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Home Publications Blogs Beat the Press Erskine Bowles, Morgan Stanley, and the Deficit Commission

Erskine Bowles, Morgan Stanley, and the Deficit Commission

Thursday, 11 November 2010 05:08

The deficit report put out by the commission's co-chairs, Alan Simpson and Erskine Bowles, had one striking omission. It does not include plans for a Wall Street speculation tax or any other tax on the financial industry.

This omission is striking because the co-chairs made a big point of saying that they looked everywhere to save money and/or raise revenue. As Senator Simpson said: "We have harpooned every whale in the ocean - and some minnows." Wall Street is one whale that appears to have dodged the harpoon.

This omission is made more striking by the fact that at least one member of the commission, Andy Stern, has long been an advocate of such taxes. Presumably he raised this issue in the commission meetings and the co-chairs chose to ignore him.

The co-chairs apparently also chose to ignore the I.M.F. Noting the waste and extraordinary economic rents in the sector, the I.M.F. has explicitly recommended a substantial increase in taxes on the financial industry. It is even more striking that the co-chairs apparently never considered a speculation tax since Wall Street's reckless greed is at the center of the current economic crisis.

In this context, it is worth noting that one of the co-chairs, Erskine Bowles, is literally on Wall Street's payroll. He earned $335,000 last year for his role as a member of Morgan Stanley's (one of the bailed out banks) board of directors. Morgan Stanley would likely see a large hit to its profits from a financial speculation tax.

It would have been appropriate for the reporters covering the report to ask about a financial speculation tax. It would also be appropriate to explore the connection between Mr. Bowles role as a Morgan Stanley director and the absence of any financial taxes in this far-reaching report.

Comments (16)Add Comment
Economic Rent Kettle Calls Out Black Pot of Debt Ridden Freeloaders
written by izzatzo, November 11, 2010 7:02
Noting the waste and extraordinary economic rents in the sector, the I.M.F. has explicitly recommended a substantial increase in taxes on the financial industry.

"Deadweight loss" means the welfare area under a demand curve that no one gets, either producers or consumers, due to higher prices and reduced output levels because of market power.

Not only is the financial sector contributing to the recession with reduced real output consistent with classical monopoly - less produced at a higher price (the unnecessary large number of transactions is not real output, rather it's churning that creates commission income), it's collecting vast economic rent on what it does produce.

The essence of economic rent is that it does not lure resources into employment from the next best alternative, like price does when price only just covers opportunity cost.

Economic rent usually recovers far more than opportunity cost, like Erskine Bowles salary. Bowles opportunity cost is not a similar position in a similar company that would eliminate most of the rent - it's the next best occupation that keeps the rent in this one very high, such as the politician he once was.

Once politicians begin collecting their economic rent rewards from services rendered to the private sector, their first objective is to deny that economic rent exists, then create as much deadweight loss as possible by suppressing the competition that would threaten the rent by covering only opportunity costs at lower prices.

A key part of this strategy is to identify as debt ridden deadbeats and freeloaders, all those who "don't contribute" to producing goods and services but instead receive them as government redistributions which cause excess debt ...

... with the convenient exception of themselves and their economic rent, which displaces all the superior resources barred from entry which could provide more real output at lower cost.

For this gross inefficiency on which they gorge themselves with wasteful gluttonous economic rent, especially during a deep recession, everyone else must pay for it under the "cruel choices" essential to an austerity plan based on debt reduction, which if successful, will of course leave all economic rent intact.
A Challenge
written by Ron Alley, November 11, 2010 7:34

I challenge you to ask this question.

What would George W. Bush do? Then write out your answer. Then compare you answer to what the Democratic Party leadership (including Obama) proposes and actually does. Evaluate the degree of change actually championed by the Democratic Party.

If your answer is Chump Change, then we're on the same page.
Post double standard
written by tt, November 11, 2010 8:05
On its editorial page today, the Post waxes indignant about the conflict of interest of a Maryland legislator who votes on education policy while working for the teachers union, saying disclosure (whose adequacy they do not question) is insufficient. Meanwhile the Post doesn't mention Erskine Bowles' conflict, and it itself has an enormous conflict of interest in writing about education, as the owner of Kaplan University.
Another NPR Atrocity
written by Steve, November 11, 2010 8:47
On NPR this morning, center-right anchor Steve Inskeep interviewed center-right economics correspondent Jim Zarolli about what a great job Bowles and Simpson did. The Inskeep interviewed center-right budget-cut advocate David Walker about how courageous it all is. I was thinking, why don't they interview someone like Dean Baker? The so-called liberal NPR is obsessed with deficit reduction. Probably because the editors and correspondents identify with the upper classes and don't relate to common man and woman. The same malady as what afflicts Obama.
written by liberal, November 11, 2010 9:22
Steve wrote,
On NPR this morning, center-right anchor Steve Inskeep...

I heard the beginning of that piece driving into work. Since I was already in a foul mood due to operating on a lack of sleep, I switched over to classic rock.
written by Thingumbob, November 11, 2010 11:28
What universe are we in when the same Congress and President that approved a still ongoing multi trillion dollar bailout of Wall Street criminals now turns around and tries to sell us this boatload of tripe?
written by Kevin, November 11, 2010 2:36
It would be "appropriate" if we had a media capable of covering anything at all. It's just a propaganda wurlitzer. The Establishment has decided it's pushing this through, and they will. Probably months ago over a glass of excellent claret.
The burden of wealth, sigh...
written by diesel, November 11, 2010 3:57
They keep arguing that if tax cuts were not extended to the top 1% of income earners, then they would have less incentive to work and possibly even take off to John Galt Island in never-never land, free of taxes, war, police, sexual jealousy and all human foibles.

Again. Let them. Who needs them? Do they think that they are irreplaceable? Do they really work as hard as they claim? I doubt it. It's the most common thing in the world to overemphasize one's importance in the grand scheme of things. And is their inner calculus so highly refined that their work effort will diminish by just such an increment as their income fell due to a slight surge in taxes? If it is, then they're spending too much time thinking about the extrinsic rewards of their employment and not enough attending to the requirements of the job at hand. It's likely then, that they perform poorly at what they do. And recent history bears this out. A pox upon their house!
written by vorpal, November 11, 2010 4:49
Dean, stop hating america.

Speculation is america's raison d'etre. If you tax is, that means you hate it, which in turm means you hate america.

Slavery is against the law Dean, how is a decent opportunist supposed to make a living?

Move to China you commie.
So you think Cap Gains as ordinary income
written by rootless_e, November 11, 2010 5:39
is not a tax on wall street? Or didn't you bother to read the report?
written by vorpal, November 11, 2010 7:18
A few comments on the report.

1) Why is it that these reports don't use the terms "on-budget" and "off-budget"? These are the terms used by the Monthly Treasury statements.

2) I noticed most of the graphs go to 2020, but when it came to Social Security, all of a sudden concern extended to 2037.

3) Why should gov spending be 21% of GDP? Did they pick this figure out of an ideological hat?

4) They claim they want to encourage productivity, but what exactly is "productivity" in military spending? More brass for less?

5) I like the "firewall" terminology on page 17. Then don't give a damn about the on/off-budget firewall, but they are deeply concerned about the defense/non-defense firewall.

6) I like even more that they thought that "defense" might not be a general enough term for the fear-monging industry so they added "security/non-security" language to page 17.

7) "Freeze noncombat military pay" is the largest chunk of military cuts. In other words, cut money that goes to people rather than corporations.

In all, I think I could dissect what these sad disgusting excuses for human being were thinking, sentence by sentence, paragraph by paragraph, from start to finish.

I wish I could do it to their faces.
Solution to what problem
written by Lord, November 11, 2010 9:42
If the problem is too high marginal tax rates, one might consider this a solution, but I don't think that is the problem. If anything, it is taxes are not progressive enough, which makes this a step backwards.
Response to Diesel: On Superior Beings
written by NewsFromAnnArbor, November 11, 2010 10:15

The wealthy are a different group of "Superior Beings"; how do I know? Simple, most people, if they ever got paid what the "Superior Beings" get paid, would promptly run off to Florida and never work again. The "Superior Beings" keep working, hence are superior (Not...)!
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written by online degree, December 10, 2010 8:00
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.