Automation and People and Land

I have been seeing a lot of prognostication lately about how automation is coming and robotics and AI is going to replace a lot of jobs. I even read one article saying that the haves will become a different species. I think a lot of these such articles are missing something important. Economics.

If we automate everyone out of a job, who will buy the products? How do we take advantage of economies of scale, if the scale is a handful of super rich. If owners of companies are so rich, and everyone else is so poor, what becomes of the people? What do you do with massive populations of people who don't or can't work, due to the economic and technological realities around them? Do we get to the point that we start wholesale elimination of large populations? Undoubtedly, some will see this and the answer. Genocide of such magnitude is unprecedented, but that is where the thinking of such articles lead.

I don't think it will come to that. People will not be replaced by machines in total. Sure, many jobs and functions will be. It will be painful, but people are creative. AI is not. It is not self aware. It does what it's programmers set it up to do. Again, most programs do things differently from what the programmers intended, but they do exactly what they are told. But what if our technology does get to that level where almost all jobs are replaced?

I am not sure how this whole thing works itself out, but it will have to. To feed such masses of poor will require a significant portion of the Earth's land for their maintenance. Who will pay for it? To resolve such questions will probably get ugly in some way, and the poor will probably have the bulk of the losers. I see a variety of solutions to such a dilemma , none of which are very palatable. Most of them will be some form or another of expansion of the current welfare state. Another disgusting alternative is the re-institutionalization of slavery, based solely on economic standing. I certainly hope that no governments will reach the point of deciding genocide is a good way to go.

One of the welfare state expansions that we are beginning too see is called basic income. Many nations are beginning to experiment with this concept. This money has to come from taxes and fees. If only the rich are making money, they will be who has to pay for everyone else. Still a no-win situation. The poor get an income, but become dependent on the government. They will lose incentive to work and create and make the world a better place. It sets up continued and increased tension between the rich and the poor which will eventually come to a head. The more the poor are displace by technology, the more the rich will be taxed. At some point, the rich will resist or rebel. That would lead to one of those other nasty scenarios mentioned above.

It doesn't have to be that way. Perhaps, there may be other solutions which might be worthwhile to look into. I remember reading about laws that existed in some small island countries many years ago that each family was required to grow and preserve a certain amount of food for each family member. They were required to spend a specified amount of time working their gardens. Those that could afford it could pay others to work in their garden's for them. If we step forward a couple of centuries and add technology into the mix, perhaps we find that there may be wisdom in some of the underlying principles of self reliance. This is a variation off of the theme of distributist thinking.

The key is making sure each person has access to the means to take care of themselves. This probably means some kind of guaranteed access to some required per person amount of land and water resources. It will require people to learn to work. The government would have to create some kind of equitable way of distributing, and redistributing, and redistributing again, the land and resources. It would have to be fair, and yet still make sure everyone had their required minimum. I suppose having rules for land inheritance which are different from other inheritance might be required. At any rate, there are some uncomfortable changes which would have to be made to our policies.

The interesting thing is, if we did establish such a program to support the poor, it won't prevent those who are so inclined from setting their sights higher, and seeking more than the bare minimum. If they fail, well, what better safety net than self reliance. Those who succeed can have that benefit of having other people or machines to their work to meet the requirements of such a system. It also would still provides enough of an economic structure to ensure trade will exist and therefore the capital required to create our modern wonders will continue.

Yes, it is true, there will still be rich and poor. Many will inherit their wealth. They will still have to be taxed to pay for government. The difference is, the poor will be better taken care of, have a better safety net, and still have opportunity. The taxes would not be as onerous as in the basic income scenario mentioned previously. A land distributism program would certainly not address all the problems that exist and getting people to understand and agree on the specifics will be extremely difficult. But it will be better than either hordes of unworking being paid for by massive taxes on a few rich, or the alternatives of mass slavery or wholesale genocide of those viewed as having no economic value.

Caring for the poor. Teaching them to fish might not be enough.

We have a lot of poor people in this world. But what is meant by poor can mean a lot of different things in different places. I really don't thing anyone would disagree that a single mother in Central America that has only a piece of dirt with no electricity, running water, toilets, or even a roof overhead is poor. One of my neighbors recently went there trying to help the extremely poor, and met this woman. She has about as close to nothing as one can get. She just wanted to have enough food to keep her and her 2 year old son alive for another week. I read many articles about poor people in various parts of the world who just want food. That is truly poor.

There are other kinds of poor. We have an ongoing debate in this country on how to help the poor. Our federal government has dozens of programs to help the poor. We spend unfathomable amounts of dollars trying to address the problem of America's poor. Unfortunately, the more of these programs that get used, the fewer that do all they can to work their way up out of poverty. It doesn't seem to mater how much we give them, it doesn't raise them out of poverty.

I suspect, there are several factors involved here. The first is opportunity and it is a double edged factor. There are many in the extreme poverty that simply do not have opportunity. There are many in fact, even if they knew 'how' to fish, could not feed themselves as they have no access to the fishing waters. Before we start teaching people how to take care of themselves, we need them to have access to the means to take care of themselves. The other side of opportunity applies to those who have the opportunity to life themselves up, but who have a better opportunity to just take the hand outs and not have to work for it. I am not saying the poor in the US don't work. Many of them do, but there are those who do not. Our means testing is very imperfect, and often those who get the most help, don't need it nearly as much as those to don't get the help. I have know quite a few families over the years whose expertise covered which forms and programs to leverage to get a maximum payout from the government.

The second factor is motivation. Those extreme poor in places like Central America, Africa, an so on would do just about anything to improve their situation. They work harder than just about everybody on the planet when they have opportunity. They have motivation. They lack opportunity. They also lack skills and training. If they have the chance, the will get the skills and training. The flip side is that those with robust social programs don't seem to have the motivation to work hard to improve their situation. It isn't that they don't want better. They do. But if they get too successful and trying to improve their situation, they will reach cutoffs for the programs they are using, the their success will ultimately penalize them and leave them worse off than they were before. They are motivated, but motivated to become better at utilizing government and other programs which provide for their needs. They are motivated to avoid too much success.

It is really tragic that this dichotomy exists. We need to find a way to have programs that taper better. That don't penalize those who are finding success. And, we need to find a way to take the resources we dedicate to the problem of poverty, and use it more effectively. Whatever the solution, it should be simple to administer, and difficult to defraud. And most importantly, it should be easily copy-able by those parts of the world where the truly extreme poor and in abundance.

Is growing income inequality inevitable?

I recently had a short twitter conversation with @RepBrianKing regarding wealth and income inequality. He had posted a link to this YouTube video that discusses the subject. I had responded that "our policies that have become more slanted towards so called socialism, have made things worse not better" and later that "Income inequality is a big threat, but neither socialist nor conservative approaches will work. They both make it worse." This led him to ask the question in the title of this post, "Is growing income inequality inevitable?" Well, the short answer echos the Lorax: "Unless.". The not quite as short answer is "It will be difficult to do, and certainly not guaranteed, and will require some very new approaches to government policy." The long answer needs a lot of explanation. I will first address the problems, then the solution, and then the challenges of implementing such a program.

THE PROBLEMS. (You can skip this section if you know all this already.)

1. Wealth and income inequalities. Wealth and income inequality are not the same and often get confused, but they are both problems. They affect everyone, but not in the same ways. Extreme wealth inequality will ultimately result is chaos, civil unrest, or even war, and perhaps even widespread slavery (think Roman or Mayan empire slavery, not just revolutionary war American slavery.) This is because ultimately, all the resources of an economy become concentrated in the hands of the very few, and the entire rest of the society ceases to have any stake in it, but become serfs in a new feudalism. We are not there yet, but it can happen. One of the most significant modern implosions of a strong society was the implosion of the Argentine economy in the early 1900s. It was a very robust and powerful economy, but the wealth had become concentrated. This led to war lords and ultimately the horrors that followed under years of political purges and dictatorship. Income inequality leads to wealth inequality, but it also has some immediate problems of its own. It has the tendency to lead to vast growing over-indebtedness.  Eventually all of that debt will turn into a massive default, which will wipe out the wealth of even most of the upper class (the 10% through 2%). True, they might maintain a slight income advantage over others, but their wealth will mostly be eliminated.

2. Broken safety nets. Today, we have social safety nets that are supposed to help keep the poor from abject poverty and misery. These include social security, medicare and medicaid, welfare, unemployment, disability, food stamps, and myriads of other lesser programs. Each of these are designed to address some specific ill or condition, but often contain elements that penalize real success at getting back on their feet again. For instance, unemployment provides up to 40% of what a person made (up to a cap), but if they happen to make a few dollars doing freelance or temporary work, it takes dollar for dollar from what they would be getting. They are immediately penalized for any small success, and the only incentive the unemployment provides is to not get a job or have any outside income. Any partial success they get immediately tears into what little safety net that they have. Also, some of these programs have cliff like cutoffs. One minute you have vital help, and as soon as you get a little success, the rug gets pulled out from underneath you. Another example is the minimum wage. Raising it does seem to help in the short term, but the prices on basic items, that have the smallest margins for businesses, get raised first and hit the poor the hardest, resulting in eventually lowering their standard of living.

3. Bad socialist policies. Socialist policies of tax the rich and redistribute it to the poor don't work either. They sound great in theory, but in practice, history has repeatedly shown it doesn't work. Look at Russia. After 70 years of the most stark socialist policies in history, their income and wealth inequality are worse than ours. Their rich are richer, and their poor are poorer. The reasons for this are complex and varied, but the fact is it doesn't work. 
(Why it doesn't work: instead of better equalizing the created wealth, it reduces the amount of wealth created while the distribution of that wealth doesn't actually improve. Instead it disappears into hidden, protected, or institutional holdings, and does so at an even higher rate. The rich and powerful find ways to position themselves within an even more influential power structure, and then become untouchable overlords. They only way to apply such a system is through extreme application of force, which dehumanizes both those being forced, and those doing the forcing, and doesn't end up being successful in the long run.)
4. Bad conservative policies. Conservative policies of flat taxation and minimal government regulation have a tendency to get blown out of proportion.  They turn into a wild west type scenario with the attitude of "You have have what you can take"  and the strongest, or best armed have a tendency to turn into thugs or robber barrons and they victimize others. Again, this dehumanizes both the victims and the victimizers. The reasons these conservative policies don't work are a little more clear than the socialist policies. They don't have the negative of reducing wealth creation, and it doesn't tend to hit the middle classes quite as hard, but the results are the same in the long run and those at the top end still get richer while everyone else gets poorer.
5. Corporate usurpation. Wealth and income inequality is made worse with institutionalization of the corporate mindset: a.  Our companies are too big to fail and  b.Employees aren't even slaves, they are numbers and calculations. Corporations are generally not affected by socialist policies as they generally are able to buy themselves an exception. They wield such unbelievable power in influence by the kind of wealth they can throw around, that only other corporations stand in their way. And yet, corporations keep getting bigger and more powerful. Too big to fail. They can nearly collapse our economy, and we will bail them out and transfer their liability to us, because we are too afraid of what happens if they go away. The individuals involved are part of that 1%, and they are untouchable. They can spend money that isn't even theirs to manipulate the world around them. If they do something repulsive or vile, they can hide behind their corporations and stand blameless. Our tax policies hardly touch them.

THE SOLUTIONS (Read carefully)
These solutions are NOT a cafeteria plan. Only a few will be effective without the others, and then, not very much. They all need to be there in support of each other.
1. We need a fair wage act. This act would replace our current wage laws. It is focuses on real earnings of employees in an organization. Organizations with employees generate wealth, and those involved in generating that wealth need to share in that. Organizations (companies, non-profits, government agencies, etc) should be subject to a policy that can be expressed as: the highest compensated individual's total pay can not exceed the organization multiple of the lowest compensated individual's total pay. The organization multiple is determined by organization size. The penalty could be a fine, a corporate tax, or whatever would incentivize organizations to follow the policy. In order to be effective, private contractors would have to be included in these calculations, and total pay would have to include bonuses, commissions, benefits, stock options and any other compensation that has monetary value. The only thing not included in this is dividends paid to stock holders. That is covered later.
2. A better Fair Tax. You may have heard of the fair tax. It is mostly backed by a bunch of tea-partier, anti-IRS types. Sometimes I wonder if they really understand what it is they claim to support. Anyway, they have several things right, and understanding why those are right, and how to use them is important. On the other hand, they have several things wrong, which would make things worse if not addressed and corrected. Things they have right: First, a prebate that is equal across all registered citizens and residents and their dependents which can make even the worst regressive tax system progressive. In fact, if done right, it can be the first tier of a safety net that doesn't penalize success. Second. Taxing income only serves to perpetuate the income divide. Those at the top of the wealth scale don't make income. They make dividends and capital gains, but not income. And often they can offset those by so-called loses. Taxing consumption can be applied more universally, with less tax evasion, and is effective at taxing even those who get around the income tax. It makes shifts foreign trade vastly in our favor, without subsidies or tariffs. Things they have wrong: They want to exclude education and investments. Having worked in the education industry for years, it is an industry. It needs to be taxed just like everything else. It spreads the burden more evenly, and takes away the advantage of those who can afford much better education without paying part of the tax burden. Even more so, investment has to be taxed. It is the primary method of perpetuation of wealth without paying their fair share. The tax level should not be so high as to destroy investment, but if they can pay 5 percent broker fees, surely they can afford to pay tax. They don't have to pay taxes on the gains, just on the investment. It becomes part of the cost of investing. By taxing everything, including education and investment, we can provide a larger prebate, maybe to double what they are currently proposing. That large of a prebate would act as a first safety net buffer to those who are poor. It could greatly improve their financial situation. For those who make more, they still get the prebate, but it is much less significant to them.
3. 20% Accounts. These accounts take care of a large portion of the rest of the social safety net. They are the first tier of unemployment. They help employees feel a little less trapped, and give them a fallback when the worst comes. They are funded by the employer as a 20% match for all compensation for all employees. Who manages them is less important than the fact that they are there. They could be managed by the individual, by investment professionals, or even government agencies. Also, regardless of who manages it, it needs to limit risk for the bulk of the principle while still trying to have some growth. These accounts are generally not tap-able unless the person is unemployed, retired, or in special circumstances as determined by regulation.
4. Inheritance and Gift limits per recipient.  Those with vast wealth perpetuate others with vast wealth. They may have earned it, but they don't help society by creating an upper echelon of society who become untouchable 1%'s. But, what if they were limited in how much they could give to any one person. It could be enough that the recipient could do anything, but not enough to do nothing, or enough to usurp control and power over society. Those with vast wealth would have to spread their wealth out enough to cause it to re-enter the economy. Those who inherit such large amounts might be able to repeat their progenitors success, or they might just live the high life. Either way, the wealth gets spread out, and directly affects wealth inequality for the better.
5. Corporate size and influence limits. We need to make sure no corporation is too big to fail, or even big enough to establish a non-competitive environment. There are many ways to do this. One way would be to limit the number of locations a company can have. This would not limit franchises, as those are generally owned by others, but it would keep them from getting too big. There are other ways to limit the size and scope of corporations, but their size needs to be vastly limited. Some few corporations are of a nature that their size would still surpass reasonable levels, and those should be subject to very rigid restrictions that keep them from engaging in anti-competitive or undesirable behaviors.
6. Self sufficiency programs. It is in individuals', society's, and the government's best interest for communities, families, and individuals to be as self sufficient as possible. This reduces dependency on both society and the government, increases self worth, creates a more stable economy, and improves the overall desirability of the American life. At the same time, self sufficiency is highly dependent on individual attitudes. Attitudes can not be legislated or even regulated. But they can be affected with public service campaigns, and it is well within the scope of government in all but the most minimalist libertarian schemes to perform public education and service programs. Additionally, government can inspire and help develop programs to facilitate the success of those who have this attitude.
7. Limited scope additional safety net programs. There are still those who will be subject to extreme circumstances that prevent them from living at an acceptable level. They will need additional programs for things like disabilities, catastrophic medial conditions, or natural disasters. These programs should be designed, where possible, to help people get back on their own feet as quickly as they can, and should be very carefully monitored and regulated so as to not become abused or ineffective.

THE CHALLENGES ()

Obviously, it is easy to miss potential challenges. This list is certainly not exhaustive, but these are definitely some of the challenges.  It will take a lot of effort to overcome just these.
1. Entrenched Ideologies. The first challenge exists because we as a nation and culture have taken our eyes off of what we hope to ultimately achieve. We instead focus on pet issues, programs, and platitudes that have little real chance of reaching those goals. Each political party and faction has these sacred cows, and anything but their way is considered unacceptable. There is a lot of momentum in these false hopes, and to get people to stop and think, and to realize that the status-quo is quickly tearing our country apart, will take a lot of effort and self control to break from the fixed mindset we are currently in.
2. Educating the populace. Our populations are pretty ignorant of how government really works and affects their lives. Most of our people can quote campaign slogans, but have no idea how those would translate into whatever they think they are voting for. Except for the politically active, very few have taken the time and effort to understand much about these processes. Worse yet, they don't even want to know. Getting them to understand that these things will help them will take a lot of effort and patience.
3. Getting the idea out. Before we can address entrenched ideologies or ignorant populaces, first we have to get the idea out there. It will take a lot of people who really believe these policies will work and that these are problems that must be addressed.
4. Finding effective evangelists. Not everybody is equally effective at spreading the word. There are those who, by means of charisma, or public presence, or fame, or some other factor, are much more effective than most at getting others to both listen to what they say and to believe it. It will be critical to find those public opinion leaders who can help establish an effective movement for these proposals.
5. Critical mass. As with many things, there will probably be some sort of critical mass. Once enough espouse these ideas and policies, there will be a landslide to follow. Unfortunately, where that critical mass is and how to get there is generally unknown.
6. Vested interests. Obviously, if you are in the top 1%, these policies do not benefit you. You are powerful and influential and are going to do your best to see that these things never see the light of day. If you are not in the top 5%, chances are these polices will benefit you. These ideas are not designed to punish success, however, and getting those who are in the other 4 percent to see that will be difficult. Still, under these policies everyone can still enjoy the benefits of their success, but will not be able to just pass it on to create a dynasty. The top 1%'s kids will probably start off with a moderate competitive advantage, but not an insurmountable one. They will have to work for their own success just as their parents did.

In summary, these problems are serious and will destroy us as a nation and a culture if not effectively addressed. I have been thinking about these issues for years and have come up with the what I feel is the best policy proposals to address these things overall. Not being a very effective evangelist, I have been called everything from communist to robber baron to fascist when describing these ideas to people. I hope I have done a better job of describing these this time. These ideas are formulated for effectiveness, not for selling. They pass the economic, psychological, sociological, historical and mathematical evaluations I have tried them against. Having said that, these are new ideas, and implementation rarely mirrors theory. Even if implemented, there are likely to be many pitfalls in the way, but in years of searching for solutions to these problems, I haven't seen anything else which seems likely to work.

The Rebirth of Feudalism

Yesterday, I was talking with my dad, and he was complaining about the economy and how the rich and the mega corps keep getting bigger while hurting everybody else. He talked about some statistic (that I have no idea where it comes from) that 60% of the used real estate purchases are now done with cash. It is the rich buying up the world, and making the little guys pay for it. He made the comment that soon the only thing that would be an option for the little guy is a small dive and a dead end job.

I thought about how, if everything is owned by a very small elite group, and there is no social mobility, and that we are basically locked into doing things they way the big guys dictate, that is very similar to what happened at the end of the Roman Empire and at the start of the Dark Ages. In fact, that was the condition that perpetuated the dark ages for so long. What really broke the back (and the repression) of the dark ages was the discovery of the new world. There was frontier where those who wanted an out could go. And what did they do with it. They built America and the United States.

We don't have any more frontier. There is no way to end a new dark ages if it happens, and it seems there are many forces in power that are intent on seeing that it happens. If we don't stop it before it gets too far, the only way to end it is the kind of war that kills 99% or more of the population and destroys all the environment. We could stop it now. They way to do so is to tax wealth instead of income; to break up the monopolies and massive corporations, and prevent the buildup of super powerful political, economic, and social elites; and to give people the freedom and opportunities to do as they please without having to pay the living life tolls that the big corporations have established for us.

Social insecurity

An overwhelming majority of our federal budget is spent on what we call social programs. The most famous and far reaching of these programs is Social Security. There are also numerous welfare programs, unemployment insurance, and medicare, medicaid, chip, and even many of our education programs such as the school lunch program that are part of these social programs.

But, what is the purpose of social programs. I think most of us have ideas as to their purpose. Things like "to help the poor" and "to create economic fairness". But perhaps one of the best definitions I have heard I read the other day in an article about what was wrong with privatizing social security. They said that "Investment is about risk; Social Security is about certainty."

With that in mind, lets briefly revisit our overall approach to social programs. Well, we don't have a lot of consistency. We sometimes provide end user services. Often we pay for services provided by the private sector, such as health services. Sometimes, and is Social Security and some forms welfare, we provide cash payments to individuals. Now, social security is supposed to be some form of certainty for those who retire or are disabled, but all that is certain is that those who start poor are guaranteed to stay in their situation under social security, but, at least it is consistent. The real benefit is that those who either were not able to plan for retirement or not able to afford putting money away for retirement have something to provide for them. Similarly, we have unemployment insurance. This is supposedly paid for by employers who are viewed as responsible for the unemployment, but often the benefits received are paid for by the general public.

How about a different approach? What if 20% of what a person earned went into an account that was accessible by that person only. It would be taken out directly from their checks. Ok, sounds like I am back to privatizing social security. Actually, the money in the accounts would not be eligible for investment purposes, apart from the most secure and government backed "investments". Congress would not have any access to the funds in these accounts. In fact, the owners of these accounts would only have access to their accounts by application through some form of social verification system. They would be able to receive payments from those accounts in the event that they became unemployed or retired. The employers would not be left holding the bag. The government and indirectly the people would not be left holding the bag, and everyone would have some security. If someone has worked 15 years, they would have 3 years worth of their average yearly wage available to them.

Implementing such a program would have to be a phase in, but could be done over 10 or 15 years with special carryover programs for current social security recipients.

There are other things that could improve the situation as well. Make the 20% of their wages include 20% of the cost of their benefits. Put the accounts in a national bank (which would replace the Fed), where they can be loaned out to banks, but backed by FDIC without limit. Implement the Fair Tax, only increase they prebates to be equal to twice what a one at the poverty level would pay in taxes every month. Fix the health care system by fixing the FDA and AMA and mandating equal access to care and coverage by combining all coverage groups and prohibiting exclusions, but allowing limitations on specific payouts and by making a publicly accessible symptom, tests, and treatments match database. Make welfare an education grant program, and mandate life skills training in addition to emphasizing practical work skills training. I could go on, but I think I have made my point. Each program needs to be self contained, to a degree, but needs to fit into the overall holistic system. In doing so, all of our social programs can work together to provide what they were intended to provide.

The problem of property taxes

I have a problem with property taxes. Yeah, I know, everybody pays taxes. I don't have a problem with the fact that we pay taxes, but I have one, well, more than one with property taxes.

First, I don't like how arbitrarily income taxes can so often be raised. In the last year of living in various jurisdictions, I have seen how all of them have multiple entities that can raise property tax rates without consulting the public. Not only can they raise the rates, but they do raise the rates. And often. Many of these are not directly elected bodies, and there really isn't much of a process where the voters have input on those tax increases.

The bigger problem I have, however, is that with property taxes, it means that you really don't own what you think you own. If you own something, and you still have to pay someone else, or that they have some kind of right to your property that supersedes your own, then you really don't own it. I mean, if I purchase something, do I own it or not. I know, it is like software licenses, except that, when I purchase software, I know I am buying a license, not the ownership of the software. When I buy a house, what I am paying for is the full rights to the actual house and the land it is on, right. Well, obviously not. I have to pay property taxes.

I don't mind that we pay taxes, but I think property taxes are about the worst way to pay for government services.

Someone in the past came up with the brilliant idea that property taxes should somehow be reserved for schools. I recognize the importance that education can have in the lives of our children, and even if our current method of schooling might be failing, publicly funded education provides at least a small degree of opportunity and a slight leveling of the playing field for the disadvantaged. I just don't think property taxes are the best way to fund anything. What does property have to do with education. Is it supposed to make it so that those being educated are paying for it. Why not a sales tax then. If states were to institute a local version of a Fair Tax, wouldn't that be far better? Property taxes just don't balance out, and have too many other negative side effects. We would be better off getting rid of them.

Need we say more.

There has been much made of the Tea Party movement and the influence they have been having in this last election cycle. There is a lot of anger out there, but it isn't all being directed at the same things. Neither is there any kind of real leadership of this movement, but there is a somewhat commonly held set of beliefs and feelings that most involved share. I haven't seen anyone articulate it really well in recent days.

However, I have seen it articulated almost perfectly by someone over 200 years ago. That someone was Thomas Jefferson. Here is some of what he said.

"When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as  Europe."

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world."

"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."

"My reading of history convinces me that most bad government results from too much government."

"No free man shall ever be debarred the use of arms."

"The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government."


"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

"To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical."

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered."

While the statements above are not any officially recognized platform, the message is clear. From what I can tell, it is a good representation of the motives behind the Tea Party movement. What else is there that needs to be said.

Fair Tax, or not Fair Tax

I have made no secret that I support the Fair Tax. It has some really wonderful components that I think would be an overall boon to the whole country. Unfortunately, it really doesn't have support from across the whole political spectrum like I would have expected it to. And, here is the thing. I was originally attracted to the fair tax for five main reasons.

The first reason is the prebate it gives everyone. It isn't a huge amount of money, but enough to make a difference for the poor. Now, for the richest of Americans, what they would get for the prebate wouldn't even be pocket change, but there are some of the poorest Americans who live on not much more than they would be getting in their prebate, therefor it would almost double their available finances. Anyway, that was the first thing I liked about it. It helped those in need, but it helped everyone the same amount without taking away their freedom.

The second reason is that it eliminates the regressive, ineffective, and punitive payroll taxes. Lets face it, payroll taxes suck. And the only people who get out of them are those who make too much. Replacing it with the consumption tax would make it much more fair for everyone and less punitive, especially for those who are self employed.

The third reason was the nature of a consumption tax means that I get to decide how much I get taxed. If you don't like getting taxed, reduce your spending. But, with it being an inclusive tax, you don't have this big add-on at the checkout stand, it is just there, but since it is a standard rate, you know exactly how much you are paying in taxes, but you don't have to file a tax return, and you don't have to worry about some IRS auditors making your life hell just because you added something wrong.

Fourth, simplicity. No tax cheating. You pay by buying stuff. It is the only tax you pay. It gets rid of all those layers of tax garbage that we currently deal with. The tax code is possibly as short as a single page.

Fifth, economic stimulus. Our products are too expensive overseas, so we don't sell as much, and other countries products are too inexpensive here for us to want to buy our own products. If the we sell our stuff overseas, the cost is high in part because of all the layers of taxes that are rolled into the costs. Theirs are cheaper, cause their taxes aren't as much. But with the fair tax, suddenly, they lose the benefit and we gain it. Sure, we still have a higher standard of living, but it eliminates a disadvantage that can be as high as 50% of the cost of goods. We sell ours for about 23% cheaper, and theirs cost about 30% more, and all of a sudden, our goods are much more competitive, if not cheaper for better quality goods.

So, in all of this, I have looked into the fair tax, and understand the economic advantages, and the only thing I couldn't understand is why there was such lopsided support. I decided to write a blog post about how liberals and progressives should be coming out in droves to support this thing. I first decided to do some research.

Fairtax.org has a calculator that you can use to determine what you would be facing under the fair tax. I have used this to figure how it would have affected me before I shut down my business and sold my house, and again after everything kind of imploded and I lost everything, and based on how much I expect to be making now that I am closer to getting back on my feet. Each time, things are quite a bit better for me under the fair tax.

For my research however, I decided I was not typical in terms of economic conditions, so I created Joe Doe. Single college age kid but not in college, working for $9/hour in a dead end job and not sure what he wants to do with his life, but he is having fun right now. Well, guess what? The fair tax was not as fair to Joe Doe. "Wait a minute," I thought, "That can't be right!" Well, I double checked the calculations, and guess what, if you are really close to the average, it isn't such a great idea for you. Not terribly worse, and in the long run, you would still probably benefit due to the other features, but I thought this thing was supposed to be progressive. Well, what if we give Joe a couple more years, a wife and 2 kids. Well, it got even worse for poor old Joe. That doesn't sound very fair to me. I mean, sure, I benefit greatly, even when things are really bad for me, but us independently minded entrepreneurs don't represent mainstream America very well. Joe is the definition of main stream America, well, the poorer side of it, anyway.

So, am I saying that I don't support the Fair Tax anymore? No. I just don't support it as enthusiastically as I did before. There are 2 or 3 main things wrong with the current configuration of the Fair Tax.

First, the prebates need to be bigger, a lot bigger. Like, try double. If you need to raise the overall rate to cover it, then do it, but first try the other two suggestions.

Second, education (and I work in the education industry) needs to be taxed the same as everything else. Education does not really help people become more productive. That idea is just industry marketing doing its job.

Third, all investments need to be taxed, but at a much lower rate, something like 3% to 5%. Not so much that it becomes a bad thing to invest, but enough so that it takes most of the vampires out of the system and causes the stock market and other investment systems to become much less volatile. Then you wouldn't have non-productives leaching on the rest of the economy. Those making long term investments would hardly even notice it. Day traders, on the other hand, would have to go find real jobs.

These changes would make for a much more "fair" tax, and be supportable by more of those who are not on the extreme right of the political spectrum.

How much wealth is too much?

I was reading a wikipedia entry yesterday about globalization. One of the statements was that "The three richest people possess more financial assets than the poorest 10% of the world's population, combined." Now, it said there was a citation needed, and the link they listed there got a 404 error (meaning not found). However, it got me to thinking. How much wealth is too much wealth. Is there a problem when someone is vastly successful and thereby amasses amazing wealth. I don't have a problem with people being successful, as long as they were honest, and didn't abuse people to get there. However, I do have to agree that having too much wealth in the hands of too few is a problem, but it wouldn't be fair or right, or productive, to restrict people from earning as much as they can. So what is the answer.

What about those who inherit significant wealth. Well, I think about my own children, but I wouldn't want to dump ridiculous wealth on any of them, but I would want them to have enough to be well established. I thought about Warren Buffet, who has often indicated that he won't give significant inheritance to his children. He is strongly in favor of the inheritance tax. I began to think about this. If there were some kind of limit on inheritance that would meet with Buffet's famous statement that "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing", but that provided that kind of limit for everyone, then that might provide a better distribution of wealth.

I often think of wealth in terms of the poverty level. And by poverty level, I mean the poverty level in the United States. If there was unlimited inheritance up to say, 500 times the poverty level, that should be enough to provide a great start for anyone. Those who then have way more than that, would have to look for additional heirs to distribute their wealth to. Beyond just an inheritance tax or limit, I would also apply it to gifts given before death. The total anyone could receive should be the same whether the received it before their benefactor's death or after. If donating to a trust, then the total number of full beneficiaries of that trust should be multiplied by the limit. Buffet's donation of over 30 billion to the Gates Foundation would be just fine in this instance, since the trust specifies everyone as beneficiaries. All assets should fall in this category, whether cash, stock, real estate, or anything else. Any assets not specified to an heir would then be liquidated and turned over to the government. By distributing wealth better, there would be less pooling and reduction in economic activity, and also result in greater opportunities as there would less plutocracy and fewer inherited power positions in big companies (think Walmart or Ford).

I would say that this would be one of the first requirements for the Good Government Initiative. It wouldn't work if there was a permanent royal or elite class. Distribute that wealth and get it back in circulation. That is what will benefit the nations and individuals.

K.I.S.S. the governement

I love our founding fathers. Not so much as individuals, but collectively. Sure, there are individual standouts, but this isn't about them, instead, it is that they looked at what they had for government, and said, we can do better than this. They acknowledged that people are people and while basically good, people are also basically flawed. They said, hey, we can create a system where each part of the whole works together to both strengthen the whole, and prevent any one part from becoming too strong and therefore out of balance with the other parts. The great compromise during the constitutional convention in 1787 had to do with small states and large states, but what it resulted in was dual sovereignty. Both the federal government and the state governments were sovereign, strong, and effective. The 17th amendment went a long way in subverting the interests and power of the states in our federal government, but considering the problems of the day, I can see why it was passed. What it in effect did was change the squabbling in the legislatures for power brokered senators. Instead of having special interests directly bribing the legislators, they now indirectly bribe and manipulate the populace.

I am a big fan of representative government. We live in a republic, not a democracy, and I am glad that we do. At the same time, republics have a tendency to experience corruption and bribery. There are a few things, however that seem to help that. One is the recall. Now, the most famous example of the recall is when California Governor Gray Davis was recalled and replaced with Arnold Schwarzenegger. Unfortunately, this is a bad example of how recall should be done and used. Sure, Gray Davis was stupid for the errors he made, but it really isn't about him. Perhaps he should have been recalled, but the method should have been different and shouldn't have been such kangaroo court.

Ideally, recall should happen on a much more intimate level. Recalling a governor in California hardly qualifies as intimate. Secondly, recall should be automatically pick a slate of eligible candidates. More like a regular election where if the sitting politician is ousted, it is in favor of a specific other. As much as I don't like the system, the first second third preference ballot actually makes a lot of sense here. One of the major problems with initiating a recall, is that you have to direct it at the general populace. The legislature should have the option, but there need to be others who can also initiate it, such as a majority of city councils or county commissions, or something like that. The problem with that is that our governments are not set up hierarchically. They overlap and are a hodgepodge of authorities, who most people really don't care about, since they don't seem to matter anyway. Perhaps the key is making those positions matter more.

Another major problem with politics today is also related to the separation of the governed from the governing. Specifically, bureaucracy. When you have some kind of interaction with a government authority, how often do you know that person from elsewhere? Almost never. It is impersonal, it is obscure, it is inefficient, and often, it is downright mean. Even with police today, too often, we don't know who is serving us. They are complete strangers. Some time ago, there was a notion of a beat. An officer had a specific area he served and where he knew the people and what went on. If there was someone strange in his beat, he made it is business to find out what was going on. Now a days, there are very few beat cops, and the beats are so large that there is no way that they could get to know the people and what is going on. A stranger looks just like everyone else, cause everyone is a stranger to them. Instead, we have tons of traffic cops. They are focused on catching everyone so they can give them a ticket. Then, the department can get more money. Their performance is based on how many tickets they write. What an awful and ridiculous notion. Any other government departments are just as bad if not worse, and magnified exponentially at the federal level.

We need to apply the K.I.S.S. principle here. The solution is to get the services, and the service providers, back close to the people, and to make them accountable to the people. And not just the people, but at a level where there are personal relationships. With personal relationships involved, you know people better, you know how they think and how they live. If all government service providers and representatives served a small enough group of individuals that they knew them personally, and could be replaced by them if they screwed up too badly, I think things would change quickly. I have designed a solution, that until now, really hasn't had name. I think I will call it the Good Government Initiative. I will begin detailing it in the weeks and months to come. Most of my posts will still be on other things like technology and innovation. Still, since this is something that affects all of us, perhaps this is innovation that needs the most attention.

Bootstrapping

Bootstrapping (in Business) is to start a business without external help or capital. The hard thing about bootstrapping is that there are a whole bunch of business processes and areas of expertise that have to be known and executed correctly. Now, often when someone is talking about bootstrapping a startup, they have some minimal and often much more significant financial resources, and they are able to outsource a whole bunch of those business processes and just pay for them. What happens if a startup doesn't have the funds to pay for such services. Well, they better be good at accounting, and have a thorough understanding of legalese, and be technologically savvy, and know hr policies, oh, and not just regular accounting, they also need to know enough about merchant accounts and banking to be able to make sure they are getting paid. They need to be an expert at taxes, which while most people think that means accounting, there is a whole separate class of accountants that deal with taxes.

My personal experience with bootstrapping wasn't quite that bad, but close. We got a pretty big contract right out of the gate which paid for things like an accountant/tax professional, got some legal advice on trade, and had enough cash that when our merchant account got messy, we were able to make it through that without too much problem. We had the technology understanding, so we were able to get around that. They problem was, we wanted to do far more than what we could afford. We did contract work for other companies with the hope that it would pay enough for us to work on our own projects. Well, being our first attempt at running our own business, we didn't execute it flawlessly or even close. We did survive being stiffed $40,000 by a client, and were able to continue operations for 2 years until the economy collapsed and most of our clients went with it (for some reason, we had a lot of mortgage and real estate clients at that time).

Since then, I have reverted to the garage band version of business. I am developing a big software system in my spare time with two partners, but we have no business at this point, as we have no product to sell. We have no cash, and all our work is done on our personally owned machines. We would love to try to venture a small trial balloon offering to see what kind of response we would get, but that would constitute conducting business, which would mean bank accounts, business licenses, accountants, lawyers, taxes, and so forth. I think back to the days of yore when you built something or had something or provided some service, and you just went about doing business. Sure, the tax man would want his share, so some simple accounting would be needed to track what you did so you could pay your share of taxes, but that would be the end of things. I know there are some who still try to do it that way today. The problem is that complying with the law and regulations has become more complex than most people can manage unless that is all they focus on.

It shouldn't have be like that. We need some kind of established system that in a very cost effective way, provides all these services so that a businessman/bootstrapper could focus on what they are doing. Intuit provides a lot of those services, and even pretends to integrate them, but it really doesn't meet the needs. They, or their competitors, need to provide a complete small business we take care of your headaches so you can take care of business package. No nickle and dime marketing, just a single upfront, complete, take my headaches away small business startup solutions package. Yeah, I know, each small business has different needs, so they can offer an a-la-carte service selector, but when all is said and done, they take care of the headaches. They business registrations, the tax payments, the payroll, the hr, etc, etc, etc. Yeah you will need to sign off on things, but they do all the prep work. Much of it could be automated, and the rest could reach into a community of providers that work from a standardized set of requirements. And, I should be able to get price without committing to the purchase, just in case I am not ready to pull that trigger yet.

The Labyrinth

Have you ever tried to do your taxes without software or an accountant. I have done it a few times, but it has been years. I figure the price for the software is more than worth the time it takes to figure it out by hand.

When I went into business, I went and hired an accountant to keep track of stuff. I went with a guy that was recommended to me, but whose price was really low.

You know that saying "You get what you pay for."? Well, I got what I paid for. Not real thorough. Cut too many corners. Ran the place like a clinic where most of the work was done by college freshmen with a high turnover.

So, this year, I don't have enough $ to pay for taxes. I have to figure it out. Plus, we are shutting down the biz. Turns out, we have a whole bunch of assets on the books that have to be disposed of. The problem is, some of those, well, most of those, should never have been listed as assets. Some of them were paper plates and snack food for the breakroom. One of them was an item that was listed as a piece of equipment that was purchased to pay a vendor (he wanted an XBOX and his wife would have stopped him if we had paid him in cash). We had entries on our books on that very day that showed we had used it to pay for services. But, somehow, they accounting clinic monkeys never noticed that it came in. At the very least, they should have asked us about it.

Anyway, so now, I have all this old stuff on the books, and more specifically in past years of tax filings, that now has to be taken care of. Into the Labyrinth of IRS tax code I go. And this one really gets bad. First he used something called Section 179 to take all the depreciation at once on this "equipment". Now, I have to figure out how to split all that out. Well, no, you can't do that. You have to sell it to your owners, and then take the cash and figure profit, after you have rolled back the Section 179 depreciation and replaced it with regular depreciation. Then, once you have converted everything to cash, then you can distribute the cash. But wait, that would be too simple. Now you have to go get Fair Market Value on everything. Well, how do you determine Fair Market Value. Well, sell it for the going rate, or find the same thing and see what the going rate is. Well, fortunately there is craigslist, or I would be forever just tracking what Fair Market Value is on all this.

Once I have my fair market value, now I have to figure out where to report it. Oh, happy joy, you can only report 4 items per form. So, I figure, probably attach a statement with the rest of the info in it, right? Wrong. You have to use multiple copies of form 4797 but I don't see anywhere to aggrigate multiple forms. Then, somehow, I have to get that amount reported as normal income, but I also have to report the whole thing (enter the statement that I couldn't use before) when I do the K-1's for each partner. But, I can't do it the same way. Anyway, when all is said and done, I have spent about 100 hours on this so far, and it will probably make about 2 dollars difference in my taxes, if any. There are so many ways to make this better. I guess it is time for another Fair Tax plug. Yeah, there will still be taxes and forms, but there would far fewer complexities to deal with. Either something is taxable, or it isn't, and it is taxable once, at purchase. Period.

Really, if you don't know about it, look it up. Fairtax.org.

Taxes

I have been working on taxes. Did you know that our tax system is a mess. Ok, well, to be fair, it is way worse than a mess. It is impossible. I have been trying to figure out some obscure tax code machinations that my former accountant did with my corporate books. They don't match what I have in my copy of my books.

I complicated it by not having the software to get into my books with me. My brother and former partner had it. He didn't use it, so I am not sure why he had it, but it is probably just one of those oversights that occurred when we split stuff up in a hurry.

Anyway, I have been doing my taxes. I am late I just found out. That means I am going to be fined. And then, since I am going to be fined, I am going to be charged interest. 5% a month. Wow, I wish I could make 5% a month on anything. Once I have the company taxes done (the company that is no more), then I can do my personal taxes.

Did you know that the Senate Majority Leader says that paying taxes is voluntary. My understanding of voluntary means that I don't have to if I don't want to. My understanding of tax law is that you have to or you go to jail. I guess by the same logic, not killing people is voluntary too. What a crock.

About five or six years ago, I heard of The Fair Tax. I know, you think, taxes are not fair. Some pay more than others, and some benefit more than others, and there is no way to truly level the playing field. However, this idea has a lot going for it. They make a lot of claims that might be too optimistic, but much of it is simple math. I don't think it is a perfect system, and there are quite a few tweaks and modifications I would propose for it to make it more fair and less burdensome to everybody, but compared to our current system, it would be way better.