Quote of the day

Krugman snarks:

Back when socialists like Eisenhower ran the country, and taxes on the rich were much higher, there was less temptation to run big risks with other peoples’ money in search of giant bonuses.

Heh. This actually ties in to a couple of posts that Brian has done over at Why Now:

1. The American rich are not contributing to the American economy. They're using their wealth for useless unproductive things like investing in Bernie Madoff, not in creating products and services. It is the Indians and Chinese who are creating products and services now -- and taking the profits.
2. Rent-seeking behavior on the part of our elites is destroying our economy. Enterprises that should be profitable are drowning in debt and having to declare bankruptcy because leveraged buy-outs have so burdened them with debt that it is impossible to continue operations. But the people who profited from these leveraged buy-outs are sitting pretty with all the "fees" they collected to do all of this destruction.

Neither of these would be happening if that "socialist" Eisenhower's policies were still in effect. The rich then had to invest in something productive and *leave it there long enough to do some good*, because otherwise their wealth would simply get taxed away. There was not any incentive to "churn" -- to buy and sell and extract money from the transactions -- because the capital gains taxes would have eaten them alive. Rather, the incentive was to invest in companies for the long term, and support policies for companies that would lead to long-term growth and stability, so that when they did need money because their income had declined they would hopefully be in a lower tax bracket that would make it reasonable to then sell some of their share of the companies they owned in order to get living money.

It was a totally different system, one that was capable of designing and building products that took five years to create and another five years to get them into large numbers of homes. That system has completely fallen apart because of the short-term rent seeking encouraged by low marginal tax rates at the top income brackets, instead the incentive now is to get in quick with borrowed money, sell off assets for profits and extract those profits as fees, then sell the decrepit corpse to new owners who have no real alternative but to declare bankruptcy, the invariable result of which is either the corporation is dissolved or so greatly reduced in size that only a tiny fraction of the work force remains. This sort of rent-seeking behavior is only possible because we no longer tax the wealthy at 90% of their income. If we did, they would have no incentive to do it -- 90% of your profit from a short-term flip going to taxes means you aren't going to invest short-term. Instead, you're going to go long-term, and wait to take your profit until you really need it because your income has declined... and long-term is exactly what we're missing from the U.S. economy today, and is why our foreign competition is whipping our butts.

-- Badtux the Economics Penguin