Good Read from Ben Stein...

motordavid · #1 06-25-2006, 09:01 PM

Interesting art., via the NewYawkTimes,
from one of my Fave writers, Ben Stein, on
well...on stuff few of us want to hear or read about.

As a bond/TBill holder of various iterations, it gives me
some pause. Good read, imo.
BR,mD

[email protected]

Everybody's Business
Note to the New Treasury Secretary: It's Time to Raise Taxes

By BEN STEIN

Published: June 25, 2006

Mr. Henry M. Paulson Jr.

The Goldman Sachs Group

New York, N.Y.

Dear Mr. Paulson:
You almost certainly don't remember little me, but I met you many years ago when you worked on what I think was the Domestic Council under the redoubtable John D. Ehrlichman. Even then, you were an intense and clearly brilliant young man. Since then, time has proven you to be a brilliant and intense middle-aged man. To become chairman of an empire like Goldman Sachs is a spectacular achievement by any measure.
But now you have your work cut out for you as Treasury secretary. You are facing what is, in many ways, the most dangerous economic future since the Depression. Danger is coming on many fronts, only dimly seen by the powers that be in Washington, and your insights and eloquence will be urgently necessary.
Just to give you an idea what you are up against, Standard & Poor's issued a warning not long ago. The caution was that if the United States government did not seriously alter fiscal policy, Treasury bonds would be downgraded to BBB, slightly above junk status, by 2020. This is a stunning piece of news for the world's most highly rated security denominated in its primary reserve currency. The S.& P. report said further that if the nation did not make serious changes after that, by 2025 Treasuries would be junk bonds, like the bonds of less successful emerging-markets nations.
These downgrades would occur because the federal budget deficit and the cumulative national debt would be so high relative to the gross domestic product. This debt would presumably come largely from Social Security and Medicare obligations, considered sacred contracts by American taxpayers. (The statement said similar downgrades would also happen to other major countries in the developed world that have large aging populations.)
Just to get an idea of the size of the structural cumulative deficit for Medicare alone, Phil DeMuth, along with others, has calculated that the total Medicare obligations for the balance of this century, if brought down to net present value at the long-term bond rate, would exceed the wealth of the entire nation. This means that if you sold every home, every farm, every factory, every business in America and invested the money in something that returned as much as long-term bonds, there would not be enough to pay for the foreseeable Medicare expenditures of this nation in the 21st century. And that's not counting Social Security or the military or the interest on the debt or the livelihood of 300 million Americans.
Can you imagine, Mr. Paulson, what it will mean to Americans in terms of our currency's value, in terms of the interest we will have to pay to foreign creditors, if our bonds reach junk status? Can you imagine just how crippling a burden this will be on taxpayers?
It gets worse. The annual trade deficit with the rest of the world is approaching $1 trillion. It's not there yet, but we're on our way. This means we have to transfer ownership of roughly $1 trillion of our assets to foreigners every year to cover our excess of international purchases over sales. But the total worth of all the assets in the United States is not greatly more than $50 trillion. To be sure, it rises annually. But even so, we are basically transferring the value of an average of one of our 50 states to foreign investors every year. This trend looks unsustainable to me (unless we are to revert to being a colony — this time, of China).
Again, the downgrades and the deficits in the current account and the federal budget will have major effects on the dollar's value, which will mean major inflationary effects. If experience is any guide, these effects will slow real economic growth.
Right now, inflation is moving out of the Federal Reserve's comfort zone. The Fed chairman, Ben S. Bernanke, is doing the right thing by raising rates and trying to slow the overheated economy, but in a way that does not bring us a recession. To give us a soft landing without recession or stagflation — rising inflation and slow growth, as we had in a good part of the 1970's — is not an easy or assured task.
To raise rates enough to slow down our economy and thus bring down commodity prices amid skyrocketing demand in developing economies is certainly not easy. To do this correctly, you'd need to be a brain surgeon of monetary policy and a cardiac ace of fiscal policy. In other words, there is a great, great deal to be worried about.
May I respectfully suggest that in this environment, ending the estate tax is not a major sensible priority? May I suggest that having the lowest taxes in 65 years on high-income taxpayers is not really as prudent as it might be if we were not running stupendous deficits, with far worse in the future?
I know you are a Republican, and so am I. Now and then, scornful fellow Republicans ask me what kind of Republican I am, since I'm for higher taxes on the rich. I tell them that I am an Eisenhower Republican, the kind who wants to leave a healthier America to posterity. That includes an economy not headed for the status of a banana republic's economy.
Now, I know that a truly great man, Ronald Wilson Reagan, when asked if he were not worried that his tax cuts would burden posterity with a heavy weight, supposedly asked, "What has posterity ever done for me?" Those of us with teenage children certainly know what he meant. But the problem is no longer quite as funny.
The fiscal house is in severe disorder. I love President Bush, and I believe that he wants to do the right thing. I know for sure that Karl Rove is a genius and wants to do the right thing as he sees it (which may well be totally different from how I see it). Mr. Bernanke knows what's right and wrong. You will have allies. But someone needs to take a stand, and that person might as well be you.
The time is always right to do right, and now is a good time to start. This one will make running Goldman Sachs look easy.
Respectfully submitted,

Ben Stein

Ben Stein is a lawyer, writer, actor and economist.

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Eric5273 · #2 06-25-2006, 09:44 PM

Interesting read. Where I think he's wrong is I don't think many of the wealthy really care how well the American economy does. Most of their wealth is no longer stateside, and has long since been transferred overseas. Same goes for the large corporations.

I doubt those calling the shots in Washington really care about any of this. I think they know things are going down the toilet, and they are trying to loot every last penny they can get their hands on before there is none left.

Juanted · #3 06-25-2006, 10:18 PM

Good read. He's right. Not bad for a republican.

Thanks for sharing, David.

Juan

Driver8 · #4 06-25-2006, 10:35 PM

I have to agree...things need to be better than what they are. God bless the USA.

Mike

Hoopie · #5 06-26-2006, 01:15 AM

I also agree, and I have a bit of a different outlook. I live overseas, and since Bush took office the dollar is worth less. The war started and the Euro got stronger almost immediately and remains anywhere from $.20 to .30 stronger than the dollar. Which is good for me, but I still hate to see it.

X5Flyboy · #6 06-26-2006, 02:11 AM

They can start with a 90% 'windfall' tax on CEO's salaries that's more than 100X their average employees salary and extend it to their pensions if it is over 50 million. And I'M a republican. NOBODY is worth what some of these fools are getting.

Wagner · #7 06-26-2006, 05:31 AM

awesome.

asawadude · #8 06-26-2006, 05:40 AM

Thanks for posting, MD.

statdoc · #9 06-26-2006, 09:09 AM

Quote:

Originally Posted by burkleymh

They can start with a 90% 'windfall' tax on CEO's salaries that's more than 100X their average employees salary and extend it to their pensions if it is over 50 million. And I'M a republican. NOBODY is worth what some of these fools are getting.

Then blame the corporations boards and stockholders. The CEO's of publicly -traded companies don't set their own salaries.

rangerfan · #10 06-26-2006, 10:32 AM

Quote:

Originally Posted by statdoc

Then blame the corporations boards and stockholders. The CEO's of publicly -traded companies don't set their own salaries.

True, their salaries are set by the Board, though most of the time the actual dollar amounts are small. It is the stock options that are outrageous, mostly because it incentivises the people in charge to do what they have to do (both within and without the law) to keep the stock prices high (i.e. Enron). Of course, as a shareholder, you want that. But as an employee, you might not, because what is good for the stock might not be good for your job security. It's a tough balance for a CEO to strike. Or maybe not, with a $400 million golden parachute.

Of couse Ben is right with the theory behind his comments. Unfortunately, this is a political problem more than one of economics. Doing the right thing might be very unpopular, and I think our elected representatives in both parties care more about keeping their jobs than fixing the problem. However, I certainly hope that I am wrong.

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