Author Topic: California still leads the way (but not how Rafi and several others thought...)  (Read 17182 times)

Greg Davidson

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Despite lots of conservative media attention identifying California's business climate as one of the worst, California is leading the country in job growth (with twice as many jobs created in California as Texas over the past year).  In 2011, a number of people here made claims that the liberal nature of California government was destined to make economic conditions worse. This is just an update on the error in that assertion

http://www.dailykos.com/story/2015/12/28/1463424/-If-California-is-such-a-hostile-business-climate-why-is-it-kicking-everyone-else-s-ass-like-Texas

And here is a summary comment:

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But the point here isn’t that Texas sucks and California (or New York) is better. The point is that as much as conservatives claim California is a dysfunctional communist dystopia, the reality is that it continues to be the global driving force in entertainment and technology, is one of the world’s premier agricultural producers, and there is no slowing this juggernaut. Heck, if Detroit doesn’t evolve quickly, California will be the future of the auto industry as well (Apple, Google, Tesla, Future Faraday, and Uber)!

And it accomplishes all that despite its high cost of living, taxes, and regulations. Apparently, there is more to a positive “business climate” than low taxes. Otherwise, that unemployment map above would look a heck of a lot different.

Link to the old thread at http://www.ornery.org/cgi-bin/ubbcgi/ultimatebb.cgi/topic/6/14725.html

Pete at Home

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"if Detroit doesn’t evolve quickly, California will be the future of the auto industry as well (Apple, Google, Tesla, Future Faraday, and Uber)!"

The prospect of the People's Kleptocracy of Detroit "doing something" is a farce that only DailyKos could entertain.

AI Wessex

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"if Detroit doesn’t evolve quickly, California will be the future of the auto industry as well (Apple, Google, Tesla, Future Faraday, and Uber)!"

The prospect of the People's Kleptocracy of Detroit "doing something" is a farce that only DailyKos could entertain.
Not sure what "doing something" means, but the city is beginning to stage an interesting comeback.  Dan Gilbert (Quicken Loans) has bought up a huge amount of real estate in the downtown and is renovating at a furious pace.  He intends to bring 1000's of tech and professional jobs into the city over the next decade.  There are lots of other neighborhood ideas sprouting that look interesting, as well.  There are state and private initiatives for mass transit (horrors!) and k-12 education taking shape, too.  I'm interviewing for a position with a leading tech company that is adding about 100 jobs in the downtown over the next few months.  Don't count Detroit out, at least not yet.

Pete at Home

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"if Detroit doesn’t evolve quickly, California will be the future of the auto industry as well (Apple, Google, Tesla, Future Faraday, and Uber)!"

The prospect of the People's Kleptocracy of Detroit "doing something" is a farce that only DailyKos could entertain.
Not sure what "doing something" means, but the city is beginning to stage an interesting comeback.  Dan Gilbert (Quicken Loans) has bought up a huge amount of real estate in the downtown and is renovating at a furious pace.  He intends to bring 1000's of tech and professional jobs into the city over the next decade.  There are lots of other neighborhood ideas sprouting that look interesting, as well.  There are state and private initiatives for mass transit (horrors!) and k-12 education taking shape, too.  I'm interviewing for a position with a leading tech company that is adding about 100 jobs in the downtown over the next few months.  Don't count Detroit out, at least not yet.

"People's Kleptocracy of Detroit" referred to the city government.  The government that has managed to defeat every state, federal and private attempt to rehabilitate the actual city of Detroit.  So I count Detroit's city government out.  If any good thing happens to Detroit it will be in spite of its city government.

AI Wessex

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Except that the "kleptocracy" you think is still in charge is long gone.  The state took over the city with a city manager, put the city through bankruptcy to wipe out most vestiges of the old and corrupt guard and an entirely new and (more or less) honest city government like in most other major US cities is now in charge.  It's a new day, and though there is some fresh optimism the future is not guaranteed.

D.W.

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The challenge now is to convince the rest of the state that it's worth it to pour money into Detroit.  AI is right (as far as I can tell by what little attention I pay to Detroit) that the private side is still showing signs of life.  Convincing everyone that a, "they get what they deserve for mismanagement" attitude, is going to hurt the state in the long run is no easy task.  It's not like we don't have other state wide concerns to deal with.  Pouring money into a single city which failed it's people spectacularly when the rest of the state could put that money to good use complicates things for Detroit. 

We may agree that resuscitating Detroit is a "good idea" but when it comes to state wide triage, most of us aren't sure it rates high on the list.  May be we are neglecting the best shot at long term economic opportunity by doing so.  Ask Flint if they think Detroit should be a priority when they are sipping poison in a state which has some of if not the best access to fresh water in the nation... or world.

AI Wessex

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To be honest, I have no idea how much the rest of the state is deserving of kind attentions.  I've always been both suspicious and a bit fond of Detroit, both for what it was and what it has lost.  It will never again become the city the Joe Louis sculpture epitomizes, but if it can rise we should recognize the extraordinary effort that made it happen.  I'll say one more time that it's too soon to tell what will become of the city. I drive through it every other week or so and am absolutely horrified.  Reversing and restoring anything of its past dignity would be a remarkable achievement that I hope comes about.  The people who live there now don't deserve their current fate, but they can raise it up from where it now rests without other people (their money, that is) supplying the energy to make it happen.

AI Wessex

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The people who live there now don't deserve their current fate, but they can raise it up from where it now rests without other people (their money, that is) supplying the energy to make it happen.
I meant can't.

Pete at Home

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Except that the "kleptocracy" you think is still in charge is long gone.  The state took over the city with a city manager, put the city through bankruptcy to wipe out most vestiges of the old and corrupt guard and an entirely new and (more or less) honest city government like in most other major US cities is now in charge.  It's a new day, and though there is some fresh optimism the future is not guaranteed.

I hope that you are right about the BK tossing out the old guard. I hope that what you call "most" is enough.

What I can't find is whether they have changed the suicidal law that one cannot buy any property in downtown Detroit without absorbing its tax debt. 

AI Wessex

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What I can't find is whether they have changed the suicidal law that one cannot buy any property in downtown Detroit without absorbing its tax debt. 
My understanding is that they are so anxious for the properties to be rehabilitated that they are virtually giving them away.  For instance, if you buy an abandoned but livable house needing some TLC you can have vacant properties on either side for $1 if you agree to maintain them.  Chaos and anarchy will slowly yield to recivilizing programs.  If you want to see how far the city has fallen and from where it needs to rise, do an image search on "Packard building Detroit".  It's still standing and very visible from the highway as you drive in and out of downtown.

Greg Davidson

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Hey, guess what? The predictions here in 2011 about how Democratic government in California would make things worse are still very wrong.

As a reminder, we were looking at whether a state government dominated by Democrats would make things better or worse with respect to three measures: unemployment, average income, and state budget deficit.  In Republican-led states, like Texas, the governing philosophy was that there had to be stringent cuts to government benefits and services to the lower 90% of the population in order to promote economic health. In California, state government provided a much higher level of benefits and services, without any impact to economic performance. For those of you who argued in 2011 that Democratic control of the California state economy would make things worse, is this what you meant by worse?

Since 2011, California unemployment has gone from ~12% to 4.9% https://www.google.com/search?rlz=1C1APWK_enUS695US695&ei=4wltWoaACqiN0wK9m7SwCg&q=california+unemployment+rate&oq=california+unemployment+rate&gs_l=psy-ab.3..0l10.2871.6505.0.7431.17.6.0.11.11.0.94.483.6.6.0....0...1c.1.64.psy-ab..0.17.599...0i131k1.0.Wm_ipj3uHF4

California currently has the nation's highest growth in average income https://www.ocregister.com/2017/12/22/california-tops-u-s-in-per-capita-income-growth/

California has a $6.1B budget surplus for 2018 https://www.wsj.com/articles/jerry-browns-legacy-a-6-1-billion-budget-surplus-in-california-1515624022

Crunch

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California leads the nation in poverty.

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Guess which state has the highest poverty rate in the country? Not Mississippi, New Mexico, or West Virginia, but California, where nearly one out of five residents is poor.

Saying things are great in a state where 20% of your population lives in poverty is a pretty out of touch position. Google “California tent cities” to see the extent of the suffering California’s governance has created.

Meanwhile, the single biggest statistic that telks you the truth about California vs Texas is migration. 
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California drew a last-place ranking last year in U-Haul’s annual measurement of interstate relocation momentum.


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California’s lean toward departures was the result of arrivals growing by 4 percent vs. 2016 while exiting trips surged by 5 percent. That gave California the worst score in its “growth states” ranking. Texas, Florida, Arkansas, South Carolina and Tennessee were the top five.

That’s the second-straight year California scored poorly.

Yeah, California is doing so well that people are fleeing it at higher rates than literally any other state.

TheDeamon

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California currently has the nation's highest growth in average income https://www.ocregister.com/2017/12/22/california-tops-u-s-in-per-capita-income-growth/

You do realize that "per capita income" is a bit different than "average income," which can still be different again from a few more representative measures of income for a population?

Given California being the home of Google, Apple, Facebook, and numerous other tech giants, and not to mention Hollywood as well as Wells Fargo and various High Finance types to boot.

California's GDP Growth was probably pretty respectable, having a stagnant or even declining population would also serve to further pad the per-capita measure as that is literally GDP divided by population.

California's "problem" is that being the liberal utopia it is, it happens to be one of the largest poster children for that infamous "Income Inequality" demonstration. California's Rich continue to get richer, while the poor continue to fall further behind. This is due in no small part to California pursuing policies that makes hiring from the poor/middle income brackets undesirable when such operations can be setup and operate in other parts of the US at both lower cost, and allow better quality of life for the employee(happier employees--better production).

Of course, the US has a larger meta-issue in regards to non-US operations which can be even cheaper still, but that's outside the scope of this.

Greg Davidson

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TheDeamon.

I don't disagree that there are issues with wealth inequality in California, but it is still far better to be poor in California than it is to be poor in Texas.

And the larger point is that all of the Republicans on Ornery confidently made predictions that under Democratic state government, California would do worse by all three of those metrics. If you are an ideologue who believes larger government and higher taxes inevitably hurts economic growth, then you essentially have to make predictions like that if you are staying true to your faith. But in the real world, those predictions are frequently refuted. And our multi-year discussion of California is one such example.

Fenring

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Greg,

I can't weigh into this issue because I know nothing about California, so my only remark is that it seems you're assuming a direct correlation between the style of governing in California and the positive economic results. To be fair you may have adopted this premise in reaction to the other side having claimed a direct correlation between the style of governing and negative economic results. But my question is: isn't it possible for it to be the case that the style of governing is detrimental to California's economic health while also recognizing that certain factors are going to be inelastic and increase its GDP regardless of what the government does? It seems to me hard to make a conclusive argument about this, when one might well argue (counterfactually) that if not for the governing style the situation would be better now than it is. If certain sectors (like tech) were going to soar either way then the success of those would surely not reflect the government's policies either way.

TheDeamon

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If certain sectors (like tech) were going to soar either way then the success of those would surely not reflect the government's policies either way.

This is a very major factor. If Silicon Valley has a good year, then so does California. The issue there is that "Silicon Valley"/Tech overwhelmingly represents the top 20% of income earners in California. Yes, Apple and company do hire people in lower brackets, but the key thing to bear in mind is that most of those workers don't work in California. A lot of them, oddly enough, seem to be in Texas and elsewhere.

Which tends to indicate there "is something in play" which makes it preferable for companies to move lower-income work into states that are not California when possible. That work not happening in California in turn translates into reduced economic prospects within those demographics. Which in turn seems to be represented by both the increasing poverty rate in California, and the population movement out of the state for the others as they "follow the jobs."

yossarian22c

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Housing/rent prices are insane in California. Which is why the skilled mid-level positions are moving away. $100,000 per year probably isn't even close to enough to allow people to buy a home in parts of California, it's cheaper and better for the employee to pay them $80,000 per year in Texas, North Carolina, or other places with skilled workers but without an insanely high cost of living.

TheDeamon

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Housing/rent prices are insane in California. Which is why the skilled mid-level positions are moving away. $100,000 per year probably isn't even close to enough to allow people to buy a home in parts of California, it's cheaper and better for the employee to pay them $80,000 per year in Texas, North Carolina, or other places with skilled workers but without an insanely high cost of living.

...and a significant factor in the insane "cost of living" in California(including housing) is a direct result of governmental, both local and state level, regulations regarding said housing.

Now while I'll freely agree with earth-quake codes, that isn't the only thing giving developers headaches in Cali.

Greg Davidson

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It's true that there not perfect correlation between Democratic vs. Republican policies and economic vitality. (1) Can you get the conservative ideologues to admit that? If they have a coherent theory of how policy affects the economy, it needs to account for cases such as California (or in addition to Texas, how about Kansas?). (2) The tax cuts primarily to wealthy people that force the reductions in government services are justified because overall, they are supposed to be better for the economy. If we do not know with better than 50/50 likelihood that the standard Republican policies actually help the economy, then you are left with a policy based on the premise that the rich have too little money and everyone else has too much in government services. 

Wayward Son

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...and a significant factor in the insane "cost of living" in California(including housing) is a direct result of governmental, both local and state level, regulations regarding said housing.

Actually, that's the only factor.

If you drill down to the original article that the op-ed refers to, you'll see that California only leads when "cost of living" is considered.

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From 2013 to 2015, California had America’s 17th-highest poverty rate, 15 percent, according to the U.S. Census Bureau’s Official Poverty Measure. That measure uses income levels to determine poverty, but does not consider differences in cost-of-living among states. It lists the official poverty threshold for a two-adult, two-child family at $24,036 in 2015.

During the same period, California had the highest poverty rate, 20.6 percent, according to the census’ Supplemental Poverty Measure. That study does account for cost-of-living, including taxes, housing and medical costs, and is considered by researchers a more accurate reflection of poverty. For a two-adult, two-child family in California, the poverty threshold was an average of $30,000, depending on the region in the state, according to a 2014 analysis by Public Policy Institute of California.

I believe this is primarily attributable to the cost of housing, which is high because of several factors:

1. Proposition 13, which limits property tax to 1 percent of the value of the home, and allows increases in property value to only 2 percent per year. (Taxes actually come out to 1.25 percent because of other fees.)  This inflates the purchase price of housing above high-tax areas, like the state of New York.

2. New housing is difficult to build.  Partly because of government permitting and zoning, but also because of terrain (most of the flat areas in San Diego have been developed already) and water availability.  (I know large segment of the San Diego back-country is zoned for large parcels, with the requirement that most of it is undisturbed in order to maintain the water quality for the back-country dams.)

3. Labor is more expensive, because the cost-of-living is more expensive, because housing is more expensive.  (A bit of a feedback loop there.)

4. This is a desirable place to live because of the mild climate.  (I went bicycling yesterday in shorts and a T-shirt.  Anyone else do the same?  :D )

While government can influence a couple of those factors, it has no influence on the rest.

The mild climate also allow people to live "on the streets" more comfortably than in harsher climates, like, say, Buffalo, NY. :)

And let's not forget the second- thru fourth-place finishers: Florida (R) at 19 percent poverty rate, and New York (D) and Louisiana (R) at 17.1 percent.

So, between the factors out of government control and the fact that both Republican and Democratic states have similar higher-than-average poverty rates, I don't see how anyone can blame California's high poverty rate on its governing party.

Seriati

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And the larger point is that all of the Republicans on Ornery confidently made predictions that under Democratic state government, California would do worse by all three of those metrics.

Not sure anyone you argued with on the original thread even still posts here.  I'd also like to see a quote where I said that.  The CA v. TX angle has always been a silly way to approach this debate.  All the states have a heavy correlation to the National economy, with biggest differentiators between them being the industries that call them home.  When oil is down TX is down.  When Hollywood and Silicon Valley are doing well, CA often does well.

Do I think CA's policies hurt growth?  Yes, I do, but that's a comparison between where CA is and where they could be. 

The state contralogically claims that the high taxes don't discourage growth and formation of business, then provides massive tax breaks to favored industries (particularly in tech/government contractors and Hollywood) because "businesses are mobile" to encourage them to stay and expand.  How fair is a policy that forces small local businesses to bear a higher tax burden to pay for the international ones?  That contributes to a very high cost of living?  I get the rationale argument here, that keeping those businesses benefits the small ones too, but that's almost literally a trickle down argument (that you'd usually disparage) and is literally benefitting the wealthy by forcing the poor and middle class to bear the burdens.

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If you are an ideologue who believes larger government and higher taxes inevitably hurts economic growth, then you essentially have to make predictions like that if you are staying true to your faith.

That's not ideological.  It's just a fact that higher expenses reduce economic growth when all other factors are equal.  CA obviously agrees or they wouldn't offer tax breaks to spur desired industries to stay.  Take a look here https://www.mercurynews.com/2016/10/31/california-companies-get-billions-in-tax-breaks-especially-aerospace-entertainment-media/.

It's kind of offensive to claim that not rejecting a fundamental rule makes someone an ideologue.

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But in the real world, those predictions are frequently refuted. And our multi-year discussion of California is one such example.

You are confused about what "refuted" means.  If a factor that is controlling when all other things are equal turns out not to be determining a situation, then it means that all other things are not equal.   So if you've proved all things are equal, then you could claim a possible refutation.  In this case, we literally know that many many factors are not equal.  We also literally know that the economy of both TX and CA are correlated to the overall US economy, which has also been up.

Employment rate?  Down everywhere, CA still lags the US and TX rates but has closed up.  If you look back on our prior discussion on the last update thread, you can find where I did point out to you that this is something we should expect.  Big improvements in those furtherest off from "full" employment and smaller ones in areas close to "full" improvement.  At this particular point in the economy, it would take an exceptional policy - or really bad luck in the local industries - not to be showing very good employment numbers.

State budget deficit.  Find any place where I've ever claimed this is a good measure.  The growth in a state budget yes.  The growth in unfunded liabilities yes.  Even revenue growth sure.  But the gap between the two?  That's a media bullet point not a real argument.  I've pointed out a number of times the risk CA's been running on its long term underfunding of obligations.  A great economy will certainly help them out, that's exactly what allowed most of the Blue states to get in trouble in the first place (great economies leading to generous future projections allowing them to divert more current income to vote buying).

Median income.  Aside from questions about whether its a great measure, we really should be looking at local inflation adjusted gains for families in each income group.  I mean honestly, what are trying to measure or look at when considering this?

Seriati

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As a reminder, we were looking at whether a state government dominated by Democrats would make things better or worse with respect to three measures: unemployment, average income, and state budget deficit.

No, you're just looking at CA, there's a bunch of state governments dominated by Democrats that have been on the verge of bankrupcy (CT, IL off the top of my head).

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In Republican-led states, like Texas, the governing philosophy was that there had to be stringent cuts to government benefits and services to the lower 90% of the population in order to promote economic health.

That's a gross strawman (and pretty much a lie to claim they imply some kind of causal connection).  In fact, that's so far off what they actual have said and believe to discredit you.

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In California, state government provided a much higher level of benefits and services, without any impact to economic performance.

There's no legitimate analysis that would conclude what you've just said "without any impact to economic performance."   Or are you going to show us how free lunches are in fact proven economic results?

NobleHunter

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Then there's Kansas...

Seriati

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Agreed, there are Republican governments that are a mess too.  I'm not sure that it's true though that Republican governments consistently follow the "Republican" policies that Greg is disputing, most of the Democratic ones do follow the Democratic model.  I think much like a Theocracy, the Democratic political philosophy is inherently tied to the electoral and governing philosophy - I mean, I can't find a single newly elected Democrat government that doesn't enter into a long term benefits package with their union supporters (ie they pay off their campaign help by binding the government in the future).

rightleft22

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Best thread ever
Made my day

Greg Davidson

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You are confused about what "refuted" means.  If a factor that is controlling when all other things are equal turns out not to be determining a situation, then it means that all other things are not equal.   So if you've proved all things are equal, then you could claim a possible refutation.

This is close to the faith-based theology of Austrian economics (they have some special Latin word to describe their principle of faith).  The "all things equal" assumption is like the "in the long run" assumption - they are analytical simplifications that cannot and should not be taken literally.  The way you use "all things being equal" is like a magic card that enables you to discount any evidence that runs contrary to your initial belief.

I agree that there are ways that an additional tax burden might discourage additional investment. But there are also cases where real economic logic (and actual events) demonstrate exactly the obvious. During the Korean War, the US government passed a tax on war profits that was huge (like 90% taxation of profits for defense companies over the amount of profits that they had earned before the war). The Boeing CEO had a finance background, and his response to this tax policy (which I agree is extreme) was that it was much more advantageous to the company to invest the profits in new technology rather than put them out as dividends with only 10 cents on the dollar going to shareholders. So he put the money into a massive development effort that became known as the 707 airliner. 

Higher taxes leading to higher investment - not always going to turn out that way, but it breaks your simplistic model.

NobleHunter

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Assuming the taxes are on the right things. Huge payroll taxes aren't going to lead to much investment.

Fenring

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The Boeing CEO had a finance background, and his response to this tax policy (which I agree is extreme) was that it was much more advantageous to the company to invest the profits in new technology rather than put them out as dividends with only 10 cents on the dollar going to shareholders. So he put the money into a massive development effort that became known as the 707 airliner.

This presumes that the CEO's are acting in good faith for the intended benefit of their company in the long-term. That's a big assumption! The word on the street is that the trend has verged towards quarterly gains at the expense of the long term, partially as a result of pressure from Wall Street.

Fenring

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Then again that same logic applies to an environment where taxes are lower, so that doesn't place me anywhere in this particular debate.

TheDeamon

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The Boeing CEO had a finance background, and his response to this tax policy (which I agree is extreme) was that it was much more advantageous to the company to invest the profits in new technology rather than put them out as dividends with only 10 cents on the dollar going to shareholders. So he put the money into a massive development effort that became known as the 707 airliner.

This presumes that the CEO's are acting in good faith for the intended benefit of their company in the long-term. That's a big assumption! The word on the street is that the trend has verged towards quarterly gains at the expense of the long term, partially as a result of pressure from Wall Street.

"Recently" that has probably become more of an issue due to the retirement of the Baby Boomers. With them retired or retiring, the only way to keep them in "the normal stock market" is turn your stock into a revenue stream, which means dividends and/or reliable quarterly growth in stock values(so they sell off slowly if at all) while otherwise manipulating how fund managers view/treat your stock. Which is particularly important when you start talking about those group pension/retirement funds that are worth huge heaping gobs of cash, and largely held by the 60+ crowd.

Seriati

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You are confused about what "refuted" means.  If a factor that is controlling when all other things are equal turns out not to be determining a situation, then it means that all other things are not equal.   So if you've proved all things are equal, then you could claim a possible refutation.

This is close to the faith-based theology of Austrian economics (they have some special Latin word to describe their principle of faith).  The "all things equal" assumption is like the "in the long run" assumption - they are analytical simplifications that cannot and should not be taken literally.  The way you use "all things being equal" is like a magic card that enables you to discount any evidence that runs contrary to your initial belief.

There's no magic card, there's a belief that a scientific approach requires consideration of the factors that impact an analysis.  You are literally arguing that we don't need to control extraneous factors to reach a conclusion about the factor we are studying.  Where's the magic again? 

In this case, I grant  you love your obscurities, you could not have a picked a better example of my point.  You literally found one of the most extremely manipulated fact patterns possible, that's heavily influenced by a number of very specific tax rules, to show as a "success" case, that was only applicable to a single company because of its own circumstances.  Effectively, you've put up a case that proves my point, without even realizing it.

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I agree that there are ways that an additional tax burden might discourage additional investment. But there are also cases where real economic logic (and actual events) demonstrate exactly the obvious. During the Korean War, the US government passed a tax on war profits that was huge (like 90% taxation of profits for defense companies over the amount of profits that they had earned before the war).

So just to be clear, you picked a period where  Congress imposed an "excess profits" tax (the technical term for these taxes).  Congress imposed that tax (as it has at other time) specifically to punish war profiteering.  For those who don't know what it is, it's an extra tax on profits during the war over and above a company's profits during peace.

I note you mistated the actual terms of the tax (it wasn't 90% - it was 30% plus an increase in the tax rates on all corps., 90% was the WWII rate at the end of the War - not clear how Boeing's effective rate got so high).

So to set the stage, with this special tax law in place, taxes on war profits are taxed at a very high rate (companies that were profitable without the war didn't face quite the same burden).  Congress did this to prevent war profiteering and to recapture money it was spending for the common defense.  Boeing was in the unique position of having been very profitable in WWII, break even during the peace, and very profitable during the Korean war because of its heavy military focus and lack of a civilian department.

What do you do if you are Boeing?  All your war profits are subject to this tax, your competitors all had peaceful profitable businesses.  You look for deductible expenses to eliminate your gains.  Do you buy a factory?  No.  Why not, its really expensive after all?  Because it's not fully deductible, it has to be depreciated.  Do you buy equipment?  Nope same problem.  So how do you spend the money and get a tax deduction?

You invest in technology and build a model (note not a plant initially).

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The Boeing CEO had a finance background, and his response to this tax policy (which I agree is extreme) was that it was much more advantageous to the company to invest the profits in new technology rather than put them out as dividends with only 10 cents on the dollar going to shareholders. So he put the money into a massive development effort that became known as the 707 airliner.

I agree, Boeing brilliantly manipulated a tax loophole, they could expense the development costs of building a civilian product.  They got the government to subsidize a massive chunk of their development cost, the exact same way the government subsidizes your 401k. 

I agree if you tell people you're taking 90% of their money in taxes, but wont touch any spent in manner x, you're going to get a lot of people buying x.

Do you think this lesson was generally applicable?  Would we be better off allowing companies unlimited discretion to grow tax free by continuously reinvesting?  I see some merits to that.  It won't hurt shareholders they'll just cancel dividends and take their gains through stock sales and buybacks.  But mostly this is known as a "tax avoidance" strategy, and this kind of short cited policy is what's brought us tax inversions and retentions of profits offshore.

All this is, is a doubling down on the liberal policy of picking winners and losers with tax law (albeit this clearly inadvertant).  Their competitors couldn't match the benefit because, unlike Boeing, they had been profitable during peace time and their excise rates were dramatically lower.

There are also direct ways that this effect could have been achieved without declaring that Boeing be uniquely the beneficiary.

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Higher taxes leading to higher investment - not always going to turn out that way, but it breaks your simplistic model.

My model isn't simplistic.  Failure to consider "all other factors" once again shows that your rhetoric is empty.

Your high tax didn't cause a general level of reinvestment, it caused one company that had a pressing need for a new product to bite the bullet and develop it (previously it was trying to get the government to fund the project, this tax loophole took that decision out of the government's hands).
« Last Edit: February 01, 2018, 01:49:54 PM by Seriati »

TheDeamon

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I agree that there are ways that an additional tax burden might discourage additional investment. But there are also cases where real economic logic (and actual events) demonstrate exactly the obvious. During the Korean War, the US government passed a tax on war profits that was huge (like 90% taxation of profits for defense companies over the amount of profits that they had earned before the war). The Boeing CEO had a finance background, and his response to this tax policy (which I agree is extreme) was that it was much more advantageous to the company to invest the profits in new technology rather than put them out as dividends with only 10 cents on the dollar going to shareholders. So he put the money into a massive development effort that became known as the 707 airliner. 

Higher taxes leading to higher investment - not always going to turn out that way, but it breaks your simplistic model.

It depends on how the laws are written, and what the priorities are at the time. Your example in total, actually isn't too much different from the WW2 "Wage freeze" imposed by the FDR Administration resulting in companies providing "benefits in lieu of pay" as an incentive to lure workers from a tight labor pool. You know, the thing that really kick-started the whole modern health-insurance industry.

Sinking a lot of money into R&D and thus writing it off as an expense against all those "war profits"  was actually pretty clever on his part, as it netted a "real cost" to them of only about 10 cents on the dollar(against a 90% tax rate). Which makes it a lot smarter than the one an American homeowner could enjoy with say, the homeowners tax exemption where they could pay $10,000 in interest to their bank in order to "save" $1,500 to ~$4,200 (depending on tax brackets and year) on their income tax.

Only in the case of R&D, that is opening doors to future income for Boeing in the form of new product offerings. Which left the only "real" consideration as being the ability to keep the shareholders happy. But it still stands that Sinking $10,000 into R&D in order to avoid paying $9,000 in taxes is kind of a "duh!" accounting move.

The "issue" there is I'm pretty sure the US (Corporate) Tax code has become a little more robust in the intervening years,  and I somehow doubt companies are able to be quite so blatant in their tax dodges, which isn't to say Congress hasn't given them a legion of other ways to avoid paying taxes.

TheDeamon

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I believe this is primarily attributable to the cost of housing, which is high because of several factors:

1. Proposition 13, which limits property tax to 1 percent of the value of the home, and allows increases in property value to only 2 percent per year. (Taxes actually come out to 1.25 percent because of other fees.)  This inflates the purchase price of housing above high-tax areas, like the state of New York.

So it qualifies as a result of governmental policies. correct? Or do the actions of the voting public not qualify as "an act of governance" in your book?

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2. New housing is difficult to build.  Partly because of government permitting and zoning, but also because of terrain (most of the flat areas in San Diego have been developed already) and water availability.  (I know large segment of the San Diego back-country is zoned for large parcels, with the requirement that most of it is undisturbed in order to maintain the water quality for the back-country dams.)

My understanding regarding a LOT of the "San Diego Backcountry" has to do with a few things that are related to what you mention. But not exactly in the way you try to make it seem. Most of the "Back Country" is not on Municipal Water, which means the homes being built require their own water rights, or access to somebody else's water rights. Lack running water would tend to greatly restrict the ability of a person to live in a particular area.

Likewise, as they do not have access to a municipal water supply, that likewise in turn means they are not hooked into a municipal sewer system. Which in turn means they're reliant predominately on Septic Systems, which again, given considerations for the prevailing climate in the area, and the resulting soil types(it isn't very "loamy"), the drainage requirements for those septic systems is rather large, as that is necessary to prevent the septic systems from excessively polluting the area water table(as they mainly use ground-water).

That being said, you introduce a municipal water and sewer system into an area, and suddenly the number of housing units you can build on a 10 acre plot of land increases considerably almost as if by magic.

Of course, to first build that water and sewer system into that area, you have to go through a very extensive and expensive environmental impact assessment process, then numerous other reviews and a number of other road-blocks geared towards preventing development and "urban sprawl" into outlying areas that are largely unique to California alone. A cost that of course find itself "baked into" the cost of whatever housing ends up being built in that new development. All things being equal that typically translates into only high-value housing developments being built, as the developer wouldn't be able to "recover the cost" if they built homes catering to the lower-income or lower-middle-class income brackets.

But then, this particular problem is becoming common nationwide due to increasingly strict EPA requirements, however California trends heavily towards going much further. Which is all well and good, California's Governmental entities should have a better grasp of "Reality on the ground." Than the federal side does, as they should be going for "one size fits all" (Which means it probably fits none in practice) in theory. However, it still cycles back to "California has policies and practices in place, which are unique to California, which makes building "affordable housing" a non-viable option in most cases.

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3. Labor is more expensive, because the cost-of-living is more expensive, because housing is more expensive.  (A bit of a feedback loop there.)

4. This is a desirable place to live because of the mild climate.  (I went bicycling yesterday in shorts and a T-shirt.  Anyone else do the same?  :D )

See above, and #4 is a valid point that all things aren't entirely equal. However, the Gulf Coast in general, while it can hardly boast "mild" summers, their winters tend toward what the rest of the country, and even California, would consider "mild." Trade off is they don't have to worry as much about their house being burnt down by a wildfire, or destroyed by an earthquake or landslide.

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While government can influence a couple of those factors, it has no influence on the rest.

In a government "of the people, for the people, by the people" the government controls all but one of those factors(Climate). As you pointed out that #'s 1 and 2 directly impact #3.

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The mild climate also allow people to live "on the streets" more comfortably than in harsher climates, like, say, Buffalo, NY. :)

And let's not forget the second- thru fourth-place finishers: Florida (R) at 19 percent poverty rate, and New York (D) and Louisiana (R) at 17.1 percent.

So, between the factors out of government control and the fact that both Republican and Democratic states have similar higher-than-average poverty rates, I don't see how anyone can blame California's high poverty rate on its governing party.

Ok, let us stop and back this up a little bit. Florida may have been "reliably Republican" for some time now at the state Government level, but that is a bit of a misnomer, don't you think? Louisiana is also false claim against the Republicans. Or are you forgetting that the Democrats were in control of the state when Katrina hit? So two of your four examples cited are more (Democratic) Purple than (Republican) Red, when viewed in proper historical context.

https://en.wikipedia.org/wiki/List_of_Speakers_of_the_Florida_House_of_Representatives
Seems to indicate that their House of Representatives was in Democratic Control from 1875 until 1996(and also note: That is ninety-six, not sixty-six). Yes, the Republicans have held the Speaker Seat since, but they're having to contend with "legacy" issues in Florida that once rolled out, are nearly impossible to roll back on the political stage.

And just for completeness on things, sadly the page for the Florida Senate President page isn't nearly as complete or comprehensive, but I did find this:
https://en.wikipedia.org/wiki/Ander_Crenshaw#Senate
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He returned to public office in 1986, winning a special election for a seat in the Florida Senate that he held through 1994. He became the first Republican elected president of the Senate in 118 years in November 1992, but agreed to serve only one year instead of the usual two, as a compromise between Republicans and Democrats who were evenly split in the Senate that year.

I'm unable to (easily) tell if there were any further power hand-offs between parties from 1993 onward apart from at least one additional obvious hand-off back to the Republicans after 1993(as the Republicans hold the office now). But 118 years previous to 1992 would put things back to 1874, a year before Democrats took back the House in Florida in 1875. So the Democrats had 117 years of unbroken legislative control in Florida, compared to just over 20 years for the Republicans?

Now let us look at the Governor's seat...
https://en.wikipedia.org/wiki/List_of_Governors_of_Florida
I see Democrat Governors from 1877 until 1917 when the "Prohibition" Party took the seat for years, Democrat control resumes in 1921 and continues until 1967, when the Republicans hold it for a single term before reverting to the Democrats in 1971 which continues through to 1987, where another single term Republican comes along. Then it's back to the Democrats from 1991 until 1999 when "Jeb" takes over the Governor's seat. Which in turn leads to Charlie Crist who served one term as a Republican, and a second term as an Independent. Rick Scott(R) has held the seat since 2011.

So realistically, even assuming the Republicans controlled the Florida Senate since 1994/1995, they were contending with a Democratic Governor until 1999. So they've only truly had 17 years to try to undo/alter over a century of Democratic actions in Florida. That matter also tends to suggest that a "Florida Republican" probably has a lot in common in the New England flavor of Republican, or the California type, rather than the Republicans you're likely to encounter in "flyover country." (Particularly given that Democrats are reasonably certain they're going to "get Florida back" under the Democratic Banner in the coming years.)

Also, it should be noted that out of the four states you mention, Florida comes the closest to matching California in terms of year-round climate, so item #4 IS a factor there, as well as item #2, just on the other extreme, given that most of Florida is practically wetland.

New York doesn't really require further examination, it's basically been Democrat Central for a very long time.

But let us look at Louisiana. To change things up, let us start with the Executive:
https://en.wikipedia.org/wiki/List_of_Governors_of_Louisiana
From 1877 to 1980 we see an unbroken chain of Democratic Governors. From 1980 to 1984 we see a Republican in office. The Democrats regain the office in 1984 and hold it until 1996. A Republican obtains the seat in 1996 only the lose it in 2004(Just in time for a Democratic Governor to make a mess of the response to Katrina), where the Republicans then claim the office for two terms from 2008 until 2016, where it then is held by a Democrat once more.

Wait, I thought you said Louisiana was Republican Controlled? I'm seeing a Democrat holding the Governor's office... But from this, I'm seeing Republican governorship that doesn't happen for longer than 2 terms(8 years), and only going back to 1996. Even being generous and including the 1980 to 1984 terms givens Republican control of the Governor's office in 20 of the past of 38 years. That seems rather Purple to me. Of course, that's nothing compared to 20 years of Republican "leadership" against a backdrop of 121 years of Democratic stewardship.

Well, let us dig further. On to the Legislature! Where:
Democratic_Domination_(1877-1976)
Presents an issue as per wiki:
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From the end of the Reconstruction in 1877 until the appointment of John Hainkel in 2000, the senate chair was held by Democrats.

. . .

The reinstatement of the elected senate presidency and the installation of a new constitution brought with it something Louisiana had not seen since the 1850s; a two-party system. Also new to the presidency the practicing of appointing of the president by the Governor. This practice had been applied to the state House Speakership for years. In 1980 something that had not happened since the Reconstruction became a reality; a Republican governor was in office. David Treen was elected in 1979, and with him came more Republican legislators, although only an enlarged minority, and in 2000, although still in the minority, Republican John Hainkel was appointed by Republican Governor Murphy J. Foster, Jr. to be senate president, the first Republican in over a century. In 2011 the Republicans obtained a majority in the senate,

So where the Senate in Louisiana is concerned, Democrats held a majority from 1877 until 2011. That's quite the impressive run. Of course, that means that they(Republicans) only held the Governorship and the Senate from 2011 until 2016. A whopping 5 years! Yeah, they're totally going to undo 144 years of legislative action in such a small time frame. Of course, there still is the lower house.

https://en.wikipedia.org/wiki/List_of_Speakers_of_the_Louisiana_House_of_Representatives#List_of_Speakers

Where surprise, surprise. Democratic Speakers of the House starting in 1877, and running up through 2008. Republicans since. Oh wait, one more caveat from wiki:
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In 2008 Republican Governor Bobby Jindal appointed the first Republican speaker in over a hundred years even though the Democrats held a small majority.

So it does look like there has been a fully Republican controlled legislature in Louisiana since 2011, and a partial one since 2010. But that ignores the matter of Democrats having a lock on both legislative houses from 1877 until 2008, the Senate President being a Republican despite a Democrat Majority in 2000 not withstanding.

So just how "Republican" are Florida and Louisiana again?

TheDeamon

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So to set the stage, with this special tax law in place, taxes on war profits are taxed at a very high rate (companies that were profitable without the war didn't face quite the same burden).  Congress did this to prevent war profiteering and to recapture money it was spending for the common defense.  Boeing was in the unique position of having been very profitable in WWII, break even during the peace, and very profitable during the Korean war because of its heavy military focus and lack of a civilian department.

What do you do if you are Boeing?  All your war profits are subject to this tax, your competitors all had peaceful profitable businesses.  You look for deductible expenses to eliminate your gains.  Do you buy a factory?  No.  Why not, its really expensive after all?  Because it's not fully deductible, it has to be depreciated.  Do you buy equipment?  Nope same problem.  So how do you spend the money and get a tax deduction?

You invest in technology and build a model (note not a plant initially).

Which isn't to mention you don't buy a factory unless you have to manufacture in said factory. You don't buy more equipment unless you have something to manufacture with said equipment. While efficiency is a laudable goal, the costs associated with implementing said efficiency will be balanced against time to "recover the cost" of said implementation, which will in turn look at changes to output vs expected demand.

An efficiency gain which results in increased output, while demand doesn't change(or declines) isn't a good option to pursue unless you intend to use that increased (efficient) production to pull less efficient production lines offline(and thus keep production levels near demand), or you think that efficiency gain will be needed in order to better compete against someone else.

Further, with that broader context, it is also makes it logical that the specific structure of that tax targeting profits in peacetime vs wartime indicated that a company looking towards the future would want to minimize their exposure to sure taxation practices going forward. Which would mean finding a way to make their business profitable in peacetime. Logically, that means entering the normal commercial market and ceasing to focus exclusively on Military Contracts.

Which in turn makes the R&D investment into building a Jet Engine Propelled Passenger Airliner(with potential Military use--Many of the Military 707 variants still remain in service) a worthwhile investment both to minimize their exposure to that specific tax "in the here and now," but to also give them a future "peacetime market" in which to establish a "peacetime profitability" comparable to their competitors so they don't get hit the same way ever again.

Greg Davidson

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Failure to consider "all other factors"

I absolutely agree with considering "all other factors"; I disagree with your use of "all things being equal" as a clause you bring out, without evidence, to explain away cases (such as California economic growth under Democratic governance) that refute the claims that you are trying to make.

Seriati

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Ahh...  To be clear, I've never claimed to have refuted anything about the CA case.  I objected to you claiming that others' claims were refuted.

I've looked at this for quite a while, and most data in most cases still allows for multiple interpretations.  I have not seen any convincing evidence that raising taxes does anything but increase tax avoidance.  If the tax avoidance goals are intelligently set you will generate additional capital flow into tax advantaged things (like the Boeing investment in research), if not well set you will generate capital flow into bad results (like offshore capital stockpiles). 

It's my view that the government is not -generally- the best person to pick where capital should be allocated, that it makes far more mistakes than it has successes.  I honestly believe that the market will do a far better job of it, that it may invest in plants or people or tech, in each case to the extent that is the best use of its capital.  A government rule that favors tech over the other two uses will distort that. 

However, sometimes that's okay, I'm not an absolutist, the government should use tax policy to help it meet its goals, that's why we subsidize agriculture for instance.  It's also appropriate for the government to force us (though businesses especially) to bear the costs of our decisions so that we consider the harms as well as the benefits.  It should just stay out of the manipulation of capital for economic purposes because its the wrong and worse person to make those choices, accordingly, I think that governments that pull back on taxes will generate businesses that create better economic results.

TheDeamon

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Failure to consider "all other factors"

I absolutely agree with considering "all other factors"; I disagree with your use of "all things being equal" as a clause you bring out, without evidence, to explain away cases (such as California economic growth under Democratic governance) that refute the claims that you are trying to make.

Except it has been pointed out that as it pertains the California, not all things are equal.

California's climate is a huge draw across all demographics.
Its geography also provides it with a unique range of opportunities for recreation that few other areas can match.
The established (tech) population centers makes it "a magnet" for further tech-sector related developments, specifically around Silicon Valley.
California boasting a number of "magnet" schools as it relates to technology, going back to WW2 and before, also helps considerably in that respect.

-California's climate and geography isn't likely to change in any majorly significant way in the foreseeable future, and there aren't many other states or locations able to compete on that basis.

-The "Tech Population" advantage California enjoyed in decades past is becoming less of a predominate thing as other urbanized areas likewise amass very large technology-oriented populations of their own. But the 40+ year head start Silicon Valley enjoys still helps California immensely despite anything the government gets up to. (Although the Government's tendency to subsidize Tech offsets that)
-The "magnet school" status most of the involved Universities and Colleges enjoy isn't likely to disappear overnight or anytime soon, although they are seeing increasing amounts of competition, the "Prestige"/"Status" of going to those California schools for those programs is going to persist for a long time. But prestige alone doesn't make $$$$ happen.

A lot of the underlying "growth" on those metrics likely ties back to the Tech Sector doing well, and "trickle down" following from there. That isn't really the outcome of ongoing legislative brilliance on California's part, more an acknowledgement that they've been careful about their handling of the goose that lays the golden eggs. Which is part dumb luck on their part(going back to how Silicon Valley "became a thing" to start with), and part good decisions made decades ago. But that turns us back to impossible to prove/disprove supposition from there. By all rights, California should be doing much better than it is doing. So long as the Tech Sector and and a large helping of the Finance sector calls California home, their "numbers will do well" but as their "lock" on tech via Silicon Valley slips, that isn't going to hold true indefinitely. It may not be next year, or even 10 years from now, but in the long-term, unless they rethink a lot of what is being done presently, their course isn't headed anywhere pleasant.

Wayward Son

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But that turns us back to impossible to prove/disprove supposition from there. By all rights, California should be doing much better than it is doing.

So let me get this straight.

Because Texas was once doing better on certain economic indicators, the Conservative Republican Government of Texas is much better than the Liberal Democratic Government of California because it provides a more robust economy.

But when those same economic indicators now show that California is doing better than Texas, and has done so for an extended period of time, this does not disprove that the C.R.G. of Texas is better than the L.D.G. of California.  Because California should be doing much better than it is.

Sounds like "heads I win, tails you lose" to me. :)

But I'll bite.  How much better should California be doing than it is?

And how do you know that other factors--like short-term economic fluctuations, regional differences in geography, major industries, and weather (after all, it looks like we're starting another drought  :'( )--aren't preventing California from achieving this better economic outcome?  Or perhaps that certain government regulations for which we are criticized help preserve the "unique range of opportunities for recreation" that draws people here, and would be lost with a more Conservative Republican Government?

TheDeamon

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Because Texas was once doing better on certain economic indicators, the Conservative Republican Government of Texas is much better than the Liberal Democratic Government of California because it provides a more robust economy.

But when those same economic indicators now show that California is doing better than Texas, and has done so for an extended period of time, this does not disprove that the C.R.G. of Texas is better than the L.D.G. of California.  Because California should be doing much better than it is.

Sounds like "heads I win, tails you lose" to me. :)

But I'll bite.  How much better should California be doing than it is?

And how do you know that other factors--like short-term economic fluctuations, regional differences in geography, major industries, and weather (after all, it looks like we're starting another drought  :'( )--aren't preventing California from achieving this better economic outcome?  Or perhaps that certain government regulations for which we are criticized help preserve the "unique range of opportunities for recreation" that draws people here, and would be lost with a more Conservative Republican Government?

The "issue" is that California's growth is almost entirely "at the top" and often at the expense of "the middle" and especially "the bottom" of the economic food chain. Luckily for California, things like Amazon(electronic retailing), automation in general, and a few other things are helping to mask what is going on. In some scenarios that may leave California "uniquely positioned" should automation reach the point that even most of the top quintile of income earners start getting laid off due to AI and robotics advances. As they might end up being one of the last ones hit in a particularly painful way, but that's one heck of a gamble on "the new economy."

As it stands, they're on course to be the penultimate demonstration of "trickle down economics" in practice, even if a lot of it is by way of government taxation. California is basically eliminating their middle class(as a % of population) even while "growing their economy."

In the meantime, Texas is growing its economy across the board.  From the lowest quintile all the way to the top, which also tends to mean opportunities to "move up the ladder." As a long-term trend, my money would be on Texas. The only wild card in all this is whatever additional disruption automation and telecommunications causes in the interim. (Texas also has the "Energy"/Petrol card in play, but they're also uniquely positioned to leverage renewables without much effort, and have already been doing so)

This also ignores the matter that a lot of the Tech-Sector from California has outsourced most of their "middle-income" work to Texas locations, and some of their upper-level stuff is starting to follow suit. So Texas in particular is starting to become "a threat" to Silicon Valley in ways most other states can only dream of, largely thanks to the (comparatively) mild winters they also enjoy compared to much of the rest of the country. As well as abundant (buildable) land availability, and multiple very large urban/financial centers in comparatively close proximity to one another, even in relation to California. (The San Antonio <-> Dallas/Ft Worth <-> Houston triangle is a pretty substantial population base in its own right even now, as major tech companies have already noted)

TheDrake

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I wonder how you could ever boil down a 2.5T economy and a 1.6T economy down to a one dimensional good-bad line, let alone attribute it to a political party.


TheDeamon

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I wonder how you could ever boil down a 2.5T economy and a 1.6T economy down to a one dimensional good-bad line, let alone attribute it to a political party.

Most of that ignores the party in most respects. The trend is that the Tech Sector is relocating itself outside of California because their lower-level technicians and whatnot cannot afford to live in California. Texas in particular is more affordable at present, and isn't anywhere nearly as "space constrained" and has a number of other things going for it.

That the Republican Government currently in power happens to favor policies that make it even more appealing just speeds that process along. If/when the balance of the Tech industry ends up residing in Texas instead of Silicon Valley, CA the legislature in California might be hurting in a number of new ways. What the "Politics of Texas" look like by then may be another matter.

Greg Davidson

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Any natural advantages of California are not relevant to the comparison, because it was based on a claim that Democratic policies would make the California economy worse.  California had all of those same advantages when the Democrats took power in the Governorship and the legislature, but nonetheless under Democratic leadership the trends all improved far better than they did under states with all Republican leadership such as Texas and Kansas.

And that is the test being discussed here - are Republican policies that cut benefits and services to 90% of the population necessary for economic growth? And if the answer is that growth is as good or better with Democratic policies, then the primary rationale for cutting benefits and services and cutting taxes to rich people is just that rich people want it that way

Greg Davidson

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Seriati,

I agreed with much of this (below), and even the parts that I disagreed with, I appreciated how you stated your opinion as such and caveated your provisional conclusions. 

Quote
I've looked at this for quite a while, and most data in most cases still allows for multiple interpretations.  I have not seen any convincing evidence that raising taxes does anything but increase tax avoidance.  If the tax avoidance goals are intelligently set you will generate additional capital flow into tax advantaged things (like the Boeing investment in research), if not well set you will generate capital flow into bad results (like offshore capital stockpiles). 

It's my view that the government is not -generally- the best person to pick where capital should be allocated, that it makes far more mistakes than it has successes.  I honestly believe that the market will do a far better job of it, that it may invest in plants or people or tech, in each case to the extent that is the best use of its capital.  A government rule that favors tech over the other two uses will distort that. 

However, sometimes that's okay, I'm not an absolutist, the government should use tax policy to help it meet its goals, that's why we subsidize agriculture for instance.  It's also appropriate for the government to force us (though businesses especially) to bear the costs of our decisions so that we consider the harms as well as the benefits.  It should just stay out of the manipulation of capital for economic purposes because its the wrong and worse person to make those choices, accordingly, I think that governments that pull back on taxes will generate businesses that create better economic results.

 

TheDeamon

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Seriati,

I agreed with much of this (below), and even the parts that I disagreed with, I appreciated how you stated your opinion as such and caveated your provisional conclusions.

You need to keep in mind that from the DNC's perspective, Government is the best determiner of what lever needs to be pulled economically speaking.

When it actually is one of the worst. Which in summary is the biggest difference between the two political parties. And most of us actually are likely to have dozens of caveats on statements we've made, but stipulating all of them would make things wander wildly, and result in MUCH longer postings that don't really communicate much of anything effectively.

Regulating an economy through legislation is absolutely one of the single worst methods of doing so that could possibly be conceived. Time-lags on government action aside, it is nothing but an open invitation for graft and corruption as the government gets to decide who the winners and losers get to be.

Which is why "hands off" ends up being favored by many(as "the market" is far more responsive, and knowledgeable, than most legislators will ever be), and how the Republicans tend to attract the people who favor that approach.

Now granted, there are powerful elements in the Republican Party that would have to take "hands off" to the extreme of not holding corporations accountable for their actions, but that is only one faction among many within the Republican ranks. Remember, as much as the Republicans may complain about what the EPA gets up, it was created by a Republican. (Now what a "Strict Libertarian" may want to do with the EPA would be another matter)

As it relates the California, their state legislature has a clear bias on who their preferred "winners" are(anything "Green" or otherwise "non-polluting" with high wages), and they're undermining their own economy while doing so. To reiterate: California is progressing towards an economy that is almost entirely "Top" with only enough "bottom" to provide required services for that top. With most of the "undesirable stuff" (read: low/mid-value manufacturing) being moved out of state.

The United States in general is already starting to feel the impact of what happens when you cause low-value manufacturing to leave your market. California specifically has dodged part of that bullet thanks in large part to the magic of hosting Silicon Valley. But as mentioned previously, aside from really high-value work, even Silicon Valley(and California in general) has become unaffordable for much of Silicon Valley, even with targeted incentives from the Government of California. Their "brain drain" has started, while they may retain their hold on "the cream of the cream" for now, that's unlikely to continue as an ever increasing number of their support staff and facilities take up residence in other states. (With Texas very likely to be a main beneficiary by all indications)

Which is where California is really playing with fire, that highest income bracket also tends to be highly mobile. So while California might remain a preferable place to be in many respects, that doesn't mean that will be where they end up spending the bulk of their time(/economic activity) at. Which will just make for an even more extreme economic split over time. Those (lower) middle-class types are very important, and California is neglecting them, badly. So we're back to "California is pursuing strategies which are likely to harm them in the end."

Fenring

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Regulating an economy through legislation is absolutely one of the single worst methods of doing so that could possibly be conceived. Time-lags on government action aside, it is nothing but an open invitation for graft and corruption as the government gets to decide who the winners and losers get to be.

No, it's only the worst when it's merely an exercise in picking winners and losers. A correctly designed system (which we have thus far not seen) would obviously be designed so as for this to not be possible. At the moment government manipulation has a direct effect on the success/failure of private actors, whereas the ideal should be for government's regulation to have no effect whatever on private actors and yet still to prevent excesses and to determine national goals. That sounds like a puzzle but simply that's what the purpose of government should be, if anything. It's only a question of recognizing that this is actually the goal, rather than, as you say, being an open invitation to corruption. It's like the police, right? In principle we want police, we really do, as we don't like the idea of criminals running rampant. And yet we also know that a criminal police department (hypothetically) invested with public powers would be far worse than a mere gang out outlaws, since it would be illegal to resist them. But the correct solution isn't to prevent the police affecting the citizenry, but rather to create a police force that has no conflicts of interest and stands to gain nothing from malfeasance.

Greg Davidson

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You need to keep in mind that from the DNC's perspective, Government is the best determiner of what lever needs to be pulled economically speaking.

When it actually is one of the worst.

I disagree with the premises here. First, the DNC is neither bogeyman nor policy setter - it's a small group of staffers that have very little real power.

Secondly, mainstream Democratic policy is not the extremist mirror image of Republican policy. Obamacare is not government run (not in the sense of the British National Health Service), actual service provision is theoretically based on competition of providers. A carbon tax, one of the environmental policies that Republicans fought, uses market-based mechanisms to efficiently reduce pollutants. Many decades ago these sorts of policies, based on taking advantage of the free market, were espoused by conservative economic organizations.

Democrats try to use the government to make markets more efficient, and yes, that can really happen. As an example, there are some big problems with the free market working on health care (both pre-Obamacare and today). For consumer pressures to work in making a market function efficiently, you need to have clarity as to prices and quality of service.  Have you ever had a major health problem that required hospitalization and significant treatment? There is almost no ability to shop for the best prices and quality of service?  Obamacare mandated that major medical care providers reported in a standardized way on quality of outcomes and prices for common major medical procedures (I remember out here in California there were six different hospitals systems with the same quality of outcomes and they amount they charged for some type of surgery varied by a factor of 6).

Democrats do not have endless faith in government determining economic outcomes, but neither do they have limitless faith that the unregulated marketplace will produce optimal outcomes either. If any of you are in business you will know that one way to maximize profits is not by winning intense competitions (which tend to drive down price and thus profitability), but instead by changing the marketplace so there are not intense competitions. And some businesses can also increase profitability by imposing its costs on others. That's why I liked Seriati's comments:

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I'm not an absolutist, the government should use tax policy to help it meet its goals, that's why we subsidize agriculture for instance.  It's also appropriate for the government to force us (though businesses especially) to bear the costs of our decisions so that we consider the harms as well as the benefits.

Over the past 40 years we have seen major instances where deregulation that has subsequently caused disastrous consequences that somehow never get kept in the ledger regarding the pros and cons of deregulation: the Savings and Loan Crisis of the 1980's and the economic collapse of 2008.

And don't forget the party-line vote in the Supreme Court regarding the Citizen's United case where campaign financing was deregulated: remember the promises that this would not even create the appearance of corruption (yes, that claim was in the Supreme Court decision). This is the "free market" - from a pro-deregulation mindset, why shouldn't companies spend a share of their profits on achieving political outcomes that massively increase their profits? It only takes a billion dollars or so of extra corporate money to outspend the opposition, and by doing so in the last election there was a corporate tax cut of $1,000 billions - quite a return on the 0.1% of that amount.

And while I am on Citizen's United, let's not forget Obama's assertion that this would not be a pathway for foreign money to enter the US political system and Supreme Court Justice Alito's "not true" response:

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"Last week, the Supreme Court reversed a century of law to open the floodgates for special interests — including foreign corporations — to spend without limit in our elections," Obama said. "Well I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. They should be decided by the American people, and that’s why I’m urging Democrats and Republicans to pass a bill that helps to right this wrong."

https://www.politico.com/blogs/politico-now/2010/01/justice-alito-mouths-not-true-024608

TheDeamon

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Regulating an economy through legislation is absolutely one of the single worst methods of doing so that could possibly be conceived. Time-lags on government action aside, it is nothing but an open invitation for graft and corruption as the government gets to decide who the winners and losers get to be.

No, it's only the worst when it's merely an exercise in picking winners and losers.

This one is a definition game in some respects, that comment cuts both ways. Imposing a tax on one industry in order to make it less profitable for whatever reason can and often does result in those "unintended consequences" popping up.

Likewise, tax cuts(and spending bills alike) in the interests of "economic stimulus" also have a track-record of being mediocre at best because the time-lag that often is involved either results in "not enough/soon enough" or "too much" as it pushed things out the other end(after a market recovery was already happening).

When I was speaking of "regulating the economy" I wasn't speaking to specifics of economic activity. I was speaking to using legislation for the purpose of regulating the rate of economic activity either in general or in specific cases. Basically, Legislatures and messing with "the money supply" of the economy in general is asking for things to break.

Legislatures acting to curb abusive practices being observed in "the market" are a different matter and typically welcome. But this goes back to viewing Legislative manipulation of money supplies to be an inherent market abuse as well.

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A correctly designed system (which we have thus far not seen) would obviously be designed so as for this to not be possible. At the moment government manipulation has a direct effect on the success/failure of private actors, whereas the ideal should be for government's regulation to have no effect whatever on private actors and yet still to prevent excesses and to determine national goals. That sounds like a puzzle but simply that's what the purpose of government should be, if anything. It's only a question of recognizing that this is actually the goal, rather than, as you say, being an open invitation to corruption. It's like the police, right? In principle we want police, we really do, as we don't like the idea of criminals running rampant. And yet we also know that a criminal police department (hypothetically) invested with public powers would be far worse than a mere gang out outlaws, since it would be illegal to resist them. But the correct solution isn't to prevent the police affecting the citizenry, but rather to create a police force that has no conflicts of interest and stands to gain nothing from malfeasance.

Not going to disagree with this part.

TheDeamon

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Obamacare is not government run (not in the sense of the British National Health Service), actual service provision is theoretically based on competition of providers.

That's a mighty fine line you're cutting there, given that while the Government may be issuing the insurance policies directly, they're pretty darn close in most cases. The government pretty much mandated the levels and types of services to be offered, and also stipulated the minimum levels of coverage. Which largely destroyed most of the competition that could exist in a given geographical area as they're all going to reliant on the prevailing rates of care providers in that particular region to determine "in network" rates. Which then only left competition over how far beyond the minimum a particular provider was willing to go. Which by the way, under Obama Care came with its own ceiling at which point it began to get that nice "Cadillac Tax" applied to it which in turn just further increased costs for all involved.

The theory behind addressing the non-payment of medical bills to bring medical costs down is decent in theory. But this goes back to protests from back when ObamaCare was enacted. It didn't actually address the underlying problems. It's only goal was to provide coverage to more people to ensure more people paid their bills(and potentially give more access to preventative care, which does help). It did nothing to actually address the cost of those bills however. If anything, it added additional administrative overhead, which meant more additional costs.

Non-payment and lack of preventative care are large contributors, but they are not, and were not, the only problems present.
 
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A carbon tax, one of the environmental policies that Republicans fought, uses market-based mechanisms to efficiently reduce pollutants. Many decades ago these sorts of policies, based on taking advantage of the free market, were espoused by conservative economic organizations.

I find it hard to believe that a conservative organization would have been proposing a carbon tax. As to the other mechanisms and general system being described, I could see that.

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Democrats try to use the government to make markets more efficient, and yes, that can really happen. As an example, there are some big problems with the free market working on health care (both pre-Obamacare and today). For consumer pressures to work in making a market function efficiently, you need to have clarity as to prices and quality of service.  Have you ever had a major health problem that required hospitalization and significant treatment? There is almost no ability to shop for the best prices and quality of service?  Obamacare mandated that major medical care providers reported in a standardized way on quality of outcomes and prices for common major medical procedures (I remember out here in California there were six different hospitals systems with the same quality of outcomes and they amount they charged for some type of surgery varied by a factor of 6).

Ah, the "Quality of Outcome" criteria, one of the more ironic "unintended consequences" of ObamaCare and the legislation not being entirely thought through. You do realize that hospitals that specialized in "high-risk" cases(and as such often used experimental treatments--which tend to be very expensive) also had a tendency to get hammered in both the "Quality of Outcome" (Their high risk patients died) and in the Cost of Care metric as well? It actually provides many hospitals a very perverse incentive to avoid such cases and instead refer them elsewhere for non-emergency treatment.

Don't worry though, it's working as intended, right?

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Democrats do not have endless faith in government determining economic outcomes, but neither do they have limitless faith that the unregulated marketplace will produce optimal outcomes either. If any of you are in business you will know that one way to maximize profits is not by winning intense competitions (which tend to drive down price and thus profitability), but instead by changing the marketplace so there are not intense competitions. And some businesses can also increase profitability by imposing its costs on others. That's why I liked Seriati's comments:

Quote
I'm not an absolutist, the government should use tax policy to help it meet its goals, that's why we subsidize agriculture for instance.  It's also appropriate for the government to force us (though businesses especially) to bear the costs of our decisions so that we consider the harms as well as the benefits.

Of course, another popular tactic larger businesses love these days is to encourage further government regulation which their lawyers can easily chew through, because that ever increasing amount of regulatory requirements serves to prevent new competition from entering their market in the first place.

Keep in mind, this isn't an argument for no regulation, but instead one for much better awareness of regulations that already exist and making them make sense, rather than slapping on layer after layer of new regulations across however many dozens of different government offices.

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Over the past 40 years we have seen major instances where deregulation that has subsequently caused disastrous consequences that somehow never get kept in the ledger regarding the pros and cons of deregulation: the Savings and Loan Crisis of the 1980's and the economic collapse of 2008.

You seem to be forgetting the part about the 2008 housing bubble where a significant contributor to that liquidity crises was regulatory and political pressure(threatening more regulation) from certain quarters in regards to making home loans available to minorities and others with low incomes. The market found a way to make it work so those interests were appeased, and yeah. That worked out well.

Can't speak to the S&L stuff, most of that started before I was learning about multiplication tables.

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And don't forget the party-line vote in the Supreme Court regarding the Citizen's United case where campaign financing was deregulated: remember the promises that this would not even create the appearance of corruption (yes, that claim was in the Supreme Court decision). This is the "free market" - from a pro-deregulation mindset, why shouldn't companies spend a share of their profits on achieving political outcomes that massively increase their profits? It only takes a billion dollars or so of extra corporate money to outspend the opposition, and by doing so in the last election there was a corporate tax cut of $1,000 billions - quite a return on the 0.1% of that amount.

Yes, so the United Auto Workers can spend dollars on campaign advertisements, but Ford Motor Company should be banned from spending even a dime in pursuit of a political agenda. That certainly sounds fair, representative, and in the best interests of an informed citizenry. "Move along Citizen, the UAW can tell you everything you need to know about the Ford Motor Company, no need to listen to their corporate schills."

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And while I am on Citizen's United, let's not forget Obama's assertion that this would not be a pathway for foreign money to enter the US political system and Supreme Court Justice Alito's "not true" response:

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"Last week, the Supreme Court reversed a century of law to open the floodgates for special interests — including foreign corporations — to spend without limit in our elections," Obama said. "Well I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. They should be decided by the American people, and that’s why I’m urging Democrats and Republicans to pass a bill that helps to right this wrong."

Well, in relation to the UAW, I don't believe they have a citizenship requirement for membership, and so those union-dues-paying foreign nationals (with presumably legal residency) can arguably be claimed to be helping fund political campaign advertisements in the United States of America. But the Unions aren't the problem, its those corporations, right?

Greg Davidson

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Some quick debunks:

(1)
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The government pretty much mandated the levels and types of services to be offered, and also stipulated the minimum levels of coverage. Which largely destroyed most of the competition that could exist in a given geographical area as they're all going to reliant on the prevailing rates of care providers in that particular region to determine "in network" rates.

Real economic competition for health insurance requires some standardization of services. Otherwise consumers of health insurance have very little idea of actually what they will receive when they buy "health insurance" - for example, does it cover cancer medicine? Before Obamacare, you could buy health insurance and when you got cancer, they could tell you that your medicine was not covered.  And that did not even have to be in the fine print - it could just be a decision that some sleazy companies would make.  This plays into the point that Seriati made - without some regulation, the worst companies could outcompete others by shedding costs.

(2)
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I find it hard to believe that a conservative organization would have been proposing a carbon tax

In the 1990's, a carbon tax was the alternative preferred by conservative economics to regulation. Rather than have government set standards and impose them equally everywhere, a carbon tax (with re-sellable credits) would enable market mechanisms to select the lowest cost ways to achieve a reduction in emissions.  20-30 years ago, when conservative policy still had some intellectual integrity, that was a valid approach to use the market rather than government to address a real problem.

(3)
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You do realize that hospitals that specialized in "high-risk" cases(and as such often used experimental treatments--which tend to be very expensive) also had a tendency to get hammered in both the "Quality of Outcome" (Their high risk patients died) and in the Cost of Care metric as well?

My understanding is that the law focuses on standard treatments and makes adjustments for risks. And the resulting statistics dramatically improve the available insight into costs and outcomes (even if measures are not now perfect, they are vastly superior to what was available before)

(4)
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Yes, so the United Auto Workers can spend dollars on campaign advertisements, but Ford Motor Company should be banned from spending even a dime in pursuit of a political agenda. That certainly sounds fair, representative, and in the best interests of an informed citizenry. "Move along Citizen, the UAW can tell you everything you need to know about the Ford Motor Company, no need to listen to their corporate schills."


First, union spending is dwarfed by Corporate spending (have you noticed that unions are dying out?). Second, before Citizen's United union spending via Political Action Committees was matched on the corporate side by corporate employees participating in Political Action Committees. Over $1000 from my paycheck goes into an employee-funded PAC that probably goes to many candidates I disagree with strongly.

But most importantly, if you think that Citizen's United permitting unlimited and unregulated campaign spending by corporate entities (and of course foreign interests, because there is no way to stop that, and emerging evidence that such spending has been growing in recent years) has led to a better informed public, I would love to see what evidence you based that conclusion on.

TheDeamon

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(4)
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Yes, so the United Auto Workers can spend dollars on campaign advertisements, but Ford Motor Company should be banned from spending even a dime in pursuit of a political agenda. That certainly sounds fair, representative, and in the best interests of an informed citizenry. "Move along Citizen, the UAW can tell you everything you need to know about the Ford Motor Company, no need to listen to their corporate schills."


First, union spending is dwarfed by Corporate spending (have you noticed that unions are dying out?). Second, before Citizen's United union spending via Political Action Committees was matched on the corporate side by corporate employees participating in Political Action Committees. Over $1000 from my paycheck goes into an employee-funded PAC that probably goes to many candidates I disagree with strongly.

But most importantly, if you think that Citizen's United permitting unlimited and unregulated campaign spending by corporate entities (and of course foreign interests, because there is no way to stop that, and emerging evidence that such spending has been growing in recent years) has led to a better informed public, I would love to see what evidence you based that conclusion on.

During the campaign restrictions that Citizens United overturned, you do realize that Labor Unions were explicitly allowed to continue to campaign while their "Corporate" counterparts were banned?

More than anything, that was a major contributor to why I was fine with the SCotUS decision. Democrats saw fit to protect the speech of Unions, while saying that corporations should have no voice. Bad law is bad law. I know it wasn't overturned on that basis, but the point still stands. My comment wasn't arguing that the current practice is superior than some regulation. Just that the form of regulation that was enacted was a farce.