On Thu, 12 Feb 2009 21:18:54 -0800, "Hawke"
wrote:
snip
You can investigate all you want but you will still come up with the same
results. Which is that it's the system itself that doesn't work. You're
right about it working pretty well for a couple hundred years but it's no
longer doing the job. It's also as simple as us making the country into a
financial center instead of a manufacturing one.
snip
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Again, while this seems plausible, what hard data is there to
back this up? What are the mechanisms involved? And, above all
what specific things be changed?

In automotive terms, is the problem the car is running bad
because of a clogged fuel filter and a bad tank of gas, or are we
in a car careening along the interstate at high speed in heavy
traffic, next to a gasoline tanker, with the wheels about to come
off and the gas tank set to explode in a fireball, ala Pinto?
Again no one knows.

What seems to be true is the famous observation "Capitalism is
fine, its the Capitalists that are the problem."

Even in this bon mot, there are some serious difficulties in that
most of the personalities [negatively] involved in the current
situation did not use their *OWN* money as would be assumed from
the name Capitalist, but rather were "hired hands" using other
peoples money, taking the lion's share of any gains, with the
stockholders fully absorbing any losses, and in numerous cases
simply making off with the funds, i.e. Enron, Madoff.

I think it was Ed that observed that a major portion of the
problems with economics is that it is far too limited in the
range of phenomena and data it examines, particularly when it
attempts to project likely results/outcomes.

Economics is also overly prone to simplifying assumptions that
make calculations possible, if not easy, which are totally at
odds with everyone's experience, the most fundamental of which
may be the assumption of rationality of the participants, with a
close second being the assumption of information availability.

The historical record shows that popular myth and personal
"scripts" [about the way things are and how the world operates]
have far more impact than any hard data [even if it is available]
and rational calculation [even if the individual knows how to
perform/interpret].

I suggest the following specific immediate actions will help
stabilize the current economy, although these will provoke howls
of outrage from the people making/extracting considerable profit
from the existing system:

(1) No more sales on margin of stocks, bonds or other financial
instruments. This will not prevent people from borrowing money
to invest, but they will have to do it outside their broker or
the market. It is the same logic that prohibits ATMs in casinos.

(2) Elimination of special capital gains tax treatment on the
profits from sales of stocks or other assets held for less than 3
years. Possibly a graduated tax should be imposed with a rate
100% of any gain for an asset held less than ten days, tapering
to the standard tax rate over 3 years, with further rate
reduction up to 5 years, possibly to zero.

(3) Eliminate the tax deductibility of all interest, for
individuals and corporations.

(4) Impose a small [e.g. 0.1%] transaction tax on all exchange
stock, bond, foreign exchange trades. The tax is so small that
the effect will be minimal on transactions based on real needs
(as these occur relatively infrequently), but will make
speculative churning unprofitable.

(5) Impose unitary taxation on interstate/transnational
corporations to minimize transfer pricing and tax evasion. That
is, if 50% by dollar volume of a corporation's sale occur in
state "X," then 50% of the corporate profits are assumed to have
been earned in state "X" and are subject to that state's
income/franchise tax. The same thing for countries. If 75% of a
corporations sales are in the United States, then 75% of its
profits were earned here, and subject to US taxes.

(6) Revise the corporate bankruptcy laws to prevent extended
operation under bankruptcy protection. One year from filing,
with another year extension possible if the referee can see
substantial progress, but in any case chapter 7 liquidation after
2 years. The record indicates that zombie corporations operating
under the advantages of bankruptcy "suck the life out" of the
health corporations in the same economic sector, as well as being
capital sinks in the aggregate.

(7) Elimination of the corporate income tax, with the
substitution of a much lower gross receipts tax with no
exemptions. This will simplify the tax returns, and insure that
the corporations cover at least part of the public costs of their
operations. A graduated gross receipts tax could be helpful in
discouraging the formations of companies that are "too big to
fail."

(8) Elimination of the tax deductibility on US tax returns for
the construction, operation, and depreciation of plants,
facilities, and machinery not located in the US. There appears
no good reason why the US taxpayers should promote in any way the
off shoring of jobs and facilities. Any tax breaks or deductions
should be at the discretion of the country where the
plant/facility is located, and deducted from that tax bill, not
the US tax bill.

There are many more items that can be suggested.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).