patrick.net

indigenous says

Your math seems to show my point about more people reporting as individuals.

My math shows that in order for the subchapter S argument to hold water, you must assume that corporate profits grew at a 46% annual rate, when their revenues grew at 4%, and their labor costs grew, and their cost of debt service grew. How is that possible?

You mentioned investment - investments (and the capitalization of costs therein) are a tax neutral. IE, if a company invests in a company, a portion of that investment, (depending on how long it is depreciated) is written off from taxes. That means expenses increased.

Again, the effect on any "investments" translated to a net revenue growth of 4%.

Revenue growing 4%, while costs increase, does not translate to a 46% growth in profits. It cannot, by math. Lets say that revenues are $100 and expenses $1. profit margins are 99%. If revenue grows 4% to $104, then profit grows 3.96 to 102.96. A growth in profit from 99 to 102.96 is a growth of 4%.

Outsized profit gains like that can only occur if profit margins also increased. In order for profit margins to increase, costs must go down. But labor costs went UP. Debt costs went UP.

What I am telling you is it is highly doubtful that the increase in wealth inequality is not real and is because of election to subchapter S as you said.

What you are seeing is the effect of "taking profits" in times of low taxation. This is the opposite of what you claim, that they "reinvest" in their company. In an economy that grows 4%, a 21.5% growth in corporate profits (if we back out your $72.1B subchaprter S elections) is a function of changing corporate tax policy. That is, corporations claimed carried over "profits" from earlier higher tax years.

To use a modern example, it is what would happen if there was a tax holiday for foreign profits. Aaple would realize all of the profits they have been carrying overseas.

To put it mildly, higher tax rates encourage investment. Lower tax rates encourage profit taking.

indigenous says

Talking to you is like talking to a kid who has discovered he can control the conversation by asking questions.

Ha ha ha ha.

indigenous says

Talking to you is like talking to a kid who has discovered he can control the conversation by asking questions.

What do you mean by that?

tatupu70 says

Posting a video with no explanation or guidance is not supporting evidence.

You asked for supporting information. That is what I provided. If I summarize it before you've had a chance to look at it then we risk you limiting yourself to my interpretation. Alternatively, you will be so focused on proving me wrong that you don't really pay attention to the material as a whole. I prefer not to post something, summarize its contents, and tell you what it means (which cable news station does that remind me of?). You asked for supporting information on how money is created, how the creation of that money benefits people as we head down the food chain, how it affects consumer prices, etc... These videos sprang to mind. Yes, they are long, as this is a very complex subject.

turtledove says

I prefer not to post something, summarize its contents, and tell you what it means (which cable news station does that remind me of?).

That's fine, but most people (myself included) don't alway have 2 hours to watch videos. And I'm not sure how you summarizing it is any different than you posting a video of some other random internet user summarizing it.

I'll try to get through them tonight, but what I've seen of the first one is not very illuminating. It talks a lot about fractional reserve banking. Not really on topic.

tatupu70 says

If that's the case, why did the trend towards increasing income disparity clearly begin around 1980 with Reagan's election?

The Federal Reserve wasn't buying bad mortgages back then. It wasn't bailing out banks back then.

So, again, I ask. How does the Federal Reserve cause increasing income/wealth disparity?

(As an aside, it looks like income disparity went DOWN during the bailouts...)

Wow. So many things wrong with your reasoning. The assertion was that the Fed buys securities from the big financial firms, and that benefits the wealthy. So you post a chart of income disparity that only appears to go to 2007?

Why would you assume there can only be one cause of income disparity? Reagan gave tax cuts to the wealthy; that's ALSO a cause of wealth disparity.

Wealth disparity did decrease when the banking industry collapsed. If your chart were up to date, you would see it go back UP after the bailouts. If we truly had a free market rather than a "privatize the profits and socialize the losses" kleptocracy, wealth disparity would have decreased even more. But government intervention restored the disparity and continued to make it even greater. If your chart were up to date, you would clearly be able to see that.

tatupu70 says

I'll try to get through them tonight, but what I've seen of the first one is not very illuminating. It talks a lot about fractional reserve banking. Not really on topic.

You don't think that fractional reserve banking plays a role in how money is created?.... the supply in circulation?... asset prices?

david1 says

In fact, there were 61,910 individual returns in 1988 with $1M or more in income for a total income of $150.8B. There were 34,704 returns with $1M or more in income in 1987, for a total income of $72.1B.

It would seem this indicates there were a lot more people filing as as S corp?

david1 says

My math shows that in order for the subchapter S argument to hold water, you must assume that corporate profits grew at a 46% annual rate, when their revenues grew at 4%, and their labor costs grew, and their cost of debt service grew. How is that possible?

You mentioned investment - investments (and the capitalization of costs therein) are a tax neutral. IE, if a company invests in a company, a portion of that investment, (depending on how long it is depreciated) is written off from taxes. That means expenses increased.

The investments increase production. If you buy a backhoe you replace how many shovels? If you buy CNC equipment you replace how many machinists?

david1 says

Revenue growing 4%, while costs increase, does not translate to a 46% growth in profits. It cannot, by math. Lets say that revenues are $100 and expenses $1. profit margins are 99%. If revenue grows 4% to $104, then profit grows 3.96 to 102.96. A growth in profit from 99 to 102.96 is a growth of 4%.

Outsized profit gains like that can only occur if profit margins also increased. In order for profit margins to increase, costs must go down. But labor costs went UP. Debt costs went UP.

A grocery store has a profit of 2% if your net goes up by 1% you hit that profit increase.

Again virtually everything above the break even point is profit.

david1 says

. In order for profit margins to increase, costs must go down. But labor costs went UP. Debt costs went UP.

Not true. A basic purpose of a business is to do more with less which is the opposite of government. Lean (management philosophy) manufacturing and really the free market which always produces more for the same money which results in a perpetual deflation.

david1 says

To put it mildly, higher tax rates encourage investment. Lower tax rates encourage profit taking.

The natural dynamic of investing is not directly controlled by taxes.

This is getting above my pay grade.

But the main point I was making is that the apparency of income disparity was because of tax changes in 1988 and a few other years. Which you demonstrated by showing that the number doubled in that year :

"In fact, there were 61,910 individual returns in 1988 with $1M or more in income for a total income of $150.8B. There were 34,704 returns with $1M or more in income in 1987, for a total income of $72.1B."

New Renter says

Talking to you is like talking to a kid who has discovered he can control the conversation by asking questions.

What do you mean by that?

He keeps asking questions without demonstrating any understanding. How come, How come, How come, How come,

Homeboy says

Wow. So many things wrong with your reasoning. The assertion was that the Fed buys securities from the big financial firms, and that benefits the wealthy. So you post a chart of income disparity that only appears to go to 2007?

I'll grant you that it's hard to tell the exact end of the chart. I think it's later than 2007, but I'm not 100% certain. If you have one that shows something different, please post it.

The assertion was that the Federal Reserve was the cause of increasing income/wealth disparity. And the explanation of how this occurs was the bailouts. A chart showing that income disparity was occuring since 1980 pretty much kills that theory.

Homeboy says

Why would you assume there can only be one cause of income disparity? Reagan gave tax cuts to the wealthy; that's ALSO a cause of wealth disparity.

I don't assume that. I was told that tax cuts weren't the cause, and that the Federal Reserve was the cause.

Homeboy says

Wealth disparity did decrease when the banking industry collapsed. If your chart were up to date, you would see it go back UP after the bailouts

Well, if true, that would just return it to the established trendline. The tax cuts are the cause.

turtledove says

You don't think that fractional reserve banking plays a role in how money is created?.... the supply in circulation?... asset prices?

Fractional reserve certainly plays a role in money creation. And the supply in circulation. And asset prices. Yes to all.

But none of those issues address the question at hand.

indigenous says

He keeps asking questions without demonstrating any understanding. How come, How come, How come, How come,

I guarantee that I understand more deeply than you do. I'm trying to show you that your understanding is superficial at best. You never question the propaganda that you are fed but always take it at face value.

I'll be happy to reasses my thinking if you or anyone can show me where I'm wrong. For gods sake--you can't even tell me how the Federal Reserve is helping their cronies. All you can say is that you already told me. lol.

For gods sake--you can't even tell me how the Federal Reserve is helping their cronies.

indigenous says

The money is printed out of thin air, it is then used to purchase bad mortgages through Freddy and Fanny, at the then value of the RE, from the banks.

indigenous says

Inflation is not even. The cronys, TBTF big banks, get their money through uncle Ben.

This allows them to invest the money ahead of inflation. As more money is invested, mostly in RE or Equities, the price rises giving their investment a rise in value.

tatupu70 says

you can't even tell me how the Federal Reserve is helping their cronies.

The Fed “prints money” by purchasing large assets from big banks and the ultra-rich. Like with QE3, where the Fed spends billions per month on “mortgage-backed securities.”

Are mortgage backed securities a cash flow instrument of the rich? Or are they an investment vehicle of the Average Joe?

So the Fed buys the mortgage backed securities… and the ultra-rich get the newly “printed” money in exchange.

And they need somewhere to put it…

… so it flows to stocks and real estate – boosting or “inflating” the price of these assets even higher.

Who is this benefiting first? No one is buying MBS's from me! Are they buying them from you? So who is getting the cash first? What are they doing with it after they receive it? After they've leveraged their wealth to create new wealth, what are you left with besides increased cost of living?

turtledove says

Who is this benefiting first? No one is buying MBS's from me! Are they buying
them from you? So who is getting the cash first? What are they doing with it
after they receive it? After they've leveraged their wealth to create new
wealth, what are you left with besides increased cost of living?

So, after all that, we're left with the toxic mortgage buyback as the Fed mechanism for increasing income/wealth disparity. A one-time, highly unusual event that has only been happening since 2008. That's the cause of 30 years of increasing disparity? You see how I don't buy that, right?

tatupu70 says

That's the cause of 30 years of increasing disparity? You see how I don't buy that, right?

About the same time frame as Dick took the U.S. off of the gold standard. Coincidence?

indigenous says

About the same time frame as Dick took the U.S. off of the gold standard.
Coincidence?

lol--OK, now we're going with the gold standard as the cause? Great--please state your case. What is the mechanism?

tatupu70 says

lol--OK, now we're going with the gold standard as the cause? Great--please state your case. What is the mechanism?

The debt has hockey sticked since then. This has created inflation by government borrowing and printing money to buy treasury bonds out of thin air to make up for the ones that were not purchased.

Oh and go light on the hubris I cannot for the life of me see where you have earned a modicum of it.

indigenous says

The debt has hockey sticked since then. This has created inflation by
government borrowing and printing money to buy treasury bonds out of thin air to
make up for the ones that were not purchased.

Well, to be fair, the debt skyrocketed because of ridiculous levels of defense spending. But, in any event, please detail how inflation or government debt causes income/wealth disparity. I'm all ears.

tatupu70 says

Well, to be fair, the debt skyrocketed because of ridiculous levels of defense spending.

Yup except theoretically the war ends.

Government growth
and subsidies

The other big one would be entitlements.

tatupu70 says

But, in any event, please detail how inflation or government debt causes income/wealth disparity. I'm all ears.

Explained that multiple times you don't hear what I'm saying, so be it. It is not my job to learn you anything

indigenous says

Inflation is not even. The cronys, TBTF big banks, get their money through
uncle Ben.

This allows them to invest the money ahead of inflation. As more money is
invested, mostly in RE or Equities, the price rises giving their investment a
rise in value.

Is this your explanation? If so, my question is how do the cronies and the TBTF banks get their money through Uncle Ben? You realize that Ben isn't running presses and handing out money to his friends, right?

The Federal Reserve buys government bonds, injecting liquidity into the system. So, how does that increase income/wealth disparity?

tatupu70 says

Is this your explanation? If so, my question is how do the cronies and the TBTF banks get their money through Uncle Ben? You realize that Ben isn't running presses and handing out money to his friends, right?

He has/is bought/buying toxic assets. He pays interest on their excess reserves. The found money then allows them to invest ahead of inflation as with RE and Equities.

Whoa. Wait a second. You stated:

indigenous says

The debt has hockey sticked since then. This has created inflation by
government borrowing and printing money to buy treasury bonds out of thin air to
make up for the ones that were not purchased.

Then you follow up with this?

indigenous says

He has/is bought/buying toxic assets. He pays interest on their excess
reserves. The found money then allows them to invest ahead of inflation as with
RE and Equities.

How did you get from the gold standard and inflation being the cause back to the toxic assets??

indigenous says

TARP was one and a continuation was QE which kept the interest rate artificially
low and gave an advantage to those who could borrow at low rates they are also
getting interest to the tune of about a .75 of a trillion on their excess
reserves

You can't have it both ways. Low rates help borrowers and hurt savers. The wealthy are savers. The middle class are borrowers. QE should help reduce wealth disparity.

tatupu70 says

How did you get from the gold standard and inflation being the cause back to the toxic assets??

They are all related to inflation and the FEDtatupu70 says

You can't have it both ways. Low rates help borrowers and hurt savers. The wealthy are savers. The middle class are borrowers. QE should help reduce wealth disparity.

Sure I can they are both occuring

indigenous says

A grocery store has a profit of 2% if your net goes up by 1% you hit that profit increase.

Again virtually everything above the break even point is profit.

If profit MARGIN goes from 2% to 3%, then yes, profits can grow 46% in one year. Explain how a grocer can increase profit Margin 46% in one year, while his variable costs (labor) and cost of capital (interest rate) increase.

You have never run a business if you think virtually everything above break even is profit. There are two types of costs, fixed costs and variable costs. Variable costs increase with increased production. Break even is fixed costs divided by (1-variable cost %)....

aw fuck it. I'm not wasting my time with you, why explain it? I don't enjoy arguing with someone incapable of understanding what I am saying.

david1 says

You have never run a business if you think virtually everything above break even is profit. There are two types of costs, fixed costs and variable costs. Variable costs increase with increased production. Break even is fixed costs divided by (1-variable cost %)....

Actually I have run one for over 3 decades.

The variable costs are a small fraction of cost above the break even point. david1 says

aw fuck it. I'm not wasting my time with you, why explain it? I don't enjoy arguing with someone incapable of understanding what I am saying.

Don't flatter yourself I would be willing to bet my world would bitch slap you out of business in short order.

indigenous says

Don't flatter yourself I would be willing to bet my world would bitch slap you out of business in short order.

LOL. Nope mine's bigger.

Seriously, big guy is trying to turn this into a dick swinging contest.

Internet tough guy routine always impresses me.

indigenous says

The variable costs are a small fraction of cost above the break even point.

In a small, very low volume, service based business, yes that can be true. Why don't you ask the largest retailer in the world how the size of their fixed costs compare to their variable costs, Mr. Big-time CEO. Suspect Walmart's "Cost of Good sold" outpaces their fixed costs by a factor of 5 or more....
indigenous says

Actually I have run one for over 3 decades.

Then unless you understand variable and fixed costs better than you have led on here, you have run a business poorly for 3 decades.

david1 says

LOL. Nope mine's bigger.

Seriously, big guy is trying to turn this into a dick swinging contest.

Internet tough guy routine always impresses me.

Says the winy bitch

david1 says

Then unless you understand variable and fixed costs better than you have led on here, you have run a business poorly for 3 decades.

You are still flattering yourself

tatupu70 says

I'll grant you that it's hard to tell the exact end of the chart. I think it's later than 2007, but I'm not 100% certain.

Wow, you're just flailing here, aren't you?

tatupu70 says

The assertion was that the Federal Reserve was the cause of increasing income/wealth disparity.

It's like you didn't read a single word I wrote. The assertion was that the Fed causes wealth disparity, but nobody said the Fed was the ONLY POSSIBLE CAUSE of wealth disparity. There can be other causes, too. I told you that, and you just ignored me.

tatupu70 says

A chart showing that income disparity was occuring since 1980 pretty much kills that theory.

No it doesn't.

Consider the following statement:

"There were birth defects before Thalidomide was developed; therefore Thalidomide does not cause birth defects."

Is that true? No, it is not true. That is the exact same faulty reasoning you are using. I would suggest buying a book on logic and boning up on it a bit.

tatupu70 says

I don't assume that. I was told that tax cuts weren't the cause

I don't think you were told that.tatupu70 says

Well, if true, that would just return it to the established trendline. The tax cuts are the cause.

Makes no sense. If tax cuts were the sole cause, then wealth disparity would not have changed when the financial sector collapsed, since the tax rates didn't change at that time.

John Bailo says

The troika of Volcker-Greenspan-Bernanke may yet be broken!

By an Obama appointee? One can only hope, of course as long as we are wishing how about getting rid of the FED entirely.

Homeboy says

Wow, you're just flailing here, aren't you?

Yes, because a chart I used to show 30 years of increasing wealth disparity is a little unclear whether it ends in 2007 or 2009. Please tell me again why that matters?

Homeboy says

It's like you didn't read a single word I wrote. The assertion was that the Fed causes wealth disparity, but nobody said the Fed was the ONLY POSSIBLE CAUSE of wealth disparity. There can be other causes, too. I told you that, and you just ignored me.

Well, maybe you didn't, but others did. I'll find the quotes. Several posters indicated that the Federal Reserve is THE cause of wealth disparity. Obviously not the 100%, only cause. But the MAIN cause.

Homeboy says

No it doesn't.

Consider the following statement:

"There were birth defects before Thalidomide was developed; therefore Thalidomide does not cause birth defects."

Is that true? No, it is not true. That is the exact same faulty reasoning you are using. I would suggest buying a book on logic and boning up on it a bit.

lol--you need a little primer on logic yourself. I never said that the Fed policy of buying MBS wouldn't lead to inflation. My point was that that policy was a very recent event and couldn't explain 30 years of increasing disparity. Homeboy says

Makes no sense. If tax cuts were the sole cause, then wealth disparity would not have changed when the financial sector collapsed, since the tax rates didn't change at that time.

I never said tax cuts were the sole cause. I was told that Federal Reserve policy was the cause and was trying to understand that theory.

Homeboy says

Let me summarize this for you:

Tatupu: The Fed can't cause wealth disparity, because tax policy causes wealth disparity, and there can be only one cause of wealth disparity.

LOL. Wow--twist words much? That is NOT at all what I have ever said.

Homeboy says

Tatupu: This stupid chart I posted proves that tax policy was the sole reason for wealth disparity, and wealth disparity actually went down during the bailouts.

I guess the only way you can attempt to win an argument is by completely mischaracterizing the opposing points.

Homeboy says

I didn't say the Fed caused wealth disparity to go down. I said they caused it to go UP. I said it went down BEFORE the Fed intervention, and then went up again AFTER the Fed intervened. Jesus Christ, this should not be so difficult for you to understand.

You've said a lot of things. Most of them make no sense and are completely incorrect.

Homeboy says

And then, after I specifically told tatupu that there can be more than one cause for wealth disparity,

Again--of course there is more than one cause. The point is that disparity has been trending up pretty consistently since around 1980 so the underlying cause started then.

Homeboy says

I clearly wrote that wealth disparity went DOWN when the banking industry collapsed, and didn't go back up until intervention took place. I got from Fed to "wealth disparity goes UP", not "down".

lol--if you say it, then it must be true?

sbh says

If Bernanke had let the banks fail you'd likely be dead.

That is tantamount to Lenny being ever grateful to George for saving him from drowning, Lenny not realizing that George is the one who threw him in the river in the first place.

Greenspan threw us in the river by financing the nonsense in the first place. Now you want us to be grateful to Benny for saving us?

As far as TARP being necessary goes there are as many who say it was not necessary as say it was.

If you want to give Benny a well deserved BJ go for it. I don't see it.

You say that we will be digging out of this for decades which quite possibly be the greater depression as Benny is just prolonging the misery and the recovery will never start as long as he keeps playing God. Oh and screw you ideas of financial laws, they are contrived Krugman Keynesian Kool Aid.

You are defending the institution that has created more instability than any other in the history of the U.S., Nope it absolutely positively needs to go.

Homeboy says

reading comprehension:

That really is it, an inability to look. What we have here is a failure to communicate.

tatupu70 says

Homeboy says

I clearly wrote that wealth disparity went DOWN when the banking industry collapsed, and didn't go back up until intervention took place. I got from Fed to "wealth disparity goes UP", not "down".

lol--if you say it, then it must be true?

Tatupu, just to refute one more time, this is NOT your standard left-right issue. The economist Dean Baker, who is quite left-leaning, has described this clearly.

>>
No this entire fiasco is manufactured, by big business, and the media. The media especially are cupable for the disgraceful way they whip up hysteria at every opportunity. Money is not a force unto it's self, it's merely a function of economic activity. And we all still gotta eat, replace stuff, there was never going to be an economic meltdown as described. What there was going to be is a *massive distribution of wealth*, richly deserved mind you, since the rich clearly haven't got a clue they deserve to lose their money. The bail it had one purpose, to save their asses not yours. Bare 5 mins later their smug smiles are back, and their 'order' has been restored. As in, we're still rich, you're still screwed.

Source: www.guardian.co.uk/commentisfree/cifamerica/2009/may/18/us-economy-bank-bailout

tatupu70 says

Good. I expected that would be your answer. So, my next question is: how big do you have to grow to be "too big to fail"? What's the cut-off? Because if the banks don't KNOW that they will get rescued, they can't operate recklessly. IndyMac was pretty big. So was Lehman Bros. They must have just missed the cut-off, huh?

Clearly, you are still pretending to not understanding it.
Everyone should be allowed to fail, irrespective of their size. Typically, those big banks would not have been that big unless they had an implicit guarantee of bailouts. Remember dot com bursts? A lot of tech companies did fail. But that did not eliminate the tech industry.

gsr says

Clearly, you are still pretending to not understanding it.

Everyone should be allowed to fail, irrespective of their size. Typically, those big banks would not have been that big unless they had an implicit guarantee of bailouts. Remember dot com bursts? A lot of tech companies did fail. But that did not eliminate the tech industry.

I apologize--I don't mean to pretend. You are right, I do understand it. My point is that in order for moral hazard to exist, the banks must KNOW that they will be saved and that any losses will be socialized. Neither of those conditions is met in this case. Banks took huge losses. And large banks were allowed to fail. I don't see any moral hazard here.

To be clear--I agree that TBTF banks should be broken up and alllowed to fail. But I also understand that allowing tech companies to fail is not the same as allowing the entire world banking industry to fail.