Trickle down economic theory has a lot in common with your old fashioned Mr. Coffee drip coffeemaker. Each must go through a filter before the output can be captured and utilized. Unfortunately, the filters applied in the economy do not assist the average Joe in the manner that your cuppa joe machine does so reliably each morning.

The incentives for corporate America have changed. Whereas in the past, an influx of cash uncommitted to taxes could be used to hire, promote, reward, expand and invest, today’s corporate America uses the cash towards other ends. While CEO salaries may be the first thought that comes to mind, that is only one drip in the cup. Mergers, acquisitions, partnerships, outsourcing, financial vehicles on Wall Street, and the ever popular new way of showing one’s corporate prowess – whose quarterly revenues are bigger!

Trickle down cannot work in an economy where the corporation increasingly is focused on Wall Street, outsourcing, and short term revenues over long term investments and slow but steady growth. In a world where employees (and all their benefit, training, and retirement baggage) are viewed as costs to be eliminated, the filter directs the trickle down drip into various coffers displayed in the annual report to shareholders.

Small businesses reflect the best chance for trickle down to work, however in more and more instances, internet commerce is replacing the store front sale. Service providers and local shops rely on customers to spend their wages, thereby allowing an increase in hiring and growth in the business. When customers find their income stagnated (due to the corporate filters), the sales decrease, leading small business owners to use those trickle down tax breaks to pay the bills, and look to online customers in a more widely distributed market to bring in that revenue. The trickle down cash can help the business owner grow their business, but the effects are not as clear in the local economy or in the local job market as once expected.

To make trickle down effective in this environment is a tricky situation. Perhaps we need a combination of trickle up and trickle down… recognize that corporations view employees as costs and incentivize the trickle towards those areas. Don’t increase taxes on employers with good healthcare plans, reward them with tax breaks to have them. Offer greater tax breaks for employee training / continuous education. Reward re-investment in companies through tax breaks to alleviate some of the fallout from quarterly revenue lust.

The game has changed – the theory can still work, but it has to be applied in the context of the environment.

Drip...Drip...Drip

The less cynical, and more analytic critique of the tax code that I posit is this: we have a very unequal distribution of wealth these days, so why not have a very UNEQUAL tax code? Why not let the tax code reflect the society’s extreme inequality, and use it as an engine to fix it? Why do we stop creating tiers at a measly 350 Grand mark, and extend it up to 1, 5, or even 100 million in income?  The income tax has been MUCH higher in the past, around 90%!  That is unimaginable today, only because we are forced to believe this will dampen economic growth.  That is nonsense, and borderline propaganda.  It is time to tap one of America’s greatest Natural Resources:  Millionaires.

The current tax system greatly favors the Rich and lets the ever-shrinking Middle gnaw on what’s left.  It is unfair and crippling our economy and polity.   Higher tax rates for the rich does not constitute socialism.  Quite the contrary, it’s a return to our American roots and history.  It is time for a more sane tax regime, that reflect reality, not the interests of the Rich.

Wouldn’t it be nice to have a president who was an asshole? Unfortunately the foresight of mid-term elections and re-elections prevents this from ever happening. Looking at the current budget deficit, which according to the deficit commission staff amounts to $13.7 Billion, an asshole is exactly what we need.

Politicians from both sides of the fence including President Obama realize that we need massive budget cuts, but they fail to ever mention specifically where they will come from. Since this is where they fail, let me be the bearer of bad news; every dollar that is cut is going hurt at least someone. The sooner Washington realizes that they cannot be everyone’s friends, the better. Before the GOP begins cheering me on, realize that this is a two-way street. So just for sake of keeping things fair, if we take away some of the left’s toys we have to take some of the right’s toys as well. In the words of Kentucky Senator Rand Paul as quoted from the Wall Street Journal Article from today, “There’s not enough money just in welfare to cut to balance the budget, You have to look at the entire budget, and approximately 40% of that budget is military”.

So now that we know everyone is going to be mad, it is time for Washington to suck it up and be the bad guy. This involves a complex political strategy called thinking ahead. By ahead, I mean more then four years down the line (I know right? Who thinks that far ahead?). That means worrying about results that might not show on your resume come re-election time, and yes, that could cost you. Not to undermine America or promote a nanny-state (this metaphor is not going to help), but just like with parenting you can’t always be friends. We will however, thank you later.

Before you slavishly spew the neo-con psychobabble they taught you in a second-year Econ course, let me quickly defend “protectionist” industrial policy. It promises new jobs. It presents a targeted method to stimulate new industries with positive externalities for all of society to enjoy (e.g. clean energy). Industrial policy aimed at “green” jobs and industry is not “as” protectionist since there is a very weak global green industry presence to begin with. Sure, the Chinese and Europeans are in the race, but the race just started. There is real potential here, and all industries can be considered “infant” at this stage. Give the baby a goddamn bottle already!!!

It is time for the US to stop the weak subsidies at the backend (buyer credits) and start a more comprehensive, and incentivizing, approach. The Feds should use carrots to get States to get their act together with a local green movement, use public universities as incubators, etc. It’s not really a question of how, but how much: a ROBUST package of policies should be implemented that energizes and strengthens this pathetic industry. The private market (gasp!) is too slow; putting a few hybrids on the roads and a smattering of solar panels on American roofs will not do.

To all ye who think government is incompetent: the US Military is the most socialist organization in the United States, and the most advanced military in all of human history. If the US can contract with Boeing and others to build the best jets in the world, why can’t the US government contract with green technology firms to build a new future for the US? Shame on you.

the current state of affairs

Spirit airlines finally took the plunge, charging up to $45 per carry-on. Now I know, here it comes the OUTRAGE from passengers, but before you start picketing, Spirit said they lowered most fares about $40, so in reality they are charging an excise tax to prevent you from taking on your bag, which seasoned travelers will love. In addition, diaper bags, books or a small bag that can fit under your seat is exempt (you can calm down power users)

Excise taxes are great. Much like taxes on booze and cigarettes, they persuade you to use less of a product or service by making it more of a financial burden. If the risk of cancer wont make you quit, perhaps a shocking price tag will.

So what does this mean for air travel? I hope every airline does this. Lower the ticket price by the cost of the “tax” and force people to prioritize their needs and check that bag. Let’s keep those overhead bins wide open, and if I get the opportunity I will certainly fly Spirit airlines.

Yeah..Keep Stuffing. THAT will work.

The average spending by OECD countries (Europe/USA/Japan…) was $2,966 per person in 2007 (the USA was at $7,290). In 2007 Canada spent $3,895; France $3,601; UK $2,992; Japan $2,581.

I truly do not understand how the USA continues to subsidies those special interest in favor of the current obviously broken system. How
people can possible claim the USA is so bad at health care we can’t possible just pay say 20% more per person to get results no better than other countries. We are not comparing the USA to some idealized dream system. We are comparing it to government run programs that are amazingly cheaper and have at least equal (often better) performance measures.

Do these special interests really expect us to accept that the USA system requires us to pay 243% of the OECD average for no better outcome measures? And even then, tens of millions of people’s lives caused great distress due to the lack of health care or financial ruin due to health care costs they must pay out of pocket? The apologist for the special interests have had decades to fix this system. We can’t afford to keep letting them distort our economy for their benefit. They have had decades to make gains. We need to stop letting the special interests delay and start adopting sensible
solutions now.

Their are many paths to improvement that can be taken at the same time. We need structural reform. We also need performance improvement for health care organizations. The recent health care bill primarily sought to deal with the lack of coverage for tens of millions of people. The bill is also filled with many good test efforts of real improvement that can lead to savings. The time for accepting those that have run a system that costs far too much and delivers far to little should be over.

Guest post by John Hunter of
Curious Cat Investing
and Economic Blog.

discussed what the U.S. could learn from Germany in the area of job creation/ retention. Germany has

instituted policies that create incentives for hiring employees/ not firing people. The devil is not

in the details here; it is much more superficial. It doesn’t matter whether this German-style

policy aim is done through tax breaks or just straight-up cash handouts. All you need to know is

that it gives businesses a reason to hire/not fire.

Krugman says that the White House’s

economic team doesn’t want to do this because it will artificially inflate employment, that is,

incentivizing hiring when there doesn’t need to be any (in short, it drops productivity sharply).

Krugman doesn’t really address this poignant criticism. Rather, he would rather people just go to

work, even if they are diluting the work of others.

This is where Krugman always loses me. He

advocates things based on his politics…which is fine, if you have legitimate reasons to do so.

Here, his reason is admittedly Left and government expansionary. But there is no real analysis

behind his main point. All he has to say is: We have to look at the costs associated with the

unemployment benefits being paid out (American current model) versus the costs associated with

employing unnecessary people (Germany model). Do whatever costs less. Period. Here (and

everywhere?), the political alignment of the choice shouldn’t matter…but only its substantive

effect.

Uber allus?

business. I’ve been there about five or six times all for business related reasons and EVERY time

I’m amazed at the place. For one…its in the desert. Two, the buildings that exists there are

unimaginable; I was standing under the Effie Tower while being in a building. And third…the backbone

of Vegas- gambling. I watched a guy lose over $100 at video poker ( in about 5 minutes), and he

didn’t even spill his drink. Call me frugal, call me smart – or call me intone with my economic mind.

Whatever the reason, I don’t understand why how

people can risk their hard earned money on games which clearly have a bias.

Behavioral

economics is a tricky subject. In a nutshell, it attempts to rationalize the irrational. Throughout

time, humans have subscribed to the “economic man” theory- where humans make rational decisions

weighted on cost/benefit. If you’ve been to Vegas however…you know this isn’t true. The guy taking

another card on a 19, or someone betting it all on black, the odds are always against you. So how

does Vegas survive? Behavioral economics explains that many decisions are made upon risk seeking or

risk aversion. Placed in identical situations, even the same person may not choose the same result

due to these behaviors. I recently read a study by Ayako Onzo And Ken Mogi from the Tokyo Institute

of Technology. They set up an experiment where subjects were given 5 “units”. The subjects could then

push one of two buttons – bet or escape. The probability of winning was fixed at 25%, but time limits

and phrases were used.

They found that when subjects were shown the “You Win” tag, they were

more likely to bet, however less likely when about to lose their units and be out of the

game.

This phenomenon can be traced to an experiment by Daniel Kahneman. Kahneman set up a

experiment dealing with lotteries. the subjects had to choose between lottery Red and Black. In Red,

there is a sure loss of $750. In Black, there is a 75% chance to lose $1000 and a 25% chance to lose

nothing. They found that although both lotteries had an identical expected value, a clear majority of

respondents preferred Black (13% of the subjects chose Red and 87% chose Black). This result suggests

that there is a risk seeking preference on this kind of negative

choice. Relate this to ANY

gambling. With the odds, it is more likely for you to lose your money, but who would play a game with

flashing lights that says “Lose $50 Here!”

The second part of the Japanese study also shows

how attitude can affect decision. Like in a slot machine, when a player wins, they are more likely to

bet again, especially if that win “saved” their credits. Now im not saying the machines are rigged,

but its pretty interesting that you win when you have one credit left, just enough to entice you to

keep betting.

So believe it or not, Vegas certainly have their pulse on behavioral economics –

they know how they want you to think, and they know how to get you to think that way. So the next

time the dice is calling your name…just buy baby the new shoes.

Looks like is paper bags for baby....

Socialist systems, and their ability to make people “happy.” The main contention was that people can

do what makes them happy via the socialist model, and not care about compensation (let’s make the

simple/cliché assumption of near total equality) . I agree; people would be happier. But that would

be terrible.

Imagine a world where people really did follow their “interests” into career

paths regardless of compensation. Here’s an illustrative example of why it is a bad idea:

R

is a cook. He hates cooking with a passion. He also is very dull-witted. Ironically, he happens to

be the best baker in the country. He quits to get a medical degree, his self-selected

“calling.”

Z is a doctor. She hates being a doctor more than anything else in the world. The

stress is killing her, ripping her marriage apart, and neglecting her kids. BUT, she is the leading

oncologist on planet earth. She quits to go into cooking, her true “passion.”

The moral of

the story: in a capitalist system, people may truly despise their life’s work, but the best are

retained through varying levels of compensation. Socialism (or something like it) can lead to

inefficient outcomes of “interest” following…while capitalism strives for what you are the “best”

at (think specialization), despite whether or not you dislike it. Like or dislike is a foolish way

to allocate labor resources.

Capitalism doesn’t care if you are happy or sad. Just that you

are the best…which is the most societally efficient outcome for all. And, in addition, it just may

be that what you excel at, you like!

The award-winning scene below would never happen in the

USSA…

Capitalist Compensation

Scheme

top economic adviser to the President, revealed a gloomy forecast. She is an expert on the Great

Depression and an accomplished academic, so naturally you should consider her words prophecy…right?

Maybe.

She said that the unemployment rate would rise to 10.1% and then dip back down to

around 9.4% at the END of 2010. That’s a loooong time to keep extending those unemployment

benefits. I mean, what do you say to the people who are currently unemployed? “Hey, guess what

you’re gonna be doin’ next November…Nothin’ sucka! Back on the breadline!” Although, I do

think depression counselors and suicide hotlines will experience moderate to high growth in the next

few quarters…so not everyone loses.

She also said the stimulus had done most of its

stimulating, even though only 15% of it was spent so far. So much for the Keynesian revolution.

This is quite strange since the White House has said that the economy would resurrect in “fits and

starts.”

All of these scary predictions are totally apropos, as Halloween is just around the

corner…