Wednesday, February 27, 2013

The Moral Case for Capitalism

What follows is my Op-Ed in today's Orlando Sentinel

Yesterday, George Via walked Orlando Sentinel readers through the well-worn argument that capitalism is inherently based on greed, avarice, moral debauchery and a wanton disregard for the sanctity of our environment. 

In the more than two decades that I have worked in the profession of economics education, I have observed firsthand that the greatest source of economic illiteracy in our nation centers on the question of what capitalism is, what it stands for, and what it creates.

Unfortunately, popular fallacies abound - fallacies that have become part of a political doctrine and social doctrine that casts a greater threat to human progress and happiness than society can possibly imagine.

First, there is the fallacy that capitalism is based on greed.  Greed, by its very definition, gives us a society where people implicitly work to take maximum advantage of one another.  If businesses operated on this principle, customers would be routinely cheated, workers would have no protection of their natural rights and society would be worse off as a result of a quasi-forced redistribution of wealth and money to the powerful few.

Yes, there are examples of businesses who do all of these things.  Some companies do lie, cheat, treat workers badly and lobby government for favors that robs all of us who pay taxes. 

But look around you and notice how often you interact with some profit-seeking stranger who sells you a good or service that works well for a price you mutually agreed to.  Think about how often those who principally exist in society for the purpose of making money offer up wages and salaries that we agree to – and that help us take care of our needs and those of our families.  How many jobs are offered up at higher pay than we earn now with the implicit offer that if we increase our skills, education and training we can earn more next year and the year after that?

How many ‘evil’ corporations are out there producing the newest energy saving, environmentally-friendly products?  What about the new medicines, healthy foods, car safety features, home-security devices and other products and services that save or prolong our lives?

How many of us know that in our somewhat capitalistic society, Americans give around $300 billion per year to charity – a figure that is more than the entire GDP of most countries in the world?

Contrast this with nations where capitalism is shunned. 

In many countries if you are born poor, you will die poor.  India, for example, has a brutal caste system that forces 400 million people into the worst jobs imaginable – and permanent poverty – as a result of their social standing from birth.

In Africa, leaders of many of this resource-rich continent keep their people impoverished by denying any right to private property.  People know that if they want to start a small business to climb out of poverty they might have to bribe countless corrupt government officials and can be bulldozed for any reason.

All over Europe, South America and parts of Asia, central-planning by government officials is relied upon to provide food, clothing and shelter that people need.  In those nations, people go without adequate food, clothing and shelter while disease and suffering are common.

Capitalism is a miraculous system of what you might call “organized chaos”.  Every day millions of people – most of whom are strangers to us – get up, go to work and pursue their self-interest in innumerable industries and occupations.  This pursuit of our own agenda leads us to work with one another to provide our small part in the production of everything we call a want or a need.

Furthermore, we work, largely secure in the knowledge that our rights to property – our income, homes and other resources – are secure and cannot be taken by force.

With these two pillars – the right to peacefully pursue or self-interest and the right to property – we have the foundation for what capitalism really is.  That is a system that has lifted more people out of horrid suffering than any artificial system any government has ever created.

This does not mean that capitalism is perfect.  It does mean that relatively speaking, Mr. Via – and all of us, should be grateful he lives in a time and place where capitalism has been allowed to exist.

Tuesday, February 26, 2013

How did Capitalism get this Reputation?

My Word: Greed is steering economy into ruins

By George Via
February 26, 2013 Orlando Sentinel
We can tell a lot about the goodness of our society by the things we put in the economy.
I almost hesitate to speak of goodness, lest people deem it an unwarranted intrusion into their right to do whatever they please. And yet, good solutions are often simple and have profound positive effects, while the consequences of ignoring simple truths can be heavy.
Consider capitalism, touted by politicians in their hyperbole as the greatest thing on Earth. In the past 50 years, however, this system has broken down with almost clocklike precision. Our elected leaders watched while scofflaws enriched themselves.
Apparently, cheaters do prosper, and they have corrupted the morals of our economy.
Consider also this simple adage from the Bible: "For the love of money is pure evil." Greed is the sinister face of this hardened evil, and yet almost all of our economic laws are driven by this admittedly immoral practice. Surely, the collapse of our system is inevitable.
In the sacred Writings of the Bahá'í Faith, the founder Bahá'u'lláh has given a dire warning for this wayward generation. He states that "Greed hath made captive all mankind," and foretells a miserable conclusion for our collective heedlessness. Why must it always be so?
Nowhere is the flagrant avarice more apparent than the fuel economy. Imagine, scientists can send spacecraft out of the solar system, but cars are designed to waste fuel.
So the oil criminals and the crooked politicians they own keep raking in billions. This money funds the development of military weapons, bankrupting the economies of nations that don't have fuel resources, and threatening to destroy us all.
Add to this the alcohol, drug, sex and entertainment industries, to name but a few of the pervasively immoral businesses in the economy, and our economy no longer works to advance society as a whole. Instead, it panders to base appetites and corrupt motives of selfish groups.
God has given the Earth as a gift to his creatures, without requiring so much as a down payment. When we act like we own it, to the detriment of others, the day will come when we find out otherwise.
George Via of Winter Park is on the advisory board of the Interfaith Council of Central Florida.

Note - My response to this Op-Ed will be in the February 27, 2013 Orlando Sentinel.

Friday, February 15, 2013

How the Income Tax was Created

What follows is an Op-Ed by Jay Starkman in The Wall Street Journal.
A century ago, on Feb. 3, 1913, the 16th Amendment to the Constitution authorizing a federal income tax was ratified. But the amendment's adoption was more an accident than an act of political will, and tinkering with the Constitution was not even required for the federal government to tax Americans' earnings.

The country's first income tax was implemented to raise money during the Civil War. The tax was repealed in 1872 because the revenues were no longer needed. The idea was resurrected in 1894 as a populist measure to tax the rich when William Jennings Bryan successfully championed passage of a 2% income tax on annual income over $4,000. The rich denounced it as communistic and predicted that many would flee the country rather than pay the tax.
They didn't have to flee. The following year, a tax case reached the Supreme Court, which ruled that an income tax on wages, professions and trades would be constitutional. But the court determined that the tax's application to rental income amounted to a tax on real property, violating the Constitution's "direct tax" clause. For that reason, the income tax was declared unconstitutional.
Initially, the decision was tied 4-4 with Justice Howell Jackson too ill to participate. So the dying Jackson was carried to court for a rehearing. He voted to uphold the tax. But another justice changed his vote, ultimately leading to a 5-4 decision declaring the income tax unconstitutional. It is believed that Justice David Brewer was swayed by his uncle, Justice Stephen Field, to switch. (Yes, an uncle-nephew team sat on the Supreme Court from 1889 until 1897.) Pollock v. Farmers' Loan remains one of the court's most controversial decisions.

But the federal government still wanted another revenue source for the Treasury, which had relied mainly on tariffs and excise taxes for its revenues. The House passed legislation in 1909 imposing an income tax and the Senate seemed likely to concur. The law would tax wages, professions and trades while excluding rents, which would meet the Supreme Court's 1895 test.

The Senate boss, Finance Committee Chairman Nelson Aldrich, together with President William Howard Taft concocted a compromise to stop the income tax bill that the House had passed. Congress would immediately pass a 1% "excise" tax on corporate income over $5,000—in effect the rich were being taxed. As a further sop to income-tax advocates, Aldrich would sponsor an income-tax constitutional amendment.

Aldrich was quite candid about his scheme to block the House bill that had been passed, declaring to the Senate: "I shall vote for the corporation tax as a means to defeat the income tax."

The compromise passed unanimously in the Senate and by a vote of 318 to 14 in the House. The corporate excise tax would be levied, and the income-tax constitutional amendment would be sent out to the states for ratification—which Taft and Aldrich thought was impossible. After all, the Constitution had not been amended in 40 years. Of the 15 amendments that had been adopted, 10 were included in the Bill of Rights. The 11th and 12th were adopted in 1789 and 1804, and three had resulted from the Civil War.

The plan went awry. After 1909, the U.S. underwent a major political transformation. Democrats and progressive (Teddy) Roosevelt Republicans swept many state elections. Woodrow Wilson won the 1912 presidential election. Democrats controlled both houses of Congress. On Feb. 3, 1913, the legislatures in Delaware, New Mexico and Wyoming voted for the amendment, pushing the total to the required 36 states. The 16th Amendment was officially adopted on Feb. 25. Three and a half years had passed since the Taft-Aldrich compromise supposedly relegated the income tax to the dust bin.

Congress quickly heeded President Wilson's call to dramatically lower tariffs and impose an income tax in 1913. The tax was supposed to be a flat 4%, but Ways and Means members John Nance Garner (later Franklin Roosevelt's vice president) and Dorsey Shackleford turned it into a graduated tax of 1% to 7%, attuned to "capacity to pay."

After the tax law was passed, judges embraced it—for everyone else, just not themselves. Judges across the land proclaimed that the Constitution prohibited diminishing their salaries (and those of the president and state employees) through taxation. They emphasized the point by issuing court rulings in their own favor, excusing themselves from the tax. This lasted until the Depression, when the force of public opinion essentially shamed them into relenting. Under a law passed in 1932, Franklin Roosevelt became the first president subject to the income tax, but he refused to pay an increased rate that he helped enact in 1934. FDR insisted on paying the lower 1932 rates.

Before World War II, only one-third of the population earned enough to be subject to the income tax. After the war, the tax still affected only half the population. As late as 1947, farmers paid little or no income tax even when crops were good—it was generally accepted that they kept no books and were not expected to do much paperwork.

Over the years, the personal exemption and standard deduction have not kept pace with inflation, so today 70% of the population is subject to income taxes. Almost 60 million returns, mostly under $20,000 in gross income, pay no income tax, largely the result of the earned-income and child tax credits. The individual income tax today raises $950 billion annually through 144 million tax returns. Of this, the top 40 million returns pay about $856 billion and the bottom 104 million returns only about $94 billion.

The U.S. could easily reduce the tax-filing population to pre-World War II levels by dropping two-thirds of taxpayers from the drudgery of filing annual returns. For instance, a nonrefundable 3.4% withholding tax on $2.8 trillion gross income of those in the lower two-thirds. But nothing is so simple when it comes to the tax code.

The constitutionality of the 16th Amendment was challenged from the beginning, and it is still assailed by tax protesters. A frustrated Tax Court, in addition to reliably ruling in favor of the IRS when such cases come before it, adds a penalty of up to $25,000 against anyone raising the frivolous constitutional argument in court. The protesters don't seem to realize that repeal of the 16th Amendment would not mean abolition of the income tax. Alas, tax relief must come from Congress.

Monday, February 11, 2013

How to Survive Valentines Day, a.k.a "National Fake Love Day"

What follows is a piece I wrote for the Orlando Sentinel two years ago.  (Sorry for being so lazy lately but I have been busy with other stuff.)
I hate Valentine's Day. All men do. We hated it back when we were in elementary school and were forced to give those goofy little cards to the girls and boys in our class. Talk about confusing kids before they have even reached puberty. I knew my dad married a woman but the teachers basically said I could not pick one or two cute girls and just give them a card. I had to let everyone in the class believe that I might be secretly in love with them.

Years later, I once took a beautiful young lady out to an expensive dinner on Valentine's Day, along with her mother (you do this when you are single and really trying to impress people), and then surprised my date with tickets to some really elaborate (translation - awful to any male) ice skating show, only to have her inform me that she had promised a friend that she would go to a dance with him later that night.

Somewhere around 10PM - and about $400 down the drain later - I watched her leave to go meet this male friend who did not have to buy sushi or watch ice skating that night.

Seven months later I married that same girl and we have had nearly 14 glorious years together, but she knows that on Valentine's Day there will be no sushi, no eating with my mother-in-law and no ice skating.

What she will get is some flowers I picked from a field next to our house, a homemade card where I draw a couple of squirrels with the caption, "I am nuts about you" and maybe some buy one, get one free candy corn left over from Halloween. This should cost me around $2.36.

To my fellow sufferers, let my behavior be a guide to you this year. It is time that all men - single, married, gay or straight - stand up against this national Fake Love Day that exists only because corporations know that we are scared. Very scared.

Notice what your local grocery store will look like at 5:30 on Valentine's Day. Standing bleary-eyed in front of the Valentine's cards you will see desperate men, arranged by height (5'6" and under in front, basketball players in back) staring at the 4 remaining damaged cards that have chimpanzees or George Bush on the front with messages like, "Grandma, you are still my favorite Valentine". How do you give your wife the grandma card? You don't.

Go home and tell your significant other that you are standing up against this oppression. Tell them that you would rather show your love spontaneously throughout the year with roses, expensive chocolates, new cars or offers to do the laundry without ruining it. Tell the one you love that true love means never being forced to express it. Tell them devotion cannot be covered in chocolate and that a dozen roses only means that you are saying, "I think you are dumb enough to believe that I really care about February 14th".

If you will join with me, we can make this horrible day just another meaningless 24 hours. Now excuse me while I start drawing my squirrels...