Saturday, March 31, 2012

Will the May 1st Occupy General Strike be very effective?

The Occupy Wall Street crowd is making a big deal about their call for a General Strike on May 1st, but as far as I can see, they are unlikely to muster much more than their usual cast of characters and their allies, some union members, and some students. Sure, it will be a decent-sized protest as these things go, but nothing so dramatic as to cause more than mild amusement or annoyance over relatively minor disruption on the streets. Maybe 1,500 to 5,000 people here in Manhattan, or a maximum of 15,000 to 20,000 if they manage to attract a lot of union members and a lot of students.
In short, this call for a General Strike will only be effective at one this: proving that the Occupy movement has marginalized itself and made itself fairly irrelevant.
The biggest obstacle to growth for the Occupy movement right now is a gradually improving economy.
The Mega Millions lottery mania even further disproved the underlying foundation of the Occupy movement. Far too many people still have grand aspirations of "making it big" and don't believe as the Occupiers do that they are permanently stuck at the bottom of the pyramid.
Oh, and if you think you are helping the movement by donating money, guess again, since they will simply spend the money, which will provide only further stimulus to economic growth. That is a virtuous cycle for the economy and Wall Street, but a vicious cycle for the Occupy movement.

My position on the unrest in Syria

The unrest in Syria certainly gets a lot of media attention, but what is it really all about? I would like to be able to take a "position" on Syria and to support the U.S. taking a "position" on Syria, but I have to admit that despite all the media reports, I have zero confidence that I have any clue what is really going on, on the ground, so to speak. If this were simply about "peaceful" protesters pursuing an "Arab Spring", that would be one thing, but armed rebellion is not an indication that this is primarily about peaceful protestors being unfairly suppressed. My hunch is that the protesters are merely being used as the "front" or "human shield" by the hard-core "rebels." I also have a hunch that Israel is secretly "behind" a significant portion of both the "protest" and the "rebellion." I would not doubt that the U.S. may also be secretly aiding both, possibly indirectly through Israel, but the bottom line is that without much greater access to real facts, we simply can't know.
Personally, I do believe that "revolution" is an inherent natural right of all people. It is not a legal, constitutionally protected right, but it is still a legitimate, albeit extra-legal, natural right. That said, it is a right that must be used only very sparingly and with great deliberation and great care. In fact, the vast majority or people will never have a reason to ever even consider it in their entire lives. The American Revolution was one such occurrence. The American Civil War was another. Thankfully, none of us have had reason to consider it since.
My view is that it is up the the people themselves of a country as to whether it is appropriate for them to even contemplate revolution. It is certainly not up to outsiders, foreign leaders, media commentators, or even NGOs and so-called "activists" to decide if a people will "revolt" and seek the overthrow of the nominal authorities.
The people of Syria, and they alone, collectively must decide for themselves whether armed rebellion and revolution are the path they need to take. If they do choose or have in fact chosen that path, so be it, but they are on their own. It is not for us to either second guess or aid or handicap such a decision at this time. Their revolution, if that is what they have chosen, is theirs and theirs alone to pursue.
That said, and using our own American Revolution as a model, at some stage it will become clear whether their revolution is gaining traction and if at some stage they appear to have a reasonable chance of success. Only then can and should other countries consider "taking sides" and aiding the "rebels." Sure, we can consider a modest level of secret aid if we suspect that the rebels have a ghost of a chance of getting their act together, as the French did for us in the middle of our revolution, but it is only when rebels have proven that they have the widespread support of the people and have gotten their act together and are "unified" and are actually making real progress that outsiders can and should publically support the rebels. Alas, to date, the rebels in Syria have shown no sense of the kind of "unity" and popular support that is required for foreign backing. The media is very clear on that lack of unity. The degree of popular support for the rebels is quite unclear. Aiding the dis-united rebels today would simply result in chaos, not progress.
So, sad to say, we need to sit back and wait and watch. The sad fact is that most rebellions can and should be "put down." It takes a lot of domestic support and political unity to create a new nation and new national leadership, and despite the loud-mouthed protests of the so-called Arab Spring protesters, neither is firmly in place.
So, my conclusion at this stage is "wait and see", but I do also accept the right and obligation of our government to secretly aid rebels anywhere and anytime if we feel that "it is only a matter of time" before the rebels prevail. America must bet on progress, not maintaining an unsustainable status quo. The problem with Syria though is that it is not at all clear whether the rebels are on a path to sustainable progress, even if we were to give them a modest level of aid. But, to be clear, I would definitely not support more than a modest level of aid. A moderate or heavy level of aid must be absolutely out of the question, at this time.

Warren Buffett should pay a lower tax rate than his secretary

President Obama has renewed his call for the so-called Buffett Rule, under which a person earning more than $1 million in income would have to pay a minimum 30% tax rate, suggesting that this somehow about "fairness" and that persons with high incomes are not paying "their fair share." There are a couple of problems with this claim.
First, although the "marginal rate" may be lower for people with an income mix such as Mr. Buffett's (or Mr. Romney's), their "total" tax payment are significantly higher, and it is "total" tax, not "marginal rate" which really matters.
Second, for the first portion of Mr. Buffett's income that matches his secretary's income he pays exactly the SAME tax rate. That sounds awfully fair to me.
Third, if someone has income over $1 million that is strictly or mostly salary/wage income they will in fact be paying a significantly higher marginal tax rate than his secretary for every dollar of that non-investment income, once again due to progressive tax rates. Again, nobody talks about this. That hardly seems "fair" for him, but nobody says anything about that and if he doesn't want to complain, that's that. But, to put it simply and bluntly, there is zero truth to the claim that people with non-investment income greater than Mr. Buffett's secretary are paying a lower rate for that non-investment income. Zero truth. The story should be about the relative value of salary and wage income vs. investment income, but oddly that important distinction has been lost in the noise of all the political theater.
Fourth, our tax system deliberately places a higher value on investment income since capital and investment is the very lifeblood of our economy. Without ongoing investment, the economy would quickly grind to a halt. For this reason, we intentionally and mindfully assign a significantly lower tax rate to "investment income." This is the incentive for people to invest money rather than to merely spend money. And, to be fair, we do in fact offer that same identical lower tax rate to both Mr. Buffett and his secretary for their investment income.
Fifth, my apologies to his secretary but Mr. Buffett deliver far greater economic value to society than she does. I am sure he compensates her "fairly." I am also sure that if she had a ROTH retirement account or some modest investments from savings that she would in fact pay a much lower tax rate than she pays on her salary and wage income, which is how it should be. If she wants to go back to school or teach herself investment skills and go out and raise capital to be an investment manager comparable to Mr. Buffett or Mr. Romney, all power to her, and then she will deserve a lower marginal tax rate for her investment income.
It may not seem fair to some, but working "smarter" is and should be more highly values than merely working "harder." Yes, hard work is needed, but it is only smart work that grows the economy in a leveraged manner.
So, in short, President Obama is completely misguided in his call for higher tax rates for investment income. If someone has more than $1 million in non-investment income they will already be paying a much higher tax rate (for that non-investment portion of their income) than Warren Buffett's secretary, so no change is needed on that front to achieve so-called "fairness" for taxation of entertainers, star athletes, et al whose income in primarily from their own labor as opposed to investment income.
It may not seem "fair" that capital has higher "value" than labor, but capital is more like a fuel and labor is more like water. Both have great value, but fuel is more scarce and has greater leveraged economic value and must be protected and promoted with much greater vigilance, especially since it can be so easily squandered if used in a misguided manner.

-- Jack Krupansky

Wednesday, March 28, 2012

Are Supreme Court justices allowed to lie about the law with impunity?

Wow, are Supreme Court justices really allowed to lie through their teeth about the law with impunity? Is nothing sacred?
According to a CNN article, Justice Scalia said something that I know is factually "incorrect" about the law:
"You want us to go through 2,700 pages" of the law, asked Justice Antonin Scalia. "Is this not totally unrealistic ... to go through one by one and decide each one?"
I just happened to download the official version of the law from the Government Printing Office (GPO) and it clocks in at only 906 pages. I suspect that his confusion was that the drafts of the bill were printed in larger type and double-spaced for purposes of "markup" and at least one was purported to be 2,400 pages.
Hmmm... but I wonder if this means that he hasn't actually seen the final law whose fate he is deciding. After all, with two branches and a conference committee, looking at any draft before the president signs the bill is risky.
Incidentally, the bill/law does not use the term "mandate." It does refer to "individual responsibility", "Requirement to maintain minimum essential coverage", and "Individual responsibility requirement." And, significantly, section 1501, which defines this "individual responsibility requirement" clearly lays out its constitutional basis in terms of interstate commerce from an economic and legal perspective, even to the point of citing a 1944 court case where "the Supreme Court of the United States ruled that insurance is interstate commerce subject to Federal regulation." So, clearly, Congress carefully crafted the "individual responsibility requirement" in a way that was specifically designed to be able to pass constitutional muster before the Supreme Court.

Did the Supreme Court questions indicate that the individual mandate will be overturned?

A number of media reports strongly suggested or implied that the individual mandate of the health care law would likely be overturned based on the questions by the five non-liberal justices that did not indicate any support for the individual mandate. Sorry, but it is not so simple. I spent a lot of time in Washington back in 1998 to 2003 and one of the consistent messages I heard from insiders was that questions from a judge or justice are not a reliable indicator of how they will ultimately decide. Sometimes they simply want to get information, sometimes they simple challenge an assertion to get a deeper response from counsel, and sometimes they simply play devil's advocate to see how well counsel has thought through their arguments.
Sure, the media and commentators desperately want to "read the tea leaves" and report the news before it even happens, to handicap the horse race, but sensible citizens are best advised to ignore all of that and simply wait for the official judgment and then analyze what the justices actually say in their formal decision.
That said, Chief Justice Roberts probably does hold the deciding vote. I'm not going to predict that he will uphold the individual mandate, but if he doesn't, I predict that he will rule narrowly and on technical issues. I predict that he won't rule that no individual health insurance can ever prevail, but simply this one, the way it was formulated, stretches just a little too far. In other words, that if Congress were to reformulate the individual mandate it could pass constitutional muster. That might be enough to kill the individual mandate until the day that liberals have a stronger majority in Congress, but at least the door would be open to "Health Care Reform II", which I have always advocated – the current law is simply a steppingstone to more comprehensive and sustainable health care form.
But all of that said, I do believe that there is at least a 50/50 chance that Roberts will uphold the individual mandate, but only in the narrowest of terms.
Personally, I think the reason the mandate might stand is that it actually doesn't "force" people to buy health insurance. It does not criminalize the failure to purchase health insurance. It gives us a "choice." The "penalty" is a mere "tax", and a fairly modest tax at that. In fact, the penalty is quite modest in the initial years and only grows to a modest level in the out years. If the individual mandate had in fact criminalized non-compliance or imposed "excessive" or "onerous" penalties, that would be a different story, but the simple fact it that it does not. And, almost as importantly, because our health care system does in fact convey a "right", the right for anybody to walk into the emergency room of a hospital and get care on demand anywhere and anytime, it is rather hard to argue that the "penalty" is somehow an unfair levy needed to sustain a system that is already in place, even before the health reform law was enacted.
I personally am one of the people square in the crosshairs of the individual mandate – I neither have health insurance nor do I want it. I do not favor the concept that I should be subsidizing the health care of people who make bad lifestyle decisions, such as smokers, the obese, the skateboarders, the snowboarders, et al. Nor do I have extreme health care such as organ transplants, extremely expensive experimental treatments, or extreme and expensive "end of life" care which effectively bankrupts the system simply to give a person a few more months or a year or two of life when everyone can clearly see that "your time has come." My intentions are to pay the penalty instead, and I am okay with that. Besides, who knows, maybe a few years from now I may even decide to purchase some minimal health insurance to handle catastrophic health issues. Or, maybe mass non-compliance will finally force the health insurance companies to offer fair and reasonable policies that actually do appeal to people like me.
For now, I believe that Congress did a great job of crafting an individual mandate in such a way that "strongly encourages" people to purchase health insurance without excessively penalizing or criminalizing them for non-compliance.
For now, let us give Chief Justice Roberts the benefit of the doubt and look forward to him making a wise decision.

-- Jack Krupansky

Tuesday, March 20, 2012

We need an Investor Bill of Rights

There is no question that investing these days is very tricky business. In fact, any dealing with Wall Street is quite treacherous these days. It is caveat emptor, let the buyer beware, every step of the way. Sure, it has always been that way, to some extent, and us diehard investors are quite used to it and have all sorts or tricks to navigate through the investment minefields, but it is plain and simply dysfunctional and  unacceptable for the average investor. What we need is an Investor Bill of Rights that makes it once and for all relatively safe for the average American to invest in anything other than a simple bank savings account or CD. Even money market funds are far more risky and tricky (and less profitable) these days than once thought.
I don't have even a preliminary draft for an Investor Bill of Rights yet, but it is something to start thinking about.
The point is not to eliminate all risk or guarantee a high rate of return, but simply to assure that average investors are protected from severe predatory behavior on the part of the denizens of Wall Street. Once it was only a bunch of hedge funds and due to their limited size they could be tolerated, but now every big bank is trying to run itself like a hedge fund, so what in the past was marginally tolerable is now definitively intolerable.
The goal will not be to eliminate all conflicts of interest, but to render them manageable, to assure that there are very clear limits to how far banks are allowed to go in acting against the interests of their customers. We need to restore the meaning and value of the term fiduciary duty.
The goal will not be to eliminate speculation and short-term trading, but simply to assure that speculators and traders cannot attack the assets of average investors. In the past, speculation and trading was simply "noise" and little concern to serious investors, but now it is the speculation and trading "tail" that is wagging the once-mighty investment "dog." Put simply, we need a solid firewall between investments and the casino betting of speculators and traders.

-- Jack Krupansky