What’s
Wrong Today:

Yesterday,
we discussed the Deficit Hawks and the Republicans’ viewpoint that America
doesn’t need more tax revenues in order to reduce and eventually eliminate the
Deficit. Most who are not captured by corporate
lobbyists understand that lower corporate taxes have not provided
either more jobs, or more revenue to help support the commons.

Our
society works best if those who enjoy its benefits are also prepared to pay
their share of the costs. The chart below shows that individuals have
paid about the same percentage of total federal revenues since the 1930’s,
while corporations’ share has fallen dramatically:

This chart
shows that corporate tax receipts declined approximately 50% (as a percentage
of GDP) from roughly 4.8% in 1959 to 2.4% in 2011.

And the
chart below
shows the decline of corporate tax receipts (as a percentage of corporate
profits) from 77% in 1959 to roughly 25% in 2011.

Corporate tax avoidance has become an
epidemic in America. It is the result of allowing lobbyists to draft our
tax regulations. All taxpayers play by the rules as written. Aside from
outright tax evasion and money laundering, which is illegal, tax minimization
within legal boundaries is perfectly rational. Companies would not willingly
pay more taxes and earn a lower return on capital than they do today without a
fight.

What is
avoidance worth?

In July,
2012, the Tax Justice Network released an updated version of a report showing that $21 trillion
and possibly as much as $32 trillion have been siphoned out of the global economy
into tax shelters. According to The BBC,
the low-end
figure is equivalent to the size of the US and Japanese economies combined. The
Economist reports that: (emphasis by the
Wrongologist)

Yesterday,
we reported that Apple, Inc. represented $83 billion of that $21 trillion. Let’s
take a closer look at Apple’s tax avoidance strategies:

Apple’s
state tax avoidance

According
to the New York Times, Apple uses a
small office in Reno Nev. to avoid millions of dollars in state taxes in
California and 20 other states. Although Apple’s headquarters are in Cupertino,
CA, its Reno office, 200 miles away, collects and invests much of the company’s
profits, allowing Apple to avoid state income taxes. California’s corporate tax
rate is 8.84% while Nevada’s is zero.

Setting up
an office in Reno is just one of many legal methods Apple uses to reduce its
worldwide tax bill by billions of dollars each year. In 2006, Apple established
a Nevada subsidiary named Braeburn Capital to manage and invest the company’s
cash.

Braeburn
is a variety of apple that is simultaneously sweet and tart.

Whenever
someone in the United States buys an Apple product, a portion of the profits
from that sale is deposited into accounts controlled by Braeburn and then
invested in stocks, bonds or other financial instruments. Those profits are shielded
from tax authorities in California by virtue of Braeburn’s Nevada domicile. Nevada
has no state corporate income tax and no capital gains tax

Since
founding Braeburn, Apple has earned more than $2.5 billion in interest and
dividend income on its cash reserves and investments around the globe. What’s more,
Braeburn allows Apple to lower its taxes in 20 other states, because those
jurisdictions use formulas that reduce what is owed when a company’s financial
management occurs elsewhere.

Apple’s
global tax strategy

While
Apple’s Reno office helps the company avoid state taxes, its international
subsidiaries and the company’s assignment of sales and patent royalties to
other nations, help reduce taxes owed to the American and other governments.

For
instance, Apple’s subsidiary in Luxembourg, named iTunes S.à r.l., controls global
iTunes sales.

Luxembourg
has just half a million residents, but when customers across Europe, Africa or
the Middle East download a song, television show or app, the sale is recorded
in Luxembourg.

In 2011, iTunes S.à r.l.’s revenue exceeded
$1 billion, representing roughly 20% of iTunes’s worldwide sales.

The reason
is simple. Luxembourg taxes the payments collected by Apple and numerous other
tech corporations at very low rates if they route transactions through their
country. Taxes that would have otherwise gone to the governments of Britain,
France, the United States and dozens of other nations go to Luxembourg instead,
at discounted rates.

Downloadable
goods illustrate how government tax systems are increasingly ill equipped for tracking
sales in an economy dominated by electronic commerce.

In the
1980s, Apple was among the first major corporations to designate overseas
distributors as “commissionaires,” rather than retailers.  Since commissionaires never technically take
possession of inventory — which would require them to recognize taxes — the
structure allows a salesman in high-tax Germany, for example, to sell computers
on behalf of a subsidiary in low-tax Singapore.

Hence, those
profits would be taxed at Singaporean, rather than at German, rates.

The
“Double Irish”

In the
late 1980s, Apple used a tax structure, known as the “Double Irish” to move
profits into tax havens around the world. Apple created two Irish subsidiaries,
named Apple Operations International and Apple Sales International. 

The arrangement
allowed Apple to move ownership of patents developed in California to Ireland.
That allowed patent royalties due to move to the Irish subsidiary. As a result,
profits were taxed at the Irish rate of approximately 12.5%, rather than at the
American statutory rate of 35%. By 2004, Ireland, a nation of less than 5
million, was home to more than
one-third of Apple’s worldwide revenues, according to company filings.
(Apple has not released more recent figures)

Moreover,
the second Irish subsidiary, the “Double”, allowed other profits to flow to
tax-free companies in the Caribbean. Apple assigned partial ownership of its
Irish subsidiaries to Baldwin Holdings
Unlimited in the British Virgin Islands, a tax haven.

Baldwin
apples are known for their hardiness while traveling.

Finally,
because of Ireland’s treaties with European nations, some of Apple’s profits
could travel virtually tax-free through the Netherlands (the “Dutch Sandwich”)
which made them essentially invisible to outside observers and tax authorities.

These
strategies help explain how Apple has managed to keep its international taxes
to 1.9% on its earnings outside the US in its last fiscal year, according to a
regulatory filing by the company. They had $713 million in tax on foreign
earnings of $36.8 billion in the fiscal year ended Sept. 29.

Without
such tactics, Apple’s federal tax bill in the United States most likely would
have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist,
Martin A. Sullivan. Mr. Sullivan said:

Apple isn’t the enemy here, Congress is.

Our tax
systems must be reformed. We need to take that job away from corporate lobbyists. We must make it harder for companies to use
internal (“transfer”) pricing to avoid tax. Companies should be made to book
activity where it actually takes place.

Any new
system needs to ensure that change results in corporations paying more in taxes
with less collection/compliance expenses. The new system must be simpler than
today’s.

Make it simple. More complexity creates
more avoidance opportunities.

If we can’t make our lawmakers reform the tax code and drastically reduce avoidance,
then we should just keep quiet, pay our taxes, accept the need for austerity,
help out our banks when they are in need, and most importantly, vote for the
Deficit Hawks in our next election and let them look after our best interests.

 

What’s Wrong Today:

If you
want to preserve Social Security, you have to take on the deficit scolds.

The “Fix
The Debt” people, plus Messrs. Bowles and Simpson and their fellow travelers, try
to mislead us on Social Security, which they conflate with the growing costs of
Medicare and Medicaid.

They have
been very successful in bringing their message to the main stream media. For
example, Fareed Zakaria wrote an essay for Time,
The Baby Boom and
Financial Doom.
Here is what Zakaria says:

Well, those facts may seem hard for Mr.
Zakaria to dispute, but they don’t have much to do with Social Security, and
Social Security doesn’t have much to do with the deficit. Zakaria says:

“In 1900, 1 in 25 Americans was over the age of 65. In 2030, just
18 years from now, 1 in 5 Americans will be over 65.” This could mean that many senior citizens are in need of saving money for daily living, that is why senior discounts are highly important in this area.


This sounds like “Gosh, the population of old people is soaring. It’s going to
cost me five times as much to pay for “the old” if we don’t do something.”

Maybe not. In 1900, people had large
families because a lot of their kids died. This by itself would tend to make
the ratio of under 65’s to over 65’s larger than today. Also, back then, people
over 65 died earlier. But Zakaria doesn’t really want us to return to higher
infant mortality and a shorter old age. Maybe he’s only pointing at the
problem:  “How are we going to support
all these old people?”

“In 1960 there were about five working Americans for every
retiree. By 2025, there will be just over two workers per retiree.”

Did you know that today, the ratio is 3.1 working Americans for
every retiree? Perhaps that makes the jump to “2 (really 2.1) working Americans”
seem less scary. Perhaps that might make you ask “how are only three of us
supporting each retiree? The answer is that “we” are not supporting those
retirees. They paid for their Social Security themselves. Here is the
Wrongologist’s personal example:               

                                                   SS                         

          Paid
in by Wrongo:         $127.3k               

          Paid
in by employer:      $120.6k               

                    Totals                   $247.9k

At 66½,
the Wrongologist began drawing Social Security @$ 2.2k per month. At that rate per
month, his social security account will go into deficit when he turns 81. By 90, he would have cost the government $190k, assuming he pays the government
approximately 20% in taxes due. So, there can be some real deficit creation,
assuming he lives a long life. But, not every Social Security recipient lives
to 80, much less 90.

But, as in the example, Social Security
is paid for by the people who get the benefits. It is their money. It has nothing to
do with the federal budget. The population numbers sound scary because they are
meant to sound scary, but the fact remains that workers can continue to pay for
their own Social Security by simply
agreeing to increase their payroll taxes.

A few more
facts: The Social Security Administration projects Social Security
outlays to rise from around 5% of GDP today to around 6% of GDP in the mid-2030s
and then fall back below 6% (when the Baby Boom bulge disappears).

That 1%
gap can be closed by modest increases in taxes, increases in the level of income
taxed, more aggressive means testing of the benefit, further delaying the age
of eligibility, without resorting to cuts in benefits. For example, a 2% increase
in payroll taxes would entirely close the expected funding gap. Extending the eligibility
age is the only oppressive option.

Is
Social Security adding to the Federal Deficit?

The Social
Security program currently has a cash deficit.  That is, the payroll tax
that finances it is not generating sufficient revenue to pay current
benefits.  As a result, the federal government is borrowing money to pay
Social Security benefits.

On its
face, it sounds like the Social Security program is contributing to the
nation’s debt.  However, that is not the way Social Security is financed.

The
Congressional Budget Office (CBO) explains that our nation
has two types of debts; that owed to the public and that the government owes
itself.  Debt to the public is owed to investors who have purchased
Treasury securities.  Debts the government owes itself are IOU’s held by
various government trust funds that have had surplus revenues in the
past. 

Social
Security ran a surplus from 1984 through
2009 (taking in more payroll tax revenue than was paid out in benefits). 
Of the estimated $16.3 trillion of accumulated federal debt through the end of
2012, the Social Security Trust Fund is owed $2.7 trillion by the US government.

So, this is money the government owes
itself.
The Social Security Trust Fund is an asset on the books of the Social Security
Administration.  That is, this part of the government has a legitimate claim
on the US government.

When the
Social Security program runs a cash deficit, the Social Security Trustees
request repayment of some of the Treasury securities they purchased when the
program was in surplus.  Because the federal government is currently in
deficit, the Treasury Department must borrow the money to make these repayments
to Social Security. 

However, the new borrowing will not
increase total debt. This transaction is more like refinancing existing
debt than accumulating new debt. If you owe a $5,000 credit card bill and you
take a home equity loan to pay off the credit card, your total debt has not
changed; you have refinanced the debt, transferring it from one financial
instrument (and one creditor) to another. 

The same is
true when repaying the Trust Fund.  The fund’s assets are composed of
debts already accounted for as part of the nation’s total debt.  When the
Treasury borrows to pay current Social Security benefits, the debt owed to the
Social Security Trust Fund is repaid, refinanced, and transferred to whoever
purchases Treasury securities.

So, the
current cash deficit in the Social Security program is not contributing to the
nation’s debt or its deficit.  This will be true so long as the Social
Security Trust fund holds Treasury Securities that are already counted as part
of the debt (current forecasts suggest
this will be true for 20 more years).

So, a 66 year old person can collect
Social Security for 14 years (until 80) without
adding to the federal deficit.

The Social Security Administration can
fund its current shortfall between Social Security receipts and payments without adding to the federal deficit
for another 20 years.

Let’s also consider Medicare. Here is more
from the Wrongologist’s personal example:

                                              Medicare

          Paid
in by Wrongo:          $66.3k

          Paid
in by employer:       $65.2k

                    Totals                  $131.5k

Despite
what he paid in, just one serious illness with hospitalization will easily blow
through $131k of Medicare reimbursements, so it is partly on the budget and the unfunded portion of cost will add to the deficit. 

Medicaid,
however, is entirely on the budget;
it is welfare. Medicare
and Medicaid expenditures are projected to rise to 7.4% of GDP from current
levels of about 5.5% by the mid-2030s, mostly because of rising health care
costs. But, unless we want
to go back to higher infant mortality and more homeless people dying in the
streets, this is a problem we must address.

The way to address these uncontrolled
costs is not by cutting the programs and throwing sick people onto the streets.

Sensible deficit hawks shouldn’t mix
Social Security with the health programs; they should focus their efforts
instead on reducing the growth in health care costs.

That
simply has not been a focus of either political party: Democrats are now the
party of smallish government and tax cuts for most people, while Republicans
are the party of limited government and tax cuts for everyone.Deficits have to be faced.

And neither party is committed to preserving
the social safety net.

Simple, rational
arguments are required in order to carry the day for Social Security.

What’s
Wrong Today:

Thanks to
French President Francois Hollande who felt the need to step in to prevent the
collapse of Mali, and a calamitous hostage rescue operation by Algerian forces
that resulted in the deaths of 37, America has discovered Mali. 

Mali, the
largest country in West Africa, is involved in a civil war in which government
troops, along with a Western coalition led by the French, are battling well-armed
ethnic Tuaregs and the AL-Qaeda-affiliated Ansaruldin group.

Once known
as French Sudan, Mali is one of France’s main allies in sub-Saharan Africa. Paris
fears that the chaos might spill out to neighboring states, drastically
affecting regional and international stability and peace. But France is also concerned
the spread will put its influence in this part of the world under serious
threat.

Prior to
the coup last year, Mali looked like a model democracy for the rest of Western
Africa. It has been in turmoil since, as Tuareg rebels took advantage of the
disarray to push further south, capturing half of the country with the help of
Islamic militants. Mali is no stranger to rebellions – this is the fourth led
by the Tuareg nomads of the north since Mali’s independence from France in 1960. The last
ended only in 2008.

Reuters reports that Tuareg forces were helped by
an influx of modern arms after the 2011 conflict in Libya. Tuaregs joined forces with Islamist groups, some with links to AL-Qaeda and they seized
control of the north of
Mali in
2012.

(Above: A manual for installing a laser
sight on a gun, found in the courtyard of a local resident’s home in Diabaly,
Mali and believed to belong to Islamist rebels, on Jan. 23, 2013. Photo by
REUTERS)

Al-Qaeda was
looking for a safe haven in a hostile environment, especially at the end of the
Libyan war. Later, the Islamists overthrew the Tuaregs and installed Shariah
law in the area.   

The
fighting in the north and the establishment of Shariah forced thousands to flee
their homes. The New
York Times
reports that before
the recent French intervention in Mali began, 412,000 people had already left
their homes in the country’s north, fleeing torture,
summary executions, recruitment of child soldiers and sexual violence against
women at the hands of fundamentalist militants.

The Tuareg
have named their movement the MNLA, or National Movement for the Liberation of
Azawad, the name the rebels give to the homeland they would like to carve out
of three regions in Mali’s north.

The
movement has a slick PR machine, a regularly updated website and easily
contactable Europe-based spokesmen. An
unanswered question is: Who finances these people?

Washington
has tried to bolster Mali’s army over the years, providing $17 million in
military aid in the last year to equip and train forces in everything from
desert warfare to winning hearts and minds. European nations have also offered help.

France,
the US and Mali’s insurgents:

The US says that it is
sitting out direct confrontation with the
Mali terrorists. At least, for now. Danger Room reports that as France’s war in Mali stretches into its twelfth day, the US
Air Force has flown a total of five sorties to airlift some 80 French personnel
and 124 tons of equipment.

It remains to be seen
if the US will keep its involvement in Mali limited. The US military, particularly the special-operations
community, might be strained from
over a decade of war.

If the US does limit
its involvement in what the Pentagon calls an “international effort” against
groups aligned with al-Qaida, it would buck its own recent trend in proliferating shadow wars to far-flung places whenever a group
calling itself an al-Qaida offshoot shows up.

It is important to
note that the Pentagon wasn’t speaking about possible CIA involvement in
Mali; it’s worth noting that the CIA has placed operatives on the ground in places where the US has publicly
stated it wouldn’t send ground troops.

In
addition, the Washington Post reported last June that a US
special forces base was established in Burkina Faso (bordering Mali on the
southeast)in 2007 and the same Post article reported that the Pentagon had
spent $8.1 million enhancing a Forward Operating Base (including airstrip) in Mauritania(bordering
Mali on the west).

There are
negotiations between the Pentagon and Algeria (bordering Mali on the north) for
basing rights.

(Yellow shaded areas above indicate
Islamist controlled areas)

Any claims that the US will sit this one
out are preposterous.

From the New York Times yesterday:

Paris
lacks the airlift capacity to haul all the hardware bound for Africa. Early on,
Paris appealed for help from allied nations. Canada and the UK were the first
to offer up C-17 transport planes and the US sent five of its C-17s
over the weekend. The C-17 is big enough to carry any French fighting vehicle.

As Paris
escalates its involvement in Mali with heavier and more powerful weaponry, we
are asked to believe it does so
without the guarantee that if the battle turns against the French, allied
nations will rush to the rescue.

Does
any of this sound familiar?

Another NATO
member is attempting to put down another insurgency. Let’s guess: the Malian pro-western
“democracy”, with signed contracts with multinational mineral and energy
companies, (Mali has gold, uranium, phosphates, limestone and oil) begs for help while generally
ignoring the plight of the financially, culturally, and ethnically estranged
northern populace.

The Tuareg
have risen up for a 5th time, organized under an Islamist banner
loosely associated with terrorism, and the French have gone in to protect their
interests. Sounds like Vietnam, or any number of incidents of western adventure
in the third world.

You can be
damn sure the French wouldn’t get involved unless there was significant expectation
of material and strategic backup by other NATO members, and that wouldn’t be
Turkey.

We need
answers:
What are the insurgents’ motivations? Where do they get their logistical
support and their money? Why does the local population support them?

Ordinary
people don’t attack their own government for no reason, do they?

So, Mr.
Obama, get us some answers, let’s check out the WHOLE picture this time before
we jump in to the shit.  

Recently,
a Director of National Intelligence gave estimates of al-Qaida’s
“membership” at around 4,000. How is it that 4,000 mostly
semi-literate tribesmen could possibly represent such a grave
“threat” to the US and/or the West?

NO ONE in the US Government or
military is claiming that there are large numbers of “terrorists”
anywhere. Yet al-Qaida is cited as a threat to take over Libya and Somalia,
maybe Syria, threaten Pakistan’s nuclear weapons, pose a serious problem in Afghanistan,
and now be poised to take over Mali…and then, wow, threaten all of Africa and
“the West.”

With 4,000 men – really?  Are we being lied to? Are the numbers really much
larger?

We didn’t learn our lessons in
Vietnam or Iraq or Afghanistan. Now we may be preparing to do the same thing in
Mali – because this time, the Domino Theory is real, my
friend.

The Zombie Domino Theory. The Zombie
Global War on Terror.

Wait until Washington tells us: “It’s
a slam dunk, and this time we will win”.

 

What’s
Wrong Today:

There is
an undeclared war about to be waged in
America by a loose coalition of survivalists, militia men,
secessionists, and white supremacists.

You
probably heard last week about James Yeager, the CEO of a Tennessee firm that
offers firearm and tactical training. He published a video in which he threatened to “start killing
people” if the Obama administration
proceeds with executive orders regulating guns.

This is From Yeager’s Facebook page
where he speaks about legislation that may come out of the President’s
Taskforce on Gun Violence:

(Emphasis
below by the Wrongologist)

Keep all of this in mind as the Obama
administration moves toward articulating a policy of narrowing the use of
certain firearms and high capacity magazines over the next month.

Some of these
guys could be about to explode. 

“Some of
these guys” could include the Oath Keepers. Founded in 2009,
the Oath Keepers say they are patriots upholding the Constitution by the very act of taking up arms against
the Federal Government. They are organizing militias around the country
to resist actions by our government that they believe overstep what they define
as “constitutional boundaries”.

On their website, the Oath Keepers
say they believe that the right to bear arms under the Second Amendment is not
about protecting themselves and their families against street crime, rather:

Oath
Keeper member Richard Mack has said:

Elements of the GOP and the Tea Party have evolved
an extreme worldview that is able to justify any means, however destructive, to
achieve whatever righteous cause they embrace. In this case, they are joined by
the Oath Keepers and the NRA in championing the unrestricted right to use
military-style weapons, even though the NRA says they are only used for
hunting.

The Oath
Keepers placed this billboard outside Ft. Leavenworth KS, home of the US
Army Command and General Staff College, after an Army Colonel wrote an
article that described the Tea Party as a possible future military opponent for
the US military.

Their
cause is helped by right wing writers who posit that the
whole purpose of the 2nd Amendment and the reason it protects even
weapons designed for use by the military, is to preserve the right
of insurrection
against the state should it institute “tyranny.”

They
believe in 2nd Amendment absolutism.

The Second
Amendment absolutists believe that electoral majorities and court decisions cannot be permitted to modify the right
to bear arms. Any effort to do so is “tyrannical.”

The
lynchpin of this debate is the answer to the question: Who gets to decide when
it’s necessary to take extralegal action?

The Oath
Keepers? Wayne
LaPierre? Or, God forbid, James Yeager?

According
to them, our political system (the system that produced the “tyranny” of
Obamacare) will not protect their rights. So it’s up to heavily armed individuals
and groups to figure out when it’s
necessary to start shooting politicians or other beneficiaries of tyranny.

Let’s
review the 2nd Amendment:

The
purpose of the 2nd amendment was NOT to protect American citizens against the
American government. It was to protect American citizens against tyranny from
outsiders, like King George. The new American nation did not have a standing
army. Thus the Constitution gave its citizens a mechanism to defend the nation
should it be attacked. When the alarm was sounded, the citizens were supposed
to grab their muskets and gather on the village green, prepared to defend
their nation.

The right to bear arms was established
within a context.
All of the Amendment’s clauses matter. The language is tricky, but we must try
to understand the full text. Gun enthusiasts need to show us how their
preferences fit the complete text.

Do the Absolutists intend to operate as part of a well regulated militia?

In the Federalist Papers, Hamilton wrote about the use of
well regulated militias to counteract threats to the federal government. Hamilton
states in #29:

He
continues to discuss the need for uniformity in training and such before
summing up his thought with:

In #25,
Hamilton warns that unregulated state militias were a potential risk to
national security. (context below by the Wrongologist)

That
should be enough for any person who isn’t willfully blind to see that militias
were meant to be defenders of the federal government, what Hamilton meant by the
“national authority.”

Read
all of #29 at the link above if you want a complete understanding.

In 1783, democracy
brought majority rule by its citizens to the US. In a democracy, a minority can
disagree with the legislative actions of the majority, but disagreeing with the majority cannot mean defining the prevailing
legislative direction of the majority as tyranny. Majority rule is how
democracy works.

The 2nd
Amendment Absolutists fail the first test for citizenship in a democracy;
namely, respect for the will of the majority. Their claim that 2nd Amendment gives them the means to rise
up against the US government if they disagree with the legislative
action of the majority (what they would call tyranny) is specious and seditious.

We shouldn’t be able to own military-style weapons. No one needs one in
order to hunt.

We should be
prevented from being able to cut down trees or huddled masses in a mall, with a
burst from our “hunting rifle.”

According
to preliminary data from the National Center for Health Statistics, the overall birth rate in 2011 was the lowest since 1920, the earliest
year for which there are reliable numbers. Births fell 4% from
2007 to 2009 (the largest drop in the US for any two-year period since the
1970s). Births have declined for three consecutive years, and are now 8% below
the peak in 2007.

The US birth
rate in 2011 was 63.2 per 1,000 women of childbearing age, according to
preliminary numbers. That’s down by almost half from a peak of 122.7 in 1957
during the postwar baby boom. The rate steadily fell before stabilizing at
65-70 births per 1,000 since the 1970s.

Wikipedia reports that researchers
attribute much of the drop in the US birth rate to the recession in 2007-2009. A
state-level look by the Pew Research Center in October 2011, showed a strong
correlation between lower birth rates and economic distress: In 2008, North
Dakota had the nation’s lowest unemployment rate (3.1%) and was the only state
to show an increase (0.7%) in its birth rate.

All other
states either remained the same or declined.

Gretchen Livingston, author of a November
2012 Pew Study about birth rates,
told
NPR:

The Pew
Study showed a correlation between economic difficulties and birth rate declines
by race and ethnicity. Hispanics (particularly affected by the recession) have
experienced the largest decline: In 2008–2009 the birth rate declined 5.9% for
Hispanic women, 2.4% for African American women and 1.6%for white women.

People
confuse the birth rate (number of births per 1,000 women) with the fertility
rate. The fertility rate is the
average number of children born to a woman during her lifetime. 
The fertility rate needed to maintain the current US population is 2.1 children
born to women of child-bearing age.

According
to multiple studies, the US fertility
rate among women is now only 1.9 children
and falling.

So, is
this a blip or an ominous trend?

Nobody
knows. The falling birthrate mirrors what has happened during other American recessions.
 

Charles
Blahous, one of two public trustees for Social Security and Medicare, told Business
Week that birth rates affect both Social Security and Medicare funding, though
he added: “it is fairly typical for birth rates to drop during a recession.” Blahous
said:

A
prolonged decline, particularly in Hispanic births could have far-reaching
implications for US economic and social policy. It would challenge long-held
assumptions that births to immigrants will help maintain the US population
and create the taxpaying workforce
needed to support the aging baby-boom generation.

Still,
foreign-born women continue to contribute a disproportionately high percentage
of American births, birthing 23% of the nation’s babies even though they make
up only about 17% of the country’s female population.

So,
is this a good or a bad thing?

Yesterday,
we discussed the increasing numbers of Singles in America. Today, we are
talking about the falling birth rate. These may be separate developments, but
they are part of the same story: As our largest generation moves toward full-on
retirement we are minting what looks to be our
smallest generation.

The
concern about population decline is dominated by politicians and pundits who
are always on the lookout for a good doom story. They say:

• How
  will we have economic growth without a growing population?
• How
  will we solve our debt crisis?
• How
  will we pay for all of those boomers to have knee replacements?  

How
will our smallest generation, from the start of its working years, face the task
of supporting millions of entitled old fogeys? Something may have to give!

They
are afraid that slower birth rates will cause future economic problems. They see
higher taxes, fewer public amenities, and lower economic growth.

Sorry,
but the first impact of a decline in the birthrate will be positive for the
economy. Society has fewer children to raise and educate. That frees up female
labor to join the economy.

A
declining population also creates a
labor shortage which can have positive as well as negative effects. Initially,
labor participation rates, which are poor today compared to 10 years ago, will increase
to reduce or delay the labor shortage.

Another positive,
a labor shortage increases demand for labor, which can potentially result in higher wages along with a reduced
unemployment rate. While some labor-intensive sectors of the economy
may be hurt if the shortage is severe enough, others may compensate by
increased automation.

We
need to see the bigger picture:

The
Baby Boom generation was not our past and is not our future. We are seeking a new demographic equilibrium,
one in which our society and culture finds a balance that is relevant to the next
100 years, one in which “American Exceptionalism” doesn’t require us to be the
world’s largest economy, but the world’s best society.

Today’s demographic
trends aren’t promising: In 1965, 81 million workers paid for benefits to 20
million people, a 4-1 ratio. The ratio has fallen to 2.8 workers per retiree
and is expected to drop to two workers for every beneficiary by 2035, with 186
million workers paying for 91 million retirees. Additional rationing of health
care will be a common reality.

But,
with declining birth rates and more Singles, this may start to reverse course
after 2035.

Oh,
and slower growth in energy needs, a better environment, more space, less
pollution, less congestion and less waste produced.

Everybody wants those gains from a decline in the global
population, we are just afraid of trying it at home.

What’s
Wrong Today:

As
someone who entered the workplace in the 1970’s, the Wrongologist would never
have thought that he would look back and say those were the “good old
days”.

The
three decades before the 1970’s were a time of unprecedented growth for the
middle class: a time of steady jobs, rising pay, and employer-provided health
care. The gains allowed them to purchase homes and cars, send children to
college and provide for a life that their parents could only have dreamt of: The
Wrongologist’s middle class parents sent 4 kids to college paid for by savings.
They owned two new cars without car loans. They owned a house and only one
parent ever worked outside the home.

It
was a society in which the middle class also exerted considerable political and
economic clout.

Yet,
Hedrick Smith argues in
his new book, Who Stole the American Dream? (Random House, 2012), that it was the apex for America’s middle
class and that the four decades since have brought about an inexorable
decline.

What
caused the turnaround?

The shifting political landscape of
the 1970’s and 1980’s, along with the globalization of the economy began the
erosion of the middle class’s political and economic clout.

Over the past three decades we have become two
Americas – the 1% and the 99%. Smith believes the intellectual foundation of that change was laid by Lewis F.
Powell who was an Associate Justice of the Supreme Court.

Powell
and William Rehnquist were nominated by President
Nixon on the same day to serve on the Court. Powell took over the seat held
for many years by Hugo Black.

Few
people know that 2 months before joining the Supreme Court, Powell drafted the “Powell
Memorandum”, a confidential memorandum for the US
Chamber of Commerce entitled:
“Attack on the American Free
Enterprise System.” Powell argued:

In
the memorandum, Powell advocated “constant surveillance” of textbook
and television content, as well as a purge of left-wing elements.  He described a road map to defend free-enterprise
capitalism against real and/or perceived socialist, communist, and fascist
cultural trends.  

His
positions in the memorandum foreshadowed Powell’s opinion in First National Bank of Boston v. Bellotti, a foundation of the Citizens United decision which declared
that corporate financial influence of elections through independent
expenditures should be protected with the same vigor as individual political
speech. Much of the present Court’s opinion in Citizens United v. Federal Election
Commission relied
on the same arguments used by Powell in Bellotti.

On the other hand, Powell voted with the majority in Row
vs. Wade.

Back to his memo; Powell urged the business
community to build and use political power, with the US Chamber of Commerce taking
the lead role. At the time, President Nixon supported a popular tide of greater
federal regulation that brought us the EPA, OSHA, the Consumer Product Safety
Commission, NHTSA, and the Mining Enforcement and Safety Administration into
existence, and strengthened the FTC.

These
trends are what Powell positioned Corporate America to organize and oppose, a backlash
that has resulted in the rout of the middle class. Led by the Business Roundtable,
this campaign, catalyzed by Justice Powell’s memorandum, sought to:

• Neutralize
  the idea of a Consumer Protection Agency

• Weaken
  organized labor

• Repeal
  the regulatory regime

• Weaken
  or privatize the social safety net

• Promote
  additional tax loopholes for corporations and lower taxes on high earners

Note
that all but one of the above
have been accomplished.

Mr.
Smith points out that this shift in power led to a fundamental change in
political influence away from the middle class to corporations. However, he
doesn’t say that a vast conspiracy led to this state of affairs. Rather, he points
to failures by Congress and the Executive branch to understand the rule of unintended
consequences that has now produced the
most serious internal crises this country has faced since the Civil War.

What
can we do to restore the Dream?

The basic political issue in America has become: “Does the economy exist to serve the
nation, or does the nation exist to serve the economy?”

Our affirmative vote must be for the economy to
serve the nation. How do we do that?

Reform the corporate tax code: A study of 280 major firms
over the 2008-10 period by Citizens for Tax Justice found corporations on
average were paying 18.5%, not the stated rate of 35% that Republicans complain
must be lowered:

(source:
NYT)

From the
above chart, it is clear that adjusted for inflation, corporate taxes have
fallen dramatically as a percent of revenues. Rather than solely focus on the
tax rate of the top 2%, let’s include corporations:

• No loopholes even for nice causes: That means
  churches, farmers, not-for-profits

• No loopholes for the usual suspects: The oil
  industry and the financial services industry

• No carried interest loophole for funds and
  individuals registered as investment companies

• Tax foreign retained profits of Multinationals

Fix our infrastructure:
Airports, highways, seaports, universal broadband and smart grid
electricity. Its gonna be expensive, get over it.We have to be competitive with the rest of the world.

Implement a trade policy:

• Make all governments “Buy American”

• Implement tariffs for any country (even those with
  “Most Favored Nation” designation) if they do not treat our goods equally with
  how we treat theirs, or if they treat their workers badly.  

Implement an industrial policy:

1.  
Start
with jobs 

• Mandate that US companies with more than $50
  million in annual revenue hire a minimum quota of unemployed and recent
  graduates.

• Mandate a similar quota for hiring the long-term
  unemployed into a one-year internship, paid for by the US government

• The recent graduate hires would be at the company’s
  expense.

• Those companies who still had these individuals on
  their payrolls after 2 years would be given a 100% tax credit for their
  out-of-pocket costs associated with the new hires

2.  End the legalization of corporate crime
by the US Government
(See the Wrongologist here).
What must change:

• Stop the revolving door between the
  regulatory authorities and industry by requiring a 3 year “cooling off” period
  before a regulator can take a job in the industry he/she regulates

• Same should be true for Politicians: This means you, Jim DeMint

• Make an example of any corporation that is a bad
  actor by giving it the business equivalent of a prison term in the line of
  business where it misbehaved

• Start prosecuting Banksters under RICO, the
  Racketeer Influenced and Corrupt Organizations Act.  Under RICO, a person
  who is a member of an enterprise that has committed any two of 35 crimes—27
  federal crimes and 8 state crimes—within a 10-year period can be charged with
  racketeering. Those found guilty of racketeering can be fined up to $25,000 and
  sentenced to 20 years in prison per each count of racketeering. In addition,
  the racketeer must forfeit all ill-gotten gains and interest in any business
  gained through a pattern of “racketeering activity”

• Put.
  Some. Banksters. In. Jail.

3. Pick tomorrow’s industries: (Despite
complaints by Republicans)

• The winners should be industries which give the US a strategic advantage over
  our Chinese and Indian competitors and create real value defined as high
  tax revenues and job growth down the road

• The
  Wrongologist is not a Futurologist, so someone else has to pick ‘em

• Whichever we pick, we should back them with
  investment guarantees and tax credits                                        
  

Lewis
F. Powell was the thought leader who started the erosion of the middle class,
but he has been gone since 1988.

Now, job #1 is to elect leaders who will move
to end the rot in DC and restore balance to our society.

What’s
Wrong Today:

Foreign Policy Magazine (FP), a subsidiary of the Washington
Post Company, is out with its list of the Top 100 Global Thinkers. The list is an
annual event at FP. Like all such lists it is easy to ridicule. Here is how FP
introduces its 2012 list:

The list
gets off to a good start, pairing Burma’s Aung
San Suu Kyi and Thein Sein, the once-jailed dissident and the longtime general
who runs the country, at #1, because they worked together to open up Burma to
limited transparency and freedom for most of its people. Overall, their top 15 Global
Thinkers list equals 23 people. But what qualifies someone as a “Global Thinker”?
What is the difference between a global thinker and a “Thought Leader”?

FP thinks
that America’s Republicans are vendors in the global marketplace of ideas. Rep.
Paul Ryan, R-WI (8th) joins Liz and Dick Cheney (tied for 38th)
and Rand Paul (71st) on the list.

FP
helpfully points out their reasoning for everyone on the list, including these
4, and the reasons are laugh out loud funny

• Rand Paul: “For telling America
  to come home.”
• Liz and Dick Cheney:”For keeping
  the neocon flame alive.”
• Paul Ryan: “For doubling down on
  the debt crisis.”

Whatever.

David
Rothkofp, CEO and Editor-at-Large of FP, wrote the following about the Thinkers
List for FP’s December issue:

So we have
the FP’s CEO dissing his own list. Maybe this is why as Esquire Magazine’s Charles Pierce says: “the basic problem with the
list, of course, is the basic problem with all of elite journalism, the search
for a spurious ‘balance’ instead of truth.”

It explains why Aung
San Suu Kyi (1st) can appear on the same list with Benjamin
Netanyahu and Ehud Barak (tied for 13th). Or how a writer like
Salman Rushdie (33rd) is equated with a charlatan like Charles
Murray (43rd).

There are some redeeming
placements on the list. Russia’s Pussy Riot is ranked 16th on the
list: “For shattering their glass cage with a love letter to freedom.”  That, like much of FP’s reasoning, sounds
craptastic, but read a little of this speech by Nadezhda Tolokonnikova at Pussy Riot’s trial:

They took on Vladimir
Putin and the Russian Federation in public and won the PR and thought
leadership battle, creating a global response. 
And Ai Wei Wei (26th), an artist and thought leader, beats
out Christine Lagarde (27th), who is an operative, not a thinker.

When you care more
about superstar politicians than thought leadership, you get committee-created crap like FP’s “Thinkers” list. No one considers
Paul Ryan and Rand Paul either global or thinkers; The Onion could do better.
If, for the sake of argument,
we accept Paul Ryan as a “thinker”, it boggles the mind to figure out
how he could be lauded as a “global” thinker. His entire intellectual
effort has been about establishing a Randian oligarchy in the US, while showing
virtually no interest in global affairs.

FP includes the
economist Nouriel Roubini (35th)
who called the housing bubble in 2005: To equate Roubini and Paul Ryan as “Thinkers,”
when Roubini has been right about almost everything about which Ryan has been
wrong, shows the inherent artlessness of the thinkers at FP Magazine.

Sad to think that a
respected journal like FP can sink their credibility with this kind of
star-chasing trash.

We desperately need
thought leaders, not self-promoting operatives. A few really strong intellects
with the ability to lead us to a better place could do the job.

Will the real “Global
Thinkers” please stand up?

“It would be irresponsible not to speculate.” – Peggy Noonan

You gotta love that quote. Now that
the election is behind us, let’s speculate on where we are headed with
the Grand Bargain.

Mr. Obama
was reelected.  It was an Electoral College landslide. That lopsided electoral
count was somewhat deceptive, since Republicans didn’t lose by that much in key
electoral states and they still control the House, so it is uncertain that the Democrats get to control the political
agenda or even the Presidency beyond the next 4 years. 

Despite talk about a new coalition, ideologically
the Democrats have become more like Republicans of the 1970’s. To a great
degree, Republicans have become
reactionaries, similar to the John Birch Society of the 1950’s. 

There is
no viable third party in the US, because
today’s Republicans and Democrats agree on a surprising number of issues.

And they may get to “yes” on the Grand
Bargain.

Mr. Obama wants the Grand Bargain to encompass
tax reform, spending cuts and revenue increases. It is unclear what
John Boehner wants included in a Grand Bargain.

What does the trade that is shaping up
between the parties look like?

Let’s hope it isn’t based on the memo Mr. Obama sent to Mr. Boehner in
July, 2011.  

Check this
out: Bob Woodward was on Meet The Press last Sunday. He spoke about a memo from Mr.
Obama to House Speaker John Boehner which contains the White House’s 2011 Grand Bargain proposal to the Republicans.

Woodward’s
on-air comment:

“This is a confidential document, last offer the president — the
White House made last year to Speaker Boehner to try to reach this $4 trillion
grand bargain.  And it’s long and it’s tedious and it’s got budget jargon
in it.  But what it shows is a willingness to cut all kinds of
things, like TRICARE, which is the sacred health insurance program for the
military, for military retirees; to cut Social Security; to cut Medicare. And there are some lines in
there about, “We want to get tax rates down, not only for individuals but for businesses.”  So Obama and the White House
were willing to go quite far.”

You can view
the entire WH memo here. Despite what Mr. Woodward says, it really isn’t long
(3pages) or tedious. Remember, this
was Obama’s best and final offer to Boehner. It is called the “Nabors
draft”. Rob Nabors is Mr.
Obama’s Director of Legislative Affairs. The penciled markup may be by Woodward
or his staff.

Ignore Woodward’s fax number on the top of the
memo. He probably doesn’t know about PDFs and email.

Below, the
specific cuts Obama offered to Boehner include:

Note in the
first paragraph: “Firewall for FY 2012 and 2013 defense appropriations”. That
means no cuts in defense spending until FY 2014.

“Civilian
Retirement” probably means extending the eligibility age for Social Security age
and increasing/removing the income caps for SS taxes. It saves $33 Billion.  $27 Billion of cuts come from “Military
Retirement” and TRICARE military benefits; and significant cuts to many other
non-defense related agencies.

Notably, the
extension of Unemployment Insurance benefits (UI above) adds $43 Billion in
costs to the Grand Bargain proposal.

Let’s look
at page 2:

The headline on page 2 of this memo should
be the $425 Billion cut to Medicare and Medicaid and a reaffirmation of the tax
rates for those earning below $250k.  

Go read all 3 pages. It looks more like what Boehner’s plan would have been if the
Republicans had WON the Senate. What was Mr. Obama thinking in July, 2011?

That isn’t knowable. What is knowable is that
if last year’s ”best and final” is Mr. Obama’s starting point for this month’s
negotiation on the “Grand Bargain”, it would be a travesty, considering Mr. Obama’s current political capital.

The
“Fiscal Cliff” is not a dire
emergency. The Sequester and lapse of Bush tax cuts may be a more productive way of starting
the deficit conversation than spending the next 6 weeks with both
parties working together in a sham spirit of compromise.

It isn’t
compromise to cut benefits of the powerless, it is cowardly. We need to ask Mr. Obama:

• How
  much money would workers lose (or not save) if these Medicare/Medicaid cuts and
  the rise in Social Security age go into effect?

• What
  percentage of their median savings would this impact?

• How
  would it compare to the percentage of loss of those whose Bush tax cuts could
  sunset?

• How
  much would it reduce the deficit and are some economists correct that it could cause
  a serious recession?

Mr. Obama
will succeed in “reforming” Social Security and Medicare because it is
something only a Democrat can do, but this shouldn’t be his starting point
for the Grand Bargain.

Let’s see
if Mr. Obama changes course from this ill-advised memo.

What’s Right Today:

What’s Wrong Today?

First, median
household income has not been this low since 1999. The Wall Street
Journal reported on the Census Bureau data release which
showed a continued steep decline in Real Median Income, falling by 1.5% in the
past year,
and it has declined by a total of
8.1% since 2007.

Second, also according to Census Bureau reports, poverty
has risen to near-record highs, with 46 million people falling below the
official poverty line, and the poverty rate reached 15 %.

Third, the FDIC reported that 29% of households do not have a savings account. The
FDIC sponsored a survey of unbanked
households, that is, those among us who have no checking or savings accounts.

Nobody can get ahead unless they can build some savings to send a kid to school, to purchase a
computer, to tide them over between jobs.

Some of the key findings from the
FDIC 2011 Survey include:

• 8.2 % of US households have no bank account. This represents 1 in 12 households, or
  nearly 10 million households in total. 
• 29.3 % of households do not have a savings
  account, while
  about 10% do not have a checking account.
• Only 66% of
  households have both checking and savings accounts. 

So, What’s Wrong?

Good stock market, good GDP, good
corporate profits, but median income is down, poverty is up and 29% of us do
not have a savings account.

Welcome to the new normal.

Many of us no longer live in the
America we grew up in. The new normal
is a growing economy and growing ranks of the unemployed, the lower class and
the chronically underemployed.

We are witnessing the end of the post-industrial-revolution
economy and the birth of a new American economy right on top of it. High tech service jobs have replaced
manufacturing jobs as the standard for attaining a middle class
lifestyle.  This jobs environment is
changing faster than our leaders seem to understand. They can’t react to it,
since it requires a long-term world view and long range planning, neither of
which are strengths in Washington. The main stream media also fails to mention that
“normal” is shifting much more rapidly than our slow recovery seems to
indicate.

If they did notice, it would force
longer-term thinking and possibly, an acceptance that the job booms we remember
from the mid-20th century and Y2K may be gone forever.

Nobel Prize winning economist Joseph Stieglitz says:

“The growing lower class lives in a world marked by mediocre
education, job insecurity and rationed health care.”

Meanwhile, the 2012 election
campaign rolls on, as though Washington is the axis around which job creation
revolves. Politicians might be an axis of change, but sadly, they are not, and
will not be effective in growing new jobs, until
they embrace a national industrial policy on jobs and job formation.

Mitt Romney campaigns on a promise
of “more jobs, less debt, and smaller
government,” implying that Obama’s government
policies and the 2009 stimulus destroyed jobs or prevented hiring. Democrats in
turn take credit for a slowly reviving economy with a declining unemployment
rate, conveniently soft-pedaling just how many people are out of work and how low
wages are for many of the new jobs.

The voters think the election will
turn on which candidate will create more jobs.

The problem is: Each suggest that more of their party’s programs will soon bring
prosperity to those without it today. They are wrong.

What has to happen?

Fix our broken economic framework. 

The world in which people sell largely
unskilled, uncredentialed physical labor is slipping away, replaced by robotics
and different services, ranging from information to nursing to logistics to
entertainment.

We are well along in a transformation of the American job market as
dramatic as the changes that occurred when farming became more mechanized and
displaced millions prior to the Great Depression.

Aside from brief protests from
movements like Occupy, we are not had an honest discussion about class, about
economic divides, or about what to do when we confront forces beyond the easy
control of our government.

We will lose a generation unless we act soon (and decisively) to embrace different
strategies for employment. Winning the fight also requires a new social
contract that few in Washington (or outside) have shown the courage to discuss.

What does this new economy look like?

• It is a vast
  (and growing) class of knowledge and service workers, at new jobs like human/tablet interface designers,
  jobs that require slick programming skills and a deep appreciation about how we
  want to use information in business and entertainment. These people are
  unlikely to hold any one job for more than a few years. Therefore, pensions and health care must be portable.
• The new
  economy is one where of tens of millions of men and women with college
  educations will continue to staff the still-growing health care industry. These people need continuing education
  and cheap/free college loans.
• This economy
  will provide limited job opportunities for tens of millions of young and
  middle-aged people with skills in construction and labor. These people need a national commitment to retraining for different
  jobs.
• The new economy
  has whole new businesses: Integrated Logistics for example, which provide jobs
  managing vast amounts of infrastructure and information, and the global retailers
  that use these services will reward those workers and businesses. This industry needs a million+ very
  skilled workers to support global expansion. And many of them will make big
  bucks.

How government crafts policies that address all of these conflicting
needs will be critical.

James Steele & Donald Bartlett’s
book, Betrayal
of the American Dream, (Public Affairs, New York, July 2012) gives us a
list of things we should change immediately:

• Revise the tax code: We lowered the effective tax rate on the
  wealthiest Americans from about 51% in
  1955 to 16.6% by 2007. The primary justification for the cuts was to
  stimulate the economy and create jobs. That hasn’t happened. Instead we created
  the widest wealth gap in the US since the late 1920’s. We need to make the
  wealthiest pay more, and invest those proceeds in education, training and
  infrastructure that can help create 21st century jobs.

• Keep free trade, but make it fair trade: We have followed the expansion of the free
  trade ideology too far. Our trade policy must limit imports from countries that
  won’t play fairly. A healthy economy balances its imports and exports, like our
  biggest trading partners do (Canada, China, Japan and Germany). Let’s start by
  limiting subsidized imports and deal primarily with countries that agree to
  remove barriers to importation of our goods.

• Invest in America: This used to be the job of our corporate
  leaders, their bankers and the stock markets. That is no longer the case. The
  American Society of Civil Engineers issues a periodic report on the
  quality of America’s infrastructure (bridges, highways, airports, electric
  grid, rails, tunnels, dams, you name it). The latest ASCE report grades our national
  infrastructure as a “D” and estimates that we have $2.6 TRILLION of
  deferred maintenance. All of our
  country’s competitors are building new infrastructure that we already have
  difficulty competing with. We need to be matching them to promote our
  commercial competitiveness and create jobs.

• Rethink Training:  The
  nation’s federal training programs for those who have lost their jobs to
  outsourcing/off-shoring need a major upgrade. Rather than simply counsel the
  out-of-work, we need to set up well-funded apprenticeships/internships with
  large corporations as sponsors. Let the big firms take on 2 million interns in order to justify the low/no tax
  payments they enjoy under our rigged tax structure. 

This means politicians must face up to a long tough fight and get
busy grappling with the world as it is, rather than the world they remember.

For our part, we will need patience
and the brains to avoid demagogues promising a quick fix. There will be no quick fix
for us.

What is coming is a world in which many
workers will be in effect, contractors or temps, self-employment will be the
norm. So we also need to decide what our
social contract will look like when that is the real world for most people.

Have you ever vacationed in a banana
republic? Where every morning, the locals pick up their trinkets and head for
wherever the tourists gather to sell their wares? It is a hardscrabble life
with limited upside.

That kind of life can’t become America’s New Normal.