way I do.But that is Okay. We can still agree to disagree and remember and chat about the Class of zzzz.
To say we see the world through different lenses is an understatement when it comes to politics and the economy! Sadly, though you doubt it, we, this nation, are broke and the companies you suggest are hoarding cash and/or misusing it are most likely one of the few bright spots for our economic future!
- I would respectfully suggest that the capital you feel is somehow being misused by its management is a significant misunderstanding of what capital does for a company.
- I would respectfully suggest that advocating some company be burdened with 90% tax rates and more than intimating it is common for CEOs to do what you suggest is discouraging for a guy who’s worked all his life in the private sector and knows from experience how challenging it is to be successful, create jobs, create capital which in turn drives new jobs, new services. We are a world apart here!
- What is it about “government” that you feel deserves high stature and what is it about the very people who create jobs and opportunity deserve such a terrible thrashing?! Government didn’t risk the capital, government didn’t build the nation, people did!
- Obama is merely a reflection of the massive denial and lack of understanding of the mess we’re in. Barney Frank and his ilk, not the banks, are responsible for the most recent (2008) mess, BO has done nothing to even get to the source of the problem, and he leads the charge to “kick the can” down the road, sweep all the dirt under the rug. Fix employment? Have you looked at the real unemployment in this nation which is in the 17% plus range? Please don’t tell me he’s fixed anything!” Shame on him, shame on us for electing such an irresponsible leader! You and I won’t pay for this tragic chain of events but our issue will, in fact already is.
- Let me close by offering one set of numbers to support my point(s): The government has an “official” debt of $15.8 trillion and mounting. But wait, there’s more. This doesn’t include the liability from Social Security and Medicare. When you factor these in, the amount exceeds $120 trillion and this is before we take on Obamacare and more $2 trillion/year deficits. With U.S. Federal tax revenue of just over $2.3 trillion, that puts our debt-to-income ratio somewhere around 5,082%. Now let me ask you. If you, as an individual, entered your local bank and asked for a loan with a similar debt-to-income ratio, what do you think the loan officer would say? Would they give you the loan? We have gone over the edge, my friend!So, now that we have come to agreement on the state of the nation, let’s move on!!Ciao.
I chose not to “move on” and responded,
I believe that I understand ‘capital.’ I define capital as the part of net profit that is used to grow the company. Capital, as a part of net profit, is what is used to do more R&D, build new buildings or whatever else it is that ‘grows; the company.
I do have two intimate relationships with two business entities that I believe entitle me to comment and I do know how challenging it is to be successful.
First. In our hometown, in the 1970s, on the west side of Route ??, just north of where Bbbbbb Street Tees into rt ?? was an old New England farmhouse with an attached barn and the name, (store). This was the creation of Mr. X. Y. Z., who lived in another town at the time. Mr X. was two years older than we are, had worked for General Mills and had an MBA from either one of the major univ in Michigan or Rice University.
I was in the Navy at the time, stationed on the USS Never Sail and Mrs Chief & I had purchased some of Mr. X’s better quality Products.
Anyway, on one of our visits to (store) I made a comment that led to me being his first employee. This was around 1971. The watch bill I was working allowed me plenty of time to work as a salesperson and eventually Mr X. had enough confidence to leave me there for four days by myself while he went to furniture shows, buying trips, whatever.
I watched the (store) grow. Mr. X added warehouse at the hometown location. He added a second, then a third store a few miles south of the first store. One day when Mr. X and I were chatting, I asked him what his plans were, what he wanted out of this. One of his responses was to get the (store) listed on the Big Board.
Well, I got transferred and forgot all about the (store).
In 1980, I went back to hometown for the funeral for my dad. It was held at the funeral home on Route ?? just north of and on the opposite side from the (store). I walked over to that original (store) building to see how Mr. X was doing.
I was greeted with news that I was not expecting. The (store) had grown to seven stores in 3 New England states and then Mr. X had sold out to (large) Corporation. Part of the deal was that they keep Mr. X for 2 years and that period of time had expired and I did not get to see Mr. X.
Bottom line: I had an intimate enough knowledge of the (store) operation to see how Mr. X was using part of his gross to support his family but using the bulk of his net to grow the business.
Second, and this may have been the result of too much Mr. X rubbing off on me but I decided that when I retired from the Navy, I did not want to work for someone else. So around 1973, we purchased 40 acres of farmland in the Mid-west. My father-in-law share cropped the land and we used our share of the proceeds to meet expenses. In 1979, when I retired from the Navy, we began raising hogs. We tried that experiment for five years. At that time the short term rate peaked at 21%. We were good at producing little piggies and our rate of pigs-per-sow-per-year was significantly above the national average.
Hogs can be the mortgage lifter at three or four per cent interest rate. At 21%, we could not break even. In 1984, we sold the farm and in 1985, with a degree in accounting in hand, I got a job as an accountant with the federal government.
One other item. Besides an Associates degree in Accounting, I do hold a Bachelor of Science in Business Administration, Summa Cum Laude.
In regard to your most recent email, first, I feel that your time horizon is too short. I believe that before we talk about the nation’s unemployment and debt problems, we should look at a time when these problems were either non-existent or not nearly so severe.
To me that is 1998 or, alternately, the second Clinton administration.
Up until 1999, as a result of the Banking Act of 1933 (aka The Glass-Steagall Act) the financial system in the country worked fairly smooth. The S&L Crisis of the late 80’s were an exception, but S&Ls did not come under the aforementioned act.
There was constant pressure to repeal Banking Act of 1933, which put a wall of separation between certain financial activities. Those activities were investment banking, commercial banking and insurance companies.
In 1999 President Clinton signed the The Gramm–Leach–Bliley Act, also known as the Financial Services Modernization Act of 1999. This 1999 law removed those barriers and, I believe, led directly to the financial crisis of the summer of 2008, from which we have not yet recovered.
This segment is about government, CEOs and others in the business side of decision making.
I have spent decades observing the human animal. I am not an expert but I have come to the conclusion that most human beings will cheat or otherwise take advantage of the system if they believe they have a fairly good chance of getting away with the cheating or dishonesty or whatever one wants to call it. Federal income taxes – it is easy to say that one donates $600 or $1,000 to the church one attends, whether or not one even attends church. Instead of attending the monthly meeting of the Knights of Columbus or the Masonic Lodge, one could spend a few intimate hours with someone other than ones spouse.
Which leads to this: Over the years we have witnessed one scandal after another that, after legislative hearings has resulted in a new ‘three-letter-agency’ being created. Think FDA (Food and Drug Agency) for example. Or seat belts in cars. The Pension Benefit Guaranty Corporation. The ATF and DEA also have roots here.
Bottom line: Over the years we have seen greedy business people selling a cheaply made and/or defective product to the public. Government agencies are made to combat that behavior.
I am curious if you think this is morally sound. We know that it is legal, but is it morally the right thing to do.
A private equity investment firm uses an LBO to purchase a going concern. Then, among other things, the private equity firm raids the pension fund of the company they just took over. Then after other maneuvers, the debt laden shell of the former company is allowed to founder, eventually filing for bankruptcy protection.
The employees then have to deal with the Pension Benefit Guaranty Corporation, eventually settling for mere pennies on the dollar as a retirement pension.
I ask, “Is this a Christian way to do business?”
In your second sentence you say, “we, this nation, are broke.“ First, just saying it does not make it true. Second, the Bush tax cut and fighting two unfunded wars increased the deficit. Third, the tax rates from just-post WW2 to about 1973, built the interstate system and put a man on the moon.
I contend that we, as a nation, are not broke. We just do not have the political will to ask those that have a little more to pay a little more.
I have not yet received a response.