What Is Wrong with American Financial Policy?

Two interesting articles in the NYT point out some ideas that contradict the conventional wisdom about the US economy.  Robert Shiller writes that the stock market looks overvalued according to a stock index that he developed.  The CAPE index is at 25, a level it has reached only three times since 1881, each of those three just before a steep market drop.  Shiller looks for reason to say, “This time is different,” and says the answer could be low interest rates on bonds.  But he doesn’t entirely buy his own explanation.  He thinks the real reason may be psychology and what the common perception of the market is, rather than an economic explanation. 

I think another reason may be the disappearance of traditional company provided retirement plans.  People are under the gun to amass their own nest egg to support them during retirement.  To do this they are almost forced into risker, higher yielding investments.  In the old days, when interest rates were higher, companies would probably have invested in bonds.  Today there is a huge influx of money into the markets to pay for IRAs, 401(k)s, etc.  This new money is going to drive up stock prices.  But as Shiller says, if the psychology changes and people perceive that their stock investments are too risky, they may pull their money out.  You can lose money in the stock market; you won’t lose it if you hide it in your mattress, in government bonds, or some other very safe investment.  That happened to some extend after the 2008 Great Recession. 

The other article with an unconventional twist is AndrewSorkin’s reporting that actual corporate tax rates paid by US companies are not uncompetitive with corporate taxes levied by foreign countries.  Although the maximum tax rate is 35%, almost no company pays that rate.  There are so many loopholes and special tax breaks that the actual tax raid paid is about 12%, which is lower than the maximum rate that companies say are so appealing overseas.  Sorkin says the real reason for tax “inversions” in which companies reincorporate overseas is the piles of cash American companies are holding overseas that which they do not what to repatriate.  In any case, the screams of corporate CEOs about the high corporate tax rates are insincere and not based on facts.  Corporate CEOs love money and don’t care about America.  They are unwilling to pay taxes to support the military troops, the police, the firemen, or pave roads.  They just want their New York City penthouses, their Hamptons beach houses, and their Aspen ski chalets.  

Letter to Sen. Bennet re Social Security

I received your email and signed your petition about Social Security, but it is a sore point for me.

I am retired from the State Department Foreign Service.  I also earned enough quarters working in the private sector to qualify for Social Security.

Because of my Foreign Service retirement, my Social Security is reduced from a normal benefit of over $400 per month to an actual $48 per month that I receive from Social Security.  This amounts to a tax of about 90% on my Social Security benefits because I served my country in the US Foreign Service.

I am willing to sacrifice for my country.  I am also a Vietnam veteran who served in the Army artillery on the DMZ from 1969-1970.  I know that Social Security is underfunded, and am willing to do my part to preserve it.

But it makes me mad that rich people pay only a small part of their income into Social Security.  Contributions are capped at the first $117,000 of earnings.  For many rich people, this means that the Social Security tax is negligible, while for poor people, the Social Security tax is much higher than their income tax.  Meanwhile, for many investors, such as hedge fund managers, even income tax is capped at 20%, which may be a lower rate than the Social Security tax on the working poor.  Wall Street investors would scream bloody murder if they were taxed at 90%, as my Social Security is.

This is an example of extreme income inequality legally established by the United States Government.  I am happy to do my part to help save Social Security, but why should I contribute to government welfare programs for billionaires on Wall Street?

Something is rotten in Washington!

Middle East Policy Failures

ISIS’ success against the Kurdish Peshmerga highlights the failure of US Middle Eastern policy.  Our actions may have been better than nothing, or in some cases worse than nothing, but in any case they were not worth the cost.  Iraq and Afghanistan, where we fought hot wars, are absolute disasters.  We destroyed Iraq when we killed Saddam Hussein and Paul Bremmer disbanded the Iraqi army and ordered the de-Baathification of the Iraqi government.  In our Congress, Republicans have been screaming to do the same thing to Syria’s Assad.  They want to kill Assad and give military aid to his ISIS enemy which is killing everyone it doesn’t like in Iraq.  The Republicans and Obama worked together with the Europeans to kill Kaddafi and shove Libya into a rapid descent into a chaotic hell, killing an American ambassador in the process.  We didn’t kill Egypt’s Mubarek, but we did get him deposed, putting Egypt through years of turmoil, first under the Muslim Brotherhood and now under al-Sisi.

We didn’t create all of this instability.  Saddam, Mubarek and Kaddafi were all getting old and were going to have to leave in a few years.  We moved up that transition, but in retrospect we did not provide for a good transition; they have all gotten worse rather than better.  If we had left these leaders to their own devices, they might have arranged for a more stable government succession, or maybe not.  But for us, trillions of dollars and thousands of lives have been largely wasted.    The country that has probably gone through its transition better than the others is Tunisia, where we have been the least active.

ISIS’ savage, inhuman conduct in Iraq and Syria illustrate how awful our opponents in the Middle East are, but maybe this is neither the time nor the place for us to intervene in what is a regional conflict.

Of course, while all this is going on, the Israelis and Gazans are still fighting each other.  The Israelis face the same moral dilemma that the US does in trying to deal with this Middle East problem.  The more children and non-combatants Israel kills, the more horrendous it , and Jews in general, appear to the world.  The real anti-Semites are the Israelis; they are besmirching the reputations of all Jews everywhere.  When Jews invoke the Holocaust on behalf of Israel, it is an insult to the Holocaust, and makes Israelis look like foul hypocrites.

Oren WSJ Op-Ed on Zionism

I am not convinced by the WSJ op-ed of former Israeli Ambassador to the US Michael Oren that Zionism is or was a good thing.  He has a lot to say about how wonderful Israel is economically and politically, but he ignores the most important aspect of Zionism, the creation of Israel.  He also glosses over the fact that Israel’s wonderful democracy treats a number of people very badly, starting with the Palestinians in Gaza.  Gaza is not a country, but most Gazans are not Israeli citizens.  This is a “democracy” with a heavy strain of apartheid or at least very poor treatment of second class residents.

The problem goes back to Israel’s founding.  It was one of the first acts of the new United Nations after World War II, but I think it has turned out to be one of the worst UN mistakes.  The Palestinians were living in Palestine, albeit under some kind of British protectorate, rather than as an independent nation.  Nevertheless, the Jews had not lived in Palestine as a nation for at least 1,000 years.  It is as if someone came to your house and said, “My great-grandfather used to live in this house 100 years ago; I’m taking it back.  Get out!”  The Jews claim they have title to the land because God gave it to them 4,000 years ago, but I’m not sure that non-Jews have to take this title at face value.  Jesus, Paul and Peter made the Jewish God available to Christians; so, it’s not clear that the Jews are still the only people chosen by God.  And what about other gods, the Muslim God for example?   I don’t think the Palestinians agree that the Jews are God’s only chosen people, even if the United Nations said they were.

If the Jews are God’s chosen people and the Palestinians (and everybody else) are not, they have God’s approval to slaughter non-Jews occupying the Promised Land, and that’s what they have been doing.  But if this is truly a racial thing, how many Jews today are blood descendants of Abraham?  Do converts also acquire God’s permission to slaughter infidels on the Promised Land?  Is the right to slaughter non-Jews in the Promised Land acquired by race or religion?  Or was it simply granted by the UN’s creation of the state of Israel?

Zionism predates the Holocaust, but Israel is inextricable tied to the Holocaust.  It’s unlikely that the UN would have created Israel if it had not been for the suffering of the Jews in the Holocaust.  To some extent the UN said, “Let the Palestinians make reparations for what Hitler did to the Jews.”  Not surprisingly, the Palestinians were not too happy about being designated to pay Europe’s debt.

The bottom line: I’m not convinced that Zionism is/was a good thing.  Israel may be the most democratic country in the Middle East, but given the Jews history, it should be more  understanding and forgiving of the hardships of the countries surrounding it.  The Jews are criticized (with justification) for meekly walking into the death camps, with some exceptions, such as the Warsaw ghetto uprising.  In Israel they fought to preserve Israel from Arab attacks like they never did to defend themselves in Europe.  But now they begin to become the oppressors, appearing to be getting revenge for being oppressed in Europe.  Thus Zionism begins to look like a way to get revenge, not a way to establish a Jewish nation.  And as the Israeli Jews lose the high moral ground, Zionism loses the high moral ground and becomes just some kind of racist, oppressive regime like those under which the Jews suffered for centuries in Europe.