Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Saturday, February 05, 2005

George Bush and the Ownership Society

OK, so what's this about an ownership society? Is it a new idea? What kinds of effects might it have?

When George W. Bush talks about the "Ownership Society." He's make a rhetorical allusion to Johnson's "Great Society." He's trying to frame (gag, I hate that term) the issue as a juxtaposition between a "paternalistic" welfare state to a kind of inclusive capitalist utopia where everyone controls their own destiny. Removing social security is the biggest part of it. So really, this isn't so much an attack on the "Great Society" (which has mostly already fallen victim to the Republicans) as it is an attack on the "New Deal" (which is the foundation of post-WWII American political economy).

The stated idea is that people will be better off if instead of having a guaranteed social security check when they retire, they have their own retirement account which will be giving a bigger return because it is based on stock market returns rather than inflation indexing and payroll taxes. Republicans like to point to the higher rates of return in the stock market etc.

But is that the real goal? Is it new? The answer to both is no. In the early 1980's Margaret Thatcher pushed for transferring large numbers of public housing for the poor to private ownership. Imagine you live in government housing and the government comes along and says "Hey, we're going condo!" For those residents who were able to make the transition they ended up owning their apartments instead of renting them. For those who weren't able to make the transition... Anyway, there was an interesting side effect: many of the new condo owners shifted their party allegiance from Labour to the Conservatives. Bush could be hoping for a similar effect with regard to social security. Studies show that stock owners tend to vote Republican.

So what kind of effect will it have? I haven't read the details of the privatization plan and the rumors I've heard about it are really scary. So I'll just stick to broad strokes issues here. The reason the stock market has a higher rate of return is because the risk of losing your money is greater. Something most people don't seem to understand is that the rate of return for an investment is directly linked to the level of risk involved in the investment. This is a really basic principle of economics - the much beloved "market forces" of the Republican orthodoxy. When you have a lot of wealth distributed in a diversified portfolio, risk is diffused. But when you have limited resources, the diversification strategy is less effective. What's more, if you have a $200,000 of total assets and you lose $20,000 in the markets it will sting but you won't be out on the street. But if you have $20,000 of total assets and you lose $2,000 in the markets, it could be the difference between paying rent and being evicted. Now, consider that a large share of the American population lives pay check to pay check - that is that they have net worth of zero or less. How much risk can they afford?

The "Ownership Society" is an attempt to replace FDR's New Deal with the "Raw Deal" that came before. Bush's "Ownership Society" would be a fun ride so long as the stock market was hopping but when the first "market correction" hits millions of Americans would be suddenly impoverished as their savings were wiped out? Sound familiar? It should, that's what happened in 1929.

Comments? Discussion? Horrified Screams?

9 comments:

US West said...

I think we have to starting changing how we view all taxes, payroll or otherwise. Let me explain.

The very fact that someone can even consider the phrase "ownership" society is telling. We have gone from considering the individual as part of a community to considering the individual in isolation. Look, my payroll taxes are part of the social burden that I accept as part of the social contract. That money helps care for my mom, my older friends, my grandparents, my handicapped neighbor. Why can't people see taxes as a contribution or donation to the greater good rather than theft? We can go to work and earn money because we have PUBLIC transportation routes to and from our jobs. We have traffic lights that work and clean water to drink. If I view my labor as a product that I sell, then my taxes are really my business investment; they cover the overhead costs of doing business.

Have we gotten so selfish as individuals that we fail to see our place in the community? Everyone is too concerned about "getting mine." They live in gated fortresses with private police and high condo fees. We think nothing of paying $80 a month for cable, but we balk at paying the taxes that fund our police and fire departments, assist our elders, clean our commons, etc. Poor people in Salinas are trying to find 500K so that they can keep their libraries open 1 day a week. That is sad.

When you don't supply government with needed funds, they find other devious ways to take it out of you. They make you buy permits for planting a tree in your privately owned front yard, or they pass sales taxes, or charge parking fees. Then people view the government as abusive. So they want to starve it. But then they are surprised when libraries close. Well gee, sounds like a vicious circle.

To me "ownership society" means selfish society, scared society, and sharecropping society because that is what it would really be. Let's talk values. Let's talk about the fact that we are all in this together. Maybe we have to start a public awareness campaign about the roll our tax dollars (payroll and otherwise) play. Maybe we can do a School House Rock version of "Where did my tax dollar go?" Let's get the IRS to sponsor public service announcements that explain to people that they have to pay more taxes because big business hides all its money off shore. Let's get a cable channel that does nothing but air these kinds of announcements like infomercials.

Dr. Strangelove said...

RxR and USWest are right: Bush just wants to go back to the "Selfish Society" of Herbert Hoover and Standard Oil, and all this talk of being "responsible" is just bullshit. Everybody pushing for an "ownership society" already owns the country, and everybody trying to "overhaul" Social Security doesn't need it. As the old negro spiritual goes, "Everybody talkin' 'bout heaven ain't goin' there."

However, USWest asks a question which, although it was rhetorical, nevertheless merits consideration: "Why can't people see taxes as a contribution or donation to the greater good rather than theft?" Sadly, I think the answer is that most people really don't know where their money goes--the federal budget is just an big black hole to them. Instead, what most people see is a bunch corrupt politicians funneling taxpayers' money to special interests and pork-barrel projects--and the rest of the federal government just seems like just one big, inefficient, unfriendly bureaucracy.

If the Democrats want to stop this raid on the Social Security trust fund, they would do to remember (as I've said elsewhere) how Bob Dole thwarted Health Care reform--repeat after me, "We have the best Social Security system in the world. We have the best Social Security system in the world..." Democrats ought to say at every opportunity how incredibly successful the program is and to point out that the program is more fiscally solvent now than it was 20 years ago.

Democrats need to argue, "There's a lot of pork and waste in Federal government, but there's no fat in Social Security--that's the meat and potatoes of our nation's seniors." Then they can go on all the talk shows with big lists of all the Republican pork-barrel projects and show America where the problem is. And then in 2006, all Democratic candidates for the House could take a "no pork pledge" as their own Contract with America. Maybe this could be rolled into a "Honest Budget" promise: campaign finance reform, line-item veto (perhaps?), a balanced budget amendment (perhaps?), a promise to use real figures for budgeting (not the phoney promises Bush keeps shoveling out), and a "no pork" pledge.

Raised By Republicans said...

I think the reason people don't think about government the way US West and Dr. Strangelove suggest is that they resent any support that goes to anyone with whom they don't identify. What's more, they either take for granted or regard as their birth right any government/community support they get.

Social security is not means tested to avoid that little trap. Everyone gets it so removing it takes money out of everyone's pockets. That's why the Republicans are so keen on emphasizing the supposed increased returns of a privatized plan. Because social security is so different from almost every other social program, the Republicans have to tell unusually big and transparent lies to get people agree to give it up: the system is on the verge of collapse, you'll get more money with our plan etc.

I wouldn't hold my breath on the Democrats signing a "no pork" pledge. There is a fair amount of data out there showing that countries that have legislatures based on district representation (as opposed to national or regional proportional representation lists) have a strong tendancy to engage in a lot of pork barrel politics. Countries that have a lot of intra-party competition for nominations to run for seats (as opposed to candidate selection by the central party leadership) also have such a tendancy. The US system has both characteristics. In other words there is a lot of evidence that pork barrel politics is largely a result of institutional incentives that apply to both the Republicans and the Democrats.

Also, Dean is likely to be the new DNC Chair and he has repeatedly called for giving more power to activists. That is hardly a signal that the Democratic party leadership will be less responsive to constituent interest groups' demands for pork from Democratic constituents.

US West said...

I think it would be nice to trim the fat, but that is often how locals see their tax dollars coming home. Congressmen like to make the statement that they "bring home the bacon". So there is little guilt over pork policies. Pork, while it lines the pockets of political friends, also can create jobs and other benefits at home. To take the analogy a little further, as doctors tell us, we all need a little fat in our diets.

I do think we have to change how we see taxes. And I am choosing to remain positive about some taxes, partially because I am expecting a sizable return. That may change if I end up being wrong! They are a necessary evil. But I think we need to examine “fair tax policy” just like we talk about “fair trade”. RBR points that people don’t support those with whom they don’t identify. I think that it is more than that. People also feel like they pay more than their fair share.
And I think many of them are correct about that. Look at the return California gets for every dollar it sends to the Beltway. Then Bush proposes a ludicrous budget where he calls for the elimination of programs that people actually benefit from, like community development programs. And he calls for the elimination of the state-tax write off. And that is where resentment comes in. People start to think that only business, farmers, and military get any money out of the pot.

Our tax system, in its current state, is inherently unfair and unnecessarily complex. It isn’t really progressive. After paying nearly a quarter of my income in federal and state taxes this year (that isn’t counting payroll taxes, and I am not making big bucks), I will be very angry if I don't get some of it back. A quarter of my income means a lot more to me than to the guy who makes 20K more than I do, and who has a house to write off. (note we are in the same bracket along with the guys who make 30K more. ) I am single with only a student loan to write off and that hardly counts for much. Basically, every dollar I earn is taxable in some way. I am not alone. All of you are in a similar position no doubt. So do I think there needs to be tax reform? Yes. Where’s my renters’ credit at least!

As Dr. Strangelove said, those who talk of reforming SSI are the ones who don't need it. And any tax reform will benefit the very people that don’t need it. I'll go further and say the more people make, the less the pay out proportionally in taxes. I don’t feel sorry for the millionaire in a 45% tax bracket because in reality, he will only pay about 25% at the most and most of his income is exempt from payroll taxes. He’ll have a bunch of specialists giving advice on how and where to hide money. The idea is to get wealthy enough to evade some of your taxes. Gee, maybe I should incorporate in Caymans.

Frontline last week ran a special on big business and Enron. They said that in the 1970s, 15-17% of taxes were paid by big business. Today, less than 5% are. They create Enron-style shell companies in the Caymans to evade their taxes. Then, as the Economist tells us, they adopt “corporate citizen” policies that are often no more than token programs for PR purposes. Now consider that Bush's tax "cuts lowered the lowest income tax bracket to anything over 6K from 10K. Who is really paying?

On another topic all together, can we talk about the excess and silliness of most of the hype about events like the superbowl? I watched that yesterday wondering the whole time about its social benefit and what it says about us as a nation that we actually enjoy watching men run into each other while chasing down a ball while the generals watch from the sidelines.

Raised By Republicans said...

"People also feel like they pay more than their fair share."

I totally agree. It goes hand in glove with the thinking that people insist they deserve what ever they get and that no one else does.

But I don't think most people think the problem is big business and the pentagon. We may all think that but certainly recent Republican success would suggest that a plurality of voters disagree.

I think the safest way to put it is that people think that "special interests" get everything. That was the theme of Schwarzenegger's campaign - that California needed a "strong leader to fight the special interests." Of course a "special interest" is any body but me. So to most white Californians, poverty relief and education funding are "special interests" but building prisons is "being tough on crime" - especially in the smaller towns and cities outside of the LA or San Francisco areas where prisons provide lots of jobs to replace dying local industries.

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