Webs’ Random Ideas

There’s an article in the Chronicle ttitled “The Real Great Depression” by Scott Reynolds Nelson. Its about what happened in 1873 when there was an econmic crisis like we have now. Unfortunately you have to pay for this article, but if you have a University or College nearby I bet you can find a copy for free that may have this article in it.

Any highlighted sections in blockquotes that follow are of my own doing…

As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.

[SNIP]

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls “the real Great Depression.” She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

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A friends email and video he sent:

But they passed the bill today, so basically we are all fucked! I have a great idea lets fix a problem of mal-investment with more mal-investment by George that’s genius.  Hey I have an even better idea lets do it with monopoly money instead of real money because were broke as shit!  It will only cause the value of peoples actual money to drop significantly.  But what does it really matter while the senate was busy stuffing the bill with so much pork that it couldn’t possibly fail the Federal Reserve already printed off 300 Billion dollars of monopoly money to try and fix the problem.  Jesus fucking Christ………

Ok I feel a little better, but I am still going to call my congress woman and ream the shit out of her.  I called her to state my dissatisfaction but apparently it did as much good as I though it would, she voted for it.  Maybe this video is more on her level

I don’t quite foresee the same future, but it’s still humorous nonetheless. I think money needed to be pumped in to show investors they can still invest and to help with the liquidity of banks. Sweden went through a similar economic crisis in 1992 and came out on top. $18 Million of tax dollars was used and almost all were recouped.

Wow, what a failure that piece of socialism was huh?

A few things I want to discuss in this post are statistics, economics, and sociology and how these fields are intertwined as we look at tax data.

The following link takes us to Marginal Revolution where the issue of what the rich pay in Federal Taxes is being discussed. The discussion revolves around an inserted graph of which comes from this link on “Historical Effective Federal Tax Rates.” Apparently the source of which is the Congressional Budget Office, but I have not verified this personally.

The Marginal Revolution site has some great examples of Stats not lying, but telling the truth, and people lying. Basically people on that post are drawing all sorts of wild conclusions about a simple graph. Like the one person replying to “Student” saying:

More importantly, one argument that politicians seem to trot out regularly is that taxes on the rich should not be cut because the middle class is being “squeezed.” But the data suggest that the middle class is, if anything, getting a good deal in terms of what they pay in relative to their share of total income.

This is an utterly absurd argument to make. The data only shows that Rich pay more into federal tax. Nothing else. To make a statement like the one above, more data is needed. For as others have suggested, the graph doesn’t show all the other tax data, like payroll tax, etc.

One criticism of Bush’s tax plan was that he is only giving back money based on what people pay into the Federal tax system. But most people in the middle class will end up paying more in payroll tax than in Federal tax. So the argument above is ludicrous at best.

Another absurd notion is that the rich are somehow at a disadvantage because they pay more into the federal system. Ha! It’s a complete crock of shit because the tax break the rich get is absurd when compared at any level. Percentage wise the top 1% get back nearly 50% of what is given back in tax credits… hmm…

Let’s look at tax cuts another way, using simple economics. The richest 1% save over 98% of all money saved in the US as of 2002, and I would imagine that number hasn’t changed much since then, but for now it’s the best number I got. Money saved by individuals does very little to spur economic growth because it doesn’t give incentives for industries or businesses to grow, and it doesn’t spur growth by creating wealth for industries or businesses. Now this isn’t completely true, some investing and savings will spur growth, such as government bonds. But the yield on these are not as high as other opportunities so when a family of for that pulls in a billion a year gets a close to a million in tax cuts, they tend to drop the money in different savings investments, not government bonds.

Plus we also know from any Economics 101 class in college that the lower 50% of the income bracket spend the majority of money spent in the US and that the top 1% spend very little. This makes sense when looking at that savings data. A wise man once said, they rich don’t get rich don’t become rich by spending their money.

Anyways, so knowing this why would one assume that a tax program that gives nearly 50% of all money in the program to the richest 1% would help spur economic growth? The data does not support this assertion. What it does support is the idea when someone in the upper 1% bracket gets their million dollar tax cut they will save it. Put it in a high yield account and make interest off it.

One reason why I rarely get involved with such forums though is because of comments like the following…

If the so-called “fair-minded”, “egalitarians” really gave a “damn” about “equality”. They’d propose a tax system where the bottom quintile has an effective tax rate of 35% and the top quintile has an effective tax rate of 2.5%. That way they’d both be paying for equal shares of the government.

Another absurd notion, the idea the middle class and poor somehow use and depend on the government more than the rich. It’s an idea that stems from “The World Revolves Around Me” philosophy, also known as Libertarianism. And I have my reasons for disliking Libertarianism. The third link there gets into the issues of the rich.

I’m still not sure what tax system I would implement, but from what I have read progressive systems work better. As in pay based on what you make. I have written before about Flat Tax but there are too many problems and not enough answers for me to support that cause.