Tuesday, April 10, 2012

A more far-reaching answer than Barnanke's

The Federal Reserve of the US has several responsibilities to the US government and to the US businesses and people: to manage inflation, to regulate the money supply and to watch over the banking system, being the lender of last resort for banks. They have had difficulty recently in offering policy remedies to the US economic situation, since they have already put short-term lending rates at their lowest, they have already bought up US treasury bonds, they have already leveraged to support banks which were crippled from the bursting of the housing bubble.  

On April 9, the Chairman of the Federal Reserve was speaking on the next steps he expects the Federal Reserve to take to promote stability in the money system. His remarks included the topics of new liquidity requirements, shorter maturity limits, enhanced disclosure mandates, strengthening the tri-party repurchase agreement market, and . . .

Bernanke said that the wave of new rules created since the crisis are likely to push business into areas that will be tougher to regulate. “An inevitable side effect of new regulations is that the system will adapt in ways that push risk-taking from more-regulated to less-regulated areas, increasing the need for careful monitoring and supervision of the system as a whole,” he said. 

This appears complicated. And the effort appears to be only nibbling around at the margins of a problem that will mutate and demand constant monitoring as the markets evolve. This monitoring will not simply be watching the firms and actors, but rather will involve some level of intrusive monitoring to see how the firms and actors might subvert the intentions of the laws and regulations, keep their actions out of the sight of the regulators, and try to come up with even more creative ways to make even greater amounts of money. My speculation is that the actors to be monitored will be the ones who are striving personally to be among the richest classes, not those who are simply looking to find better deals for their investor clients.

"Bernanke said that infrequent use of emergency programs as well as new abilities to supervise different types of firms should help reduce moral hazard, or excessive risk-taking by firms that expect a government bailout. "Anytime you have a safety net" regulators need a mechanism "to minimize moral hazard," he said. (source finance.yahoo.com/news/bernanke-calls-regulators-curb-shadow-040100925.html Bernanke Calls on Regulators to Curb Shadow Banking Risks by Joshua Zumbrun and Steve Matthews | Bloomberg)

Bernanke then has named the root problem: a need to "help reduce moral hazard, or excessive risk-taking by firms" and I will add the risk-taking by the managers, executives, board members and owners of those firms. Those actors are taking risk in hopes of achieving greater earnings. The market forces do not curtail their risk-taking. The risks themselves do not diminish their excesses. As the business cycles and histories of recessions have shown, their actions put more as risk than their own fortunes and businesses. Their actions have (and presumptively will again) put the entire economic system in jeopardy. What can we do to prevent the excessive risk-taking, to prevent the moral hazard?

My answer is a more far-reaching policy: an annual individual income cap. Let's have the conversation!!

If every individual, world-wide, is restricted to earn no more than 10 million Euros per year (or the equivalent) then the actions of those who would have otherwise taken excessive risks will be altered. Earnings can be capped by a 100 percent tax on all earnings after the first 10 million. Each country can enforce this taxing authority within their own sovereignty, and hold other countries accountable by their international trade agreements. This is a tax that would never be collected. The intention is not to draw in revenue for any government. Rather, the intention is to diminish the risk-taking behaviors of those who wish to out-do each other in the business world or in the arenas of upper-class-society.

Research is needed to better understand how a gradual enactment and enforcement of this cap will alter the world of finance, and consumption, and trade innovation. We would need to worry about possibly some slowing of technological innovations. We could also start to piece together how corporate, partner and contract law will alter in the face of this restriction on individual earnings. Corporations and businesses would not be restricted by this tax. So how would business owners and managers rewrite their corporate bylaws in the face of not being able to earn unlimited amounts each year?? My speculation on the results to such areas would be useless. I do sense though that businesses would alter and become nearly unrecognizable to us within 50 years of the income cap.

Through this blog, I hope to start a conversation and see if I can encourage more ideas and more explorations around this idea. What can you imagine? What research would you suggest?

With all my best,
Auntie Greed 

Monday, March 12, 2012

One Consideration on Economic Growth

Recalling my first lessons on Economics, one instructor misled me with one of his "first order" presumptions, saying that we can start out with the idea that all people are inherently lazy and build our understanding of how the world works from that base. He was wrong, yet this lesson stuck with me for years and I did not easily shake off this presumption. He was wrong, but I accepted it and even saw my laziness as more acceptable since the generalization was not denied. He was wrong, as I later found out that the least important people in any study of Economics are the lazy people. He misled me and I wasted too much time in trying to pull myself away from that presumption.

The same might have happened for people who were introduced to psychology with simplified generalizations on the theories of S. Freud. If the generalization that all human activities are centered around sexual ambitions and predilections, that introduction can really taint and even injure the efforts of students in pursuing understanding of psychology and true human nature.

My dearest hope is that I do not mislead any reader, not mislead any student of Economics. My considerations here, at this root discussion for the 11 topics of my discussions, must be firmly rooted in solid thinking. I will take my time then to develop those thoughts and ask for the readers to criticize and challenge the course of my thinking.

To understand the systems and networks and ongoing functions of an Economy, studying the driven, hard-working, visionary people can truly indicate some valuable lessons. Seeing how they interact with each other, how they feed off of each others' successes and idea can truly enlighten our understanding of how the innovations occur, how the daily routines can turn to fortune for some, how ambition really is to be marveled after.

Now to the new presumption that we watch the most energetic Economic actors, add the observation that the population keeps growing. With the growth of the population, more food is needed and better distribution systems are needed. More educational services, health services, transportation, entertainment, housing, etc. are all needed in greater abundance to serve the growing populations, for one city or locality, or one province, or one nation, or for the whole world. We see that the Economy is pressured to grow in volume, in mere size.

Those most energetic actors, each taking a unique perspective may see opportunities to hone their skills, produce greater amounts, or more desirable qualities in their products, employ greater production methods, buy at a low price and add value to sell at a higher price, each envisioning ways to benefit from the pressure to grow the overall Economy. They are each acting on a profit motives, or seeing themselves creating value, or possibly improving the situation around them (of their community or their family or of some limited facets of living for themselves and others). There is pressure for a growth in the Economy simply by the increasing population. The growth will not occur unless individuals act to improve the situation, improve ones own self, or ones family's or ones community's situation. By this greater value can be created, and we can even see a profit motive developing in those forward-looking individuals.

Tuesday, March 6, 2012

Proposed: An International Income Cap for Individuals

Over the course of this blog, I will put forward arguments supporting the creation of an international individual income cap. To illustrate, international trade agreements could include tenets that require countries to tax all individual earnings after the first 10 million Euros (or equivalent) at a 100 percent rate. In that way, no individual would be able to earn more than 10 million Euros in one year.

All the implications of this income cap need to be dealt with in extensive examinations. I intend on doing that by discussing the following topics over the coming days. I expect that I'll have to work out many different issues under each of these topics, write multiple articles under each topic.
  1. Profit motives, value creation and self-improvement are paramount and foremost for THE GROWTH of our market-based economies.    
  2. Market-based economies work best when sellers and buyers both realize their own gains from the exchanges.    
  3. Monetary profit opportunities are permitted under social norms and values, and within the social systems created by the culture, history and the consensus of a society.    
  4. In market economies, great majorities of people become dependent upon earning monetary incomes from employment by business owners (subsistence farming vanishes in market economies).    
  5. Business owners do and must take economic advantage of employees in the creation of economic value if they are to continue their businesses. Business owners should not be allowed to recklessly profit based upon this advantage over employees.    
  6. The rights of individuals should not be violated by others . . . neither because a majority votes to do so, nor because some potential economic profit may be gained by doing so.    
  7. Business owners, corporations and the ultra-rich too often take unnecessary risks with employees’ lives and rights, the lives and rights of others, and societal and public resources. High monetary incentives, and the social status associated with wealth, seem to become focal objectives for business owners, corporations and the ultra-rich. The risks created and placed on others have been and continue to be ignored as a result of seeking these high monetary incentives.    
  8. We live in a Regulated-Market Economy, not in a Free-Market Economy.    
  9. Society can regulate greed and regulate the associated risk-taking in some ways, especially once society members agree that The Market does at times fail in regulating itself.    
  10. Human rights are unalienable rights. Our laws endow corporations, unions, political organizations, government bodies and other legal entities with some abilities. If human rights are extended to those legal inventions, then those rights are being alienated from the people. 
  11. An excessive income gap creates a second class of citizens.
To comment on these 11 ideas, please visit the https://docs.google.com/spreadsheet/viewform?formkey=dEV4SkVaV0JKT3JsMHRMZHJxNndEN3c6MQ survey.

I still do not clearly see how I will move from proving these 11 ideas to be true to the recommendation that an income cap be placed on individuals. My hope is that the effort of working out these ideas will lead me to such a leap. Hopefully too others will see the blossoming of this idea and contribute what criticisms and other links are necessary to better round out this hypothesis.

All my best,
Auntie Greed 

Sunday, February 26, 2012

Example of Lincoln again -- private thoughts contrasted with public actions

Doris Keairns Goodwin in her book Team of Rivals, depended heavily on the public actions of Abraham Lincoln in portraying a man who was strategic, political, and plodding in his efforts to steer the American ship of state and the American people towards Black emancipation and freedom from slavery. Another biographer relied a good deal more on the private reflections and letters of Lincoln.

Ronald C. White in his biography A Lincoln time and time again emphasizes how Lincoln spoke out against slavery. Yet again Lincoln did not want to dictate to anyone else that they solve their problem, their moral conflict, when he did not know himself what steps to take in ending slavery. He spoke out on the issue of slavery all during the 1850's and was elected to the Presidency in 1860. Yet between his November triumph at the polls and his March 1861 inauguration, he offered to support an amendment to the US Constitution allowing slavery to forever be acceptable in the states that were threatening secession if only slavery did not spread to the other federal territories (Kansas, Nebraska and beyond).

His actions were strategic in contrast to the deep and clear sentiments Lincoln held about slavery. Here is such a stirring quote from him in helping to make this point:

When the white man governs himself, that is self-government; but when he governs himself and also governs another man, that is more than self-government — that is despotism. If the negro is a man, why then my ancient faith teaches me that "all men are created equal," and that there can be no moral right in connection with one man's making a slave of another.

He made this argument while speaking out against the Kansas-Nebraska Act, a good two years before he started debating Stephen Douglas in the 1858 Senate campaign. Lincoln seemed to have well situated himself and his moral compass. Patiently he guided this country over the 1850's and during the term of his Presidency, logically and gracefully (maybe even with a Christian grace) leading his countrymen into seeing that slavery had to be removed like a cancer in a surgical and purposeful way.

In my previous post, I suggested a hope for people's attitudes and perceptions of greed and wealth to mature into some new revolutionary understanding. I am not sure what that result will be. Over the days of this blog, I hope to explore some ideas and even attempt a method for regulating greed in our world-wide societies. The result could be revolutionary, but not within my vision to be predicted.

I am writing under a pen name. Maybe this will protect my family in case some see my ideas as too revolutionary, too threatening to the status quo. My inner thoughts may not match my actions or my blog posts. I do insist though on opening up this conversation, raising the coming questions, and inspiring the discussions that result.

All my best,
Auntie Greed

Friday, February 24, 2012

Abraham Lincoln matured while in office like we may have to mature over issues of wealth

Providence seemed to be at play in the full life of Abraham Lincoln. He was a noble and well thought-out man for all his life. He should have reached success time and time again. Instead, he was dealt set back after set back and not permitted to be content until the Union finally triumphed over the Confederacy (April 7, 1865), just a week before John Wilkes Booth shot him.

As a young man, Lincoln fell in love with Ann Rutledge. Historians tell us that he was bound to marry her, but she died. Another woman did not suit him and Mary Todd did not suit him, for a while. Lincoln had at one point promised to marry Todd, but then ignored her over several months hoping to pursue a fourth available woman. When the other married, Lincoln slowly returned to Mary Todd, apologizing, not sure of his choice for a bride but eventually honored his promise and they were wed on the same day that she told her eldest sister. (Surprise!)

Lincoln was a great orator and political strategist. Yet he had to give up his ideals to support Zachery Taylor instead of his hero Henry Clay. After several terms in the Illinois House, he lost an election. In getting elected to the US House of Representatives, he had to allow two others from his political party to go before him, as a matter of "turn about is fair play." He lost in a bid to be re-elected to the US House because he was too distant from his Illinois constituency.

In an epic contest for our history, Lincoln debated Stephen Douglas running to be the Senator from Illinois in 1858. Lincoln did not win the election. More pointedly from our vantage point, Lincoln was arguing that slavery merely needed to be contained in the states where the Founding Fathers had seen fit to leave it, expecting it would die eventually as long as it did not spread into Nebraska, Kansas or other western territories. Douglas argued that each new state's citizenry should be allowed to decide whether their state would be slavery bound or free soil.

Once he announced his Presidential candidacy and before he was inaugurated as our 16th President, he was pulling madly to try to keep the country together. He even offered an amendment to the Constitution to allow slavery to permanently remain in the states that were seceding. No success there.

Once the war started, he was frustrated by at least five top generals who did not pursue the enemies when they retreated. They did not prosecute the war to end it, they were denying him and the nation an end to the war. But during all this time, providence seemed to be at play, IMHO, allowing Lincoln to come to understand that slavery needed to be outlawed. Doris Keairns Goodwin lays out that the Emancipation Proclamation was a war strategy more than a humanitarian act.

Lincoln matured over time to understand that slavery must be abandoned. In the coming entries to this blog, I hope to inspire new maturity about greed and wealth. We shall see how things develop.

all my best,
Auntie Greed