Saturday, February 28, 2015

The Hazards of Policy Divorced from Sociology

Back in the early 1960s there was an incident at the firm where I worked that became legendary. Bob, a WWII veteran with a steel plate in his head was in Chicago on business for a few days.  In winter, he had to wear a hat, and the wind blew his hat into the street and down a storm drain.  He found a suitable replacement for $5 and continued on with his business.  When he returned, he put the $5 on his expense report, since being away from home precluded using another hat he already owned, and thus, in his view, was a medical expense directly related to his being on the road for the company.  His boss rejected the expense report with a prolonged rant.  So Bob went back to his desk, filled out another report, raising the total for his meals (for which no receipts were required if below given thresholds) by a total of $5.  He attached to the report a note, "While on business, my medically required hat was blown away, and I could not find it. My total legitimate expenses on my first report were $xxx.xx, including the hat.  Here is a second expense report for $xxx.xx, but without the hat.  You find the hat!"  The supervisor signed the original report, and it went through unchallenged.

We have previously discussed the Greek crisis.  One of the aspects of "corruption" in Greek society that arises is tax evasion.  The new government has made it a goal to attack tax evasion by the wealthier Greeks.  Critics of Greek society point out that many, many small businesses regularly and routine choose to do business "off the books", and thus don't issue receipts, avoiding VAT and income tax.  I can only speak for Paros, where I live, but in 10 years, I would say that the vast majority of our purchases, both large and small, have resulted in our receiving a cash register receipt.

Now, as an academically trained "political economist" whose specialty was labor market theory, it has interested me to see the blanket condemnation of self employed Greeks doing some business off the books.  Let's begin with some sociological factors.  For a variety of cultural reasons, 36% of the Greek workforce is self employed/family employed.  That's five times the rate in the US and 3 times the rate in Germany.  Businesses and real estate are handed down through the generations.  There is a strong personal bond between the people and their land and business.  Many would rather toil on their own for a meager wage than for a meager wage from WalMart.  I cannot begin to describe the mixed emotions in my Sicilian family when first my brother-in-law, and then I did not show an interest in joining and hopefully take over elements of our family's successful businesses.  It was almost as if we said we would not produce offspring to perpetuate the family name.  Americans really do not aspire to carry on the family business, unless it is extremely profitable.

Now, American right wing hype is that "small business is the engine of America", but the type of small business they refer to still does not result in a relatively large number of "self/family employed" people in the work force.  In fact, self/family employed represents just under 7% of the work force.  The vast majority of Americans work for somebody else, and can engage in very few personally enriching tax avoidance tricks in the conduct of business transactions.  They have to find other ways to evade taxes, often by off the books sidelines that do not show up in the labor force statistics, like eBay or unreported side jobs.

Now, why do employers like WalMart, McDonalds and most others ring up each and every sale?  Because they are honorable?  Hell no. It is because sales are rung up by employees and scrupulous ringing up is done to prevent employee theft.  Robbing the till has to be a very tempting thing for someone who can hardly put food on their table, etc.  If the register doesn't balance at the end of a shift, it ain't pretty.  It's a simple and easy to enforce compliance system when the owner of the cash register is not necessarily the operator of it.  While employee theft cannot be stamped out, it is included in the cost of goods sold, raising retail prices, which could reduce demand if prices rose enough to suppress demand.  Thus, the less than altruistice reason for keeping employees as honest as possible.  There is a limit on how much cost you can pass on to your customer.  Americans operating the cash register are basically honest because corporate interest, not social values, make it difficult to be otherwise.  I would also mention that such firms use other techniques to avoid paying taxes, and they do a fine job of it.

Of course, the US has other venues that allow and/or encourage  the WalMart, McD and other low wage earners to afford food, clothing and shelter.  It's called Food Stamps, Housing Assistance and Medicaid.  It's has been estimated that WalMart employees alone receive some $6 billion per year from those programs.  So, these retail giants may not be hiding sales and employment to evade taxes, but their poverty wage employees can "afford" to work for them at taxpayer expense.  You find the hat!

Now, look at typical IRS audit rates.  The emphasis is on higher revenue brackets.  Why, because that makes economic sense.  The amount of revenue involved addresses higher potential tax liability in absolute terms.  Keep in mind that only 7% of the workforce is self/family employed, so it doesn't take a lot of IRS resources to audit 2% percent of these folks.  It's a simple cost/benefit tradeoff.  Consider the magnitude and cost of trying to audit a workforce 5 times that size in proportion to the total.

Now back to Greece.  36% of the workforce is self/family employed.  In a shrinking economy where there are no Food Stamps, etc to help in bad times, the temptation to under report income is very powerful.  Unlike the WalMart or McDonalds employee in the US, shit wages in Greece are not supplemented by tax funded benefits.  Thus, Manolis the plumber, when having trouble putting food on the table, might put an extra 15 Euro in his pocket by not issuing a receipt for a 100 Euro job.  The WalMart worker is called "compensating for being exploited" for his tax funded benefits, and Manolis is "corrupt".  Yet WalMart wages are costing the US taxpayer billions in welfare costs, where the taxes evaded by all the Manolis' and Dimitri's unreported income might just pale in comparison.  You find the hat!

And, of course, economists are totally comfortable with the WalMart Model, as it all shows as part of GDP, while the Manolis Model doesn't.  Heaven forbid poverty should make GDP figures inaccurate.

How prevalent is under reporting in the US?  I have no idea, but I do have first hand knowledge of one case.  Years back, a doctor friend let his wife open a small botique in a local strip mall.  She was fashion savvy, but not business savvy, but as long as she broke even, he saw it as an good outlet for her.  Business was tight, and she couldn't afford enough part time sales people.  Several of the other merchants in the mall showed her how to hire high school students off the books, and how to cover those expenses by not ringing up an amount of sales that offset the employees' pay.  Just took a little time and effort to keep track of the expense and income on a separate ledger.  Just keep one kid on the books for appearances sake.  They all did it.  The avoidance in sales tax, social security, unemployment and workers' comp taxes was considerable enough to allow her to have three instead of two part time employees, and still earn enough profit not to set off any alarms - until she was telling her accountant about their wonderful two week trip to Hawaii, and he saw full revenues during those two weeks from a store that claimed only 10 hours/week of employee payroll expense.  He said that the knowledge of her vacation and what that implied precluded him from doing her store's taxes.   She simply changed accountants.  When her husband finally learned what she was doing, he shut her down and held his breath for the statute of limitations to pass.

I have no idea what level of tax revenue is lost via unreported sales in Greece.  But, before getting my panties in a twist about it, I consider the difference between Greece and the US in terms of the cost of taxation to subsidize low wages with welfare and the cost of tax evasion to supplement low wages, and I honestly have to say, "You find the hat!"

I'm not comparing what might be morally nor legally right or wrong.  I'm simply suggesting that life ain't as simple as some would wish it to be.  It may be true that what is good for the goose is good for the gander, but before you deliver that good, you better be sure that what you are calling a gander isn't a swan or a penguin or a cow.

Monday, February 16, 2015

Hanging 'em up

I don't want get all drama queen-y here, but I think it's time for my last round, gang.

I've just got enough going on that the zest has gone out of the lemon around the old 'Pub. Between my work (I'm starting on with a new outfit next week) and my family I'm busy in Real Life, and the new soccer season is starting up, so I have not just the Portland Timbers but a new season of covering our women's team the Portland Thorns for the local footy blog Slide Rule Pass. Throw in all that to the plain fact that I'm just not feeling the geopolitics and military affairs so much anymore, and rather than hang around like a sad old bag trying to eke out one more season I think it's best that I make a clean break.

I'll check in every so often to see what y'all are talking about and may have something to say once in a while. But from where the sun now stands, I will write here no more forever.

I do want to thank all here - I won't get all Oscar-night-y and name names but you know who you are - for a hell of a lot of good disputatious fun. Hope you can keep servin' 'em up and the customers libated, and all my best wishes for the future. Keep four yards, gang - don't let one grenade get you all.


Sunday, February 15, 2015

Moral Case for Greek Austerity?

I think it's very interesting that in the case of Greece, we've wound up in a situation that appears, from a moral perspective if not an economic one to resemble that of the Central Powers after their defeat in World War I.  A broken power who had wronged the group at large (albeit with noticeable contributions from those who had won the war) was being asked to make amends for their wrongs.  There was a debt to be paid.  It would be extracted from the nation, even if it hurt that nation.

Honestly, I find the parallels between the two countries to be striking.  Paul Krugman has found an interesting connection between the two countries here.  He suggests that
Austerity, it turns out, has devastated Greece just about as much as defeat in total war devastated imperial Germany.
I'll grant that there are far different circumstances going on now versus then.  But is it not odd that the nations of Europe would replicate an activity (essentially reparations) that was roundly felt to be a  wrongheaded and vindictive move 100 years ago?  And is it not even more so due to the fact that there wasn't a war; that Greece was involved in provoking a conflict that killed over 10 million people?  How has Europe/the West changed that the impoverishment of a nation over bank loans appears to have greater moral/legal standing than engagement in one of the most destructive wars of all time?

I think it's safe to say that Europe is acting on much stronger legal grounds than the Allies during/after World War I, but morally this seems far more dubious.  Is the economic destruction of Greece really worth so much?  Or are the news stories from Greece describing serious hardship an exaggeration?  Why are the reasons here stronger now than then?  I'll grant you that the victims are not a threat to the peace or economic life of Europe and so this isn't going to land us in serious hot water in the same way that the Treaty of Versailles impacted things.  And that there are legal and economic reasons for this policy.  But a poorly constructed idea based on punishing a wrong then is wrong now; perhaps more so if the wrongs are less.

The more I look at events like this, US in Iraq again, and Russia in Ukraine, you see examples of the law being only effective/helpful if you happen to be strong enough to enforce it.  Sovereignty appears weak when someone takes it from you and you don't have friends to take it back, or in Greece case, you sign it away.  I think it's worth considering if the legal trappings and righteous vestments we've thrown around ourselves are in fact doing what they were intended to do.  They had a purpose and reason for being that was supposed to make the world a better place for all nations.  Obviously they still do good, but I think that the past decade has shown that perhaps the good had less to do with the institutions themselves and more to do with the people running them.  The current crop of bureaucrats and bullies is as good as any indication that we haven't come that far from our past and should be wise to reconsider the our countries moral compasses.

Thursday, February 12, 2015

No. No, no, no, no. FUCK no.

Proving that like the Bourbons the people that constitute the "leadership" of the United States government learn nothing yet forget nothing the Obama Administration has gone to the poo-flinging monkeyhouse technically known as the United States Congress for a new authorization to use military force, this time against the congeries of wanna-be Sunni Muslim theocrats that go by the nickname "Islamic State".
"President Obama asked Congress on Wednesday for new war powers to go after the Islamic State of Iraq and Syria...The president’s request would replace the 2002 legislation that authorized the Iraq War but leaves in place a very broadly worded resolution passed in the wake of the 9/11 terrorist attacks."
Proving that you don't have to be a dry-drunk simpleton driving a short-bus-full of rage-drunk idiots and conniving weapons-grade-moron Machiavellis to fail to understand the words "don't", "involved", "land war", and "Asia" as well as the catastrophic decade of clusterfuckery that has followed Dick and Dubya's Most Excellent Middle Eastern Adventure the Obamites seem to believe that they can repeat the procedure without repeating the results.
I have absolutely no idea why they would believe this.

For one thing, the Daesh people (NB: apparently "Daesh" is the Arabic equivalent of the WW2 perjoratives "Huns" and "Nips" - it's the name that these guys' enemies use for it, since "Daesh" sounds similar to the Arabic words Daes ("one who crushes something underfoot") and Dahes ("one who sows discord") would like nothing better than for more U.S. joes to stumble around their 'hood killing people and breaking shit seeing as how that worked so goddamn well in Iraq. Doing what your enemy wants you to do is...well, "fucking stupid" are the words that come to mind but "the opposite of strategy" seems like a more measured way to describe it.

For another, well...fuck. IRAQ. Did we learn nothing? The reality on the ground is that the conditions in Iraq and Syria now are worse than when we invaded Iraq in 2003. There is no "government" in any sense of the word. The place has dissolved into a brawling mess of competing groups and semi-decrepit nation states (Turkey and Kurdistan being something of the exceptions...)

There are only two ways this will go.

The U.S. and it's "allies" will raze Sunnistan - the western portions of Iraq and the eastern portions of Syria - to the ground. They will kill and destroy until, as Bill Sherman would have put it, a crow flying over the Sunni lands will have to carry its own provisions. The U.S. will utterly destroy the Sunni capability and will to fight. And then...

...and then I have no idea. Perhaps the Sunni will consent to live under the rule of the other rump states, Alawite Syria and Shia Iraq, as chattel, as the Britons did under the Romans and the Tamils now do in Sri Lanka under the Hindus. That level of violence can produce submission.

Or, perhaps not.

But short of that level of violence?

I have no fucking clue what will happen. Nothing good, I assure you.

My friend Seydlitz says that the powers that be in the U.S. government have lost the ability to think about geopolitics strategically; to assess the economic, political, and military conditions realistically and then plot a course of action that uses U.S. strengths and the weaknesses of the area under consideration to produce a political, economic, and military endstate that benefits the United States.

I have always considered this optimistic. I don't know if the U.S. government has EVER had this ability outside of brief periods when smart people like George Marshall were running things.

But Marshalls seem to be in short supply, while we seem to have a never-ending amount of Dougie Fucking Feiths and Dick Goddamn Cheneys.

And now this.