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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.
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"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.