It's No Laff-ing Matter

I was intrigued by the graph I included in my "Poverty is Unaffordable" post that showed the amount of U.S. income going to the top decile earners. Yes, I amuse myself rather easily, but I decided to investigate a bit further. It turns out that the shape of this graph looks exactly like the inverse of the graph of the top marginal tax rates in the U.S.
Remember the Laffer curve? Laffer warned that once tax rates exceed a certain level, total tax revenues will fall because people no longer think it’s worthwhile to work for additional income. Liberals, me included, greeted his theory with a resounding pooh (or substitute your own less polite word), because it also holds that the wealth of the rich will trickle down to all of the rest of us. Even Papa Bush called it “voodoo economics.”
Laffer saw only one side of the equation. Why keep working for that next $100 million if the government is going to take 70% of it? Of course if you’re one of the trickle down beneficiaries making only $35,000 a year, the choice to stop working isn’t exactly the same. But I’m wondering, based on the latest round of financial scandals and malfeasance, from Enron to predatory lending to the lawsuit announced today against Goldmann Sachs, if perhaps Laffer had a point. Maybe we’d be better off if indeed these guys stopped working so hard to make the next $100 million.

There are a couple of interesting things about the graph above of the top federal marginal income tax rate —the rate the wealthiest pay on the portion of their income that puts them in the most wealthy category. The rates were astronomically high during the war—imagine actually raising money to pay for your spending! The economy crashed when these rates were at their lowest—in the 1930’s and again, starting in the 1980’s in a series of bubbles—from the savings and loans scandal; followed by the dotcom bubble, and the housing bubble today.

Laffer seems to have gotten it both tragically wrong and maybe tragically right. The higher the tax rates, the more trickle down seemed to have occurred. Family incomes were increasing and the income distribution was less polarized when tax rates were higher. And GDP capita has increased irrespective of the tax rates after the Great Depression.

Why would family incomes increase when marginal tax rates are higher for the wealthy? Who knows? I imagine that economists have all sorts of explanations. I’m sure there are even some who will say that what appears to be so in the graphs isn’t actually so. I prefer to think that maybe Laffer was right about the incentives for the wealthy. Maybe companies put in place different earnings policies because they know they can’t keep it anyway. Maybe the uber-wealthy do work less at concocting the latest get-mind-blowing-rich schemes that implode in foreclosure, bank failures and stock scandals. Maybe higher tax rates simply create a different expectation for what type of society we want to be.

The Green in Me

I had an epiphany yesterday on account of the green. No, not money or Saint Patty's Day. Nature.

I had the honor of moderating, for the Citizens League and Minnesota’s Department of Natural Resources, the first of many meetings to discuss how money from the so-called “Legacy Amendment” should be spent on parks and trails. Voters approved a 3/8 cent sales tax in 2008 to be allocated among parks and trails, water quality, arts and culture and wildlife habitat. The tax will be in place for twenty-five years.

I have been candid that I voted gainst the amendment. As a former budget director of both San Francisco and Saint Paul, I have a principle against using constitutional amendments to make, and bind, budgetary decisions. I see now that I voted with my head instead of my heart. Shame on me.

Call me a slow learner, but I finally understand what the Legacy Amendment is about—taught to me by all the wonderful participants at the meeting. The Southeast Asians kept talking about the importance of family, and the group as a whole said that the most important goal was to create a new generation of stewards. My synapses were activated, but were still not connecting until Don Shelby spoke.

I’ve heard Don Shelby speak before, and I’ve interviewed with him on his radio show. He has always impressed me. But today, as my friend Claire likes to say, was transcendent. Shelby described nature as a fundamantal part of our humanness. His exclamation point on this theme was his comparison of the molecule for chlorophyll (which makes plants green) with the molecule for hemoglobin. What separates the life force of plants from the life force of humans is a single atom at the center of a complex molecule. In chlorophyll it is magnesium, in humans iron. Otherwise they are the same.

I looked this up to share it with you, and you can see the molecular diagrams below. Let’s just say that they are close enough (you can indeed see the single magnesium/iron atoms, surrounded by niacin, and then to a complex of carbon, hydrogen and oxygen) that there is widespread belief that they are the same but for the single atom. And for our purposes it is so. The similarities are so undeniable that one cannot help but wonder--What is the relationship between humans and nature? Human culture and nature?

chlorophyll molecule

hemoglobin molecule

Forgive me if I’m about to be overly romantic or grandiose, but I am currently reading a provocative book that conveys the sweep of civilization in relation to mythology, The Time Falling Bodies Take to Light, by William Irwin Thompson. Thompson looks at the great arc of human development from those first days when primates were forced from the forest to the savannah, and the use of tools, possibly early language, and new cultures were born. He argues that large cultural transformations were compelled by climatic changes, and are captured through mythology. For Thompson, mythology is the expression of the intuitive, unconscious knowledge of humans, rooted in nature. Mythology is the stuff that science comes along later to prove (e.g., the myth of our origins in nature and the science of the similarties of the two molecules). But the more advanced our scientific knowledge, the more mythology is pushed to the side.

If you think about it, much of mythology speaks of the relationship of nature to man, just as it provides context for our deepest mysteries. Many cultures share have a story of “The Fall,” for example. Adam and Eve are pushed from the garden; it is the onset of human separation from nature. Today, tens of thousands of years later, we live in an intensely scientific and technological age. Maybe the voters understood that the Legacy is a last chance to reconnect to our natural roots before all is subsumed into digitized bits of information that can be accessed by the nearest electrical outlet. We're hanging on to our humanness.

So maybe we can permit ourselves a bit of hubris by defining Legacy not as our moment in time but as a pivot point in civilization. The question we'll want to answer after twenty-five years is not, “what have we completed" but “what have we begun?”

p.s. if you'd like to know more about how to participate in the Legacy Amendment discussions for parks and trails, go to http://www.citizing.org/ or http://www.patl.intergov.mn.gov/

Aesop Didn't Whine (or doubling down to catch up)

Many years back I visited the San Diego zoo. A young boy was trailing his father, and intoned in a slow whine, "Daaaaddy, can I have some ice creeeeam?" In an even slower more nauseating drone, Daddy replied, "Stop whhiiiining."

Can we please put a little realism back into how we've fared in the stock market? There’s all this hand-wringing about how poor we are because of the dive in the stock market. Foundations, in particular, are cutting back on grants (at a time they should be increasing them) because "they've lost all their capital," while people lament the shrinking of their retirement funds.

There has been a paper loss in value over the last few years and I’m sorry about that, especially for those on the verge of retirement. But take a look at the following graphs, courtesy of the blog Observations. The graph below, the Dow Jones index since about 2000, is illustrative of the perspective we are choosing to take. Indeed, for for the last 10 years, the average rate of return was 1.3% (-1.0% stock appreciation, plus 2.3% dividends). In the last few years we lost all those thrilling returns of the earlier years.

But rule number one of investing is that there are ups and downs. In the short term, the market can be very volatile. Over the longer term, investment returns are relatively stable. If you’re getting richer faster than you think you should be, you’re probably right.


Let's take a longer look. Over the last twenty years, gains were exactly equal to the historical average (1900 through 2009) of 9.4%. A 25-year moving average shows a steady upward gain.


Because we take the short term view, we reach the wrong conclusions about what to do with our investments. Our public officials have convinced themselves that we must somehow make up for these "extraordinary losses". So what are they doing to make up for “lost” investment? Riskier investments!!! Fool me once…

Many states, including Wyoming, Wisconsin, Colorado and California are moving to higher risk investments in their pension funds. Here’s the logic: we owe more than we can pay out because we've assumed higher returns than we've earned (in part due to risky investments), so let's go after even riskier investments so we can assume even higher returns.

“Nobody wants to adjust the rate, because liabilities would explode,” Trent May, chief investment officer of Wyoming’s state pension fund was quoted as saying in this truly frightening story in the New York Times. “In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”

Maybe Aesop understood that animals can be smarter than humans. In any case, it’s worth revisiting some of his wonderfully practical advice.

"It is thrifty to prepare today for the wants of tomorrow." --The Ant and the Grasshopper

"Beware lest you lose the substance by grasping at the shadow." --The Dog and the Shadow

"Slow and steady wins the race." --The Hare and the Tortoise

“It is easy to be brave from a distance." (or with someone else's money I might add)--The Wolf and the Kid

The Future Is Us

I recently returned from Florida—I went down to watch some spring training games of the Minnesota Twins. (They’re looking good, but as my brother Kelly points out, the Twins have recently been named the best lineup in all of baseball, so isn’t that a jinx?) If you want to have a sense of what our communities will look like in ten years, visit Florida.

Go Twins!

Everywhere you went there were old(er) people. They took tickets at the Twins’ gate, they served the beer, they were wheelchaired along boardwalks in the Corkscrew swamp. Everything… slowed….down……. And I got impatient (tear the damn ticket already!). But maybe slowing down will be a good thing for our society.

On my way home from Nina’s coffee shop this morning, I heard someone saying, “Where did all these old people come from?” Go to Florida and get used to it.

In case you haven’t looked at demographic charts lately (or ever), I’ve included one here. For the first time in the history of humankind (really!) people over the age of 65 will outnumber school aged children. This will create fiscal problems galore, but dollars aside, none of our “systems” have been set up with this age distribution in mind. None.

My son’s father tells the story of when he was a boy growing up in a small town. Once a year, elderly Mrs. Johnson would take the car out for a spin. Mrs. Johnson couldn’t see very well, and she certainly couldn’t drive very well. So the word quickly spread throughout town—“Get off the roads! Mrs. Johnson is out driving today!”

This may work in Cumberland Wisconsin, but it’s not a very practical overall strategy to help seniors maintain their mobility. Nor have we figured out how to accommodate seniors who need help with their daily activities. In fact, we may not even have accepted it.

Two weeks ago I moderated a community discussion in Woodbury. A 45-unit Alzheimer’s housing has been proposed, including 15 units for those with advanced stages of their disease who aren’t always able to control their behaviors. Many in the local community are opposed. (See the Strib's coverage by Jim Anderson, or the Woodbury Bulletin's by Scotte Wente. One resident simply said, "You're seeing a roomful of people that don't want you there." The neighbors insist that theirs is a family community. Now I ask you, if seniors are not part of our “families” then where do they belong?

Many baby boomers have been living under an illusion that they can “control” and sanitize their lives. I’ll move to a place where I won’t have to look at death or aging, where there’s no poverty or crime. But getting old changes all of this. It is harder to find a job if you need one (I’m guessing all the seniors in Florida were volunteers). Health fails, and sometimes memory. Nest eggs are insufficient for fixing the roof or paying for out-of-pocket medical costs.

My imploration (ok, so it’s not a word, but I like it) to baby boomers is to start thinking about the kind of society you want to live in when you are elderly, and start creating it now. Do you want to be shipped off to the hinterland or would you like to live with or near your family? Do you want to be scraping by and choosing between food or meds or can you start saving a little bit more now? Do you want to be sickly and immobile or can you become healthier now in order to have a more active lifestyle later?

If we don’t start accepting and planning for what is inevitably, indisputably, incontrovertibly an aged society, we’ll find ourselves at the receiving end of our own policies. What would you like those to be?