Profit Sharing

We have been told that oil prices have peaked and are slowing coming down. Part of the reason for the reduction of gas prices is that demand has dropped and more supply has come on-line. The supply is a result of some refineries which were "closed down for repairs" being revived and are now producing usable fuel.

At the same time, the Federal Trade Commission has released a report which looked at the narrow issue of why gas prices spiked in September 2005. The final conclusion was that the FTC did not know. One of the problems with the study was that if an oil company chose to not put its full force behind getting refineries on-line, there was no way for a government study to show that there were intentional delays that resulted in artificially inflated gas prices.

Several summers ago California suffered from high energy prices and rolling blackouts. A great deal of this was a result of Enron contacting powerplants and telling them that they should shut down for repairs as their energy was not needed on the grid. The powerplants complied, which reducing the amount of energy on the grid. This resulted in higher prices of the remaining supply and the need for rolling blackouts to try and balance the demand and the artificially diminished supply. Northern California all but came to a complete stop.

As is being shown by the United States in the Skilling and Lay trial that has recently been submitted to the jury, Enron obtained exorbitant profits from manipulating the market and abusing the power which it had wielded. There is no reason to believe that the few oil companies that are left have not engaged in the same type of market manipulation. There are only a few major oil companies in this country, and they are the most profitable companies in the nation - possibly the world. These companies know that the nation is beholden to their product and that the nation will pay any price that is placed on the product. If the companies reduce the amount of usable gas by scaling down the refinery capacity and the number of refineries which are operational, then they can force the prices up and increase the amount of profit that is procured.

We have seen a company manipulate the fifth largest economy in the world in order to obtain unjust profits. There is no reason to believe that the oil companies are any more noble than Enron in that they would not collude to manipulate the market and ensure that they too can obtain huge sums of profits at the detriment of the public’s pocketbook and nation’s overall economy.

The only entity that is big enough to take on these companies and force them to abide by legitimate means of obtaining profits and staying in business is the United States government; however, since we currently have "leaders" who have worked in the oil industry, it is unlikely that anyone in this Administration will go after the companies or even question their actions. Thus, there is a big pay day for all of the oil companies until at least 2008 , and they know it.

The Lost Generation

A recent survey of college students asked what places they wanted to work had the number one result as Disney. Number two was Google. Also in the top five was the State Department, the FBI and the CIA. The study indicates that college students want to devote their time to public service. However, there is still a question as to what parts of public service will be filled by Generation X and subsequent generations.

New Jersey’s U.S. Attorney, Chris Christie, gave a speech during which he recited a story from when he spoke to an elementary class. At that time he asked how many of them wanted to be President of the United States when they grew up. According to the U.S. Attorney, none of the students raised their hands. The U.S. Attorney attributed this lack of desire to be in politics and public service to the perception of corruption in politics. While his address focused on the corruption in New Jersey, the national news has been focusing on Abramoff, Randy "Duke" Cunningham, Delay, Porter Goss’s attendance at poker and hooker parties, etc. Their actions and all of this Administration’s the misdeeds has taken a toll on those who may come afterward.

Kennedy inspired a generation of people to want to become part of government and make a difference in others lives. Reagan began killing this idea by espousing tax cuts and destruction of the social safety net that was built during the Johnson and Nixon Administrations. These beliefs have crescendoed with this Administration and the belief that starving the beast and destruction of government is necessary. The past twenty plus years has made the government the villain which has reduced people’s desire to be part of government.

Another impediment people becoming governmental leaders is the financial aspect. As government starves the beast higher education has suffered. The grants that used to be given to students to pay for school have dried up because the federal funding has been reduced. Now students are ever more reliant on loans that need to be paid off upon graduation. Further, the Administration has made the loans more expensive by removing the government subsidy of interest payments while the student is in school. Thus, the students will have the interest compound on the loan for the four to five years they are in school and will be in greater debt upon graduation. Lastly, public institutions have lost funding from the federal government and have had to pass the additional costs onto the students thereby making it more expensive for the students to go to school, which means the interest that is getting compounded into the student loans is increasing faster because the principal is higher. In the end, the banks are going to make a lot more money than they used to and the students will be saddled with a significantly larger debt than they would have had just a generation ago. The end result is that the debt forces people to seek out the higher paying jobs, not the jobs they want to take which may be with the government or a non-profit organization.

The inspiration of a generation ago is gone. Piece by piece the past twenty years of leadership has dismantled what we were and what we wanted to be. The leadership has catered to businesses to ensure them profits and a beholden workforce by removing the government as a competitive or desirable employer. It is no surprise that the number two place college students want to work has the motto of "Do no evil" and pays a lot. Maybe its time for the government to adopt a similar motto and become part of the solution as it was trying to be under Kennedy’s watch.

Military Priorities

Someone needs to set forth a definition of what the Air National Guard’s duties and responsibilities are. As it stands they are supposed to be combat support in Iraq, disaster relief during natural disasters and now they are supposed to be Border Patrol. Their mission in the 1960s during the Vietnam War was "domestic security." So when Dubya was avoiding military duty he flew airplanes to protect our airspace from the ever creeping presence of communism. But today, no one knows what it is the Air National Guard are supposed to be trained to do or ready to perform. The Air National Guard is not supposed to be some catch all for the President to order around whenever he feels like it. A comprehensive military policy is necessary setting forth what roles the military is supposed to play in this nation and around the world.

As genocide occurs in Darfur, this Administration has concluded that the most pressing military threat to the US are Latinos coming across the border. This military threat adds billions of dollars to our economy and ensures a lot of services such as picking fruits and vegetables, building houses, cleaning homes and offices and other work is performed regularly. Apparently, all of these Latinos streaming across the border are more important than assisting Liberia when it specifically requested US intervention in its civil war.

As people die needlessly around the world, the United States needs to be willing to use its military force and its leadership to build coalitions of nations to mobilize and act. Without a comprehensive strategy as to the role the United States’, when crises occur, there is no framework for any Administration to determine how it should handle the situation. The ad hoc method of making decisions has resulted in contradictory decisions - it is right to stop the genocide in the former Yugoslavia but not in Rwanda, Darfur, or Sierra Leone.

Without a plan there is no way to prepare or train the military personnel, including the Air National Guard. This results in people protesting the over extension of the military and its personnel. The same military personnel are going into Iraq over and over again while other battalions remain home the entire duration of the conflict. Troops are sent to New Orleans without the proper equipment or training and are then told to attend to the Mexican border - again without the necessary training.

The lack of coherent policies puts the personnel in harms way. Without the necessary training, equipment and the over extension results in the personnel being overly tired and not as sharp and aware of their surrounds as they must be. All of this results in mistakes that can result in death and harm to innocent civilians who believe, reliably, that the military personnel assisting them are prepared and knowledgeable about what to do. Unfortunately, they do not.

Although, without a comprehensive plan, politicians can use the military for political gain alone as Dubya has done with the Air National Guard in Monday’s speech and saying that thousands can be deployed to the border as support for the Border Patrol.

TV News

Newsweek has an article this week about the season finale of the television show Lost, which is all fine and good considering it is in the "Entertainment" section of the magazine. But more and more television shows are becoming part of the news that is being provided by what is supposed to be reputable news sources. When Survivor was first on the air each of the people who were voted off were paraded out on the CBS morning show and interviewed and discussed their experiences as if such a thing was newsworthy. Of course the morning shows probably should not be considered real news sources, but they pretend to be quality news.

Today, legitimate news magazines such as Newsweek are promoting articles such as the season finale of Lost as a reason to purchase their product. They downplay real news stories, have reduced the space in the magazine for actual news stories, and have apparently decided to forgo actual investigative journalism in lieu of the easy story that requires no thought process for the writer, editor or reader.

Newsweek is not the only culprit. Television news broadcasts provide stories regarding American Idle and those voted off the stage and all of the warm praises Simon provides them as if this is an important event for those watching the broadcast seeking newsworthy events.

Timing, significance, proximity, prominence and human interest are the categories which are generally used to determine if a story is newsworthy. A story needs to fit into at least two of the categories to be considered. Articles about fictional stories on television or contestants on game shows do not meet this criteria except in the most extreme scenario. When Ken Jennings who won for six months straight and had over $2 million of winnings lost it was worth a news cycle, but the day in and day out stories in the news about what is on television degrades the news process and only proves that Americans are not concerned with the things that are going on around them; rather, Americans are disconnected and uninterested in the impact of their actions in the world; they only concern themselves with television shows.

Instead of talking about fictional stories, it is time that Americans start getting an education in its impact on the world and how the citizens of the nation are fairing under this Administration’s ineptness. Americans should be getting news stories about Darfur, Liberia, Afghanistan, the poor in LA, Topeka and New York. These are actual stories that fit in the criteria for news and should be in place of stories about fictional events. So long as the media outlets continue to report on non-newsworthy events Americans will remain apatetic to their role in world. It is time for the media to be responsible for presenting actual newsworthy events so Americans can become more engaged in their surroundings.

No Economic Benefits

Justification for tax cuts continues to be that they will spur the economy. We have been hearing this argument for nearly six years now, but in the wake of the strongest economy in generations (the ‘90s) the succession of tax cuts since 2001 have apparently done little or nothing for the economy. A recent NY Times/CBS News shows that 28% of those polled approve of Bush’s handling of the economy. This is also reflected in the consumer confidence numbers, which are at the lowest point since last October and took the biggest one-time drop in 28 years.

Maybe it is true that cutting taxes can spur the economy. In fact, it makes sense that if less of a person’s paycheck is devoted to taxes they will spend more; however, there are a few flaws in the theory. First, this is a nation in debt and people realize that they cannot continue spending without consequences. As such, any extra money that is provided to the average person will go to debt reduction and not to the purchase of new products. This was seen with the $300 per taxpayer rebate that was distributed in 2001. When those checks were issued 46.2% of the people used it to pay off debt. The same would likely occur if the average American received a tax decrease: they would primarily use the money to pay off ever growing credit cards.

The second flaw in the theory is that the tax cuts that have been enacted have been skewed toward the top income brackets. The people at the top of the income scale do not need reduced taxes to have money accessible to spend in the economy. Rather they have disposable income and much of that money sits idly in the markets earning more money and not moving through the economy, which is necessary for economic benefits.

Moreover, when the first set of tax cuts were enacted and the discussion of making dividends tax free was occurring, businesses were not in need of money; therefore, encouraging investment in businesses was not necessary. Interest rates were extremely low and obtaining loans from banks, if extra money was necessary for infrastructure or capital improvements, were easily accessable. The fact that they did not access it and did not engage in capital improvements shows that they were not looking for additional money from stock investments or otherwise. Thus, the reductions in tax rates either were not designed or did not encourage actual investment in businesses.

The end result is that the Administration did not seek to spur the economy nor did it seek to encourage investment in businesses with the tax cuts from 2001 through today. Rather, the tax cuts have been nothing more than a give away to the rich. Nothing of significance has gone to the middle or lower classes and the upper class has not used the money for economic prosperity, just personal income gains.

The argument that the tax cuts were designed to spur the economy has been a myth and continues to be a myth. Further, no future tax cuts should be passed based upon this claim.

Laffer Curve

Congress has once again reduced the taxes for the wealthiest people of the nation. Before Dubya was in office, long term capital gains were taxed at 20%. As part of the first tax cuts implemented by this administration the rates were reduced to 15%. These tax cuts were scheduled to expire, which was merely a gimmick to keep the total tax cost at a specific number. This week, however, Congress extended the tax rate until 2010.

The GOP claims that reducing taxes increases tax revenue for the government. The principal has been called the Laffer Curve, which states that there is a point whereby tax rates will create a peak revenue and increasing or decreasing the tax rate from there will decrease the amount of tax revenue. The trick is determining where the peak is and determining whether the government needs to maintain peak revenue.

It is unclear how reducing the taxes for the rich will increase the tax revenues. The people who are buying and selling stocks the most are the people who can afford major investments - thus people that have significant amounts of disposable income. Many of these people obtain a majority of their income through the sale of stocks. For instance, at the outer most reaches of the economic spectrum, Bill Gates makes less than $1 million per year in actual compensation from Microsoft; however, he is worth over $25 billion. What Gates declares on his income tax form is likely significantly more than $1 million per year; thus, every dollar over that initial $1 million is money gained from capital gains, not wages.

While Gates, who is the richest man in the world, is the extreme case, it is true that the majority of the people at the top of the economic scale are in a similar situation whereby they obtain most of their income from stocks in their companies rather than actual wages paid to them. Thus, the majority of their income is taxed at 15% whereby the majority of the average American’s income is taxed at approximately 30%, plus they are taxed 6% for social security and taxed for medicare and state taxes. Social security, medicare and state taxes are not assessed on capital gains.

In other words, the people at the top of the economic scale are getting the majority of their income at a discounted rate compared to what the average Americans have to pay. Further, the people at the top of the income have more disposable income than the average person does, which is shown by their having money tied up in the market opposed to paying their bills month to month. Since the wealthiest of Americans have greater amounts of disposable income, it is not unreasonable to expect them to pay greater amounts of money than those in the middle and bottom of the economic spectrum.

There is no indication that the US is at the peak of the Laffer Curve or to the right of it, assuming that the theory is accurate. Further, reducing taxes disproportionately for the rich is not the kind of tax rate reduction that would be necessary to move the rate toward the peak of the curve. Rather, if the goal is to attempt to achieve the peak, then greater tax rate changes need to be made on the payroll tax, the primary tax paid by all Americans. Further, whether this amount needs to go up or down needs to be determined based upon where the US is on the curve. The GOP just assumes that the US is toward the right side of the curve, and such an assumption is likely flawed.

It is time the US stops blindly reducing taxes and starts acting responsibly with its revenue especially in this time of extreme debt: $8 trillion and counting.

On Going Healthcare Debate

The Atlantic has an article, The Poison Pill, regarding issues concerning healthcare, which is in line with some posts I made a few months ago: Universal Healthcare is Good For Business, Only The Health Stay Insured, and Employment Based Healthcare Has To End. The writers of The Atlantic are second to none, and it is nice to find their essays addressing similar issues to those which have been raised here. If you have not seen The Atlantic's take on this issue, I highly recommend it.

Blame the Lawyers

The prosecution in the Enron case is about to call several rebuttal witnesses for its case against Ken Lay and Jeffrey Skilling. A significant amount of the evidence against them shows that they were knowledgeable of the fraud that was being perpetrated against the stockholders and the public by Andy Fastow creating offshore accounts which assumed Enron’s debt. However, Lay and Skilling are not the only ones who should be held responsible for these actions; the lawyers need to be held accountable too.

Lawyers created offshore corporations and gave them names like Death Star and Chewbaca. The lawyers certainly knew what the purpose of the corporations was – to assume the debt of Enron in order for Enron to show profits on the books and keep its stock price high. There was no other purpose. There were no board of directors, business plans or products created by any of these corporations. The lawyers had to know this in order to create these shells.

In New York and New Jersey, it is unethical for attorneys to engage in activity that perpetuates a fraud. Engaging in unethical behavior can result in an attorney being suspended from the practice of law for specific periods of time or in extreme cases disbarred and precluded from ever practicing law again. A suspension is a significant punishment for an attorney. A lot of money can be lost in three or six months or clients could decide to move to different firms as a result of having a lawyer deemed to be unethical.

The actions of the attorneys who created the corporations that assumed the Enron debt knew they were creating corporations to perpetrate a fraud. Yet they have gotten off scot free regardless of their violation of ethical. No news articles or stories have indicated that any lawyers have been held accountable for their complicit acts in the fraud that we call Enron. No information has been forthcoming that the lawyers have been held accountable as Arthur Anderson, the accountants, were. Yet, they are as culpable for the fraud as the accountants. Why should a major accounting firm disappear and the lawyers all get to continue billing hundreds of dollars an hour.

The lawyers who created the offshore corporations need to have ethical violations brought against them immediately. They should not receive a free pass for their intentional blindness to the purpose of their actions. Until the lawyers are suspended or disbarred, the Enron case will not be closed. Rather, only some of the guilty parties will have been held accountable.