RatcliffeBlog - Mitch Thinking Out Loud

Muddled thinking taxing the American...

Muddled thinking taxing the American economy

Joining the chorus about the Bush tax cuts (a little late, but hopefully the more analysis now will lead to defeat of the next round of cuts) comes from The Economist:

IT IS hard to object to tax cuts—particularly when you are about to receive one. However, even the most conservative American should pause to reconsider the “economic recovery bill” concocted by Congress and George Bush that will hand back some $350 billion over the next decade. Sadly, this giveaway is disingenuous and also something of a gamble.

Mr Bush has muddled up two sensible ideas: the short-term need for a fiscal stimulus to pep up the faltering American economy; and a long-term fiscal reform—namely shifting the tax burden away from investment. Mr Bush has got rid of inheritance tax, at least temporarily. This time his big target was dividend income, which is taxed twice—as corporate profits and as personal income. He wanted to eliminate the latter; Congress has opted to cut the rates roughly in half.

By trying to smuggle in dividend-tax reform as the best way to give the economy an immediate jolt, Mr Bush has improved neither the stimulus nor the long-term fiscal position.

Let's make a deal, Mr. President. Before you propose more tax cuts, demonstrate that the 2001, 2002 and 2003 cuts have been of some value to anyone who didn't donate to your campaign. - Signed, a disgruntled American business-owner.

I've been saying it for...

I've been saying it for two years: Dell is the winner

But the winner may be taking steps to prepare for worse. Michael Dell has sold about $300 million in stock in the past week, about five times what he sold in 2002. The stock is near a 52-week high and the company reported its best quarter ever on May 15.

Now, everyone I talk to in tech is saying their projections for the coming year are heading lower and, despite the upward revision in economic growth during the first quarter business spending is still way off a recovery trajectory:

Current-production cash flow (net cash flow with inventory valuation and capital consumption adjustments) -- the internal funds available to corporations for investment -- decreased $11.4 billion in the first quarter, in contrast to an increase of $14.0 billion in the fourth.

The only reason for the adjustment upward is that consumers keep spending and consumers keeping spending using debt, which can backfire. Forbes says the economy has legs. CBS has a more balanced view. Yes, legs, but wobbly ones. Maybe that's why Michael Dell is selling.

Coming Soon: The End of...

Coming Soon: The End of Theatrical Release

Even though Fox has pulled back on its plan to release a DVD of its upcoming wretched-looking "American Idol" movie only six weeks after it hits theaters, this is the wave of the future. You'll soon be able to view a film at home at virtually the same time it is released in the theater or, imagine the premiums studios could earn for early access.....

Feckless and stupid, take your...

Feckless and stupid, take your pick

Paul Krugman's editorial about the Bush tax cuts in today's Times is a must-read:

It's no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration's policies might actually be driven by those ideologues — that the administration was deliberately setting the country up for a fiscal crisis in which popular social programs could be sharply cut — was to be accused of spouting conspiracy theories.

Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.)

...

The pain of these benefit cuts will fall on the middle class and the poor, while the tax cuts overwhelmingly favor the rich. For example, the tax cut passed last week will raise the after-tax income of most people by less than 1 percent — not nearly enough to compensate them for the loss of benefits. But people with incomes over $1 million per year will, on average, see their after-tax income rise 4.4 percent.

The Financial Times suggests this is deliberate (and I agree): "For them," it says of those extreme Republicans, "undermining the multilateral international order is not enough; long-held views on income distribution also require radical revision."

Here's the thing, the radical Right suggests that the most successful people should not be penalized for their success. But they fail to understand that one of the reasons those opportunities for success exist is the general prosperity of the nation, which has a lot to do with those costly schools and social programs they hate. If the net result of the tax cuts is a decline in disposable income for all but the wealthiest 10 percent or one percent, then the macroeconomic rationale for the tax cuts (albeit spectral as they were) are not merely gutted but can only be ascertained as outright lies.

As a businessperson, one who isn't hurting as bad as some folks in today's contracted and contracting economy, I am profoundly worried that the radical free marketers are preparing to vote with their feet for a world without the rest of us. How will they vote with their feet? By walking all over the rest of us. Now, if none but the richest strata of society has choices about their future,what is left of the American Way? Nothing. And that's why even the Right should be deeply concerned at this point. Krugman wants to know why the public isn't alarmed. I want to know what happened to the conservatives who were conserving American values of opportunity and choice.

As a citizen and writer, I am outraged at the absence of a coherent political response to the sudden and disastrous course the country has embarked upon and I am working on that.

Here's Kevin Phillips on what used to be important to conservatives:

...a letter of November 21^st, 1864 allegedly written by Abraham Lincoln. Looking beyond the war, he said “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned, and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.” Amid the excitement of the Nasdaq, hardly anyone paid attention.

Many scholars doubt the genuineness of this letter, and it is a very blunt statement of sentiments that   our sixteenth president usually expressed with more restraint. My point, though, is that such viewpoints – which now get one read out of the Republican Party – have a surprising and distinguished history within it. When Theodore Roosevelt was in the White House, his attacks on corporations far exceeded Lincoln’s, and at one point, TR specifically repeated and endorsed Lincoln’s oft-quoted remarks about labor being superior to and more deserving of support than capital.

Some of this GOP skepticism lingered on in the years of Eisenhower and Nixon. Back in 1990, when I published The Politics of Rich and Poor, some of its success was owed to the two lead endorsements on the back of the book jacket. One was from New York Governor Mario Cuomo, then widely expected to be the 1992 Democratic presidential nominee. The second was from former President Richard Nixon, who gave it with full knowledge that the book was critical of the Reagan and Bush administrations for favoring the rich.  Nixon’s streetcar worker father had left Ohio for California after getting a name as labor agitator, and he thereafter interrupted his McKinley Republicanism to support third-party progressives like Theodore Roosevelt in 1912 and Robert LaFollette in 1924. Richard Nixon himself as president supported national health insurance, income-maintenance for the poor  and higher taxation of unearned than earned income. The 1972 Republican platform actually criticized multinational corporations for building plants overseas to take advantage of cheap labor.

Because my own background is Republican, and I now know much more of GOP   history on these subjects, it is hard to avoid the conclusion that the Republican economic polices and biases of the 1990s and early 2000s are a narrow-gauge betrayal of the legacy of the two greatest Republican presidents, Lincoln and Teddy Roosevelt.

If anyone should be pissed off it's my middle-income Republican neighbors. The rest of us are just stunned, stupified and enraged; that's not good either.

DigitalID, wherefore art thou?

DigitalID, wherefore art thou?

Eric Norlin describes a birth of the credit card, which he suggests began with an iconic event, at least from the marketing perspective:

In mid-September of 1958, the first drop occurred. That "drop" took place in the city of Fresno, California. The city awoke to find 60,000 "credit cards" in the mail. This new device had never been asked for. Not one citizen in the city of Fresno had ever called their bank and requested a small piece of plastic that could be used at various merchants. The demand for these cards was something less than zero. One stunning fact dwarfs that beginning -- last year, VISA did $898 Billion in revenue in North America alone.

Digital Identity is larger in scope and more grandiose in vision than [Bank of America founder] A.P. Giannini's original revelation. But the scope and grandiosity that digital identity can offer does not negate the fundamental tenets upon which Giannini built the BankAmericard (which later became VISA).

Giannini's key realization flew in the face of the received wisdom of his day. Bankers of his time simply did not think that the average individual was smart enough to make the decision as to whether to pay something off now, or to pay it off in installments. That was a decision the bank had to make for them.

The credit card was an interesting extension of the notion of "having an account," but the fundamental reason the credit card is ubiquitous today is missing from the article. Western Union has been offering a kind of charge card to preferred customers since 1914. Diner's Club was almost a decade old when those 60,000 cards went out.

Norlin talks about the incredible uptake of credit cards, but by 1968, Bank of America had been licensing its brand, BankAmericard, and finding it was not accepted by many other banks. The market was fragmenting and, in the absence of a new infrastructure, fraud was rampant. A radical change was required in order to bring banks together to eliminate fraud and ensure smooth day-to-day operations based on growing investment in infrastructure.

He suggests that Bank of America's credit card became VISA. It did, but not until VISA found a way to allow banks to share customer data--their DNA, metaphorically speaking, since the bank "controlled" that customer's money--and overwhelmed the initial BofA value proposition. Other cards came and went, and some stayed using similar models, like MasterCard (originally MasterCharge), and proprietary systems, like American Express.

But the acts of "forming a committee" that transformed the industry Norlin credits to Dee Hock is a vast understatement -- it required a wholesale reinvention of the banking industry, which the identity federation and proprietary identity camps have not even begun to recognize. Committees don't solve problems, they debate and reshape them, often to the detriment of the solution. Eric's interpretation leaves out the mess, the mess we need to embrace and clean up before any of the DigitalID stuff happens or there will be no economic incentive in place for companies to facilitate a DigitalID infrastructure; and even less reason for people to do the work of using their identity for economic advantage.

Make no mistake, the idea of allowing people to have a leverageable digital identity is a dangerous one for entrenched interests. This is why the online services have created closed instant messaging, incompatible login schema (so that all relationships can be negotiated by companies, not individuals) and proprietary client software.

Sharing Risk: The Next Big...

Sharing Risk: The Next Big Social Movement

I've been writing about using Xpertweb to provide risk-sharing and financial instruments for risk-sharing in markets for a while. Now, Robert Schiller, an economist at Yale who pioneered behavioral economics has come out with a new book, The New Financial Order: Risk in the 21st Century, that deals with this topic in immense detail. He has an interview in the most recent Milken Institute Review (registration required and it's a PDF). Check out this idea, inequality insurance, it's world-shaking:

The idea of inequality insurance is inspired by other sorts of insur-ance – but also by research in psychology. Any policy to deal with inequality, which evolved over a long period of time, has to involve enduring changes to our system. I want to restructure tax policy as inequality policy, redefining taxation in terms of income distribution rather than tax rates. Instead of legislating rates and brackets, we would target the acceptable level of inequality and automatically adjust rates to meet the target.

Interviewer: So an individual could still get rich in this system?

Robert Schiller:The progressivity of the tax system would be adjusted automatically to preserve the desired income distribution, the acceptable degree of inequality. Individuals who worked hard or got lucky could still propel themselves to the top of the heap.

Such a system would be fundamentally different than the current one. Once we collectively defined the acceptable limits of inequality, there wouldn’t be much left to fight about in terms of tax policy. Such a system, I think, would have a good chance of enduring for many years. Tax rates would change frequently, but the targeted degree of inequality wouldn’t.

As a practical matter, what amounts to insurance would allow us to make sure that inequality did not get any worse than it is today. If markets pushed the economy toward greater inequality, tax policy would push back. But politicians wouldn’t have the problem of explaining why tax rates changed.

You can imagine systems where groups with common interests, such as a shared profession (doctor, carpenter, artist) got together and created a financial alliance that distributed risk across the entire profession, even providing for retirement funding. This is a very important idea and one worth a deep look. This can all be tied to the ideas in my Emergentism model, so that society organizes itself to eliminate inequality through distributed self-organizing networks.

Poetic Justice?

Poetic Justice?

If Canada hasn't suffered enough with SARS in Toronto, now it has Mad Cow Disease to contend with. But there is one scrap of good news, remember that Bernie Ebbers, the Worldcom CEO who scammed a few billion worth of investor monies into his pockets, has retired to his cattle ranch in Canada and is probably regretting it now.

"You see, I will eat ze beouf."
Prime Minister Jean Chretein chows down. (source: New York Times)

But is Bernie still smiling?

 We can only hope that Hell is a place on Earth.

Listen to Warren Buffett: Tax...

Listen to Warren Buffett: Tax Cuts Bad

Billionaire investor Warren Buffett slices the Bush tax cut reasoning into little tiny pragmatic pieces in a Washington Post editorial. He's been more right about a lot of things than most people. Mr. Buffett writes, in part:

The annual Forbes 400 lists prove that -- with occasional blips -- the rich do indeed get richer. Nonetheless, the Senate voted last week to supply major aid to the rich in their pursuit of even greater wealth.

The Senate decided that the dividends an individual receives should be 50 percent free of tax in 2003, 100 percent tax-free in 2004 through 2006 and then again fully taxable in 2007. The mental flexibility the Senate demonstrated in crafting these zigzags is breathtaking. What it has put in motion, though, is clear: If enacted, these changes would further tilt the tax scales toward the rich.

Suppose this measure goes through and the directors of Berkshire Hathaway (which does not now pay a dividend) therefore decide to pay $1 billion in dividends next year. Owning 31 percent of Berkshire, I would receive $310 million in additional income, owe not another dime in federal tax, and see my tax rate plunge to 3 percent.

And our receptionist? She'd still be paying about 30 percent, which means she would be contributing about 10 times the proportion of her income that I would to such government pursuits as fighting terrorism, waging wars and supporting the elderly. Let me repeat the point: Her overall federal tax rate would be 10 times what my rate would be.

When I was young, President Kennedy asked Americans to "pay any price, bear any burden" for our country. Against that challenge, the 3 percent overall federal tax rate I would pay -- if a Berkshire dividend were to be tax-free -- seems a bit light.

A little experiment in public...

A little experiment in public news reporting

Dan Gillmor's coverage of OhMyNews this weekend prompted me to send him a note about a project that Howard Greenstein and I have been putting together, which Dan kindly blogged. It's out in the open a little earlier than we planned, but what the heck.

Our idea for Correspondences.org is that citizen reporters and commentators should be recording our history based on their direct experience (whether it is about their own participation in events or using their experience to comment on current events). There is such a pressing need for alternatives to the existing media. So, if you have a local issue or an international one you'd like to comment on, a book or movie review you'd like to write, or whatever--from your experience at school to the city council chambers, in work or finding your favorite recreation area closed due to budget cuts or polluted, feel free to contact me to "join the staff." Our goal is to provide accreditation of sorts for people who want to gain the same access to events as the professional press.

Reality: Let's screw around with how it is presented to us. Live and write about it.

Doc stirring the pot

Doc stirring the pot

Doc Searls dove head-first into the Googlewashing debate, going head-on with the forces of tsk-tsk, Andrew Orlowski and Geoffrey Nunberg. His argument has been called wholly flawed by Christopher Coulter and Doc fires back, finally making the point he's been aiming at all along in the lead paragraph and not the bottom of the posting:

"The real issue is about what the Web can do for publishers and vice versa. That's it. Everything else, blogging included, is a red herring."

That's the real problem, which I find ironic to see ignored by journalists. The big papers are closing themselves out of participating in the creation of a robust record of the times by limiting access to their archives. What newspaper exec, if you asked them, "Would you like people be talking about your articles every day and pointing to old ones to make their points" wouldn't like that? Especially if you threw up two or three new, fresh ads with each page view?

See, once you've invested in paying a journalist to create an article, the paper usually gets one or two days worth of opportunities to make money on it, if they break it in two parts or do a follow-up story. A genuinely big story, like Watergate, that a single paper can own and that lasts months, comes along once in a lifetime, unless you manfacture them, like happens today with Laci Peterson and Jon Benet Ramsey, among others.

By closing the archives, the papers lose the chance to amortize their content more frequently. Yes, they can charge to get into the archives today, but what percentage of people will do that at $2.50 an article. By creating free traffic to the article, a story can generate $5, $10, or much more in repeat visits that generate ad inventory or the could also charge for reprint rights by offering people the ability to place an entire article in a personal site for $1.00 (with NYT ads), a right you don't get for $2.50, which lets you save the piece on your system and print it, but no more.

All the sturm und drang is misplaced. A smart publisher would be milking traffic, not restricting it. Hell, put ten ads on an article. But keep it in the open, where the public record is a robust reflection of the times and not shut away from only those willing to open their wallets to view an older article.

Socialtext rising

Socialtext rising

Kudos to the gang at Socialtext, where I am on the advisory board, who found their way into the New York Times New Economy column. Nice job on the piece, Amy Cortese. An excerpt:

...various entrepreneurs are beginning to tailor wiki software to corporate use. SocialText, a San Francisco start-up, for example, has wiki software with Web log and chat capabilities. It has also added security features and programmed the whole package to work with standard office and e-mail software.

The SocialText software, which starts at a price of $995 a year for five users, is being used in about 20 companies, typically small businesses or departments within larger ones, according to Ross Mayfield, SocialText's chief executive.

One SocialText customer is Composite Tech, a $10-million-a-year maker of bicycle tires sold under the Zipp brand. Since early April, Composite Tech, based in Indianapolis, has been using the SocialText wiki for a variety of tasks. Employees contribute informal notes on what the competition is doing, for example, while product development engineers keep track of production schedules as well as advances in materials and other innovations that they might use in future models. Notes from meetings are kept in a wiki, and sales and customer service employees can consult the pages to check on production status and plans.

Denham Grey, the production manager at Composite Tech, says the wiki has become a central repository for information that formerly was shared only in an ad hoc way through e-mail or face-to-face encounters. The wiki, he says, is making it possible to build an "informal corporate memory."

Another SocialText user is Global Business Network, a consulting company in Emoryville, Calif., that employs the software to create comprehensive records of client meetings. Chris Coldewey, a consulting associate at Global Business, says he likes the fact that the wiki can be used by anyone. "The bar to participating is very low," he said. "You don't have to have any skills other than typing."...

"You just have to do enough things well enough and cheaply enough," says Clay Shirky, a software guru who is an adjunct professor at New York University's Interactive Telecommunications Program. "It's the attack-from-below strategy."

Some notes on a new...

Some notes on a new politics

I'm working on a book about the politics that can replace today's and have posted some early notes in a series of posts over at the Social & Political blog.

I've gone all audacious and suggested this is an -ism, giving it the name Emergentism. I think it is important that we move on from the conservative-liberal bipolarity in politics, taking the best of both to start forging a new center on a completely different political spectrum.

Rob Kling, RIP

Rob Kling, RIP

It is sad to learn of the sudden unexpected passing of Rob Kling, director of the Center for Social Informatics at Indiana University, who has written and talked about the importance of humane systems. I've been reading his work, which has broken a lot of important ground, for many years and his contributions to lists and discussions about society and computing have been invaluable to me and many others. He will be missed.

Xpert Insights

Xpert Insights

Britt Blaser goes deep on the specifics of the Xpertweb protocol in response to some questions he has received. Great summary. A few thoughts:

Britt and I see the potential for the Xpertweb in different ways, though we both think the other is right about how the system, which basically builds quality assurance into each transaction between buyer and seller into the Web, can be applied. Think of Xpertweb as accounting for accountability in the promises we make and keep. You can do more than have a mentor/mentee system that passes payments along. A lot more.

Britt writes:

XPERTWEB IS MEANT FOR TRADESPEOPLE MORE THAN FOR ENGINEERS.

That's because there are so many more tradespeople than engineers.

Yes, and the mentor approach Britt describes makes tremendous sense for that part of the economy. Essentially, we return to a guild model in the sense that a mentor lends part of their reputation to get someone started in the system.

I also see Xpertweb as a way to securitize a wide range of transaction types, from paid email and strip mall infomediaries to built-in insurance that protects the buyer from theft or failure to perform in all transactions. Why? Because with a system for keeping track of performance you also have a system for tracking risk, the very foundation of financial instruments and insurer's actuarial tables.

So, the Xpertweb system as I see it is has many potential applications, growing from a single simple system for establishing accountability.

Told you so: Deflation

Told you so: Deflation

The Producer Price Index fell dramatically last month, almost as much as after the WTC attacks. Since the beginning of the year, I've been cautioning that the U.S. economy, along with most of the world, is being pulled into a deflationary suckhole. The PPI data seems to confirm this warning. The Federal Reserve chimed in, too, saying:

The index for business equipment moved down 0.5 percent in April and stood 2.5 percent below its level in April 2002. Declines were widespread across categories, with the output of transit equipment, particularly motor vehicles, recording the sharpest decrease. Information processing equipment ticked down after having posted a sizable gain in the previous month, and industrial and other equipment edged down for a second month.

While the short "war" had some serious impact on business, the threat is that people will start waiting for prices to fall further. Every region seems to reflect a terrible malaise, and companies are telling me their projections are falling rather than rising.

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