10/09/2007

The Trouble With Capitalism

"Capitalism should not be considered the only valid model of economic organization."

Says who? Pope Benedict, who has carried forward from his predecessor, Pope John Paul II, the vital message that choices made in the organizing of the economic lives of nations and the world are moral decisions.


Read more at The Capital Times.

14 comments:

Common Good said...

From an article about Pope John Paul II
http://tinyurl.com/2sjh4r

Neither capitalist nor Marxist: Karol Wojtyla's social ethics

Government had "a superior function" that was "very useful in achieving the common good of society." Its power "comes directly from society, indirectly from God." Wojtyla condemned "individualism," a word that he and other European scholars used to refer to unregulated capitalism. "Individualism and totalitarianism," he declared, "remain opposed to the principle of correlating the individual good and the social good, which Catholic ethics accepts."

Local NR Communist said...

I find it interesting that people get capitalism confused with democracy. They aren't the same. Democracy where the interests of the people trump the interests of the corporation. Facism is where corporate and government interests trump democracy.

Roadkill said...

And socialism is where the interests of government trump those of both business and the people.

Ink Stained Wretch said...

So where is this Roadkill? China maybe? Read the article about John Paul II.

Sunny Badger said...

Roadkill:

You seem to be confused. The government is made up of people and carries out the collective interests of the people. Are you saying that this doesn't happen in the US? Are you saying the government only carries out the will of the government? That's any interesting view, since the government is made up of elected, appointed, hired and volunteer people.

It looks like the current trend in government is to push policy in the direction of corporate interests, i.e., in the direction from which the polical donations and bribes come from. Of course, corporations are made up of indivdiual people too. Obviously, the current political situation is one where the individual who has the most cash has the bigger voice -- or the most leverage in getting his version of the message bellowed into the debate.

So to say government trumps both business and people seems rather limp. The balance scale in our government is all about people. What tilts the scale isn't the number of people for or against something, it is the amount of cash contributed to the hoped for outcome.

Ink Stained Wretch said...

Good Points Sunny,

Why no reply Roadkill?

Roadkill said...

As government grows and expands, its bureaucratic tentacles begin to reach into every aspect of peoples lives and the businesses that seek to provide for those people. This immense power, backed by the force of law and the state, feeds parasitically off the productive endeavors of individuals, small businesses, and large corporations.

Government creates nothing on its own; it can only expropriate the resources of its citizen-subjects to put to use for its own purposes.

You know, a lot of people forget that the Declaration of Independence was more that just an eloquent preamble; it went on to list the grievances of the people. What would the authors of the grievance “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance” think of the humongous size of our current government? What would the authors of the grievance “For imposing Taxes on us without our Consent” think of the Federal Income Tax code?

There are legitimate purposes for government, of course. The US Constitution spells out those purposes in some detail, but sloppy sentiment such as the “promote the general welfare” clause of the preamble has enabled “progressive” social engineers to redistribute wealth to a degree that would appall the framers. Even though the promotion of the general welfare was but one of a number of enumerated objectives of the constitution, and is nowhere mentioned in the text, Welfare programs such as Medicare, Medicaid, AFDC and Social Security eat up Trillions of dollars and 60% of our budget.

And if corporations were only half as powerful or influential as you think, this income redistribution scheme would be nowhere near as entrenched as it is. The dirty little secret is that “progressive” politicians are effectively buying the votes of the recipients of this income redistribution scheme.

When the top 10% of income earners/voters are paying 85% of the taxes, and the bottom 50% of income earners/voters are paying less than 3%, the fairness of the system comes into question. Can a progressive tax code become too skewed to meet basic due process and one man/one vote concerns?

My point here is that liberal/progressive government can become oppressive to the rights of some citizens (arguable those citizens most responsible for funding the size and power of government), and if it can bully the big guys now, it can bully the little guys later. Remember Lord Acton's warnings!

Besides, under McCain-Fiengold, 527’s like Move-on.org have far more money in the game than do the millions of stockholders of GM or 3M. So who is leveraging the debate now?

Ink Stained Wretch said...

Guess whose NOT paying taxes!

http://tinyurl.com/2mqd8a

"The April 2 release of a General Accounting Office report on corporate taxes could hardly have been better timed to get press attention. Just as millions of Americans were filling out their federal 2003 tax forms to beat the April 15 deadline, the GAO study indicated that most corporations owed no taxes from 1996 to 2000, a boom period for corporate profits.

Those untaxed corporations earned $3.5 trillion of revenues.

The GAO study found that 71 percent of foreign-controlled corporations operating in the United States paid no taxes in those five years; nor did 61 percent of US-controlled companies.

The basic corporate tax rate stands officially at 35 percent. In reality, it's far below that for most companies. And the importance of corporate tax revenues for Uncle Sam has shrunk. That's shown by the numbers.

Corporate taxes have fallen from 5 percent of gross domestic product, the nation's output of goods and services, in 1946 to 1.4 percent now.

As a percentage of all federal tax revenues, corporate tax payments have declined from 23 percent in 1960 to 13 percent in 1980 and 8 percent today.

Using data from the financial statements of publicly traded companies, the average effective tax rate was 12 percent in 2002, down from 15 percent in 1999, and 18 percent in 1995, according to a study by John Graham, a finance professor at Duke University's Fuqua School of Business.

And Washington is not doing as much as it has in the past to see that companies pay their tax bills. In 2003, the Internal Revenue Service conducted face-to-face audits of only 29 percent of the largest firms - those with assets of more than $250 million. That compares with 34.7 percent in 1999, notes a report by Transactional Records Access Clearinghouse, a government watchdog group. The IRS says it's stepping up tax shelter investigations, and adding 250 examiners to its corporate division this year.

In 2003, the effective corporate tax rate probably rose as losses carried over from the last recession ran out and profits soared, Mr. Graham suspects. Yet, he adds, "It is surprising that corporations get away with such a little amount of taxes on average."

Other factors reducing the corporate tax burden in recent years include more tax shelters, new tax breaks, and the transfer of profits by multinational companies to low-tax foreign nations, figures Martin Sullivan, an economist with Tax Notes, a prominent tax publication. Companies have also written off the cost of stock options from their tax liability, yet largely ignore their cost in their profit and loss statements. Proposed changes in accounting rules may stop this practice.

Curiously, economists on both the right and left agree on the need to close corporate tax loopholes."

Roadkill said...

Inky,

For the sake of arguement, I'll stipulate everything in the aforementioned article is correct, even down to the need to close corporate tax loopholes.

Now lets talk about what happens when those loopholes are closed.

Corporations saddled with additional tax burdens will find a way to comply without affecting profits, earnings, or the bottom line. To do so they will pass the new tax burden along to the consumers of their product or service, jsut like all businesses do now. So you, me, and the rest of the consuming public will pay those taxes for the corporation.

That is worth saying again: Corporations will pass the tax burden along, raising the cost of goods and services for the rest of us. This is not theory; it is standard business practice. Raise taxes (or close loopholes) on corporations and expect to pay more.

But the important thing, Inky, is that you and your corporation-phobic friends will be able to sleep better at night, knowing that the loophole was closed -- even if it costs us all more money.

That is what is so frustrating about "progressive" programs: moral crusades to level income and profits end up hurting the little guy, who must foot the bill for quixotic quests to stick it to the man.

God, pray save us from our "progressive" saviors.

Ink Stained Wretch said...

Roadkill,

Gee, didn't we just have a Free market field day in the housing market? Did prices go up because of they closed loopholes in lending regulations? The exact opposite happened. All this market capital gravitated to housing because people were deluded into thinking they could become rich by "flipping" the real estate.

It's like a pyramid scheme. Those that get in early make a killing leaving the straggles holding the bag.
How did taxation drive the cost of housing far above it's real value here?

Funny thing how Wall Street always expects a bailout but if poor kids need health insurance, that Socialism.

Maybe there's something wrong with the capitalist talking point that competition creates lower prices. The thing is once the market winner
tramples his competition, their free to raise prices to whatever level they choose. Look at ATT reconstructing Ma Bell with nobody
raising an eyebrow. Do you think when they complete their mission your phone bill will go down?

Anyway, I won't loose any sleep if
Corporations start paying their fair share. And if prices go up,

Well that's why God created Payday loan Stores right?

666 said...

Roadkill:

You say: "When the top 10% of income earners/voters are paying 85% of the taxes, and the bottom 50% of income earners/voters are paying less than 3%, the fairness of the system comes into question"

How much income does the top 10 percent of the income earners earn in aggregate? How much do the bottom 50 percent earn in total?

What actually is "fairness?" Is fariness when inherited wealth gets taxed at a lower rate the earned income? Or is the tax difference in those income categories due to one groups ability to influence the tax code by have enough cash to convince politicians to vote in their favor. Of course, many of those politicians fall into that group anyway.

Roadkill said...

Inky,

I think you fundamentally misunderstand what is happening in the housing market. The current problems are not a result of speculation / house flipping. They are a result of people buying too much house with Adjustable Rate Mortages, and then finding out that when the initial, sub-prime rates expire they cannot afford the prime plus rates that then kick in. Pyramid schemes are something else althogether.

These sub-prime products were developed in response to government pressure to get more low income and poor credit risk folks into mortgages. They split the risks between lenders who would not normally lend large sums to credit-risks, and borrowers who had to plan to come up with larger payments in the future. Everyone knew that these sub-prime loans were risky.

Then again, you are an intelligent person, so you may well understand all that, yet prefer to shift the blame for the bad decisions and poor planning of ARM borrowers onto someone else (big bad bankers, or lenders, or corporations, or whoever).

The people clamoring for government help are not on Wall Street, they are on Maple Street. It is over-extended borrowers who cannot meet their contractual obligations that want the government to bail them out of their bad decisions to take on ARM’s with high out-year rates.

Most worrisome is if they are successful. Because if the government responds here by punishing the lenders, we can expect to see a lot more people – low income people with poor credit ratings in particular – to fail to qualify for mortgages. (This is similar in consequence to your advocacy of high corporate taxes, which the little guy ends up paying for as well) But here again, you probably won't worry about that, and will end up sleeping better in delusion that you did something beneficial for society.

Besides, when you wake up to realize the impact of such misguided policy, you can always start complaining that the big bad bankers and lenders are racist, red-lining oppressors of the little guy who won’t give them mortgages anymore.

Roadkill said...

666,

Yes, the top 10% of taxpayers earn a lot. But in addition to paying for the great bulk of the cost of government, they create a lot of jobs and opportunities for the rest of us through entrepreneurship and capital investment. That’s why the Kennedy, Reagan, and Bush tax cuts led to strong and robust economic growth in the 1960’s, 1980’s, and 2000’s. Compare that with Europe, where high marginal tax rates have led to chronically stagnant economies, low productivity, and high unemployment.

But my point here is that we need to be careful when too many people become detached from paying for the government services that they enjoy. Those who don’t pay for government are less likely to get stay informed about how the government operates, or how its using its revenues. It is not fair when a majority of the population does not pay any significant tax, but can determine how the taxes others pay are used. Sooner or later the payers are going to start checking out of the system, finding ways to pay less and less since they have no say in how its being used.

I don’t have a problem with progressive taxation. I just feel that 1) everyone should pay some tax to stay interested and invested in our system, and that 2) there is a point where progressivity in the code becomes punitive, confiscatory, and destructive of desirable ends.

666 said...

RK

The banks are also having a cash flow problem with the ARM loans. Especially parts that have been split off to the riskier hedge funds.

For the most part, homewoners with ARM troubles stemming from the increase in the interest rate got themselves in trouble. They accepted the speculative risk that goes with the ARM and they go stung.

Does the government implement a strategy to help bail these people out of trouble? Didn't the government do some bailing out of banks back in the savings and loan scandal?

Actually the PRIMARY lenders involved in the ARM problem actually wouldn't be involved in the bailout. They have sold their loans on the secondary market and made off with the cash. It's the secondary marketeers that are getting hit.

This is about exploitation of loopholes and leveraging new loan methods, i.e., the Internet, for excessive profits. It's also about ignorant lenders who bit off more than they can chew. In a free market the losers in the deal would have a chance to cure their ignorance through their experience in the financial dealings they undertook.