Pulling things together

Sometimes certain ideas coalesce in time and when that happens, I'll try to point them out. The first one is this letter of resignation by an AIG executive.

(cwcid/ht) Tigerhawk

The second idea is this article in Scientific American. As interesting as the article is, the commentary by Instapundit really appeals to my love of irony.

(cwcid/ht) Instapundit

Finally, if my reader has read this far and clicked some or all of the links, I leave him or her with this quote.

"If you ask me to name the proudest distinction of Americans, I would choose...the fact that they were the people who created the phrase 'to make money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity--to be seized, begged, inherited, shared, looted or obtaines as a favor. Americans were the first to understand that wealth has to be created. The words 'to make money' hold the essence of human morality."

The character of Francisco D'Anconia
in Ayn Rand, Atlas Shrugged

I can't vouch for the etymology of the phrase "to make money," but the point is that most of the people at AIG were creating wealth. They were condemned and punished for this in a way that was abominable.

Dear Senator Schumer

UPDATE: Ok, so I was wrong. Richard Epstein refutes the idea that the AIG bonus law was unconstitutional. If only I could believe that Chuck Schumer read Richard Epstein.

The following is a message I just posted on Sen. Charles Schumers Senate contact page.

Dear Senator Schumer,
The bill that recently passed the House (H.R.1586) to tax AIG bonuses is very likely unconstitutional and must not become law.

It is, in effect, a bill of attainder. Such laws are forbidden by Article I, section 9, clause 3 of the United States Constitution, which states:

"No Bill of Attainder or ex post facto Law shall be passed."

You took an oath to uphold the Constitution. I expect you to do so at all times, but particularly in regard to this bill.

I am not an AIG employee and have no financial interest in AIG or any of its subsidiaries.
Sincerely,

How do I know this law is unconstitutional? By relying on my fellow bloggers, of course. Protein Wisdom is one source. There is a link in the comments of that post to this one at Powerline.

I didn't call my Senator as the Protein Wisdom post suggested. I took the Internet route instead.

Some quotes--number 1

This is the beginning of my series, Some quotes are too good to miss.

How come when I put my AmEx bill on my Visa, it's stupid, but when the government does it, it's stimulus?

Attribution: Instapundit

Methinks the economist doth protest too much

Princeton economics professor, Alan Blinder has an op-ed in the WSJ with the title Obama Is No Socialist. The argument he makes should be obvious from the title.

In an effort maintain the most substantive nature possible for this blog, let me deal with Professor Blinder's first point first--that Obama is not attempting to socialize the banking system. To be fair, let me quote exactly Prof. Blinder's argument for this point.

"Secretary of the Treasury Timothy Geithner has made it clear that he opposes nationalizing banks, despite much outcry from the political left -- and even some from the right -- to do just that."

That's it. The sum total of Prof. Blinder's evidence that Obama isn't trying to socialize the banking system is that Geithner has "made it clear that he opposes nationalizing banks." Well, actions speak louder than words. Yes, the Treasury has taken preferred stock in return for bailout funds rather than (voting) common stock. So that means that the government will have no influence on the operational decisions of the banks because they hold non-voting shares. I think the bonus recipients at AIG might think differently about how much operational control the government has.

But what is really more interesting about this article is the perceptual issue this article raises. Two months to the day into Barack Obama's administration, a world-renowned Democrocratic economist finds it necessary to write an article in the Wall Street Journal arguing why the President is not a socialist. What are his defenders going to be writing about a year from now? Stay tuned.

UPDATE: This Forbes article might have been the catalyst for Blinder's op-ed.

This is what passes for accepting responsibility

The WSJ has an article today with the headline that "Obama Accepts Blame for AIG Bonuses".

The article contains this quote:

"Washington is all in a tizzy and everybody is pointing fingers at each other and saying it's their fault, the Democrats' fault, the Republicans' fault," he said at a town hall meeting Wednesday. "Listen, I'll take responsibility. I'm the President."

He added: "So for everybody in Washington who's busy scrambling, trying to figure out how to blame somebody else, just go ahead and talk to me, because it's my job to make sure that we fix these messes, even if I don't make them."

Is this what passes for taking responsibility these days? How about revealing that President Obama was a leading recipient of political donations from AIG last year. As reported in the WSJ Political Diary e-mail (paid subscription required):

"It turns out that last year AIG not only spent $10 million on lobbying Congress but also was a generous political donor. The top two recipients?
None other than Senate Banking Committee Chairman Chris Dodd, who collected $103,100, and then-Senator Barack Obama, who took in $101,332 (John McCain was a distant third). No wonder Messrs. Obama and Dodd both are scrambling to avoid the AIG tar baby. "

The Obama Administration is taking Orwellian rhetoric to new heights. I don't know what else to say about it.

Thought experiment for the maestro

Plenty of time has elapsed for people to digest and comment on Alan Greenspan's defense of his policies in the WSJ. Greenspan argues that it was not Fed policy--which affects short-term interest rates--that caused the housing and credit bubble. Rather, he argues, it was the disconnect between short-term interest rates and long-term, in this case, mortgage rates. He lays the blame for this disconnect on the high savings rates of developing countries as their economies expanded. He even manages to work in the ironic twist that the saving behavior by these countries was the result of a "tectonic shift in the early 1990s...from heavy emphasis on central planning to increasingly dynamic, export-led market competition." Well, of course! Market competition is to blame for everything.

The following thought experiment might be useful for evaluating Greenspan's thesis that he/the Fed isn't to blame for the housing bubble and collapse. First, imagine that all the influences that have been put forth as causes of the housing bubble--lax regulation, shoddy credit standards by lenders, the effect of the Community Reinvestment Act and others--had all been the same, but that the Fed had not expanded credit as rapidly as it did. Would a bubble still have occurred? I would suggest that even with all these public and private sector errors, without the Fed expansion of credit, the bubble would not have happened.

Next, suppose that none of the factors listed above had occurred--regulation was appropriately strict, lenders didn't qualify un-creditworthy borrowers, the CRA had not influenced bank lending--but that the Fed had still expanded credit in the way that it did. Would a bubble have occurred in some other sector? I suggest that it would have. It might not have been in tulips or in ostrich feathers, but it would have occurred in some other asset class.

This thought experiment is useful for evaluating arguments about the cause of the crisis--and the ways to prevent the next one--that are posed by both the right and the left. Whatever else one wants to attribute blame to, if the Fed hadn't permitted credit to expand too rapidly, a bubble still would have been far less likely to occur. And the only way to prevent the next bubble is to avoid the causes in the first place. More on that in another post.

Soaking the rich

Following on my first (new) post below, here is more data regarding where our tax system is heading. This information has been around long enough that it is difficult to believe that our politicians are not pushing us along this path, but maybe that's being paranoid.

The first chart below shows the share of total taxes paid by the bottom 50 percent of taxpayers. For the latest year available from the IRS, this fraction is less than 3 percent.

The next chart shows, for comparison, the share of taxes paid by the top 5 percent (that's five without a zero). For the latest year, that fraction of over 60 percent. Is there anything to be concerned about in these statistics. One way of judging this is to compare the tax share with the income share--the share of total income that the top 5 percent earn. For the most recent year, that share was 36.7 percent. So the top 5 percent of income earners take in 36.7 percent of the measured income, but pay more than 60 percent of the taxes paid. I'll leave the question of whether that is fair to another post.

What about the bottom 50 percent of taxpayers?This is what concerns me. What is happening is that the share of income taxes paid by the bottom 50 percent is approaching zero.

Here's the bottom line. As soon as the bottom 50 percent are paying no tax, there is no chance of reforming the tax system to make it fairer and more efficient. Once half the income earners pay not tax, what incentive do that have politically to support tax legislation that lowers taxes on the top 50 percent?

We are moving toward a situation, in other words, where lowering tax rates will be impossible.

That situation is a liberal politician's dream and in light of their performance the last 10 years, it may be a conservative politician's dream also. The liberals don't have to worry about the electorate thwarting their plans. (That's different from the economy thwarting their plans.) But the conservatives can still propose earmarks while paying lip service to lower taxes, because they know the electorate will never stifle their own tax and spend plans. How's that for a conspiracy theory for you.

Redemption happens

This deserves more than an update to my previous post. Instapundit has the Rick Santelli backlash totally covered. The story was false, so the web sites that promoted it just took down their posts, instead of publishing a retraction. Barry Ritholz has also covered the disappearance of the story (this is called credit where credit is due).