Socialism Revisited

I know I posted about this a few days ago, but I’ve heard so many people wrongly describe Obama as a socialist with no actual knowledge about what socialism is that I felt it important to revisit the issue.

Let’s be clear: The tax policy that Obama proposes is NOT socialism. Socialism is defined as government ownership of the means of production. Obama does not propose this in any way, shape, or form.

But let’s talk about redistributing wealth. Our country has had a progressive tax policy – where the more you make, the more you pay – ever since the New Deal. Reagan was a big proponent of this and furtherd the progressivity of our tax policy. The only truly democratic, non-redistributionist tax policy would be a flat tax policy. And in order to implement such a policy without reducing tax revenues, we would have to double the taxes of most Americans to 30%.

Obama is simply talking about letting the Bush tax cuts expire, which would mean that the highest tax bracket would raise from 36% to 39%. That’s a 3% increase in one tax bracket. And the McCain campaign calls this socialism. It is not. It is merely bringing tax levels back to where they were in the 1990s, the decade in which we saw the largest economic expansion in American history and the bolstering of the middle class. Was our country socialist in the 1990s? No. Obama is not proposing tax levels that have never before been seen.

Finally, Republicans like to wax poetic about how the only way to improve the economy is to lower taxes. Let’s look at the record. We have had the lowest tax levels ever in our country during the last 8 years, and our economy is in the toilet. During the 8 years prior to the Bush tax cuts, taxes were at a slightly higher level, and we saw the largest economic expansion of our time. Raising taxes on the wealthiest 2% of earners does not limit or hinder economic growth. Giving larger tax cuts to the middle class, who spends more than the wealthiest 2%, while making up for that lost income by taking 3% more from the wealthiest Americans spurs growth. Cutting taxes for the wealthiest Americans does not spur the growth of the middle class, which is the backbone of our country.


Wikipedia defines socialism as “a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods.” Given this, will someone please explain to me how Obama’s tax policy makes him a socialist?

Obama is proposing to return the highest tax bracket from 36% to 39%…a mere 3 percentage points. This is a return to tax levels before the Bush tax cuts. We are not talking about tax levels that have never before been seen. Further, our country has always had a progressive tax policy, meaning that the people who make the most money pay the most taxes. This idea is not Obama’s. Reagan was actually a big proponent of it. And it doesn’t amount to socialism.

Now, McCain has proposed to have the government buy up bad mortgages. Doesn’t that sound more like socialism than Obama’s tax policy?

It’s the Ownership Society, stupid!

It took me 9 years to save up a deposit for the house I now own. So, I don’t think I will qualify for John McCain’s mortgage buyout. Pity, really, as I would rather like McCain to pay off my mortgage and refinance it for me at today’s rates. I reckon it would save me money. But, I don’t think it would be right.

Firstly, there’s the big question of mark-to-market versus full-amount pricing. McCain seems to want to abandon the wisdom of the market setting value and have the government buy the mortgages for the full amount owed to the lender. That would mean that the original lender gets all the money, while the government just gets the house, regardless of what it is worth today. The difference will be the cost to you and I, the taxpayer.

The alternative would be for the government to pay market price. You know, go out on the market and bid the highest price for the stressed asset. If no-one is willing to pay any higher than the top bid, then that’s the price the government pays. To pay anymore seems foolish.

Ah, but there’s already such a mortgage-assistance plan in place, voted in by Congress last summer. Apparently, the program is off to a slow start, partly because lenders have been reluctant to accept the large losses they now face on troubled loans, according to analysts. Um, OK, they probably shouldn’t have made the loan in the first place, but I can understand why they want the government to accept the losses. I just don’t understand why the government should.

But, back to my home. I was very proud to buy my first home. I danced up and down on the front porch. I planted three trees in celebration, and I have spilled many a glass of wine on the hardwood floors! I had joined the President Bush’s Ownership Society and I didn’t need no stinking government program to help me get there. I took a fixed-rate mortgage and I have re-adjusted my spending so that I make my mortgage payments on-time, every time. And, did I mention that I am proud to own my own home?

Do I think every American should have the opportunity to buy their own home? Yes. Do I think every American should buy their own home? No.

Buying a home is the biggest financial transaction most of us will make in our lives. It shouldn’t be done on a whim. So, get some advice, huh? Calculate the break-even point on your investment, compared to other options for housing (does it still take 5 years in a house for it to save you money over renting the exact same house, given all the extra expenses that go along with owning the home – like mortgage insurance, property tax, maintenance costs, etc?) And, please, don’t buy more house than you can afford!

Buying a home signals a commitment to the community, an investing in the streets and struggles of the people who share with you the place in which you live. When the apple tree drop a branch over the fence next door, its your responsibility to go tidy up the damage. When the roof blows off in a storm, you have to dig deep to pay for the contractor to fix it for you. And when you head off on the great overseas experience, you have to find someone to look after your puppy dog, your garden, and all your world belongings. It’s a huge ball-and-chain that limits your footloose and fancy free behavior, but in return you are given the support and stability of your neighbors. We all win, so I guess it is a good thing.

I wonder if I’ve done something wrong. I saved. I rented for way too long. I bought a small house. And I like my neighbors. I feel accountable to them, just as they care about me.

So, why doesn’t McCain want to help me, as I struggle with my mortgage debt? Should I now stop paying my mortgage, letting it go into default, thereby qualifying for help? Because my car sure could use a little work on it, and my mortgage payments would go a long way to paying for those repairs!

I mean, if McCain wants the government to buy up homes, shouldn’t he shop for the nicest houses, at the best prices? What exactly does he want the government to own?

Who you gonna call?

I was disappointed, though not surprised, that neither Obama or McCain would answer Jim Lehrer’s question on how they would pay for the $700 billion financial rescue package. It’s a hard question to ask during a political campaign, which is all the more reason why we wanted to hear an answer.

In response, though, we gained a considerable insight into the candidate’s character. Obama waffled, and repeated his priorities. McCain let out a howler, or two.

McCain suggested a spending freeze. Only he exempted defense expenditures, homeland security, and veterans affairs. Sounds good, until you think a bit beyond the simplistic portrayal of Tax & Spend Liberals. I’m guessing that McCain isn’t proposing freezing social security payments (which are increasing, not just with the cost of living but also with more retirees), and he sure doesn’t want to penalize Medicare and Medicaid patients. No-one wants the AARP upset! And, I’m pretty sure that McCain doesn’t want us to stop making our payments on the national debt. That one’s going to go up. I wonder if he wants to cut into FEMA’s budget to assist with hurricane damage or the Forest Service’s budget to fight fires? No, probably not.

Problem is, once you’ve taken all those things off the table there isn’t much left.

Then, he suggests that we should build 45 new nuclear power plants. Putting aside the costs of transporting and storing all the nuclear waste (45 new nuclear waste plants? One coming soon to a backyard near you!), how is he going to pay for them? A single new nuclear plant costs a bit more than $2.2 billion. Forty five times that equals over $116 billion. Others estimate a new plant costs around $13 billion a plant, which would be $585 billion. Ouch!

Now, skip the fact that the Federal Government has already given more than $100 billion in research and development to the nuclear industry over the past half century. It appears that private investors aren’t terribly excited in getting involved in building new nuclear plants. (That’s compared to the renewable industry — including wind and solar — that last year attracted $71 billion in private investment.) So, either we’re going to end up paying for it, or we’ll be providing loan guarantees covering 50 percent of the cost of building them. Senators Lieberman and McCain’s Climate Stewardship and Innovation Act of 2007 (S.280) suggested just that.

How exactly is McCain going to pay for all this, and his tax cuts? (Remind me how much those tax cuts will cost. $100 billion over five years? $200 billion? $300 billion?) Maybe it’s time to call MythBusters!

Deliberation or debate?

It’s your money, rescuing others. So. Do you understand what your money is being used for? I’m not sure I do. I’m not sure I know who does.

Maybe the Masters of the Universe? You know, the oh-so-smarter-than-you investment bankers. They’re certainly paid more for their wisdom than you or I. A first year, just out of college, investment banker gets around $125,000 – $150,000. And, we all know how much top-of-the-line investment bankers make – just look at Henry Paulson. In 2005, as CEO and Chairman of Goldman-Sachs, it is reported he made $30 million.

Maybe Paulson knows a thing or two: “There’s no way to stabilize the markets other than through government intervention.” Did he really say that?

Ah, but Paulson started out not wanting any strings attached. No equity stakes. No dividends. No limits on CEO compensation. Otherwise, the banks won’t play. Which begs the question: if they really need the bailout/loan/subsidy, then why wouldn’t they agree to those terms? Could they really turn down the government’s offer and watch the financial system go down the gurgler? Put aside the moral outrage that would be targeted at them (let alone the odd stone projectile or two), but wouldn’t that substantially eat further into their reserves and profitability. Doesn’t sound like a wise decision, either on behalf of their stockholders or their own future.

I continue to ponder the details. Like, where does the money come from? Is the Treasury going to print more money? That leads to inflation, which makes everything more expensive for everyone. A sure recipe to a major recession. Or, is the Treasury going to borrow more and raise our already dangerously high debt level? That will drive down the dollar, making imports more expensive and weakening the status and stature of American business overseas. (Not forgetting that it would probably be foreign sovereign wealth that would finance the debt!)

And, I ponder where the money will actually go. I suspect it will be the big banks (getting bigger by the day) that gets the lion’s share. They’re the ones who made all the dodgy investments (or have bought out the guys who did). They’re the ones who were able to package them into indescribably complex securities. And, they’re the ones that probably need it least – they’re big enough to cope with the losses and ride out the slump. Small banks, on the other hand, are more at risk. But, small banks (with some notable exceptions) never had the wherewithal to make those dodgy loans. So, are we rewarding the wrong guys? Who need it least?

Maybe that small-guy investor, Warren Buffett, has it right. When a bank needs liquidity, you either loan it to them at good terms or you get preferred stock. With a 10% annual dividend, even if the price of the shares fall in market value. Using that as a model, the country’s $700 billion should earn us a cool $7 billion. Guaranteed.

Does McCain understand that? Obama? I’ll be watching the debate, hoping to find out.

Obama is the true leader this week

McCain showed himself this week to once again not have the judgment to be our president. He announced Wednesday that he was suspending his campaign and going to Washington to help bring a bipartisan solution to the Congressional negotiations. (Of course, his campaign really wasn’t suspended as everyone else on his campaign was still campaigning and as his negative ads continued.) While his announcement may have sounded like a good idea to some, when you take a step back, you see that, even if we give him the benefit of the doubt and say it was well-intentioned (which is giving him a HUGE benefit that I don’t think he deserves), it was ill thought out and showed a lack of understanding of politics (which is ironic since he’s been a politician for over a quarter century). And it is this that further confirms to me that he is not fit to be president.

McCain is the Republican presidential nominee. Everything he says and does is now identified as “Republican” because he is the new leader of the Republican party and is running his campaign on a Republican platform. Nothing of consequence that he does during his campaign will be seen as bipartisan (appearing at Ground Zero with Obama doesn’t count). I fully admit that the same goes for Obama at this point in time. No matter how much either candidate wants to get past partisan politics, during their presidential campaigns is not the time to do it. Every Democrat wants their guy in the White House come January. And every Republican wants his guy in the White House. I’m not saying this is right, I’m just saying that’s the way it is. And so no Democrat is going to be amenable to McCain riding in on a high horse to bring “bipartisanship” to Washington. They’re going to scoff and rear back. The Republicans would do the same thing if Obama was the one riding in to save the day.

The difference between Obama and McCain is that Obama understands this. He recognizes that right now, by his very title as “Democratic presidential nominee,” he is very much hindered in his ability to foster bipartisanship. After the election, when Republicans have come to grips with the fact that they’ll be dealing with Obama for the next four years at least, they’ll both (Obama and Republicans) be in a better position to work together. The same can be said for McCain and Democrats. And so Obama, recognizing his handicap and seeing that a bipartisan agreement was coming along quite nicely in his absence, wisely chose to stay away from Washington. This does not mean he was disengaged. He’s been in frequent, regular contact with Congressional leaders, Secretary Paulson, and Fed Chairman Bernanke. But he recognized that going back to Washington, given his current status as Democratic presidential nominee, would infuse partisan, presidential politics into a delicate situation. He put the good of the country over the good of his campaign by recognizing this and acting accordingly.

McCain, on the other hand, decided that he had to go to Washington to push for a bipartisan agreement that was developing well without him. Of course, the irony is that, as all the newspapers report, the bipartisan agreement crumbled just as he arrived at the White House. This proves that his presence infused presidential politics into a delicate situation that he should’ve stayed out of. We are now further away from a deal than we were before McCain’s trip to Washington. If he did his by accident, then his utter lack of self-awareness and his reckless, misguided attitude that he could forge a bipartisan agreement shows that he does not understand the political process and is ill-equipped to be president. And if he knew exactly what he was doing, then it shows that he has put his campaign above his country by choosing to imbue partisan, presidential politics into a sensitive situation that was making good progress without him. Either way, it doesn’t paint him in a good light.

And what’s even worse is that we read just about everywhere that McCain has refused to take a stand on the agreement, said almost nothing in the White House meeting, and has not at all been involved in the real negotiations. How is this leadership? If he had gone to Washington with some sort of idea or vision or solution to get this passed, then maybe I could give him some credit. But he has nothing of the sort, which leads me to conclude that he (unwisely) thought that his mere presence would foster an agreement. How arrogant, pig-headed, and narrow-minded is that?!

The true leader this week has been Obama, who recognizes that good things can happen even in his absence and who is willing to let people do their jobs and to let the political process work. Let’s be clear, what isn’t working right now is the financial market. That is what needs to be fundamentally changed. But the political process of the executive branch submitting a bill to Congress who then negotiates and debates it and eventually passes a better form of the bill is fully functioning right now…or at least it was until McCain stuck his finger in it.