The End of the Great American Love Affair?

You know which love affair I'm talking about, of course. No? The love affair with the automobile, the car, the horseless carriage, the... SUV. Ah-hem.

America has been obsessed with cars since their introduction at the beginning of the 20th century. There has always been a good market for domestic manufacturers, even when the rest of the world came to ignore their eventually bloated and shoddy offerings. Much like the brewing industry, car manufacturers in America suffered from mass consolidation. Storied brands were purchased by larger companies and turned into a trim level. The energy price shocks of the 1970s robbed the American car of it's final distinguishing feature - horsepower - and left it with nothing. During the 70s and 80s American consumers were forced to suffer in underpowered, poorly made, characterless boxes. Ruthless management styles at the top of the by now huge corporations brought us vehicles designed by committee to fall apart just shortly after they had been paid off.

The 90s, however, brought us the Ford Taurus and an increasing parade of cars that took cues from European design and manufacturing techniques from Japan (and sometimes whole engines and cars from Japan) and gave America reason to hope again. Of course, this hope manifested itself as the SUV phenomenon. American consumers have proven repeatedly that, given the chance to buy something bigger for only a little more, they will always opt to super-size. Car manufacturers, led by Ford, rode this phenomenon to it's logical extreme, and well past that, with monstrosities such as the Excursion and H2 tipping the scales at a mere 4 tons. Sedans and hatchbacks went the way of the passenger pigeon and triceratops. All this weight required massive amounts of power, and efficiency gains won by things like overhead camshafts, quad-valve combustion chambers, and electronic fuel injection were quickly put to work motivating these huge hunks of metal and plastic. As manufacturers in Japan looked toward the inevitable future, the US behemoths outdid each other with monuments to unsustainability, not even paying lip service to the idea that manufacturers are indeed capable of driving the market.

This is what we want to save? This is what my hard-won tax dollars will be used to keep afloat? I know there are many arguments to be made for keeping these companies alive, and I actually do think it's a good idea in the short term, at least - but something within me is deeply angry.

I feel that these companies have taken enough from the American people. They took the automobile and crushed the life out of it. Yes, they are poised to bring it back, and there are signs that the morbidity is broken. We may get muscle cars with Japanese efficiency and European handling. If this does indeed happen, it will be a breakthrough - but it's not going to erase three decades of terrible cars.

I'd like to see the executives of these companies punished somehow. Perhaps they should all be forced to drive a 1985 Reliant (three glorious speeds) for the rest of their lives. I'd also like to see a new American car - not just an exotic, an actual car. I'm certain it's possible. Other countries have small marques, why can't we?

It's time to reassess the terms of this relationship. American car companies: I'm not happy.

Financial full disclosure

I've been struck with some kind of creative malaise lately. I think it's the weather. Plus, I haven't been taking enough things apart... except a wireless USB receiver, which I should say something about.

Anyway.

Regardless of personal politics, the conviction of Alaskan Senator Ted Stevens on seven counts of lying on his financial disclosures is worth a read, if only for the dramatic blow-by-blow recount of courtroom events at the end of the piece. It reads like John Grisham... writing for the Associated Press.

This is interesting mostly because of the mechanism by which this powerful man is being brought down. He committed the crime of lying about his income. Sure, accepting the gifts in the first place was immoral, but was it illegal? Probably, actually, but I'm not sure anything will be pursued if he resigns.

Top marginal tax rates, and why you should care about them

I think I was on How the World Works when I came across this article. Since, like most people in America, I don't make a staggering amount of money, I've paid little more than passing attention to the tax brackets at the very top of the scale. Sure, I knew the Bush administration had given a handout to these people, but I didn't realize how large the handout really was - and what the top of the pile really pay.

Turns out it's only a few percentage points more than I. Yeah, that's right. Someone taking home $10,000,000 a year without any deductions pays perhaps 8% more than I do, and I make less than $100,000. Quite a bit less. So, Joe the Plumber, eat your stupid 'conservative' heart out. I don't want to hear your whining. When you're making all that money, which you never will, you'll still be keeping most of it. Because, you know, that's best for everyone.

The gist of the article is that the best way to cap outrageous salaries is to increase the top marginal tax rate, and it's a compelling argument. Certainly, increasing the top marginal rate won't stop executives from getting compensated handsomely. There's many ways to reduce your tax liability, especially when you're so far past the subsistence level. However, I do think it'll stop the really egregious sums that are being taken home by these supposed supermen. As of now there is no incentive to reduce pay. None.

Since there's no chart at the above link, I tried to find one. In so doing I found an article from the WSJ, where they also note that actual revenues (at least, as a percentage of GDP) stay constant regardless of the top marginal tax rate. For the purposes of the article, at least, this is 'Hauser's Law'. Here's the graph:


Mr. Ranson opines:

What makes Hauser's Law work? For supply-siders there is no mystery. As Mr. Hauser said: "Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."

Putting it a different way, capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.

Oh, really? Maybe the income controlled by our richest citizens is tax-intolerant because they can afford to hire armies of accountants? Perhaps you might consider the effects of crushing tax rates on the working poor, as well as the ultra wealthy. Aren't they also subject to the effects of incentive?

Only in the la-la land of mindless conservatism can this kind of logic stand. To these people, the work of the few people that take home millions is somehow more valuable than the work of those who take home tens of thousands. If these people stepped outside their ivory towers for a second, they'd realize that those empires are built on the backs of these workers, without whom these outrageous salaries would be impossible. Does an extra million or two really provide that much more incentive? How much harder can these people really work?

Really, all Hauser's law tells us is that it's only possible to get so much blood from a stone. Shifting the tax burden around doesn't affect how large a piece of the pie you get. But how big (how high?) is the pie? If shifting the tax burden affected the economy as a whole, it would only be apparent over time. I guess I'm the reverse of the supply-siders (or, let's call them what they are, the trickle-down theorists). I think that putting money in the hands of the consumer - who, after all, has driven our economy to such rarefied heights - is a far safer bet than giving increasingly large payouts to those who will gamble it away in risky investments.

Read it and weep

Straight from the Guardian:

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

I'm not surprised. Sickened, but not surprised. Nothing people do surprises me any more. Especially when it comes to money.

Quote of the day

From MSN Money:

It is only now, during this period of acute crisis, that individuals who won't go on a bicycle without a plastic-foam helmet are coming to grips with what business risk really means. And that is why a childlike innocence is dying along with the stock market this week, making people feel as sad, helpless and angry as when they first discovered the truth about other realities of adulthood.

Read the rest of the article for a reality check, although I think the author is wrong about one thing. It's not ignorance of the realities of investing that drives middle-class individual investors, it's willful delusion, tempered with the good old-fashioned American belief in the concept of 'hitting it big'.

I loved the helmet dig, though. Ok, people: it's actually more dangerous, minute for minute, to drive a car rather than ride a bicycle. So why don't I see more people wearing helmets when they're driving a car? Oh, because it's uncomfortable, cumbersome, and inconvenient. Hmmm.

I'm not sure the author regards helmet wearing in the same light that I do. He sees it (probably) as most people do - as a way to mitigate risk. I see it as a knee-jerk reaction to a perceived risk, without actually understanding the real risks that cycling involves. The majority of fatalities on bicycles happen in an encounter with a motor vehicle traveling at a high rate of speed. In this case, as in the recent Puyallup death, a typical cycling helmet is unlikely to offer adequate protection.

Helmets may be risk mitigation, but far better to understand the actual risks involved in cycling, weigh them intelligently, and make an informed decision. If you really want risk mitigation, lobby for better infrastructure, tougher driving laws, and (it'll never happen) more stringent driver licensing requirements. Right now, though, I'd settle for tougher banking regulations.