Trust the Ferret, the Ferret is Wise

The following is the text of an email I sent to NPR's Marketplace show today, after they had a hack from the WSJ editorial page spouting nonsense straight out of the "Fairtax" book. Here's the article in question.

And my letter:
This morning, on the Marketplace Morning Report, you had Stephen Moore on, praising the benefits of a national sales tax.  His ideas and numbers come entirely from the book "FairTax" by Neal Boortz and John Linder.  And unfortunately, most of what he quoted is inaccurate or false.  A 23% sales tax would not replace all of the government income, the percentage was picked as near the maximum amount people would tolerate as a sales tax.  A national sales tax, despite his claim, would be extremely regressive and complex.  Most families who are out of the top 1% spend most of their income each year, which would make their net tax rate at LEAST 23%, plus the increases in cost that would come from this kind of tax.  Whereas the richest few don't spend all their money, which would make their net tax rate far below the 23% the rest of us would pay.  That hardly qualifies as "fair" by any stretch of the imagination.  And his idea of a $20,000 rebate for the sales tax spent?  That would be at least as complicated as the current income tax.  The rest of the work of tax collection would then be pushed on to the companies who sell products.  It would require just as much work, and we would still require the IRS to investigate cheats and other things.

His entire presentation was misleading at best, and outright false at worst.  The entire idea of a "fair" national sales tax is snake oil, designed to cover up for a gigantic tax cut for the rich and a tax hike for the rest of us, not any kind of serious policy suggestion.

I just had a very sobering realization in a conversation.

Let's start simple. The way capitalism works, most of the money a company makes comes from selling stuff to people. Stuff they make, or buy from other people. Then with the money they make from selling these things, they pay their employees. And their employees go out and take their money and buy stuff from that company and other companies, which they use to pay their employees, etc.

See, here's the thing. American average wages have been stagnant for years. Wages are more normally known as the money you get paid for work.

At the same time, companies have regularly been having record profits, and the stock market's been setting records, etc.

But if the employees are being paid the same amount, and yet the companies have been setting record profits, where's all that extra money been coming from?

Some of it comes from automation and greater efficiency, which lets the same number of employees do more work. Some of it comes forcing employees into unpaid overtime and stuff that looks like efficiency. Some of it comes from trade and specialization.

But most of it comes from debt. Americans are carrying record levels of household and individual debt. Most of it coming from real estate and mortgages. So those record corporate profits are coming from average Americans going into debt and putting their houses on the line.

We've pretty much hit the end of that, though. Real estate values across most of the country have been dropping. There's not really more places for people to get money from.

So what are the companies going to do now? There's not that much more efficiency to be gotten from most work. There's not much more people can borrow. There's not going to be an source for new record profits. Because people don't have the money to buy things, because the companies cut their pay in the name of profits.

That's a fundamental flaw of Wal-Mart thinking. If you don't pay your workers enough to live decently, you shoot yourself in the foot, long-term. Henry Ford, for all his problems, paid his employees enough to buy one of his cars. And why not? If it took five employees to build ten cars, and each of those employees bought a car, then he still had five to sell, and made a little profit on those five cars the employees bought. If he'd tried to work like Wal-Mart, then there wouldn't be enough market for those ten cars, because nobody at Ford or anywhere else would get paid enough to buy Ford's cars. They're eating their seed corn and destroying their own markets.

The other outrageous part of this? Corporate America's been driving their record profits by making people mortgage their houses and their savings, because the money's going to profits and stockholder dividends, not the employees. So the stockholders and CEOs are lining their pockets with profits which have come from the rest of us selling our houses, lives, and fortunes. There's no return on our sacred honor, or I bet they'd want that to.

Holy shit. I'd known all this, but I hadn't connected it all together. The entire edifice of modern corporate America is built on the sand of hoping people are too busy surviving to put things together. And even then, the sand's going to run out. Dude. Holy shit.

Okay. I'm gonna talk about economics, but I'm gonna try and make it quick and simple, so don't just scroll past, unless you really want to.

And with the warning out of the way, here I go.

Inflation is the term used to describe prices getting higher. And it's only sort of what I'm talking about here, because inflation is complicated and has roots in a lot of the things that make the economy work, so it's not always a bad thing.

But what's bad about it is how it relates to wages. Suppose, for instance, you're working retail, or some other per-hour services job. If you're lucky, you'll get a raise of about 25 cents an hour each year, MAYBE higher if you're really lucky or dedicated or good at kissing ass. All well and good, right, you're getting more money.

Except, a lot of the times, you're not. Inflation in the US is often between 2% and 4%. Let's go with 3%, which seems to be a pretty reasonable number averaging out for this past year. So, you get your 25 cents an hour raise, and go up to, say, $7 from $6.75. That's an increase of 3.7%. So you're making more money in a real sense, but not much more money. Your "raise" means you're getting paid pretty much exactly what you were the same time last year in terms of buying power. That's not a raise.

And that's one of the problems with stagnant wages like we've had here for years. People don't actually get paid more, even if they do get a cost of living increase. It's more absolute money, but that money can't buy as much. In the meantime, however, and despite the best efforts of the Bush administration, the inflation adjusted GDP has gone up several percent. Now, if a lot of regular workers are getting .07% or so of that increase, where's the rest going? Hmm.