Trickle Down

No economics textbook contains a trickle-down economics theory, but numerous historians and innumerable politicians and journalists say it never worked.  Politicians especially use it to divert attention from their policies that do not favor job creation or economic wellbeing.

Trickle-down theory supposedly provides tax cuts favoring the rich in hopes the additional money will stimulate the economy and trickle down to the middle and lower class.  Actually the tax cuts are to generate for the government additional revenues, and that can be measured to determine success. The idea is to change behavior of the higher taxed citizens by enticing their investments out of tax shelters such as municipal bonds.

For example, in 1916, 206 taxpayers filed as earning more than $1,000,000. By 1921, the highest tax bracket grew to 73% to pay down the debts from World War I, but the number of taxpayers reporting over $1,000,000 fell to just 21. During this period, taxpayers reporting over $300,000 dropped by four-fifths.

President Wilson and his Secretary of the Treasury Glass both encouraged Congress to reduce the rates to increase revenues, but to no avail. In the next administration, Secretary of the Treasury Mellon initially requested Congress remove Municipal Bonds from their tax-exempt status, but Congress wouldn’t budge. Mellon, then, requested they reduce the tax rates which they did, lowering the upper bracket to 24% by 1924.

In 1925, 207 taxpayers filed incomes over $1,000,000. Tax revenues virtually doubled and the highest-bracket filers went from paying 30% of total revenues to 65%. The economy became the “Roaring Twenties,” and unemployment fell to a low 1.8%.

During 1924 election, two Senators successfully ran on “No more tax cuts for the rich.” In the 1930s, FDR’s speechwriter Rosenbaum vilified Mellon for cutting taxes for the rich, and that charge has been repeated by historians who apparently cannot tell the difference between rates and revenues. Mellon stated that the rate cuts were to get the rich to pay a share of the revenue needs, and he asked Congress to eliminate a movie theater tax because it fell heavily on the middle and lower classes.

The rate cut dramatically and demonstrably fulfilled their purposed of increasing federal revenues, and brought investments by the rich back into creating and expanding businesses which increased economic performance for everyone. Those who say otherwise are either ignorant or liars.

Cutting rates also worked during the 1960s. John Kennedy reduced highest bracket from 90%. In the 1980s, Ronald Reagan reduced rates from 70%.  Federal revenues increased both times dramatically, and the economies of those periods prospered.

In this election, a Democratic strategist has openly talked of increasing the highest bracket from 39% to 83%. With individual alternatives now globally available, this will not increase revenues. Further, our corporate tax rates are already the highest in the world, and corporations have an even easier time moving profits offshore.

Raising rates to get more revenues doesn’t work, except perhaps in getting elected. 

Oil Company Subsidies

The single largest expenditure is just over $1 billion for the Strategic Petroleum Reserve, which is designed to protect the U.S. from oil shortages. The second largest category is just under $1 billion in tax exemptions for farm fuel. The justification for that tax exemption is that fuel taxes pay for roads, and the farm equipment that benefits from the tax exemption is technically not supposed to be using the roads. The third largest category? $570 million for the Low-Income Home Energy Assistance Program. (This program is classified as a petroleum subsidy because it artificially reduces the price of oil). Those three programs account for $2.5 billion a year in “oil subsidies.” So the next time you hear someone express outrage over oil company subsidies, you may want to ask them exactly which ones they are talking about.

Canadian Northern Gateway Pipeline

Canada's federal government approved the C$6.5 billion ($6 billion), 1,200km (730-mile) Northern Gateway pipeline to take 525,000 barrels a day of bitumen to Kitimat, on the Pacific coast of British Columbia (BC), for shipment to Asia. Less expected was the tone and format of the announcement, a lukewarm five-paragraph news release.

They finally figured out that Obama sees everything through a political lens, and making a decision either way on the Keystone pipeline has political cost, so he wasn't going to make one. The understatement of the announcement was just in case they were wrong.

Energy and History

Much of the worlds conflicts are about energy.

Great Britain became great because of an abundance of coal.

The Japanese attacked the United States in World War II because we cut off our exports of oil and scrap metal, to induce them to get out of China. To replace the oil, they needed to take the Dutch East Indies and Malaya. Their shipping route home was bound by the Philippines, so needed to eliminate that obstruction. To counter the US Plan Orange, to defend the Philippines with our Pearl Harbor fleet, they wiped out or attempted to wipe it out. Had the carriers been at Pearl, they would have succeeded.

Hitler attacked the Soviet Union in no small part to obtain access to Soviet's oil fields. That was the purpose of Hitler's Southern Force, which he egotistically diverted to Stalingrad. Had it not been diverted, he would have had the oil and the Soviets would not have.

China, Japan and the Philippines are now in conflict over some obscure islands in the South China Sea, where the islands of little use to anyone, but the potential offshore oil fields are.

The conflict between Britain and Argentina has now re-intensified over the Falkland Islands because extensive oil fields are being developed offshore from the Falklands.

Europe is not interested in doing much about Russia because they “greened” their way into dependency on Russian oil and gas.

The United States cannot do much because we “greened” ourselves into not being able to supply our own needs in spite of having some of the richest energy sources in the world.

Further, we are now in a greatly weakened economic state, with gross deficits and debts, because we “greened” ourselves into it. We quickly forgot we defeated the Soviets because they could not match us economically. We upped out defense spending from 3% to 6% of GDP, and the Soviets could not match us by upping their 20% to 40%. Today, the Soviets and the Chinese are economically sound and own  trillions of dollars of our debt.

By refusing to really get behind energy production in the last five years, we assured our decline and assured our citizens a deteriorating future. Documentation now coming out shows Bush-Cheney indeed took Iraq to gain control of the oil, but since we let China underbid us and take control, we are left with only the expense in blood and treasure.

China has made a mission out of gaining economic control of as many world resources as possible, even buying coal mines in the United States at bargain prices. The Soviets have taken the Crimea for the energy resources offshore. The United States hit the snooze button for a second four years.

Changes in Diplomacy

While we're playing putt-putt in Ukraine, the Saudis have taken over the lead activist role in theMiddle East. They, with the United Arab Emirates, Bahrain and Egypt withdrew their ambassadors from Qatar, because of Qatar's support and protection of those Muslim Brotherhood wanted in Egypt.

Morsi and the Muslim Brotherhood won the elections in Egypt, then rewrote the constitution to allow, if not encourage, killing of others, especially Coptic Christians. When the Egyptian Army stepped in to depose Morsi and the Brotherhood, we cut off our $1.5 billion to the Egyptian Army because they had overthrown an elected leadership, but the Saudis made it up with $12-billion financing the Egyptian Army's quest to eradicate the Brotherhood.

We opposed this, but support the overthrow in Ukraine because the overthrown faction were made up of bad characters? Amusing that the Russians withdrew their offer of $15-billion in financing and we are making it up with $1-billion.

The Saudis are also opposing the Brotherhood factions in Turkey and other countries, as well as the Syrian and Iranian pushes in the Middle East. The Brotherhood faction in Turkey is now trying to do away with Twitter and Facebook in Turkey, probably because of their impact in Syria.

Syria removed all journalists from a town near the border of Jordan, then rampaged through the populous deposing any and all thought to be enemies of the regime. With cell phones, video of the atrocities was immediately posted to Twitter, Facebook, and youTube, and the Syrian civil war was on.

Russia and Iran backed Assad; the Saudis backed the opposition; and the US chose to sit it out—at least until someone (just who is still in question) used poison gas. The the US was wringing its hands about how to strike Assad without tipping the balance to the opposition, when Russia proposed a solution that took the US off the hook. Assad agreed to dismantle the manufacturing and surrender the poison gas to the US for disposal. It was about 5% complete when it stalled, and now Russia pressuring Assad to complete the deal is in doubt.

In the disagreement in Ukraine some US diplomat made the statement that Ukraine would have to choose between Europe and Russia. Why couldn't it be a cooperative effort between Europe and Russia? But, no, the US had to get its two-cents in instead of working an agreement not unlike that engineered by Putin in Syria. Game on.

Putin was the head of the KGB, perhaps the most Darwinian organization in the world, if not history. US diplomacy seems to be the Amateur Hour with outbreaks of the Gong Show.

Hillary's “Reset” button to the Russian Ambassador, for example, instead of translating “Reset” into Russian, said “Overcharge.” The Russian Ambassador speaks impeccable English; the State Department seems to get their translators from South Africa.

The “Reset” let the Russians off the hook for their invasion of Georgia without any requirement for action on their part—thus the Russians are still in Georgia. Georgia will not be considered favorably for admission to the EU, much less NATO, because of the disputed territory. It would appear we have an instant replay in Crimea and the Ukraine.

Amateur Hour going on the Gong Show. We have a better idea of Putin's master strategy than we have of Obama's.

Needling History

These last couple of days have been almost the same as the average temperatures during the last ice age. Can you imagine, with winter weather typically lasting ten months each year.

Neanderthals went extinct during the final dip of the ice age, 25,000 years ago. The last of them huddled in caves in Gibraltar, at the southern most tip of Spain. Cro-Magnon (homo sapiens) spread to cover Spain thereafter, but could not go further north because all the fertile fields and forests of France were arctic tundra.

What was the difference? Perhaps the bone needle allowing Cro-magnons to tailor skins to fit limbs in layers and add differing skins to prevent frost bite to the face. These skills are practiced by the Inuit today in the Arctic.

A Movie's Real Benefit.

Space Colony at Earth-Moon Lagrangian points L4 and L5.

Neil DegrasseTyson was criticising Gravity. Perhaps Tyson might be missing the major benefit of such a movie. Perhaps a personal story might illustrate.

While in high school I saw a movie about a kid who joined the Navy and was on the USS Skate when it went to and surfaced at the North Pole (1957). A few years later, I signed up for a program that would get me aboard submarines and learned enough technical stuff to make a living most of my life.

I also wear a ball cap with the Dolphins (submariner wings) and often think of them as one of the greatest accomplishments of my life. To give you an idea, all crew members of all submarines are less than the crew of a single attack aircraft carrier--or approximately that number. 

Submariners in World War II were only about 1% of the Navy but sunk 60% of all Japanese shipping, merchant and men-of-war. It's a pretty select bunch. I'm pretty proud of those Dolphins.

The point of the story is that one movie whose title and plot I can no longer recall, had a major effect for good in my life. The space movie may be equally effective on some kid who will later walk on the moon, Mars, an asteroid, or man the permanent space colonies at L4 and L5.