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rubicon:

...and I'm trying to make sure I use all mine.

Tangents can be good things or bad. Constant references to morals can often create a fork in the road, as can personal value judgments posited as factual statements, as if there is empirical evidence supporting them.

Don't know that my corporate experience is all that impressive. Many others have much more impressive resumes. The variety of aspects of corporate goings-on that I have experienced does provide me a decent knowledge base from which to aid discussion.

Not sure we are seeing a plethora of visitors. Maybe my "books" are detering them.

There are two main issues regarding revenue neutrality. One is attaining it and the other is maintaining it. Dr. Feige's model is geared to attaining it and he downplays the idea that taxpayers will seek to avoid taxation by reducing transaction velocity, thus making maintenance a nonissue. Dr. Hermann goes one step further by asserting that transaction velocity will increase:

How does revenue neutrality create abundance. That is the difference between static and dynamic analysis. The system will be revenue neutral on a snapshot basis but the means of achieving neutrality has placed considerable capital in many more hands with the multplier/distribution effect will exponentially increase transactions and thereby increase tax revenue above neutral - something those interested in expanding government services have been pleased by.

and;

Lastly, and most central, to APT is an appreciation for the size of the tax base. It is truly incomprehensible now being nearly a quadrillion dollars. It is composed of the massive capital exchange markets including foreign exchange into and out of the dollar. There is also a large component of inter -account transfer by business that is not understood by the public. I think the preponderance of evidence is that, while speculation will decline, there will be a lot of money around to invest and trade at a reasonable pace. Those ADDITIONAL funds will come into our economy due to the "good treatment" money is getting here. There is clearly an exponential growth effects on transactions as foreign money comes in and the Fed expands the money supply at a REASONABLE rate.

The question appeared when I suggested via my examples comparing tax impacts under the current system to the same data under APT. Briefly, I showed that the family with $5,000,000 in taxable income would have to have transactions totalling $574,000,000 to match APT tax collections to the current system; with the Citigroup example, in 2006 they would have had to go through $2.8 trillion in APT transactions to equal the taxes they had to pay in the current system. In aggregate this began to question the revenue neutrality aim.

There is no doubt that many, currently nontaxable events, will now be taxable under APT. Significant among these would be IPOs. IPOs would, under APT, become much more expensive, adding millions to the cost of many. Mergers and acquisitions is another huge, new frontier under APT. To the extent that they occur via cash (money transfers) huge additional costs would be added. Should the recent attempt by Microsoft to purchase Yahoo for $40+ billion be a cash transaction, not an impossibility for Microsoft, the APT tax for Microsoft alone would add $120 million to the cost. Yahoo shareholders would incur another $120 million in taxes. Admittedly on the Yahoo side, the shareholders would have tax implications anyway, dependent on their basis.

Given the huge dollar volumes of mergers and acquisitions and the time period of Dr. Feige's total transaction universe - a time when M&A and IPO activity was heavy - any reduction in this kind of activity could severly impact the tax base of APT. M&A activity can bypass APT easily by using stock swaps as opposed to cash as the medium of exchange. IPOs do not have this noncash option available; at this point (never say never), but APT could impact the occurence and timing of IPOs - that activity which is the only real beneficial aspect of the stock market.

This leads us to another point. Currently, our tax system being focused on profits, essentially taxes a level playing field. No matter the makeup of various business enterprises and their profit margins, they are taxed only on their profits. APT would change that; for instance the financial industry would be especially hard hit since their entire business activity is in money transfers. Firms that rely heavily on subcontracting the manufacture of intermediate goods could find significant tax savings by bringing that work in house, putting many small businesses at risk. Firms that require large credit lines to maintain liquidity between commencing manufacture and billing receipts would be burdened by additional taxes simply due to the necessary methodology of doing business. This could be offset by lower interest rates which would likely occur under APT unless significant inflation crept in and the Fed was required to raise interest rates.

Firms which operate with much higher net profit margins versus those with lower margins but higher volumes will unfairly benefit from APT since profits only bear the per transactor rate. All manufacturing businesses will actually incur double the per transactor rate for all costs. They will incur the per transactor rate for all costs incurred in the production of their products, including selling and administrative costs, and then incur that rate again when they receive cash collections from the sale of those products. The only component that escapes the double transactor rate is the profit.

Dr. Feige encounters another incongruity, not uncommon in academic propositions, in his elimination of most of the IRS. Granted he frames this advantage from a less cost, more efficiency standpoint, as opposed to our friends at the Fair Tax who exclaim the moral good from this elimination. But in the section about tax avoidance under APT some of his recommended deterrences would require an investigative/auditing function which would exceed that necessary for merely ensuring compliance by the banking industry.

He does propose that the banking industry could be used to catch those attempting to use "tax havens" to avoid taxation. This will work fairly easily in those cases. But what about a multinational firm who buys, manufactures and sells products in a foreign country not participating in APT. All their transactions in that country or that region would be exempt from APT, if for no other reason than banks in those countries are not going to get bogged down in collecting taxes for the US. Since these banks would not be considered "tax havens", at least in the normal sense, companies could do much of their US transacting through these banks bypassing APT again. Payments could be directed to these banks and funds expended from them. More investigative/auditing? And in a foreign country at that.

Dr. Feige also encounters a symptom we all face from time to time in trying to grasp and argue a gargantuan change. He states that he is focusing on the US but then often talks as if APT is universal and all countries will be applying APT.

He also poses a solution for those using "tax havens" that strikes at the very heart of the foundations of our democracy. He suggests that any one caught in this kind of activity be stripped of any and all of the protections, remedies and benefits of our government provided operations. This flies in the face of a judicial process that issues punitive actions in the form of financial penalties and sometimes criminal sentences but only after due process of law.

I have raised the issue before that with reduced transactional activity, even Dr. Feige admits to a 50% reduction, banks will need to make up for the loss of fee income. They will be forced to raise fees adding insult to injury for many businesses. Stock brokerage firms will look at adding their tax cost from APT to the transactional costs to buyers and sellers in stock trading thereby negating much of the stock trading savings we have enjoyed in recent years from discount brokerage houses.

The likelihood of many of these proposed actions are not given to modeling since we have no idea how much or how impactive they may be. It gets back to my argument with Dr. Hermann that APT changes the entire behavioral model which has afforded economists with predictive ability under our current model. They are possibilities, the impact of which, may not be identifiable until APT is implemented.

Another issue, one which you like to invoke but that Dr. Hermann avoids, and rightfully so, the States and APT acceptance. You have suggested that States could join and apply their own rates as an add-on to the federal APT rate. This is conceivably true but should many attempt to do that it will add significantly to the implementation costs. Requiring a completely separate calculation and account for collecting each State's share and further encumbered with necessary decision points for dealing with activities where two different States, employing two different rates, are a party to the transaction.

If all States were to accept just their share of the federal receipts with no additional rate complexities, other problems arise. Most States, as opposed to the Federal government, cannot run deficits. Varying economic conditions from State to State could change required revenues for those States. With no ability to alter their share from the federal gov't they will be forced to seek relief through other taxes. In many States the use of various taxing methodologies is limited by State Constitutions, either for targeted use or with limits to how much and what they can tax. This could create a huge problem for many States likely resulting in an opt out. According to Dr. Feige, reductions in the universality of APT impair its viability.

Hopefully this is some fodder, on point.

"Necessary and proper" is a limiting concept. If it can mean anything then it means nothing.

Was precisely my point. Terms such as necessary and proper, and moral add nothing to the debate.

Confiscatory taxation does not address the level of taxation so much as the intent to deprive individuals the ability to accumulate and preserve wealth.

Gotta get in those "loaded" words. There is a large difference between deprivation and diminishment. From a societal benefit view, tempering accumulation and preservation of wealth is not a bad thing, in my humble opinion. How much is too much? Is this a real life Monopoly game where the winner can only be announced when everyone else is bankrupt?

By the productive economy I think in terms of GDP.

Your use of the term, productive economy, implies that there exists an unproductive economy, ergo the confusion. By the definition above, even welfare recipients are a part of the productive economy. Therefore I see no need for the productive modifier.

I do agree though that many "main streamers" shy away from APT, as it is such a radical departure from what is already established.

Pardon me but that is BS. Economists, especially academicians, do not shy away from an idea because it is a radical departure from anything. If viewed as slightly viable it becomes "grist for the mill". "It is the thing which dreams are made of", especially for the academic community. That community is always receptive to new ideas that allow them to join in and add to their legacies. It is much more likely that because it renders all historical economic theory as useless, and that it, in practice, is fraught with so many holes or questions, it finds no interest as viable. In Dr. Feige's own estimation corraling the tax base alone would be a herculean task.

Even, on point, I can be wordy. Could it be that I am just verbose?

rubicon:

That was cute though. Notwithstanding all the furor I raise, I love humor the most.

I guess it all depends on what you consider "hyperbole". When the media present facts, such as government reports that indicate something is going on, I don't know that you can consider that "hyperbole". When the Fed Chairman goes before Congress and states that inflation is a growing problem and you see it in the media, I don't think that qualifies as "hyperbole". When leading economists and public policy wonks point out similarities in today's economic data that parallel historical signs of rising inflation and/or a coming recession, I don't see how you just ignore it as "hyperbole". I don't listen to opinions like these and come to a knee jerk panic reaction to them but having lived through a few perilous economic times, I can relate to my experience and I am disinclined to cast the facts off lightly.

Age affords one a knowledge base of actual experience with which to temper any "hyperbole" that might seep into media reports. Seldom does that lead to totally rejecting media reports but rather aids in sorting out those aspects which are "hyperbole". To pronounce that you don't take "media hyperbole" seriously when much of the media reporting is factual rendition, can appear ostrich-like.

Is interesting that the current dilemmas seem to support my contention that the Fed has limited tools in their bag to control the economy. The recessionary pressures call for lowering interest rates - they have been and will continue to - this is the typical monetary response to a declining economy. The normal effect is not occuring though. The Fed relies on the typical, historical behavioral model, reaction to rate adjustments. They expect when they lower interest rates this will increase the demand for credit, either for business investment or consumption spending. The problem they are running into is that the banks, given the recent financial market upheaval with subprime writeoffs, is more cautious than normal in offering credit. This is dampening the "normal" effect.

At the same time, pardon my disagreement with you, inflation rates are rising and rising to levels which may portend catastrophe. The Fed is ill prepared to deal with both sides of the equation at the same time. The typical response to inflation is to raise interest rates, which in turn, dampens the economy.

The confluence of a recession and inflation occuring at the same time reminds us older folks of the stagflation of the seventies; rising unemployment due to recessionary pressures and rising prices due to inflationary pressures. The rising prices reduce demand creating more unemployment, creating less demand, and on and on and on. A wicked eddy is spawned. The Fed has little choice but to attack the recession aspect first. A recession can have a much greater impact on our economy than inflation, unless inflation starts spiraling out of control. This is what happened in the seventies and at the time Volker had to start dealing with inflation and he did so by driving prime interest rates to over 20%. There is little you and I can do but be observers to this looming economic nightmare. Where there are actions we can take to improve our personal situations, ignoring assumed "hyperbole" and failing to recognize the facts, might cause us to avoid taking those actions. Forewarned is forearmed, to some extent.

I have no problem discussing moral authority and limited government. I think I have exhibited a slight tendency in that regard but it does take us off point, at least "point" as defined by you. A comment, however, does not a dissertation make. Well, most of the time.

Am constantly perplexed that you can't extrapolate the idea that uncontrolled wealth accumulation will do far more damage to " the advancement of human civilization" than any limitations on wealth accumulation. Our founding fathers and your vaunted Adam Smith understood this.

A study would be costly and I'm not sure I agree that the whole exercise warrants a costly study. While it can be looked at as keen, nifty, an Information Age phenomenon, it is, net, net, a taxing scheme, not a miracle drug or even stem cell research. I would guess that the first stumbling block is that there exists no system for accumulating the transaction data. The system that Dr. Feige relied on has been discontinued. Even with that system in place, the supporting details necessary to truly breakdown the various types of transactions does not appear available. Dr. Feige used a variety of reports to glean information but much of it was imprecise and required some guessing. Is worth considering that the more accurate information on actual incomes, etc., comes from IRS info; that which will disappear if APT is implemented.

There may be some elasticity in the APT rate that would affect transfer volumes but, again, even at lower rates the aggregate tax burden will drive business, and some wealthy, to seek relief.

I apparently misinterpreted your use of the term productive economy, my apologies. I don't know that keying on GDP is a good differentiator though. The vast sums in IPOs and M&As, I would guess, are included in GDP, since they are the results of buying and selling things, and yet they are not currently taxed, or at least only partially. I would further guess that any money transactions resulting in incomes or profits and losses are also in the GDP numbers. This would tend to leave mostly money transfers from one facility to another, nothing other than changing bank acounts, or those involved in foreign exchange which would not be in our GDP, but also some of the foreign exchange activity would not be subject to APT taxes, at least not both transactor pieces.

In Dr. Hermann's 2005 recap, there is $794 billion a year in FICA and Medicare taxes. Add to that the remission of income tax withholdings, state, local and federal and you have a huge dollar value of transactions that are part of those currently non taxed transactions. These withheld taxes are included in GDP, buried in the gross labor costs. Even between Phase I and Phase II these transactions would only be subject to half the overall APT tax rate since the other half would be going to a government entity. Most all companies, large and small, have specific payroll bank accounts out of which they issue payroll checks. Movement of cash from a main bank account to a payroll account, which could be trillions, a taxable transaction under APT, would all go away under APT. Would guess that these are all part of the 50% reduction that Dr. Feige exempts but my sense is that his 70% reduction might be more accurate. If you use his 70% reduction you have taken APT very close to its assumed max rate.

Is interesting that the study of APT would be likely be much more costly than its implementation.

rubicon:

There is little doubt that once a phenomenon, term or event, hits the airwaves, all the media picks up on it. This has been exacerbated with the advent of 24/7 cable news channels. The media do not invent these things, they pick up on some "expert' here or there who makes some pronouncement. To their credit they don't usually jump on the assertions of extremists, the fanatics, but generally those considered more mainstream. Once a new or re-emerging phenomenon is introduced all the media have to climb aboard lest they be considered antiquated or slow. Aggravating all this is the necessity for the 24/7 news outlets to fill time. They repeat over and over again the same stories, adding more and more guests to interview, expanding and seemingly ballooning the issue. That is not so much hyperbole as it is the nature of the beast.

Bernanke"s latest word is inflationary expectations are under control, and that we are not in a recession. We had a one month spike in producer prices stemming from a recent increase in world commodities prices. And there is a housing and credit market correction going on slowing growth temporarily. All of this is quite a far cry from 1970's stagflation.

Bernanke's words are certainly important but you can't form explicit conclusions from his words alone. He, as all previous Fed Chairman, have to very careful with their wording for fear of sending the markets over a cliff or to the moon. They often seem steeped in the art of verbal obscurity; Greenspan has long been considered the master of doublespeak. Inflationary expectations are not the same as as actual inflation. Clearly actual inflation impacts expectations for future inflation but you can have serious inflation going on and still have expectations that it will smooth over a window of time. If one understands the technical definition of recession then to posit that we are not in a recession at this time is true. Unfortunately, we won't know if we are technically in a recession until six or seven months from now. There is clear evidence that economic growth is almost at a standstill and that portends recessionary pressures. This could be leading to favorable inflationary expectations because economic theory holds that a recession will dampen inflation. Bernanke gains little and in fact potentially creates great damage if he supports a declaration of a current recession. Correspondingly, he can wreak havoc if he states that inflation, actual or expected, is gaining steam. Fed Chairman forever must walk on the thin ice of financial/economic catastrophe.

Bernanke does admit that the Fed's ability to intervene and limit recessionary pressures can be seriously hampered by continued inflationary pressures, since the measures to control one automatically feeds the other. There has been a spike in a broad base of commodity prices, actually over the last two months, but commodity prices have been rising for quite awhile. The ethanol legislation has diverted a great deal of farm production away from food and the extra demand created has been followed by its natural economic consequence; rising prices. The drastic drop in the dollar has increased demand for food exports further compounding the dilemma. The price of oil has maintained a constant upward slope. Major production related materials, mainly metals, have experienced a fairly constant upward trend.

Global demand for all these materials has created significant upward price pressures and many economists marvel that the effects had not been more pronounced before now. This aura has been going on for a few years and may finally be surfacing in wholesale prices from which it logically flows to increasing consumer prices. The cycle is not yet complete. These current price increases are not due to some aberration that just occured, the impetus has been piling up for quite a while.

The housing and credit market fiasco is more than just a correction. Economic data would suggest that to regain equlibrium, housing prices will have to drop by at least 30%. Conventional wisdom is that for this to occur it will take a few years, this is based on historical perspectives. In the interim, even Bernanke admits there will be some bank failures. Bank failures can have a devasting pyschological impact on business and consumer expectations which then alter expected reactions to Fed actions. Currently, as I pointed out, the interest rate cuts that the Fed has executed to date, are not having the normal, expected result because banks are very fearful of their prospects. The segue to a larger global economy has also impaired the Fed remedies since they cannot, as effectively, control the actions and attitudes of the global market place.

In a technical sense we have stagflation now. Stagflation is defined as; a period of inflation combined with stagnation (that is, slow economic growth and rising unemployment, possibly including recession). Of course it is not at the levels we saw in the 70s but the disasterous levels occuring during that time didn't start at the highest levels. Ironically the best guess initiator of the 70s imbroglio was rising oil prices: Is it dejavu all over again? Time progresses, yesterday's far cry, can be tomorrow's near term. Concerns and fears are not irrational in the current environment.

The only way wealth gets accumulated into too few hands is when government confiscates it. Wealth in the private sector gets spent, invested, and inherited. The prospect of increasing private wealth generates economic expansion and a general rise in prosperity, i.e., the general welfare.

You constantly fail to see the entire picture. No one is arguing that the government should take all this money and put it in a blackhole. Increasing taxes on excessive incomes is offset by decreasing taxes on lower incomes and increased government spending. Part of the wealth remains in the private sector in the form of increased after tax incomes and part of it returns to the private sector through government spending. Nothing proposed contradicts: The prospect of increasing private wealth generates economic expansion and a general rise in prosperity, i.e., the general welfare. All that is being proposed is that increasing private wealth be expanded to include more of the populace.

To continue to find roadblocks to APT as if each one is a show stopper is disingenuous.

Most of my roadblocks are not posited as show stoppers in and of themselves. Your defense mechanisms might interpret them as so. If the sprinkler system in the theater goes off in the balcony, the show can go on, if it spreads to the loges, the show can go on. At some point enough sprinkler systems going off in the entire theater will send the audience away and the show will be cancelled. Think beyond the specific and appreciate the aggregate. Actually though, a few of the roadblocks I have premised, while having no significant impact of application of APT, will in fact create extreme resistance to the idea from various, powerful influences on government action and could submarine the whole idea.

In my opinion, common sense and ingenuity will overcome all difficulties.

The proponents of nuclear fusion like your approach. With that opinion do you have any prognostications for World Peace?

Likely verbosity is not contagious. Intellectualism, maybe more so.

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The fact that various economists have differing opinions of what is happening and portends to happen merely substantiates my point that Economics is not a hard science. It is a behavioral science and as such relies on supposed behavioral reactions to define and predict. It further substantiates the questionable assumptions, if not flaws, in Dr. Feige's arguments; he is, after all, one of those, two-handed economists.

More to the point, there is very little disagreement among leading economists that we are teetering on the brink of recession. There is disagreement regarding whether the Fed should mettle and attempt to correct the direction. Some hold to the school of thought that a "minor" recession from time to time is necessary to allow for market corrections. The difficulty is in knowing whether any recession will be "minor".

The same is basically true of inflation. Few deny that inflation is creeping up and may become a major problem. The disagreements come mostly in inflation expectations. Some feel that inaction by the Fed will only allow inflation to build, while others feel the current situation is an aberration which will work itself out. You allude to a new major conflicting element which previously was not critical: The expanding global economy; this element is out of the control of the Fed, as well as the government, and further limits Fed abilities to control inflation. China, India, other Southeast Asian and many other emerging economies are creating huge demand increases for basic metals and foodstuffs. Given that supplies of these essentials, especially metals for manufacturing, and foodstuffs for those people now working for a living instead of farming, are finite, there will be increasing upward price pressure to sort out competing interests. Currently, the primary suppliers of iron ore are negotiating huge price increases in that essential commodity. The worldwide increase in demand for oil, coupled with a decreasing supply, suggests that while we may have ups and downs, prices will continue on an upward slope.

The whole point in raising this, off point, issue, was to point out that inflation is forever a concern. It is always at the forefront of the Fed's analysis, unless recessionary tendencies arise, and businesses are always concerned about the negative impacts inflation can deliver. It is not some antiquated aura that strutted and fretted and then was heard no more.

The way the media uses "stagflation" lately, and media reporting generally, is agenda driven, where a kernel of truth is wrapped in the skin of a lie.

The only agenda the media has, is that of more profits, via larger audiences. What possible agenda goals are to be met by using the term "stagflation" other than to hook more readers/listeners to peruse and reference. It was not injected by the media out of nowhere but rather the possibility was referenced by leading economists. As I stated in my last post, technically we are there again; how deeply mired and whether it is easily correctable before it reaches catastrophic proportions, are the questions. Admittedly, one quarter does not a definitive trend make, but there are clearly signs that suggest the slope might be steeper than it appears.

We also are at the dawn of the information economy. Bernanke reported that inflationary expectations are under control. This is significant because a huge part of inflation is psychological. If inflation is expected, it becomes self-fulfilling.

I never seem to comprehend your exhilaration with this information economy. My understanding would seem that we are beyond the dawn although far from the twilight. Inflation, recession, stagnation, thriving, all these are psychological phenomena. Indeed, in the absence of positive responses by elements from outside the cycle - the Fed; the government - the psychology takes hold and generally they all become self-fulfilling prophecies.

Further, as Dr. Hermann has repeatedly emphasized, inflation is very complex. Long term, markets are self-correcting. Markets always fluctuate. It was less than a year ago the PPI was so low it seemed as though inflation was dropping to zero. Q3 2007 GDP was up 4.9%. So, as with the weather, if it seems unpleasant now, just wait awhile. In short, if you're looking for doom and gloom, you'll always be able to find it. We just need to remember, on the other hand...

Dr. Hermann notwithstanding, inflation is not complex. The reasons causing it can be varied and present a compexity in analyzing and correcting it. Your simplisitic understanding of markets can be marvelling. Markets may or may not self-correct; sometimes they appear to and other times they become wrapped up in that pyschology you speak of and they contribute to a spiral upward or downward. In times of turmoil markets look to, plead for, intervention by the Fed or the government to stem the tide. Markets did not correct the Great Depression; it took government intervention and a world war. The PPI is not the determiner of inflation, the CPI is. The PPI can be a precursor to the CPI; but not always. Inflation was never near zero in the past few years nor even close to it. It has been within an acceptable Fed range, possibly due to Greenspan's raising interest rates commencing in June 2004. The September 20, 2005 Fed report stated; Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained. A nice warm, fuzzy statement after the 11th consecutive increase in interest rates, since June 2004. Keep in mind that "core" inflation excludes food and energy prices. The use of the term "contained" here should not be confused with "under control". You control events, you impact "expectations". The term here is related to restrained, calmed. Merely meaning that no one expects inflation to escalate out of control. Of course, in the immortal words of Scarlett O'Hara; "Tomorrow is another day". In his July 15, 2003 report to Congress, Greenspan had suggested that further rate cuts below the 1% level were possible to further stimulate a sluggish economy. What a difference a year makes!

Doom and gloom or irrational exuberance, whatever your bent, can always be propounded. Again, we are but observers, to the extent that we can be prepared, a more pessimistic view is not unwarranted. Beyond that we can but await the wisdom of the "powers that be". I wouldn't rush into the stock market just yet though.

Please help me understand how increased government spending is beneficial. This idea is so passe, circa 1960's. I didn't think anybody still held this belief. The biggest long term challenge to US government spending is unfunded mandates, the hangover from 1960's era excess. The trend is toward less government involvement in areas best left to the private sector. The problem is there's still the countervailing trend to pander for votes. There's no serious debate here, just a persistence of old style politics.

GDP= consumption + gross investment + government spending + (exports − imports). Government expenditures here do not include Social Security, Unemployment payments, etc., but are the purchases of goods and services from the private sector and any investment in the sense of infrastructure or research expenditures. In this regard government expenditures create the same multiplier effect as do private to private expenditures. I'm not sure where you acquire your economics knowledge but I would suggest a new source. Hopefully one not mired in the 17th century. Nothing that occured in the 60s or since has negated the benefits of government spending. The recently passed tax rebate program is government spending intended to fuel the economy.

Unfunded mandates are not remnants from the 60s but actually from more recent vintage. Most of the increased regulatory activity in the 60s was directed at the business community and run by federal agencies. The unfunded mandates issue developed when the federal government began imposing legislation on the states without sufficient funding to enable the states to meet the criteria. Bush's, "No Child Left Behind", being one of the most glaring examples.

The "trend" has always been to let the private sector do what it can do best and keep the government out of it. The problem arises because the private sector has no value structure other than more profits and this often leads them to take actions inconsistent with the best interests for our citizenry. Ergo, government intervention becomes necessary. The biggest mistake since the Reagan era, including the Clinton era, has been to deregulate business activities.

You seem to have much of the terminology down but you don't seem to grasp all the meanings and you clearly, at this point, fail to conceptualize the processes. Keep working on it.

rubicon:

The better term for Medicaid and Medicare would be underfunded rather than unfunded. Both these could be solved by universal health care. Opinions vary all over the place as to the Social Security "crunch" or lack thereof. Time will tell, but a couple of quick fixes are available, although not universally joy producing.

Interesting that the two contractions you mention, housing and credit market, are the results of two different phenomena. The housing market contracted primarily as a result of very poor mortgage lending practices. These practices were nurtured by the quanmeth whizzes who created new investment vehicles but needed more mortgage paper to enable them and keep them growing. Initially the credit market contraction was a mathematical result of the housing transaction but the Fed and the government jumped in with actions which normally would have eliminated the credit contraction. Their actions didn't work because the banking community is in a panic because no one knows the extent of losses and bad loans existing in total. Net, on the one hand we have bad (greedy) business practices creating a disaster and on the other we have a change in expected behavior adding to that disaster. The former could be considered a behavior change too, but not by anyone who has worked in business management.

It is far from a given that the stimulus package will do much of anything to salve the current dilemmas. Much of that determination will depend on the behaviors of those receiving the checks. A tax cut is generally viewed as a reduction in tax rates. You could suggest that the package is a tax rebate since the basis for it is predicated on tax information. Keep in mind that with APT this information would no longer be available, so targeting would be nigh on to impossible.

The demise of Keynesian economics has been greatly exaggerated.

My research suggests that the core inflation rate for 2007 was 2.4%. The CPI gross rate was 4.1%. Further, average weekly earnings, after adjusting for inflation, dropped by 0.9 percent in 2007, sort of a double whammy for American families. There were good reasons for excluding food and energy prices to establish a "core" inflation rate. Although now I'm pissed about one of them; to reduce the COLA increases for Social Security recipients. Historically, food and energy prices were "volatile" often due to natural events and oil cartel greed. Though we are still the largest consumers of oil products our influence is waning and therefore corrections we make in usage will have less impact in the overall price of oil than they used to.

But my global understanding is still that of a strong propensity towards monetary contraction, a la the current credit market contraction. This is what is known as a secular trend, as opposed to just a cyclical one. Japan is just barely emerging from a decade-long deflation which began with a deflated real estate bubble.

The propensity toward monetary contraction globally is the result of inflationary concerns, of the same type we are discussing. A credit market contraction would call for easing interest rates along with other monetary actions and the Fed has argued for this globally but with little support due to the looming inflation concerns. Given a secular trend is nothing more than a cyclical trend but for a longer period, it is hardly likely that we are seeing a secular trend globally. The EU is being overly cautious. China is invoking price controls as opposed to monetary solutions. Perhaps the most important factor here is that, again, historically, a looming recesssion in the US would have had all foreign governments taking actions that would help maintain our economic strength to keep our markets alive. It seems our problems are less influential that they used to be.

Japan's issues were not a secular trend either. Their problem was they tried to follow your remedy and let the markets sort it out. Their Central Bank/government couldn't come together on remedial action and so their problems just lingered and lingered awaiting a market response that never came, at least not for a long time.

The globalization of the economy is a strong countervailing force to inflation for a myriad of reasons. The fact that commodities are bid up by global demand is actually beneficial. Commodities price pressure continues the trend towards increased efficiency. Between globalization and information age efficiencies the materials cost content of products continues to shrink.

Globalization, all things being equal, should act as countervailing force to inflation. Problems develop, however, in supply and transit and in the ability of businesses to think ahead. Most of the efficiency/productivity gains in recent years have come from labor/overhead savings. Material costs, however, have always been the larger portion of cost of goods, it varies between industries, but on average the statement is true. By focusing on labor and overhead cutbacks companies have tended to deplete their engineering staffs, their procurement staffs, their supply chain management staffs along with other administrative functions. All these functions are critical in material cost reductions. Even merely using cheaper packaging materials - the consumer never sees the savings - requires all these functions to reengineer product packaging including assembly line changes, secure suppliers, negotiate prices, maintain delivery and inventories.

Currently most activities have focused on better management of inventories to reduce material costs. With the staff reductions often this is accomplished by forcing vendors to carry more inventory for their customers and the business customers tend to think this incurs no additional cost on their behalf. No one can argue that rising prices will cause more emphasis on material costs savings. The fallacy in your argument is that these efforts are and will be taken anyway in the natural progression of businesses to cost reduction and therefore your cause and effect is a little skewed.

Compounding the issue, causing prices to rise faster than savings can offset them is limited supply. Some areas of limited supply will be adjusted out via the age old economic theory of new entrants filling the void. For food, energy and metals, especially "precious" metals, the capacity for new entrants is itself limited. Foodstuffs have a fairly long cycle time from seed to production; energy suppliers are clearly limited to a few sources; metal mining/producing countries are dwindling and suppliers are moving toward cartel type structures, often because they are in emerging economies with less invasive antitrust laws. All these factors invoke pricing issues which lie outside the normal market disciplines. I guess it could be argued that we are in better shape, at least for metals, since we are much less an industrial economy than we used to be. The electronics industry is heavily dependent on a variety of metals to manufacture their products. Further, transportation and delivery timing become much more critical due to the variety of endpoints to be shipped to.

It may be that the markets will sort all this out and price stability in the long run can be attained but the pressures wrought by the current global growth rate can alter future expectations in a heartbeat. We may be teetering and this is not just my thinking. If things began to crescendo out of control, without agreement among the global central banks and governments on responses, a worldwide catastrophe could be looming.

It's always preferable to have an industry self-regulate and police itself where practical.

No dispute other than industry doesn't always exhibit a strong propensity to regulate itself.

Since government has no legitimate role in discouraging wealth accumulation, there's simply no need to preserve or enhance a graduated income tax. Controlling inflation is a top Fed responsibility. APT changes things but the transition should be manageable. And of course this all needs to be carefully studied and cautiously implemented. Maybe Art A Layman should be put in charge of detecting potential pitfalls along the way. This would certainly be an invaluable service.

Isn't the English language amazing? We segue from moral authority to legitimate role and don't miss a beat. Once again, either because you refuse to listen or you can't grasp it, government does not seek to discourage wealth accumulation, at least that is not what I am arguing, it should simply temper the distribution of incomes to insure that wealth accumulation does not inure to a select few, at the expense of the many. There is also no need to implement APT either. There are many businesses created everyday with viable ideas and promising futures. Often the lack of access to money and/or credit or the inability to manage it, cause many of these to falter. Our current tax laws offer some relief to struggling businesses by allowing them to avoid taxes until they get over the hump. APT knows no such charity. There is every need to continue the current system with rate improvements.

I believe I have given you a jumpstart on pitfalls. It's a good thing too, since by the time, if ever, APT gets beyond the drawing board I will be long gone. Likely to that great general ledger down below.

rubicon:

If new areas of domestic spending can obviate a current or pending problem then it is imperative that they be considered; and enacted.

I don't live and breathe statistics either. I just have this ingrained accountant's mentality that allows that I abhor stating data that I am not sure of. This is especially true when the data is so easily verified.

It is not the case that new jobs and new workers entering the workforce cause a decrease in average earnings. New jobs and new entrants are a constant; they are always happening. In a healthy economy, multiple wage factors would easily offset these two phenomena. Inflation alone should cause a rise in average earnings. Some of the impact comes from the jobs that are disappearing only to be replaced with lower paying jobs. Some of it is the shift - statistics notwithstanding, a fact that has been creeping in for a while - toward an unhealthier economy. Trying to simplistically squeeze supply and demand theory into the equation is folly. As one who has been both an author and examiner of statistical data, I am well aware that statistics, especially standalone statistics, do not a clear picture make. In argument, frequently, isolated statistics are presented as proof of a premise; seldom do I or many other discerning discussers accept these representations as valid proof of anything. At best a broadening of statistical data is necessary and generally it is trends that are of the utmost significance.

Comparing the global economy of today to global economic circumstances in the 80s is akin to comparing today's computers to the adding machines of yesteryear. The variables have increased exponentially. In the 80s the emerging nations were just giving birth to economic systems. Solid infrastructures were not sufficient, in many instances, to control and maintain currencies and most production, in emerging nations, was dependent on exports for sustinence. The old Soviet Union, though crumbling, was still intact and all those currently emerging economies, created with the breakup, did not yet exist. China was still a backward culture, economically, just beginning the economic growth impregnation. India was still primarily an agricultural country; much of the rest of Southeast Asia, save Taiwan, Japan and South Korea, was still involved in civil wars trying to sort out viable governmental structures. Africa was still primarily a nation of wild animals.

Following our economic model, more specifically the Western World economic model, many of today's emerging economies have achieved in 2 or 3 decades what it took the rest of us a century or more to achieve. Though they are still highly dependent on exports for survival, those exports are going to an ever diverse and growing list of countries. No doubt we are still the primary market for their survival but they can withstand a recessionary US much easier today than in the 80s. Our shift to more of a consumption economy than a production one coupled with the move to globalization and free trade have supplied significant wealth to these emerging nations. With wealth come options; multiple strategic choices in a complex world are now available to many of these countries. Some are positioned, if necessary, to redirect their production capacity toward internal economies. Others, while hurting, will redirect their exports to markets less impacted by a US recession.

All these factors serve to change the Feds international job from one of dictating what needs to be done to keep the American economy strong to a more diplomatic role of suggesting or selling what actions best aid America and the world economy. We ain't out of the loop yet, but the axiom of; what's best for America is best for the world, is losing its lustre. A cynic could suggest that this is the ultimate goal of China, Russia and much of the Middle East. Rather than defeat America militarily, an almost impossible task, let's beat them at their own game. In boxing there is a strategy that if you pound the belly the head will eventually come down into range.

In this same vain, albeit an aside: Many, especially your vaunted Eastern European nations with their flat taxes, have yet to build infrastructures to deal with a taxing scheme more complicated that a flat tax. Russia suffered from this, along with the propensity of their population toward graft, and that drove the flat tax idea. My understanding is that they haven't totally discarded remnants of a graduated tax, especially in the corporate area. Most of these nations also have only the rudiments of wealth and income disparity. As they begin to flourish and wealth and income inequality become more pervasive you can bet moves to a more progressive tax structure will happen. I believe I read that China, not a flat tax country, is experiencing a 19% per annum rise in wages (so much for my principle of precise accuracy).

All this can be expressed as gloom and doom, not inappropriately, but reality can often be debilitating. The point is, again, what are the trends? Given what is transpiring today, what does it portend for the future? Arguably debateable, with one side asserting hope and faith, while the other protests with despair. With all the wisdom and knowledge we have gained since the Great Depression, a great deal of it seems to be going the way of Fortran IV. The good news? I won't be around to see the end of the play for this one either.

The shift in word usage might be more aptly defined as from emotion-laden words to slightly less emotion-laden words rather than analytical words; but then again, eye of the beholder.

The way I see it, if there's an open system for free enterprise participation, how does anyone get harmed by the success of the few?

The first flaw likely lies in our oft espoused American postulate that wealth and riches come as a result of hard work and thrift. Though talent is a function in the equation, it is generally considered less important than hard work. It is rather apparent, in today's environment, that hard work, in and of itself, renders nothing more than aches and pains. Celebrity has become the new rags to riches story. Outstanding athletes, even some more mediocre ones, attain great wealth simply by being good at a game. Ironically a game most of them would play professionally for a dollar a day. Movie stars and entertainment celebrities have always, at least in the 20th century, been paid significant wages compared to the average worker. This is less due to their abilities and talents than the marketing ability of the drivers of the industry. Innovators have been a mixed bag. Many go on to riches while others, with successful ideas, flounder far from the riches arena. Politicians, once laboring in obscurity, now seek the spotlight with the contacts and access to wealth that provides. Corporate execs, especially CEOs, are chosen not so much for innate ability or exhibited success but often based on celebrity or the appearance of same. How many CEOs do you see who would be considered homely? Athletes do have somewhat viable argument in that their extremely high earnings years are severely limited; either by age or injury. CEOs cannot proffer that same argument. It is also clear that thrift is not the answer. In today's world you can't save your way to wealth. You, sometimes, can invest your way there but that involves risk and risk means that you could end up without enough money to send your kids to college or enough to live in retirement beyond meager means.

The second issue, not really a flaw, is that wealth is acquired through money. There is an age old adage, and it is true, that making your second million is far easier than making your first. Once you have accumulated sufficient resources a window of opportunity opens up with almost limitless options for making more money. Hard work, if ever an ingredient, becomes passe. You can toil at whatever you enjoy and your money keeps making more and more money for you; acquiring more and more wealth for you. Now I know that money doesn't make more money without risk but the wealthy have access to many more resources to mitigate that risk.

I received a mailer from a, supposedly, renown investment guru recently - I truly don't know his veracity or his ability but he seems legit - and he happily wanted to invite me into his limited circle of wise investments. All I had to have was $500,000 of liquid assets to invest. So much for my wealth accumulation dreams. CEOs, admittedly my favorite whipping boys, don't want to wait and work hard and create success for shareholders and then reap rewards; they want it upfront so that while they are attempting to make wise decisions their huge earnings are off accumulating more wealth and they will be set for life even if they fail miserably at their corporate task. Two major inequitable factors are at work in the CEO arena. First, as I have stated, they have a much greater degree of control over their remuneration than the average worker. Second, another repeat, in any corporation, profitable or not, there is a finite amount of funds available to pay wages and salaries. To the extent that the CEO and his cronies are taking an inordinate portion of that finite amount the other workers suffer; negating not only their opportunities for some wealth accumulation but hindering their ability to live decently as well.

As the tax rate structure moved flatter, via "trickle down" economic theory, the wealthy and high income earners received an additional inordinate benefit. These kinds of actions lead to, and there is a whole raft of statistical data to substantiate it, the rich getting richer and the poor getting poorer and those in the middle fighting like hell to keep their heads above water. The entry into the bullfighting ring of wealth accumulation has become increasingly difficult. Advancing technology has imposed limitations on the access of the common man to innovation and invention that once was an avenue. More and more, higher education has become an essential ingredient to understanding the machinations of business and science to be mastered before innovation can even create a glimmer of a better idea. You can argue that, well, the common man should get a higher education. Cost, access and ability can be stern task masters. Our public primary and secondary educational systems, coupled with parental apathy, have fallen far from enabling students for much more than flipping burgers. Are those, who for whatever reason, failed to acquire the educational means for financial success to be remanded to a life of poverty?

The wealthy, hell even the well off, don't suffer this inequity. They can send their kids to private schools; hire private tutors if necessary, again, their wealth or incomes provide options not available to the little people. They also have a much greater understanding of how the "system" works. They can pass this understanding to their children; they have contacts and influences that give their kids a huge leg up in the quest for financial security. If the "death" tax ends up being eliminated their kids can start the 100 yard dash from the 50 yard line.

Bill Gates is atypical in that he is tailoring much of his philanthropy to the poor and downtrodden of this world. Many of the wealthy confine their gift giving to art museums or theater renovation or a myriad of other personal interest endeavors. To some extent these are beneficial to all but in a very limited sense. Many give to their alma maters, creating endowments more directed at their legacies than to social welfare. If the goal is to reach the top tier of the Fortune 500 then maybe we need to allow those in that game to seek the goal. Beyond that, what does a person, already a multi-millionaire, need with a multi-million salary or millions in income? What can be achieved with another $10 million when you are already worth $20 or $30 million? More stuff? There is a point where each additional dollar of individual earnings could better benefit society than the individual (repetition I know).

Look at the percentage of this nation's wealth owned or controlled by the top 1%, hell even the top .5%. To the extent that this wealth accumulation includes control and ownership of the means of production (see Adam Smith) fewer and fewer will have access to any means of upward mobility. The condition of this oligarchy is already far beyond the birth stage.

Should you have your way and all my pitfalls are successfully overcome while I am still alive, I will immediately cease any argument with you. Not because I cannot come up with other pitfalls but because you will have exhibited a power far beyond that of we mere mortals. We all know it doesn't pay to fool Mother Nature.

rubicon:

Do you have similar problems with math that you have with economics?

The average number of new jobs in 2007 was 95,000 per month or a total of 1,140,000 for the year. The average civilian work force was approximately 153 million (sorry for the imprecision). Included in the new jobs number are some, can't find how many, jobs that were higher paying than the average which could very well have created an overall increase in wage rates of new jobs, depending on the spread - assume an average work force wage rate of $17/hr; if a new high school graduate took a job paying $9/hr, and a new healthcare job for a new graduate paid $25, the average wage rate for the two would be $17/hr, leaving the overall average unchanged. Even discounting that, new jobs accounted for .7% of the average work force. Do you have any idea how low those wages would have to be to have any effect on the average earnings of the entire work force? In theory, the minimum wage would act as a downside delimiter to any equation attempting to calculate that effect. Your premise, although appearing mathematically correct on a micro basis, fails miserably on a macro basis.

The key to analyzing any statistical data is to find that data that is pertinent, not just grab that which appears favorable to your premise. Tradition and history is always a valid start, provided you adjust for changes that have taken place. In the 60's, I believe (again sorry for the drift from precision) 6% unemployment was considered full employment. By that standard 5.2% would seem good, especially in a downturn.

But let's look behind the figures a little. Full employment is defined as that level where the remaining unemployed are unemployable and the unemployment rate is calculated by dividing the number of unemployed by the total civilian work force. In the 60's this would have included a significant number of the disabled and mentally retarded. Over the last 40 years many jobs have been created for these people. This adds to the divisor, driving the resultant quotient lower. In addition, in the 60's, most teenagers did not work. Today many teenagers work, albeit part-time, but they add to the total employed divisor driving the unemployed ratio down even further. Working moms exhibit a simlar phenomena. I don't know that the data is available to construct an actual comparison but it is not unreasonable to believe these changes would have resulted in a full employment number in the 60's of between 3% and 4% in unemployment. 5.2% unemployment is losing its favorable aura in a traditional perspective.

In 12/07 the number of unemployed was 7.7 million. Add to that 1.3 million who fall into the discouraged category, those who have looked for work over the past 12 months but not in the past 4 weeks, the latter being the goalpost for definition as unemployed. This means that total unemployment was 5.8% rather than the published 5%. Anyone unemployed that has not sought work in the past 12 months falls out of any calculated category all together. There are also 4.7 million workers, working part-time, but who would like full-time work but either can't find it or their work hours have been cutback. These, of course would not be considered unemployed but clearly are underemployed, but arguably could add a fraction to the total unemployed number. All these statistics are higher than in 2006 and therefore represent a declining employment picture that has been going on longer than just the past couple of months.

Interpretation involves more than just finding a number that satisfies your happiness quotient.

We segue from moral authority to legitimate role to natural order. Have you considered a career as a philosopher? Laissez-faire, according to Webster, a philosophy or practice characterized by a usually deliberate abstention from direction or interference especially with individual freedom of choice and action, does not represent a natural order, but rather a determinate choice. We tried it in foreign affairs and it didn't work and it certainly wouldn't work in that venue today. The Gilded Age also taught us that we can't practice it in the economic arena either. Once again I would point you to the historic period of the most significant economic growth the world has ever known, the 40s through the 70s. A period with very high marginal tax rates and yet none of your brand of doom and gloom occurred and great wealth was still accumluated. I'm sure there were unintended consequences but none seem to have been particularly hazardous. The major difference is that most boats were lifted along with those of the upper quintiles.

You seem very naive in your implication that interfering, via government actions, can cause unintended consequences but your laissez-faire approach does not cause them. An economic system with no regulation and no brakes would lead to disaster even faster than our present course. A government that does not govern is the worst form of government - my apologies to Mr. Thoreau.

Agree or not, "greed" is the one constant in economic endeavors. Left alone, any economic system will devour its young and seek a survival of the fittest and many innocents will be lost in the turmoil.

All this, while seemingly off point, does strike at the basic issue that will shoot down attempts to gain support for APT. Its inability to limit individual wealth accumulation further driving the schism between income classes and limiting the government's ability to intervene and adjust when necessary, even if only a perceived necessity, will make it politically inviable. When you add the initial problems that need to be solved long before we even know if it would work, some of which may be insoluble, render it, in my immortal words, a solution in search of a problem.

One certainly has to query why a business executive, considering alternative taxing schemes, would chose APT over the Fair Tax. The Fair Tax eliminates all taxes on businesses, a seeming Valhalla. It could be they are looking at it from a personal perspective, but there are so many holes in the Fair Tax sponge that even a cursory look has to have a business exec tingling with excitement.