I have stated in posts before now that I believe that the nature of wealth is that it flows upward from labor to capital accumulation, and downward from there in the form of reinvestment in plant and equipment that employs yet more labor – a nice system. But the great game is to grab the wealth produced by labor for one’s self. When investors do it, it is called interest, rent, capital gain and dividend. When workers do it, it is called wages, benefits, and secure retirement.

It’s always a fight between the two. In the period 1940-1980, labor had the upper hand. Right now it is capital, and labor is suffering. The best times for all of us are when there is balance.

I know of a small company whose owner is in the habit of employing ne’er do-wells and paying them $10 per hour with no benefits, quickly laying them off when work slows. The owner himself is not particularly talented – he has no mechanical skills of any note, but he does own plant and equipment due to inheritance. In the past two years alone, he has accumulated more than $60,000 in savings, mostly on the back of that $10 labor. He’s fiercely anti-union, doesn’t see why he should have to pay for unemployment, thinks Workers’ Comp is too expensive. When I first began to do accounting work for him, his employees were treated as independent contractors so as to avoid employment taxes. He’s now concerned about finding a way to extract that $60,000 from the business without having to pay taxes on the transfer. He’s anti-tax too.

I have told him time and again that his best bet for prosperity is to invest in skilled employees and pay them well. The result will be shared prosperity, the owner benefiting from ownership of capital, the workers by application of skills. No-go. He basically holds workers in contempt – I have told him of companies that pay mechanical workers $15-20 per hour plus benefits. He rolls his eyes.

Let’s be fair – it’s a combination of plant and equipment and labor that allows this owner to be able to bill out his help at $35 to $50 per hour while paying $10. The debate is, as always, about a fair split between labor and capital. (I like 50-50 as a general rule – obviously that would vary depending on capital concentration within an industry, but that’s just me.) Labor is always at a disadvantage, as there are always people willing to work for less in a high unemployment environment. The lower the skill, the less the security, the more likely one is to be replaced by someone earning less, an “independent contractor” who doesn’t qualify for benefits, or a Chinese man or woman.

Labor has very little leverage – even highly skilled engineers and computer scientists are now facing competition from Asia – unless something absolutely has to be built here, or a service rendered, there’s no reason not to outsource. Some 40% of what we call “trade” is really companies like HP and Ford manufacturing products in plants they own overseas, and bringing them here to sell. It’s nothing more than a game of arbitrage – that’s the “creativity” that justifies high pay for CEO’s.

Some business people are smart enough to see that we need a strong middle class to sustain our economy, but they cannot compete when their competitors have outsourced. So this is not about good people and bad people – it’s about a system that rewards bad behavior and punishes good.

The flow of wealth is upward, the game is to capture it before it goes by. Labor has fought for laws and rights to protect workers – minimum wage, organization of labor unions, worker safety, overtime and child labor protections. Most of those laws and rights are under attack from the right wing – that collection of workers taught to blame other workers and immigrants for their problems, wealthy people and their intellectual servants, inherited wealth, and religious bigots manipulated by wedge issues. These are the enemies of worker prosperity.

The fight over rescuing the Big Three is about labor unions. Citibank and AIG got huge bailouts, and no one asked a question about their wage structure. It’s not hard to figure – those companies are depositories of wealth for the wealthy. The Big Three are a depository of jobs, good union jobs that pay benefits. They are groveling to redirect $15 billion already appropriated to survive until January. Those opposed to the bailout are showing nothing more than contempt for workers who had the gall to organize, to fight against the race to the bottom. Big Three workers have interfered with the amassing of wealth from their labor by the people up above.

We learn as we go. Back in the 1930’s, we learned about speculative bubbles and unregulated investment. But that generation has passed, and now we have to learn all over again. During the 1950’s and 60’s, we learned that high wages produce a healthy middle class, but since 1980 we’ve been involved in class warfare – the upper classes seeking to extinguish the middle. It’s worked – the spread of wealth is more extreme now than in the 1920’s. Intellectuals will act in service of whoever happens to be in power, and we now have a huge sub-economy of think tanks and lobbying organizations who are in service of wealth. There aren’t many ‘thinkers’ out there right now who are fighting for unions, protected markets, and retirement security.

We will learn the lessons again. The only question is how deep do we have to go? How bad does it have to get? Right now our wealth is being used to bail out the wealthy – there’s been no move to help distressed homeowners . If the stock market recovers, will that be enough? Will all of the upside-down homeowners have to become renters again? Will wages go up? Will benefits return?

In other words, is there anyone in power right now who cares about the fate or ordinary main street Americans? This is Obama’s test. So far, judging by the people he has hired, C-.

John Thain, CEO of Merrill Lynch, has petitioned the company’s compensation committee for a $10 million bonus. The committee is considering it, but indications are that they are not willing to fly in the face of public sentiment during a period of bailouts for Wall Street firms.

Says Reuters,

Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.

I’m familiar with that kind of thinking. I often engage in it myself at night as I fall asleep. It’s called “fantasizing”.

OJ Simpson’s sentence – 33 years with a minimum of nine to be served, seems overly harsh to me.

After all, he has no prior convictions.

From a broker with D.A. Davidson, whom I am citing without permission, so I won’t give his name:

On a side note, the amount of cash on the sidelines ($7.92 trillion in money markets, short-term CDs and the like) equals the market value of the S & P 500 ($7.93 trillion) which seems to indicate that folks are waiting to see how things turn out before they decide to commit to the equities markets again.

I don’t know what to make of that. The same broker also says

History suggests that markets only begin to recover when everyone believes they can do nothing but go down.

Is that a whistle I hear? Is that a graveyard I see?

I’m always a little befuddled by economics, as what seems to be apparent never is by the time the eggheads are done discussing it. Some things stick in my head, and no amount of lecturing from the right wing on “Econ 101” will dislodge them.

This is very, very basic. It’s where I’m at. I haven’t read Adam Smith, but did read Milton Friedman way back when, and struggled through Econ 101, 102 and 103 in college, though I hated it. (It seemed as though nothing tied in to the way the world really worked, though I surely didn’t understand well how it worked.) Oh, and I recently read a book, The New Golden Age, by Ravi Batra, but that seemed more crystal ball stuff than bonehead econ. What I know about econ I have picked up over the years – certain things that seem true stick with me, things that don’t make sense don’t stick with me.

Here are the things that stick in my head and will not dislodge:

Labor is the source of all wealth. Wall Street has gone broke playing with funny money – financial products that don’t in and of themselves create wealth. They allocate money, often putting it where it can do the most good. That’s an important function, but not wealth creation. Only labor creates wealth.

There are many types of labor, and many new tools for labor to use in the creative process, and creative people have done wonders in opening up the world and making labor more efficient and productive. Bill Gates and Steve Jobs deserve every penny of their wealth, but it’s still about labor. In the end, we convert natural resources to commodities, and commodities to products. If you follow natural resources, you’ll see them work their way through the economy with value added at many points … by labor. That’s wealth creation.

Before I am ambushed, investment is critically important in enabling labor. Capital is stored wealth created by labor. It constantly needs to be recycled, but does not in and of itself create wealth.

Demand drives the economy. Wages drive demand. Since 1980, we’ve concentrated on supply, and have concentrated tax breaks in the top brackets thinking that they would invest and create products. Labor productivity has increased since 1980, but wages have not kept up with productivity. Consequently, demand has suffered. To keep up, consumers tapped credit lines, and borrowed on their houses to boot, draining their best form of savings. Now many of them are tapped out. More supply won’t help us now. We need workers earning wages to recover.

I guess I’m a demand-sider.

Most business people are short-sighted, and cannot see that if workers don’t prosper, there aren’t enough consumers to buy their products. The Big Three bailout should be a no-brainer.

High marginal tax rates don’t hurt, might even help. The gospel according to the right wing is that the private sector is the wealth-creation machine, and that taxes are only a drag on that machine. Ergo, higher taxes yield slower growth. The problem with their theory is that we experienced steady and stable growth (fewer bubbles) in the period 1940-1980, when marginal rates were very high – as high as 90% on the equivalent of income over $3 million. They don’t explain that.

Here’s how we did it: 1) We tax wealthy people at high rates, but encourage them to avoid high marginal rates by making certain tax-favored investments – tax free bonds, intangible drilling costs, for example. We also gave them an investment tax credit if they bought and held equipment. Secondly, we double-taxed dividends from corporations, which encouraged investors to leave capital in companies, cashing out with capital gains (often taxed at favorable rates) instead. In a way, it was an industrial policy.

It all seemed to work. We had a thriving domestic economy with a strong manufacturing base. It’s heresy, I know, but higher taxes drive investment. Re-investment of wealth, coupled with high wages, make a healthy economy.

Since the era of tax cuts, we have had periods of growth, but tax cuts are often followed by bubbles. We are currently in the ebb phase of the Reagan era and all it has given us – tapped out savings, monstrous debt, outsourcing, a shrinking middle class, increased poverty, and extremes of wealth. We were better off in 1979 than now.

Did I just say that high marginal tax rates prevent bubbles and boom and bust? I think I did.

There’s nothing wrong with protecting markets. South Korea is often mentioned as a poster child for capitalism, and it is indeed a wealthy country. It’s has also been protectionist during its growth phase. Likewise Japan – there would be no Toyota without Japanese protectionism. The United States, throughout history, had very high tariffs, which allowed our domestic industries to grow. We should allow the same for Mexico, Central and South America – allow them to protect and grow their own industry, and then when they are healthy and on an even keel with us, drop those barriers. As it is, free trade between us and developing countries merely allows us to have cheap resources while we export American jobs. That’s a bad thing. (Free trade between developed countries seems to work quite well.)

I’m not yet at a point where I can put my economic theories in book form – when I am, I will approach Marvel Comics.

Bill Maher’s movie Religulous had a brief stay here in Bozeman, and I and a few others had a good laugh. It’s meant to be funny, but Maher is very serious in making fun of religious people.

Maher was raised by a Catholic father and a Jewish mother. (His first confession: “Bless me father for I have sinned. This is my first confession…. and this is my attorney, Mr. Coen.) His father eventually left the church over the birth control issue, but his reaction was much the same as mine when I left the church in 1988 – “Free at last!” Sunday services were very boring, and ruined a day that should otherwise be devoted to football, picnics and the mountains.

Maher paints with a broad brush, lumping together Scientologists and Jews, Catholics and Muslims, evangelicals and normal people. He doesn’t understand how normal and mentally healthy people can cling to strange beliefs like virgin births and secret friends.

I’ve wrestled with that too. For myself, the beliefs were implanted in my fragile young brain from infancy forward, along with the notion that if I gave them up, I would burn in hell. That’s a pretty high hurdle to jump, but jump it I did. Most don’t. Religious faith is shielded from reality by that incredible scam – people are inculcated from youth forward that religious belief is not only necessary, but that lack of walking away from it is fatal.

That’s most of us, I think. Imagine a wolf-boy – a kid raised by wolves all by himself coming to the revelation that a man who (might have) lived 2000 years ago was born of a virgin and should be his personal secret friend. It is only by societal custom that these strange ancient beliefs are handed down.

There’s another handle that religion had on us – it is the notion that without it, we will not be good people. Not so – goodness precedes the bible and religion. All societies have laws against theft, murder, incest and adultery. The bible merely gathered them (and a whole boatload of other really weird stuff) in one place. Without the bible, we’d still have the precepts. They come from within us. They are probably the result of our evolutionary need to survive. Intra-species carnage is not conducive to our long term prospects.

So what’s the big deal about religion? We’re weird, not always rational. Religion provides comfort in times of pain and loss, and makes a very complicated and uncertain existence simple and certain. It’s mostly a good thing. Since abandoning it, I’ve spent too much time resenting the way they invaded my young brain, took control of me before I had the ability to resist them. I forgive. I started out doing the same thing to my kids, and stopped. They’re OK now, my kids – none of them are believers, but they are good people.

So my only hangup with religion at this point is the political one – certain people in our society are not content to live their own lives by their own precepts, and leave the rest of us alone. No – they want all of us under their thumb. The beating heart at the center of the political fundamentalist Christian movement is abortion. If it were to go away, so would they. But they are also hosing us with their other beliefs on homosexuality, oppression of women and end times. All of that is dangerous to the body politic.

It is in that sense that I find religion to be a negative in our lives. These people and their strange behaviors ebb and flow, and will eventually ebb once more. But for the time being, they are really a pain in the ass, and a threat to our basic freedoms.

Oh yeah – one other small matter: If religions did not indoctrinate youth before they reached the age of reason, there would be no religion. Their very survival depends on abuse of children.

From the Onion:

KANSAS CITY, MO—President Bush sustained serious head injuries, massive internal bleeding, and a broken left leg Monday morning after being accidentally dragged behind the presidential motorcade for a period of 15 minutes. According to Secret Service spokesman Ed Donovan, Bush’s necktie became caught in the trunk of the motorcade’s second vehicle at 4:13 p.m., shortly before the driver accelerated. The president was dragged down 175th Street for 26 blocks and through four stoplights, leaving a trail of blood more than a mile long. Upon hearing shouts emanating from behind his vehicle, the driver abruptly applied the brakes, causing the third car in the motorcade to run over the president’s left leg at a speed of approximately 25 miles per hour. President Bush is resting comfortably in Bethesda Naval Hospital.