“Fair Tax:" Observations

There is absolutely no question that our system of federal taxation must be changed. The so-called “fair tax” is a very attractive alternative to the current state of affairs, for all the reasons cited in Neal Boortz's two books. Since it's too difficult to read the proposed laws, I have read The Fair Tax Book and Fair Tax: the Truth, both by Neal.


I urge you to read these books to familiarize yourself with the "fair tax," so that this essay will make more sense. (They are very short books.) By way of introduction, I concede that the ¨fair tax¨is the best approach to funding government that has been proposed. I would like to see us implement something similar. This essay is meant to show my perception of the shortcomings; the books do a fine job of showing the strengths.

I can't support the legislation whole-heartedly or expect it to get a broader base of support, until and unless the following issues have been adequately addressed. It is for that reason that I'm writing this essay. Something like the "fair tax" is needed -- and soon. While the "fair tax" solves many problems, I think it would be a mistake to implement the tax as currently designed, but some tweaking might make it effective as well as fair.

The website fairtax.org is available if you want quicker access to the fundamentals of the “fair tax.” On the main page “About the Fair Tax,” the following characteristics of the tax are listed:

1. Enables workers to keep their entire paychecks

2. Enables retirees to keep their entire pensions

3. Refunds in advance the tax on purchases of basic necessities

4. Allows American products to compete fairly

5. Brings transparency and accountability to tax policy

6. Ensures Social Security and Medicare funding

7. Closes all loopholes and brings fairness to taxation

8. Abolishes the IRS

Of these 8, I absolutely agree with all except #7. I partially agree with #7, since loopholes are, indeed closed. In the following essay, you will read my concerns about fairness. Note: even if the IRS is abolished, some agency will have to be empowered to collect the “fair tax,” whether it's easier to collect than income taxes or not.

First, the trivial objections:

Keep to the Facts

Neal resorts to one of his favorite ploys throughout his books. He writes “the federal income tax was indeed a tax on the 'evil and hated rich.'” Whom is he quoting when he refers to the “evil and hated rich?” He doesn't provide a footnote or reference. I'd certainly like to know who originally said “evil and hated rich.” Many of his arguments are valid, but this approach makes one suspect. As he says elsewhere, let's argue the merits of the issue, not the politics.

Documentation, please

Throughout the book, he cites statistics without documentation. He footnotes almost none of his data statements. I suspect that many of his statements are true, but I have no way to verify without a reference to check.

Second, the false assumptions:

Who will benefit?

Many who might support the “fair tax” agree with the redistributive intents built into the current Income Tax structure and believe that wealth (ability to pay) is a valid measure on which to base tax burden, at least in part. There is little or nothing in Neal's books showing the anticipated relative tax burdens on various groups in the economy; just because the name of the tax is "fair tax" does not make it fair. Perhaps there are charts or graphs elsewhere. See my reference to a study, below.

If the tax can be shown to burden the wealthy at least proportionally the same as the middle class, then it will win many converts. A tax does not have to be confiscatory to meet the requirements of most in this group of people. It's simply that the middle class sees itself as put upon more than the wealthy (and the very poor, but that's a different story). An analysis of the current design of the "fair tax" would show that the middle class would be paying a higher percentage of income or wealth as taxes than the more wealthy.

There is a distinction between a) taking money from one group and giving it to another and b) requiring one group to pay more taxes, even proportionally higher. Taxes pay for government services and most such services benefit an individual more or less proportionally to income or wealth. Take the protection afforded by our armed forces, courts, FBI and CDC. They are providing 10 times the value to an individual with $10 million net worth than to the person with $1 million net worth just on face value alone; that argues strongly for a tax that has a proportional burden on all, based on total net worth, independent of consumption or income. It could be argued that those services are valued by the individual even more than 10 times as much, but let's save that for another discussion.

Opportunity Costs of Withholding

He says that if we could keep our tax money until it is due, we could decide what to to with it – citing that as an opportunity cost of withholding. There would likely be no significant difference in the timing of tax collection from American workers. In fact, under the “fair tax,” the money would also come out of your pocket at about the same rate over the course of the year. Otherwise, how would the government collect effectively the same amount of money during the year to keep government running? People will be making taxable purchases over the entire year.

Double Counting

Writing about the embedded cost of taxes in commodities that we purchase, Neal concludes a paragraph at the top of p.55 in The Fair Tax Book, “... on average, 22 percent of what you spend is supporting the federal government. That is in addition to the money taken out of your check in income taxes and payroll taxes.” By saying this, he is double counting, because his calculations already include the inflated costs of labor in the production costs. The withheld taxes were calculated in the cost of products; he can't legitimately count them again.

Growing Economy Means More Tax Revenue

On p. 122 of Fair Tax: the Truth, Neal makes a parenthetical comment that “the Fair Tax ... brings in money based on the size of the economy.” This is true only to the extent that consumption follows the size of the economy. As shown in an example (below), if the growth of the economy occurs in companies that sell primarily abroad, there may be little or no added tax revenue. Increases would reflect only the added wealth of workers and owners, who might already be satiated or might want to save most of their increased earnings.

Encouraging Saving

One of the most exciting prospects of the “fair tax” is that it would likely discourage consumption and encourage saving, as people find themselves with more disposable income. (Neal has called the “fair tax” a voluntary tax; if you don't want to be taxed, then don't consume.) Increased saving is a goal towards which our country should be striving. Saving is essential to economic growth.

To the extent that we are successful in increasing savings (and decreasing consumption), tax revenues could take a big hit. Actually, it discourages domestic consumption. Many people will use their new-found wealth to travel to foreign countries, where they will buy spheres with the Eiffel Tower in a snowfall or wine and dinner or hotel stays or motorbikes or who knows what. No tax revenue there.

Compliance

I don't understand why we would experience a substantive difference in compliance. Indeed, the drug dealer will pay taxes when he buys gasoline, milk, and bread. But the methods for non-compliance today will give way to new methods. We will begin to see

• Fewer cash transactions to avoid income and FICA taxes

• More cash transactions to avoid “fair tax,” especially among service providers.

• More bartering, especially among service providers

• More purchases abroad, maybe even purchases of made-in-USA products

Certainly Neal would not advocate a level of policing that would or could interdict such behavior. Never underestimate the American's ingenuity as applied to avoiding taxes.

Finally, the real problems that must be addressed to get people to think critically to come on board:

Regressive or Progressive (fair)?

The website and the books effectively and accurately dispel the idea that the “fair tax” is regressive vis-a-vis the impact on low income families. But their description of the relative burden on the wealthy is inaccurate. They repeat a mantra that claims to tax the wealthy at a rate of 23% -- the same as everyone else. Remember, though, that the taxation rate applies only to consumption; thus the tax rate relates only to what people purchase.

The fairtax.org website refers to a study on the progressivity of the “fair tax,” A Distributional Analysis of Adopting the FairTax: A Comparison of the Current Tax System and the FairTax Plan. This is exactly the type of study I am looking for, but this study makes some assumptions that I believe are inappropriate. The particular assumption with which I differ is that expenditure is a better measure of wealth than income. I would suggest a combination of measures, including all three – wealth, income, and consumption, with a weighting algorithm (which I certainly haven't come up with yet). Thus, the study shows that as a percentage of total consumption the rich pay a higher percentage as taxes. But this counts as proportional (or progressive) only if you accept that consumption is the best measure of wealth.

One assumption of the study with which I agree is that “the ratio of spending ... to income ... declines as income rises,” and it calls that behavior a burden of the tax. I don't think you can call a voluntary reduction in consumption a burden of the tax. That is the very condition that assures lack of proportionality – let alone progressivity. In other words, the “fair tax” is not even proportionally applied, if income or wealth is used as the measure of ability to pay. Just because the higher income populations pay more taxes than the lower income populations does not make the tax progressive; in fact, by the calculations in the Analysis, the tax burden is shown to be regressive – where the richer pay a lower percentage of income as taxes than the less rich.

Who Really Pays?

Neal describes how the "fair tax" will cause US companies to stop moving offshore and foreign companies to desire to do business in the US. In summary, his argument is that by taxing only consumption, the production process is tax-free and therefore attractive to the firm. He is certainly correct about that, but there's a fly in the ointment.

Let's take an extreme argument here:

A company that sells primarily (or exclusively) to foreign markets sets up business in the US under the "fair tax" structure. They manufacture, package and sell bison horn aphrodisiac for a particular Asian market. Their headquarters are in Montana.

This company employs several field workers who herd bisons, a few stockyard workers who corral them, some butchers, and some processors and shippers. In addition they use some machinery. They ship their product by truck from Montana to a west-coast port, where it is sent to Inner Slobovia, high in the Heralaya Mountains. Effectively none of the product is consumed in the US.

The plant workers are all low-wage earners except a few engineers on the production line and the company executives. Therefore, much of the workers' consumption tax ("fair tax") will be rebated at the end of each month. The components of the production process pay a very small total net consumption tax – if any at all.

At the same time, they use federal highways to ship their goods, the services of homeland security that xrays their shipping containers, the US customs service to police their shipments, the US Coast Guard to protect the shipping, the State Department to help maintain relations with Inner Slobovia, and other federal goods and services, not to mention Social Security, Medicare disability, and probably other services for their employees.

Who pays for those goods and services? Not the company; not most of its employees; and certainly not its foreign customers.

The argument is strong that business will be drawn to the US, but who pays for all the services provided to companies that sell abroad? What benefit is it to Americans to host firms that sell abroad? Surely, they appreciate the employment, but they will have to pay for services through their taxes.

Perhaps my example is a bit extreme, but it illustrates the free ride that is available under certain circumstances. It might actually be economically prudent for a foreign company to relocate to the US even if they have no market here, once the “fair tax” is in place. Jobs would be nice, but who pays the bills? Think: third world countries where multinationals produce their products, where taxes are low, and where infrastructure is maintained by an insufficient tax base, primarily local payers.

Countries that have VAT frequently rebate the tax to travelers as they leave the country. But the VAT was collected (tediously) at every step of production; thus, they don't lose all their tax revenues. How will we get foreign consumers to pay for the services (indeed, for the democratic environment) that make it possible to manufacture here under the “fair tax” system?

(Note: I would not argue for a VAT; I'm asking a procedural question about enforcing equity.)

By the way, under the current taxation system, foreign buyers of US-made goods and services pay a share of our tax because of the embedded nature of our tax collection. Under the “fair tax,” we would no doubt sell more to foreigners, but they would pay less to our government, as I see it, because there is no embedded tax.

Transition

Neal discusses transition costs, and for the most part dismisses them. But he writes primarily about these transaction costs:

• What will new cash registers cost?

• Will people be able to learn how to keep necessary records?

• What about existing inventories?

All of these transition costs are negligible.

My concern about transition is that there is likely to be a long period during which the market will not have corrected itself. For many months (or years?)

• Prices will not react to the lowering of embedded taxation – or will react very slowly.

• Wages will go through renegotiation, some faster than others

This will cause serious dislocations with some people placed in advantageous or disadvantageous positions due to nothing more than the luck of the draw. For example:

• On January 1 the “fair tax” goes into effect.

• You and I are both employed at the same salary of $1000 (from which, currently, withholding is taken). The employers are effectively on the hook currently for $1065 because of the 6.5% contribution to FICA. Your salary net of FICA is approximately $906 (6.5% + 2.9%, i.e., retirement + Medicare).

• You have a contract with your employer that states your salary as $1000

• I don't have a contract.

• On January 1, your employer is bound by your contract and must continue to pay you $1000. They start saving $65.

• On January 1, my employer starts paying me $906, figuring that I am no worse off than before, and they can save $159.

Surely even Neal would not attribute my disadvantage to my having made a bad decision – not to have a contract. This is Georgia, after all.

Other examples could be made on the supply side, where some industries will correct their prices quickly, while other industries will not. My misfortune is that I use a lot of product from the industries that have not corrected, while you use disproportionately more products from the industry that has quickly corrected. Again, my disadvantage will be entirely serendipitous.

Something must be thought out that makes these dislocations less punishing.

Conclusions

The urgency of tax reform makes it essential to solve at least these problems before some will support the “fair tax.”

Should we save the auto industry?

Should we save the auto industry? The question in the news is couched in economic terms – as it should be: Should taxpayers bail out the auto industry, and if so, what conditions and safeguards should be built into the financial arrangements?

But the issue must be resolved quickly, because there is a strategic component that could be more important in the long run than the economics.

The US has some essential industries and some that are not so essential, from a strategic point of view. If our sources of goods were cut off – if we were at war, for example, we could probably get by if we had no lawn furniture industry or cookware industry. Computers, trucks and autos, airplanes, energy, food, and some other items are harder to do without in a wartime situation.

It wouldn't even matter if the Saudis or the Chinese own the auto factories. But unless the factories and the supply lines are in the US, we could be in a difficult place if we find ourselves in a protracted military or even political confrontation.

Economists (counting me among them) talk a lot about competitive advantage. It makes everyone richer when counties live by the rules of economics 101. I'd encourage it; let's buy our lawn furniture from China, our sport shirts from the Philippines, and our high-heeled shoes from Brazil. Let them buy their technology, airplanes, and even corn from us.

In addition, when everyone is dependent on everyone else, reasonable people don't fight each other. But we all know that reason doesn't rule much of the world.

What are the economic questions that must be resolved regarding the potential recipients of taxpayer largesse?

1. Do they even need the bail-out?

2. What will they do with the money?

   • Buy technology? Retool?

   • Re-design marketing?

   • Stop making and selling big cars, even though Americans want to buy them (as long as gas prices are down)?

   • Will taxpayers have access to the boardroom and the corporate financial statements?

3. How will be ensure that the taxpayers will be paid back? How will they be paid back?

   • Will we get some of future profits?

   • Will there be some improvement in national infrastructure?

   • Will the companies take on some of our future obligations?

   
   
   • Will taxpayers own part of the business?

4. What will they do to make sure that all employees -- low to high – share in both the sacrifices required and the dedication necessary to solve the problem?

   • The unions have already said they are unwilling to negotiate

   • Members of upper management are still paying themselves unconscionable salaries and bonuses.

So let's resolve the sticky issues of economics, including fairness and equity, and get on with making sure that we have a viable strategic industrial base in the US.

Refuting Neal Boortz: Ed's Responses

The other blog dated today is an essay by Neal Boortz, syndicated talk radio host based in Atlanta.

In this post, I attempt to refute his points. The numbered, boldfaced headings relate to Neal's headings so that you can flip back and forth to maintain things in context.

Here is the text of the email that I sent in reply:

Thank you for sending the Boortz column. You may know that Neal has been a fixture on Atlanta radio for decades. This is where he got his start before syndication. By the way, he spoke at Leah's high school graduation from Yeshiva High School. I have great respect for his intellect and debating skills.

Those of you who didn't get the original emailing, please read the article below -- WAY DOWN THE PAGE before reading my comments.

Here is my take on his arguments:

1. The Race Factor. Neal writes, "there will be no name-calling, at least not here, for people who cast their vote on the basis of race in this election." There are many non-blacks who will vote against Obama because he is black -- including some that I know personally. While that might also be understandable, it is unsupportable.

2. The Race Card. What's his point? Of course there will be people who cry foul even when there's no foul. But there is an old joke that says "Just because I'm paranoic doesn't mean that there's nobody out to get me."
There have been racist attacks and fear mongering. Rush Limbaugh's outlandish statement about Colin Powell's endorsement IS racist; there can be no disputing of that. Mendacious emails circulating on the internet about Obama's father's tribe are both racist and dirty. Likewise the charges that he's a Muslim and/or a terrorist. These all play to the fear factor that is vestigial in many otherwise mature citizens.

3. The Republicans. His point is that the Republicans deserve to be ousted, but that Obama might be worse. Of couse, he makes no substantive points in this section of his essay.

4. Obama's Friends. Neal writes, "If Barack Obama was applying for a security clearance as a government employee, these associations would disqualify him. " That's an interesting conjecture. I'd like to know if it's true. I suppose that it is not. While it might not be attractive to have a few ugly acquaintances, one really has to look at the complete picture. Otherwise, how would those voting for McCain reconcile his association with a VP candidate that a) once politicked for the secession of Alaska, and b) violated her state's ethics code?
Reverend Wright: He had a pulpit, but there are lots of folks who hate what the US either has done or is doing. If you were a native American, how much would you love the good ol' USA? Rhetoric is rhetoric. I don't know what you did or said in the 60's, but I frequently said that the US was doing despicable things during the Vietnam war -- both in the international arena and at home. People vilified us at that time.
William Ayers: If you want to get things done, you join the boards of NGOs and charities that do things. If another member of the board is someone you don't like, tough. Obama has condemned what Ayers had done.
Tony Rezko: The Chicago Sun-Times writes about this: http://www.suntimes.com/news/watchdogs/757340,CST-NWS-watchdog24.article. All campaigns receive contributions from unsavory people; and then the campaigns either donate the money or give it back. Do you suppose that communists and ku klux klanners don't donate to democrat and republican campaigns?

5. Obama's Tax Policies: "...increase taxes on the evil, hated rich." This is just too much. Is Neal trying to foment a class war? Neal has one point right: we may differ on what we think the role of government should be. In fact, I -- personally -- think that fairness is a valid goal of government. Not to take from the rich and give to the poor, but to establish a "level playing field." That takes money.
I, for one, have had no problem paying taxes to be able to live in this great country.
During the Clinton administration, taxes were lower than previously, but higher than during the Bush years. We had prosperity; we were reducing our national debt; I was better off.
At another time we can discuss the contribution of the employees to the wealth of management.

6. Does this reflect your philosophy? Maybe so; maybe not. That's why we have elections. On the other hand, it's irresponsible for Neal to suggest, " they can vote themselves generous gifts from the public treasury." Neal has used the following quip frequently on his radio show, referring to those he perceives as living off the fat of the welfare state: "those who vote for a living." You may recall that it was during the Clinton administration that welfare was reformed.
I have an equally pithy suggestion that there are those who lobby for a living. You may know that by far the biggest doles and favors don't go to the welfare freeloaders, but to huge agricultural conglomerates (farm subsidies), manufacturers of corn-based ethanol, financial institutions (bailout), the auto industry (subsidized loans),....
In fact "my phylosophy" is that we ought to have a more forthright discussion of what our economic goals are and how to get there. What DO we want to subsidize? What DO we want to discourage? What is the best way to get there?
I think we should ensure that energy technology and manufacturing are healthy inside the US. Likewise information technology and agriculture. Those are strategic interests. High employment and ownership of business and property should also be encouraged. I don't think it is obvious or trivial what actions we should take to get there. Lowering taxes or raising taxes is only part of the strategy.

7. Those Amazing Vanishing Jobs. He hasn't said anything substantive in this section yet, but he does keep on with the incendiary rhetoric. Talk about wackos like Reverend Wright all you like, but Neal knows how to use divisive and incendiary rhetoric.

8. There’s your first lie. Small business does, indeed create most of the jobs. Having made my living as a small business owner and operator, I can say definitively that taxes or lack of them is not one of the factors that a successful small business owner uses to decide whether to fire an employee.
The more money a small business makes, the better off the employees and owners are. Some taxation of those increases profits does not make the profits go away. More profits means more income, taxes or not.

9. That’s the second lie. A lie of omission. By the way, my business employed around 15 for the last few years before I sold it -- after 21 years in business. You may recall that employment rates were higher before the Bush tax cuts than after.

10. Pandering to the Unions .. at Your Expense. Neal spends a lot of words writing about the Employee Free Choice Act, emphasizing that "It will eliminate the secret ballot in union recognition elections."
Apparently he hopes you have not read the bill. An important clause of the bill -- the one which he seems to find objectionable -- is that if a majority of workers petition to be represented by a union, then a ballot is not necessary. In fact, a vote would be moot, as I see it.
The letter signed by the congressman urges that secret ballots are essential to avoid intimidation. But if somebody already sticks his neck out and actually signs a petition to request elections, and a majority of the workers sign such a petition, then what's the problem? It's already a majority.

11. The Supreme Court. It's pretty presumptious to suggest that Obama would appoint justices that are anything but qualified. And even more so to suggest that congress would approve such an appointment.

Conclusion:

All that said, I'm glad that I could make these statements in writing, since Neal is such a good debater. That is not to say that his arguments are valid, but that he knows how to state the argument.

If he were to go on the air with my response in hand, he would verbally tear it to pieces -- not necessarily based on facts, but on rhetoric. Even if I were there, I probably could not call up the arguments to defend myself in a timely fashion.

Neal says many things that ARE true; I admire his knowledge and skills. But not everything he says is true. Most things he says are his (reasoned) opinion.

Refuting Neal Boortz: Neal's Essay

My sister-in-law was thoughtful enough to send me an essay by Neal Boortz about the dangers of electing Barak Obama. I hope I am not violating any copyright by reproducing her email here.

The following is Neal's essay, as quoted in the email. The next blog will be my refutation.

To The Undecided Voter

Neal Boortz

Tuesday, October 21, 2008

This is long; very long. Hey, I’m a pretty entertaining writer … so give it a go. If you’re an undecided voter in this presidential election the least you owe your country is to try to base your final choice on some substantive facts. No, I don’t have all the facts here … but I have enough of them to perhaps convince you that voting one particular way on November 4th might not be the most brilliant move you’ve ever made.

This election is my 10th. My 10th presidential election since I became a radio talk show host. My 10th election since I began spending more time than the average American thinking about, researching, reading about and talking about the choices voters faces. Look; I mean no arrogance here. It’s just that the average American doesn’t spend from 15 (then) to 22.5 (now) hours a week over the period of a presidential race talking about the candidates, the issues, the non-issues and the consequences of voter choice.

Never in those ten elections can I remember choices so stark and possible outcomes so perilous. For the record, over those 10 elections I voted for the Republican candidate six times and the Libertarian four. Never have I voted for a Democrat for president. I see no need to vote for a Democrat since I have no plans or desires to become a ward of the government. Somehow I don’t think 2008 is going to be the first time.

I’ve noted that some other “pundits” out there are starting to post, in columns and in their blogs, the reasons they are going to vote the way they are going to vote. I’ll make no attempt here to refute their (oh-so refutable) arguments here. Instead, I’m just going to put my thoughts and reasoning in writing just to cleanse my mind. If you can make some use of them; whether it is for laughter, talking points or intellectual consideration, have at it. Me? I’m just pulling the handle.

The Race Factor

Are many black voters going to vote for Barack Obama primarily because of race? Of course, many will. Surveys and polling have shown that the figure may reach 20%. I think it’s well more than that. Is race a sound reason to cast a vote? Probably not. Is it understandable? Absolutely. I cannot fault a black American for voting for Obama. It may turn out to be a negative vote insofar as their dreams and goals are concerned. It may not work out all that well for their children, especially if they’re ambitions and talented. But I don’t think many of us can absolutely say that we wouldn’t be casting the same vote were we in their shoes.

If you are a white American there is no way in the world you can look at this election through the same eyes as a third or fourth generation black American citizen. Several months ago a caller to my show suggested that Barack Obama’s ascendency in the presidential sweepstakes was Black America’s biggest accomplishment. I disagreed. Though I can’t remember the exact words, I said that, in a general sense, the shining moment for Black America may have been the show of patience and restraint shown by black men when they returned from putting their lives on the line in World War II and in Korea to a country with segregated schools, colored waiting rooms, whites only water fountains, beatings, lynchings, water hoses, police dogs and systematic discrimination pretty much every where they looked. The restraint showed by black Americans during the civil rights struggles of the 50’s and 60’s, though not universal, was something to behold.

Now .. try, though you won’t succeed, to put yourself into the mind of a black American. How can you experience or understand the legacy of segregation, violence and second-class citizenry your ancestors went through and not take pride in a black American on the verge of winning the presidency? How many black American voters do you think are uttering to themselves: “If my grandfather had only lived to see this.” It takes a great deal of maturity and a clear understanding of the possible future consequences for someone to put their racial pride aside and swim against the tide on this one. So, there will be no name-calling, at least not here, for people who cast their vote on the basis of race in this election. As I said, It’s understandable.

And Then There’s the Race Card

This really isn’t really a reason to vote for or against Barack Obama, but you do need to know what the next four years are going to be like with an Obama presidency.

During the campaign there have been some rather amazing charges of racism. Let’s see if we can remember a few:

• Using the word “skinny” to refer to Obama is racist.

• “Community organizer” is a racist term.

• Any reference to a connection between Obama and Franklin Raines, the former head of Fannie Mae is racist … that would be because Raines is black.

• All references to Jeremiah Wright are racist; that being due to Wright being black.

• Referring to Obama as “eloquent” is racist because it infers that other blacks are not eloquent.

• For goodness’ sake, don’t say that Obama is “clean.”

• This just in from The Kansas City Star: Calling Obama a “socialist” is also racist because “socialist” is just another code word for black.

And so it goes. We’ve also had several pundits, columnists and opinion-makers flat-out state that if you are white and you don’t vote for Barack Obama it can only be because he’s black. There is simply no other legitimate reason to deny this wonderful man your vote. Vote for McCain, you’re a racist. Simple as that.

Now let’s consider the next four years under President Obama. He is certainly going to introduce ideas and pursue policies that are pure poison to many Americans; especially achievement-oriented self-sufficient citizens. Whenever anyone dares to utter a word in opposition to any Obama position or initiative you can be sure that there is going to be someone waiting close by to start screaming “racist!” By the end of Obama’s first year in the White House virtually every white American will have been called a racist for one reason or another. So, what else is new?

The Republicans

One thing for sure … the Republicans deserve exactly what is happening to them in this election. It’s just too bad the rest of the country has to suffer the lion’s share of the punishment the Republicans so richly deserve. In 1994 the voters were fed up with Clinton and the Republicans swept to control of both houses of congress, largely on the strength of Newt’s Contract with America . Do you remember some of the promises? One that sticks in my mind is their promise to dismantle the Department of Education. Republicans – in 1994 – recognized that the quality of American education had been going steadily downhill since this government behemoth was formed. Well, that was then … this is now. The size of the Education Department, as well as the cost, has doubled. Republicans did this, not Democrats.

As a matter of fact, it’s not just the Department of Education; it’s our entire federal government. Spending has doubled. Size has doubled. All under the Republican watch inside the beltway. Pork barrel spending is completely out of control, and Republicans are behind the wheel. Education and pork spending aside, we have the Medicare prescription benefit, McCain-Feingold, Sarbanes-Oxley, a tepid response to Kelo vs. New London … all elements of a well-deserved Republican drubbing. The problem here is that the cure, that being Barack Obama, might well be much worse of than the disease.

The Republicans don’t deserve power in Washington just as you don’t deserve a boil in the center of your forehead. There are worse things, however. Complete Democrat control or, in the case of your forehead, a nice big melanoma. Pretty much the same things, actually.

It’s not that the Republicans did everything wrong. They got the tax cut thing right, and they responded correctly, for the most part, to the radical Islamic attack on our country. They just did so much wrong at the same time. They got drunk with power, and the hangover affects all of us.

Obama’s Friends

By “Obama’s Friends” we mean the likes of Jeremiah Wright, William Ayers, Tony Rezko and other assorted miscreants. I could spend a lot of time here detailing the crimes of Obama’s friends --- and make no mistake, they were his friends. At this point I don’t think that any votes are going to be changed one way or another by detailing the corruption of Rezko, the America-hating of Wright or the unrepentant terrorism of Ayers. Suffice it to say that Obama was close to all of these people … and these were associations born of mutual interests and philosophies. If you think that it is fair to judge the character of a person by observing the people they surround themselves with, then the judgment of Barack Obama would be a harsh one.

Obama’s varied storylines regarding his relationship with Ayers have, to say the least, been interesting. The list is incomplete, but thus far we have:

• He was just a guy who lived in my neighborhood.

• I was only eight years old when he was throwing bombs.

• I didn’t know about his history when we started working together

• I thought he had been rehabilitated.

Yeah … I guess it’s OK if you form a close relationship with a bomb-throwing terrorist, as long as he threw the bombs when you were a kid. Works for me. Work for you? In a similar vein, It must be your pastor rails against America , as long as you aren’t in church on those particular days. Or maybe we should say as long as nobody remembers actually seeing you in church on those days.

One interesting point: If Barack Obama was applying for a security clearance as a government employee, these associations would disqualify him. We are, my friends, about to have a president who doesn’t qualify for a security clearance. Pretty pathetic. If Barack Obama becomes president, he would not even qualify to be his own bodyguard.

Obama’s Tax Policies

You may consider this to be horribly old fashioned, but I operate on the principle that governments have the power to tax so that governments can collect the money needed to pursue and pay for the legitimate functions of that government. By “legitimate functions” I’m referring to law enforcement, national defense, a system of courts to adjudicate interstate disputes, national infrastructure and the costs associated with running the legislative, judicial and executive branches of government, for instance.

Now we can get into quite an argument over what constitutes a “legitimate” function of government, but let’s save it for later. Suffice it to say that Barack Obama has a much different picture of our government’s taxing authority than many of us do.

Before we go on, let me remind you of a point that I first heard made by former Libertarian presidential candidate Harry Browne. Government has one unique power that you don’t have, and neither do I. This is a power that is denied all private businesses and individuals in this country. That power .. the power unique to government .. is the power to use deadly force to accomplish its goals. If you have a business; a restaurant, for instance; you have to convince people to come to your establishment for a meal. You can advertise for customers, but they make the decision whether or not to give your restaurant a try. When the customers do come in it is up to you to deliver to them a superior product with exemplary service. This is how you get them to come back. Not through force, but through value and service.

Not so the government. You have no choice as to whether you are going to be a customer of government or not. Your patronage is compelled and your payments are extracted at the point of a gun. Supreme Court Justice John Marshall said that “the power to tax is the power to destroy.” The power to tax in the wrong hands can certainly bring destruction to our economy an even to our country. I submit to you that the power to tax in the hands of Barack Obama is dangerous: Dangerous to you personally, and dangerous to the very fabric of our Republic.

Just take a look at some of the rhetoric Barack Obama uses when he talks of his plans to increase taxes on the evil, hated rich. In a television interview with (I think) Charles Gibson, Obama was asked if he understood that tax increases have often resulted in decreases in government revenue. Obama responded that he was aware of this fact. He was then asked why, then, would he be so eager to raise taxes? Obama responded that, to him, tax increases were simply a matter of “fairness.” In other words, Obama didn’t wish to use the police power of the state to collect taxes necessary for the legitimate functions of government; he wanted to use his taxing power to promote some vaporous “fairness” in our economy. After all, as Obama put it, the people he wants to tax have more money than they actually need and he wants to give that money to people who actually need it.

Now I ask you, does any of that sound vaguely familiar? Hmmmmm, let’s see. I know I’ve heard something like that somewhere before. Wait! I think I have it. “From each according to his ability, to each according to his need.” Some character named Marx made slogan quite popular around 1975 in a writing called “Critique of the Gotha Program.” This phrase is one of the most well-known principals of communism. You can yell, scream, spin around on your eyebrows and spit wooden nickels all you want, but what Barack Obama is pushing here, at least insofar as his tax policies are concerned, is communism. This shouldn’t come as a surprise considering Obama’s self-professed affinity for communist student groups and communist professors during his undergraduate years. Oh, you didn’t read that? Maybe that’s because you read his second book, not the first one. But what the heck. He’s eloquent, isn’t he? And he has a good narrative.

As I’ve indicated, I’ve been doing talk radio for 39 years now. I was on the air when we were fighting communism in Southeast Asia . I was flapping my jaws when Soviet leaders seriously entertained dreams of world communism. Throughout all of those years I was never one to scream “communism” every time someone came up with an oddball idea on governance, and I never once found a communist under my bed. But now, at least when you consider tax policy, we have a candidate for president who seems very comfortable with some basic communist principals. Too comfortable. But none of this should really bother you … right? A little communism or socialism never really hurt anyone that you can remember. Besides, Europe is telling us that they’ll like us again if we vote for Obama. That pretty much overrules everything, doesn’t it?

Does this reflect your philosophy?

Come on! Put the celebrity worship aside for a moment. Put skin color aside. Just think about Obama and his “spread the wealth around” tax policy.

Let’s talk heartbeats. Sounds weird, but I’m going somewhere here. A bit of Internet research led me to the fact that the average number of heartbeats in a life time for a human being is about one billion. To make this more understandable, the average human heart beats around 70 times a minute. In one eight-hour work day your heart beats around 33,600 times. This is your heart beating .. every beat subtracted from the one billion .. every beat a part of your life gone, never to be recovered. If you are a moderately successful human being Barack Obama is going to take about 13,000 (39%) of those heartbeats away from you every working day. Put your finger on your wrist and feel your pulse. Feel every heartbeat. Just count up to 100. How much of your life went by as you counted? You can’t get those beats back. They’re gone, for good. Remember, you only have a finite number of those beats of your heart left … and Obama wants 13,000 of them every working day of your life. Those heartbeats – your life – being expended creating wealth. Your heartbeats, your wealth. Obama wants them. You don’t need them. Someone else does. The police power of the state.

Taxes are a nasty little reality of life. Nobody wants anarchy. Government is a necessity. Government, though, is not supposed to create winners and losers. Government is not, as Obama intends, to be used as an instrument of plunder. Almost all Americans are perfectly willing to surrender an appropriate percentage of their earned wealth to fund the legitimate functions of government. I, for one, don’t want to see my wealth confiscated because some bureaucrat has determined I don’t “need” it, and then have to watch as that wealth is used to buy votes from someone who is simply too lazy to generate the wealth they need by themselves … or, as Obama puts it, “spread around.”

What is Obama going to do? How does he determine “need?” What data does he use to determine “fairness?” Maybe he’ll set up some bureaucracy staffed with like-minded leftists who will use data collected in the last census and from those pesky American Community Surveys to establish a basic “need” level for people living in different areas. Once it is determined how much of a person’s wealth they really don’t “need,” it will be a simple matter of confiscation and redistribution to those who do need it. After all, that would be “fair,” wouldn’t it? Come on, it’s not exactly like you worked for that money.

Listen to the rhetoric of the left. Those who are in need are called “the less fortunate.” This means that their status as needy was due to nothing but bad luck. It stands to reason, then, that those with more than they need were just lucky. The fortunate and the less fortunate. The lucky and the not so lucky. And here comes Barack Obama riding over the rainbow on his Unicorn to set everything right and make it all fair. Isn’t that the world you want to live in?

There’s a quote that’s been floating around since I began my talk radio career. This quote is most often attributed to someone named Alexander Tyler writing in 1787 about the fall of the Athenian Republic . Others have said the guy’s name was Tytler. Let’s not argue spelling right now … let’s just get to the quote, because the quote goes to the heart of this presidential election:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

Think about this, my friends. Isn’t this exactly what we’re seeing right now? In fact, hasn’t this pretty much been the theme of Democrat Party election politics for nearly as long as you can remember? Here we have Barack Obama promising that he’s only going to raise taxes on the evil rich who make over $250,000 a year while 95% of Americans will get tax cuts. Think of this in terms of votes; higher taxes for 5% of the voters, lower taxes for the other 95%. It really doesn’t take all that much brainpower to figure out how this is going to work at in an election does it? You take money away from the people whose votes you don’t need, and give it to the people whose votes you do need. So very simple. The result is that people have, in fact, discovered that they can vote themselves generous gifts from the public treasury. Who is promising those wonderful goodies? That would be Barack Obama. Just what percentage of voters out there do you think are going to vote for Obama simply because he is promising them someone else’s money? My guess is that the number would be high enough to constitute the margin of victory for The Great Redistributionist.

Somehow I had this idea when I was growing up that if you wanted something bad enough, you would work hard until you got it. That was then. This is now. Now you vote for it. That’s change you can believe in.

Those Amazing Vanishing Jobs

Barack Obama repeatedly tells the American people that he is going to cut taxes for 95% of them. Now that’s a pretty nifty trick when more than 40% of Americans don’t pay income taxes in the first place. Tell me please … just how do you cut taxes for someone who doesn’t pay taxes?

Here’s the fancy narrative (Obama supporters just love that word) that the Obama campaign has come up with. Even if you don’t pay income taxes, you still pay payroll taxes. So Obama is going to give these people who only pay Social Security and Medicare taxes an offsetting tax credit. At this point Obama’s plan becomes almost impossible to explain. It’s convoluted, to say the least, but that’s out of necessity. When people started reminding him that about one-half of the people he’s going to cut taxes for don’t pay taxes he had to come up with something. The bottom line is this. Obama says that he is not going to take the cost of his tax credits from the Social Security Trust Fund. That’s nice, considering the fact that this so-called Trust Fund exists only on paper anyway. But if that money isn’t subtracted from the Trust Fund … where does it come from? Obama’s people explain that at first the deficit will just have to increase while these checks are written. Later they’ll just go out there and get the money from those “rich people.”

OK … so there we are. It’s tax the rancid rich time so that money can be transferred to the poor. But just who are these evil rich people destined to be beaten down by Obama’s taxes? At first Barack Obama defined them as “people making over $250,000 a year.” That definition had to change when it became known that the $250,000 a years was only for a married couple filing a joint tax return. In a heartbeat Obama changed his rhetoric to note that the tax increase would nail “families,” not “people” earning over 250 grand. If you’re single, the figure will be somewhere between $150,000 and $200,000, depending on who you’re talking to. We’ll try to let you know when Obama settles on a hard figure.

There’s your first lie.

So, what does all of this have to do with jobs? Well the very people that Barack Obama wants to nail with these tax increases are the people who create most of the jobs in our economy; America’s small business owners.

The Democrats spend no small amount of time excoriating corporations. To listen to a Democrat candidate corporations and lobbyists are the sole sources of evil in our society. Oh … and right wing talk show hosts. Well, you can forget these evil, nasty corporations for now. Fact is 70% of all jobs in our economy come from America ’s small business owners. The Small Business Administration recently reported that 80% of all new jobs are being created by these small business owners. These are people who report all of their business income on their personal income tax returns. As such, they are squarely in the crosshairs for The Chosen One’s tax increases.

If you are an American concerned about your job with a small business … and if you vote for Obama … then you very well could be cutting your own economic throat. Think about it. If the small business owner(s) who employs you has his taxes increased by Barack Obama he is going to look for a way to replace that money. So where does he go to replace his income lost to Barack’s tax increases? The best way would be to cut expenses. Well guess what? You’re an expense! Will it be your job that is cut to compensate for the increased taxes? Maybe you’ll be lucky and just have to forego your next raise. Maybe there would just be a cut in your pay or a reduction in benefits. Cast your vote and take your chances!

In recent days the McCain campaign has finally started to warn people about the possible consequences of Obama’s tax increases on America ’s small businesses. This has forced the Obama campaign to come up with a response. Initially Barack Obama started saying that he was going to give a break on capital gains taxes to small businesses. This worked for a while until people started figuring out that small businesses don’t pay capital gains taxes. Back to the drawing board, and this time they came up with a beauty. It’s a con, but it works. Barack Obama is now telling the media and anyone else who will listen that 95% of America ’s small businesses don’t make $250,000 a year, and thus won’t be affected by Obama’s tax increases.

That’s the second lie. A lie of omission.

Obama’s statistics may be accurate .. or nearly so. But the statement leaves one very important statistic out. Initially when you hear that “95% of all small businesses” line you probably think that this 95% employ about 95% of all of the people working for small businesses. You could think that, but you would be wrong.

The trick here is that the vast majority of America ’s small businesses are just that … small. I owned a title abstract business in the 80’s that had one employee. My wife owned a travel agency that had two employees. Neither of these small businesses came anywhere near the $250,000 line.

When you think about it you will understand that the important statistic here is the percentage of small business employees who will be affected, not the percentage of small businesses.

The October 21st edition of The Wall Street Journal addressed this issue in an article entitled “Socking It to Small Businesses.” The WSJ reports that Obama is right “that most of the 35 million small businesses in America have a net income of less than $250,000, hire only a few workers, and stay in business for less than four years.” There’s more to the story though: “.. the point is that it is the most successful small and medium-sized businesses that create most of the new jobs.. And they are precisely the businesses that will be slammed by Mr. Obama’s tax increase.” The Senate Finance Committee reports that of those who file income taxes in the highest two tax brackets; three out of four are the small business owners Obama wants to tax.

The WSJ reports that the National Federation of Independent Business says that only 10% of small businesses with one to nine employees will be hit by Obama’s tax increase. However, almost 20% of the small businesses that employ from 10 to 19 people will get nailed, and 50% of small businesses with over 20 employees get punished.

Again … it is not the percentage of businesses who will have to pay the increased taxes; it’s the percentage of the total of small business employees who work for those businesses. The Obama campaign is counting on you not making that distinction; and they know the media won’t make it for you; so Obama’s “95% of all small businesses don’t make $250,000” line will probably rule the day.

Come on folks. These are your jobs we’re talking about here. It’s time to take your blinders off and see through some of this Obama rhetoric. The Obama campaign has some wonderful people working for them to tell them just how to parse words to hide intent and meaning. Just because they’re trying to fool you doesn’t mean that you have to be so easily suckered. When Obama talks about change .. he may well mean that you are going to have to change jobs. Now that’s change you can believe in, right?

Pandering to the Unions .. at Your Expense.

Now since we’re talking about jobs here, you need to be up to speed on The Messiah’s “Employee Free Choice Act.” Let me step out on a limb here and say that applying the words “free choice” to Obama’s plan to eliminate secret ballots in union elections is like applying the words “fun sex” to an act of rape. Freedom has nothing to do with Obama’s plan, and fun has nothing to do with rape.

Going in you need to recognize that union membership has been falling for decades. You only see growth in union membership in government employee unions. This, of course, is troubling to union leaders. It is also troubling to Democrats. Unions, you see, almost exclusively support Democrat candidates, both with money and time. Big money and lots of time … and it’s all behind Obama’s candidacy.

To know what Obama is up to here, you need to know how union organizing works under the current law. Union organizers circulate a petition among employees. Employees are asked to sign a card saying that they would like to be represented by a union in their workplace. If a majority of the workers sign the cards the employer has the option of immediately recognizing the union and allowing them to organize the workplace. More often the employer will call for an election – an election using secret ballots. Every employee will be given the opportunity to express their desire to join or not to join a union in secret. Their co-workers will not know how they voted. They can prance around the workplace touting their support of unionization all they want in order to impress or appease their fellow workers, especially those who are trying to organize the union, but then vote “no” on the secret ballot if that’s how they truly feel.

How, you might ask, do Democrats feel about the secret ballot in union elections? For a clue let’s go to a letter from 16 House Democrats dated August 29, 2001. The letter was written on the letterhead of California Congressman George Miller, a Democrat representing the 7th District of California. That letter reads:

[Letterhead of George Miller, Congress of the United States ]

Junta Local de Conciliacion y Arbitraje del Estado de Puebla
Lic. Armando Poxqui Quintero
7 Norte Numero 1006 Altos
Colonia Centro
Puebla , Mexico C.P. 7200
Dear members of the Junta Local de Conciliacion y Arbitraje of the state of Puebla .

As members of Congress of the United States who are deeply concerned with international labor standards and the role of labor rights in international trade agreements, we are writing to encourage you to use the secret ballot in all union recognition elections.

We understand that the secret ballot is allowed for, but not required, by Mexican labor law. However, we feel that the secret ballot is absolutely necessary in order to ensure that workers are not intimidated into voting for a union they might not otherwise chose.

We respect Mexico as an important neighbor and trading partner, and we feel that the increased use of the secret ballow in union recognition elections will help bring real democracy to the Mexican workplace.

Signed:

George Miller
Bernard Sanders
Lane Evans
Marcy Kaptur
William J. Coyne
Bob Filner
Martin Olav Sabo
Joe Baca
Dennis J. Kucinich
Fortney Pete Stark
James P. McGovern
Barney Frank
Zoe Lofgren
Calvin M. Dooley
Barbara Lee
Lloyd Doggett

So there you go. These 16 Democrats are on the record as being solidly in favor of using secret ballots in union recognition elections. So far, so good … because that, as they point out in their letter, is clearly the right stance.

That brings us to piece of legislation – a piece of Obama sponsored legislation --designated as H.R. 800, the Employee Free Choice Act. Would you care to guess just what H.R. 800 does? Well, that’s simple. It will eliminate the secret ballot in union recognition elections. You got it! Obama has decided to really do something nice for the union bosses that are supporting him in this election, and he is determined to do away with secret ballots in union elections. When H.R. 800 gets passed … and trust me, with Barack Obama in the White House, this thing will become law … the union organizers will visit all of the workers, perhaps even visiting some of them in their homes, and “urge” them to sign the card calling for a union. I can hear it now: “Mrs. Johnson, wouldn’t you and your children want your husband to be represented by our union at his job?” Now put yourself in the worker’s place!

Are you going to say no? This organizer is sitting in your living room looking at you and your wife and saying “You do want to be represented by our union in your workplace, don’t you?” And you’re going to tell him no?

Are you getting the big picture here? This is nothing less than Barack Obama and his Democrat pals legitimizing union intimidation in the workplace. If you don’t see that, then there is virtually no hope for you when it comes to understanding basic politics. It’s payback the unions time .. pay them back for all of that financial support and all of those volunteer hours. Besides … the more union members there are the more union dues the union bosses have to spread to Democrats as campaign contributions.

But – we’re saved, right? After all, we have those 16 Democrats who signed that letter to Mexico . What was it they said? Oh yeah: “ … we feel that the secret ballot is absolutely necessary in order to ensure that workers are not intimidated into voting for a union they might not otherwise chose.” So these 16 Democrats will certainly put up a spirited defense of secret ballots in union organizing elections, right?

Well … um … maybe not. You see, four of these congressmen (Dooley, Sabo, Evans and Coyne) are no longer in the Congress. One of the signers, Bernie Sanders, is now a Senator. That leaves 11 of the 16 signees still in the house to defend the principal of the secret ballot.

I’m afraid we have a small problem though. It seems that every one of the 11 remaining signees is now a sponsor of H.R. 800. In fact, the so-called Employee Free Choice Act was actually introduced by none other than George Miller – the very California Democrat on whose letterhead that letter to Mexico was written. Bernie Sanders is a sponsor of the same legislation in the Senate along with Barack Obama. No surprise .

On the one hand we have these Democrats writing a letter extolling the virtues of a secret ballot in union organizing elections, and then they sponsor a bill eliminating those very secret ballots! And here’s Barack Obama pledging to sign the bill as soon as it comes to his desk! So what changed between 2001 and 2007? What happened that made these 12 Democrats go from believing that a secret ballot in a union election was “absolutely necessary,” to introducing a bill eliminating those “absolutely necessary” secret ballots? Control of congress; that’s what changed. In 2001 the Republicans ran the show. In 2007 it was the Democrats … and it was time to return some favors to union bosses. Do you know what you’re seeing here? You’re seeing just how much power unions have over Barack Obama and the Democrat party. It doesn’t matter what kind of letter you wrote, or what stance you took in the past --- when we say “frog” you had better jump.

Let me tell you what is going to happen as soon as Barack Obama is elected. Employers are going to look at the so-called Employee Free Choice Act and they’re going to be very afraid. They know what a union can do to their business and their profitability. Just look at our auto industry. So employers are going to immediately start working to minimize the damage. How do you do that? Well, automation is one way. Go ahead and buy that machinery you need to automate much of your workplace. That will allow you to get rid of these employees before they can unionize. You might also want to consider the possibility of moving some of those jobs overseas where union intimidation might not be such a negative factor in your business operations.

When Obama gets his unionization by intimidation thing in place – and he most certainly will – jobs are going to be lost and businesses will fail. This is the price Obama is willing to pay to pay back the unions who have supported him.

Just another reason to vote for The Chosen One, right?

The Supreme Court

This is getting to be a bit long. We’re over 6,200 words here. So let’s end this message to the undecided voter with a few words about the Supreme Court.

It is quite possible that Barack Obama will get to make one, maybe two Supreme Court appointments before he’s through in Washington . It is also possible that he will have a filibuster-proof Senate to help him ram those choices through.

I’m a lawyer, and I’ve always had this strange idea that the U.S. Supreme Court should base its decisions on the supreme law of our land, our Constitution. Many people think differently these days. A recent and rather shocking survey showed that around 80% of people who support Barack Obama believe that the Supreme Court should base its decisions not on the Constitution, but on what’s “fair.” Egad! On the other hand, the strong majority of McCain voters believe that the Supremes should look to our Constitution as the final authority.

Let’s just make this short and sweet, because I know you want to get out of here. If Barack Obama gets those two nominations, and if the Democrat Senate rubber-stamps them, then we are going to have a Supreme Court making decisions based on their liberal definition of “fairness” with some consideration to foreign court decisions tossed in. This is perhaps Obama’s greatest opportunity to do permanent damage to our Republic; permanent and irreparable damage. It’s one thing when Barack Obama talks about wealth seizure and redistribution in terms of “fairness.” It’s quite another when that talk is legitimized by a Supreme Court decision.

So, dear undecided voters … as Og Mandino (a great American) once said: “Use wisely your power of choice.” There’s a lot hanging in the balance.

The Danger of Saving

For most of this generation, the US has had one of the lowest savings rates in the developed world. Why is this important?

It's good to save, because, what we save (don't spend on consumption) is the only money available for investment. Investment is the creation of productive resources, like assembly lines, computers for research, tools for fixing things, and education to make skilled workers. Notice, please, that I said “creation” of productive resources. In other words, buying stocks from another owner of stocks is not usually real investment, as I define it, since nothing new is created. That's why the place where stocks are sold is called an “exchange.” It just changes the ownership of the assembly line or tools.

The creation of such productivity, of course, is what generates income and wealth, not only for the owners of productivity, but also for employees, contractors, the restaurants at which the employees eat, and the stores at which they shop.

Saving is good for the saver because it provides the means to buy goods today without encumbering future well-being. When we buy on credit, we are reducing our future well-being. When we use savings to buy, we have already sacrificed high living in the past.

I have recently come to recognize that buying stocks, in addition to not being investment, is also not “saving.” Unless a company issues new stock, there are (let's say, for simplicity) a constant number of shares of stock in all the companies on the stock exchange. If more people want stocks today than yesterday, then the price of stocks tends upward, just as the price of tomatoes would rise if more people want a limited number of tomatoes than previously.

From year to year there is an ever-increasing number of people in our economy interested in buying stocks and financially capable of buying them. Thus, from year to year the price of stock tends upward – until something interrupts the rise. For example, if goods are not selling and people are losing their jobs as a result, then those folks won't be buying stocks, and the price might begin to fall. If the price falls then others might become frightened and decide that they don't want to buy. Perhaps those two groups might even decide to sell stocks to generate income on which to live or to get out of a stock market that they foresee losing value. And the prices fall further.

The concept is not a lot different from betting. And betting is neither saving nor investment.

Folks don't have many options for saving.

• Stuff your money in the mattress. This, of course, doesn't contribute to the investment discussed above, since the money is unavailable to those who want to create productivity.
• Put your money in an insured institution, like a bank. The bank makes your money available to investors and to home-buyers, and even to consumers. Some of your money, therefore, is invested.
• Buy existing stocks in the exchange. As we know, this is not really saving, and it does nothing towards the generation of productivity.
• Buy new issues of stock. This is actually an investment. A company issues new shares of stock in order to build or buy a new machine, assembly line, or process, or to improve an existing one.
• Buy government securities (savings bonds, treasury bonds, etc.); i.e., loan money to the government. Some of this money would generate profits in companies that sell to the government or to government employees, thus potentially generating an incentive in those companies to invest. But the downside of this savings approach is that we will might end up paying later for the deficit spending.

Is saving dangerous?

If you have mistaken betting for saving, as many of us have done, then the vagaries of chance play too big a role, and you suffer as a result of doing something that you thought was prudent.

If you have saved in order to provide for investment, then you might still lose your money, but you have either acted like an entrepreneur, who expects to take risks. Such risks are not dependent on serendipity, but on business sense.

If you have placed your money in an insured institution, you are home free.

Ultimately, saving is the only way that our society will be viable. If Americans fail to save, then there will be no new investment, and there will be no employment, no products, and no future.

Why assume that GM is failing?

When news anchors go on the air, they are often seen as experts. What they say may be viewed as valid by the unwitting public. There are examples that I'll get into in other postings, but today I want to cover the economic downturn.

In particular, because of pundits' commentaries, General Motors has had to assure the world that bankruptcy is not in its plans. When GM's stock fell to a small fraction of last month's value, people (news anchors among them) began asking if the company would fail.

Arriving at such a question illustrates the lack of understanding that prevails.

Stock prices may have something to do with the health of a company, but just as often, the price of stock is quite unrelated to what the company is doing or not doing.

The stock market is just like any other market. The price of tomatoes can be related to

• the quality of the tomatoes
• the quantity of tomatoes available to be bought (supply)
• the number of folks who want to buy tomatoes (demand)
• how many tomatoes the buyers THINK will be available next week (by looking at weather reports, for example)
• whether the tomatoes from another country have been contaminated with E Coli
• and so forth.

Only one of these reasons has to do with the quality of the tomatoes. The stock market has one huge difference from the tomato market. For the most part, there are no new stocks being sold on any given day in the stock market; there are new tomatoes sold every day.

That's right. In the stock market, people are just buying and selling stuff that has been hanging around for a while. If I own a share of Widgits, Inc. I own 1/1,000,000 of that company – maybe a set of screwdrivers. If I sell the stock to my neighbor, then he owns the same 1/1,000,000 – the screwdrivers -- of the company that I previously owned. The company hasn't gained or lost any money; it hasn't changed at all; the owner of a fraction of the company has changed.

There is no question that the stock values of many financial institutions (banks, mortgage lenders,...) have fallen because the companies are truly not worth today what people a month ago thought they were worth. The quality has dropped, and people don't want to own part of those companies any more. A lot of folks want to sell, and not many want to buy; so the price falls.

To be entirely thorough, if people are buying fewer cars because they have less money coming in from their ownership of a bank or because they were laid off by the bank, then GM is not paying as much to stockholders in the form of dividends, and the stock would not be worth as much.

On the other hand, GM, as an example of a company whose stock price has plummeted, is fundamentally no different today from what it was a month ago. What has changed is people's general perception of the stock market. Perhaps GM isn't as good at making and selling cars as its foreign competitors, but there is no reason to think that it's 31% less competitive today than it was yesterday.

I wish a) I were not retirement age so that I had more years to wait, and b) I had enough money, because I'd be scarfing up stock in companies that make stuff.