Bair understands something that most taxpayers could have told Paulson a long time ago. While the Treasury busily attempts to avoid what Paulson describes as ’systemic crash-and-burn’, force lenders to lend, and calm investor panic, Sheila knows that troubled taxpayers can neither borrow, nor spend more.

FDIC Chairwoman Bair is an advocate for mortgage modification. She supports steering the helm of mortgages in serious payment delinquency. She proposes modifying them to a 38% cap on income, daring all the way down to 31% of earned income if necessary. In addition, she proposes lowering interest rates on mortgages, and increasing payment time.

Bair emphasizes that in calculating new mortgages, FICO scores will not be considered. It is a beacon of light for all those worry-deep in credit debt. Any modifications will be based solely on the earned, actual income of households.

The bad news is that it is currently too late for many already in the foreclosure line. The good news, however, is that her proposal can save so many more from heading down the same path. Healthy family finances, means greater consumer spending. Isn’t this what Paulson also hoped for? Go figure.

Far from everyone is headed for foreclosure, however, the numbers are not only disturbing, they are an important indicator. We can only imagine the unknown number of subprime households teetering on the edge of one or two delinquent payments.

Sheila Bair provides a necessary solution to the core problem. The second part of the solution needs to come from an Obama investment in immediate job creation, minimizing longterm effects of a lengthy unemployment line. These two solutions would allow the grassroots to once more grow, and the corporate world could restructure their way back to health and viability.

Thumbs up for Sheila Bair.
Tamera Daun©

Pentad. Simplifying Your World.

They tinker with taxes, government payments, regulations, price controls, market manipulations, etc, even though they fly in the face of the fundamental laws of economics and have been proven wrong in precisely every instance. You cannot artificially set maximum prices below the market price without causing shortages. You cannot artificially set minimum prices above the market without causing surplus. You cannot regulate supply, demand or anything else in the market without paying the price of a grossly distorted market and misery for at least some people, not in even one instance.

In the free market, both parties gain from a transaction. If it was not so, the transaction would not take place.

That is the very nature of a truly free market. Every member is free to enter or not enter into a transaction, whether it is buying a house, a loaf of bread or a tank of gas. The very fact that the transaction is consummated is absolute proof the buyer valued the good or service more than the money and the seller valued the money more than the good or service. The buyer or seller might not be happy that the price was not lower or higher, depending on perspective, but it was obviously the best use of resources, given existing conditions and knowledge.

When government interferes, with taxes, incentives, subsidies, stipends, payments, regulations, services or any other intervention, it picks the winner, the person who will benefit from it’s beneficence. But the only way to pick the winner is by also picking the loser, directly or indirectly. Government is a less than zero sum game, a negative sum game. Something, usually a lot, gets lost in the translation in every government action.

The big difference between the perpetual motion “engineer” of yesteryear and the social “engineer” of today is that the former was playing with toys, things that didn’t have much effect on others. The latter is very dangerous because his or her irresponsible and ill fated experiments affect millions, even billions of people.

The laws of economics are known and are just as immutable as the laws of physics. You can choose to ignore them, or hide them in a mountain of numbers and reports and public relations fluff, but you cannot choose the consequences of ignoring them, any more than you can ignore gravity when you drive off a cliff. History is full of lessons about political leaders who chose to ignore the simple, fundamental laws of economics. The reason that history repeats itself is because people in power, and their economic advisors, like to tinker, even though the punishment is predictable and inevitable. It often becomes obvious that they do know the consequences all too well, but they also know that they will be on the winning side and not be the ones to bear the punishment.

Guess who is always on the losing side.

This is not an academic journal, so it would be off the mark to argue about all those „scientific“ claims made by most economists. One of my former co-workers, a Scotsmen, once told me the phrase that “common sense is not very common.” I have to agree. So, this article is based on common sense and how it helps to understand economy.

Since most of us have too much to do to get the daily chores done and to make a living, we have little time to spend understanding fancy phrases and economic babble. And if I had the choice to watch, say Jon Stewart, or read John Maynard Keynes, in my spare time, I would sure switch on the TV and throw the “General Theory” into the bin. Guessing that most of my fellow citizens would do the same, it is no wonder, that economic science rests in an ivory tower guarded by a huge army consisting of terms and phrases that the “common” man does not even know how to spell let alone knows what they really mean. You remember the story of the emperors clothes?

Mind, I am not saying that economy is useless. In fact is is much to important to leave it to the scholars in the ivory towers. Economics is about the essence of our lives and therefor “essential” to all of us. I promise I will try to keep fancy words at a minimum, and where I use them I will explain them.

Well than, let me start with some explanations. Economics as a term is derived from ancient Greek oikonomia – which basically means the rules of the household as oikos is the house and nomos means law. Because we all live in households, and all have, at least some, rules how to run it, we all are engaged in economics. In short, economics is your and my everyday struggle to survive. No need for fancy phrases here so far.

The first question that comes to my mind when I consider this would be, why do I have to struggle to survive anyway? I mean, wouldn’t it be cool to survive without any effort? Indeed, that would be cool. Yet, we as humans have a lot of empirical (another fancy word meaning “by collecting historical data”) evidence that we can not survive by doing nothing. Men has always dreamed about such an environment and we call it paradise. Alas, reality looks different. Question is, what keeps us from being in paradise? Ok, I don’t mean the angel with the sword. There are two things that keep us from the kind of paradise described above. First, scarcity and second uncertainty about the future. Think of all the basic ingredients a human being needs to survive. Air to breath, food to eat, water(well that would be very basic) to drink and, given the absence of a natural fur, shelter.

If you are still with me (which means probably that Jon Stewart is not on the program yet) I ask my next question. Which things of the list above are scarce? Well air is not, unless you are a scuba diver trapped in a wreck 30 feet below the surface of the Atlantic with a half empty bottle of air. Food is sure scarce, even if you have a well equipped fridge with bulks of your favorite Alfredo style Lasagna. The same goes for beverages. While there is no need to search for ways to get air, you can just breath, you need to find ways to get food and drink, and shelter. You have to spend time to get those vital things (unless you still live with your parents that is).

Good, we now know that some stuff we need is scarce and we have to do something to get it. But, why do we have to do something at all? Because, we do not know the future. If we would know everything that will happen in the future, we would not act at all. If I was hungry, and knew that in 2 minutes a roasted chicken would fly into my mouth, why bother to think about going out to hunt? Yet, I am pretty uncertain this would happen ever. Omniscience (well, remember my promise about fancy words), which means to know everything of the past and the future, would prevent us from doing things. Or, to say it in another way, we only act because we are uncertain about the future.

Now, what is action? Action is what we do to achieve our goals. What we do is using means we have at hand, or think we have at hand, to get us closer to the goal we desire to achieve. Wew, starts getting complicated, doesn’t it?

Let me give you an example. If you are hungry, and you are not a masochist, you probably have the desire to feel full, as hunger is a painful feeling. Now, we know that probably not much roasted chicken fly through your kitchen within the next minutes. But, you know there is some bread, tuna, salad and mayonnaise there of which you could produce (hey you are a producer) a tuna sandwich, eat it and fight that painful hunger. So homo economicus, that is you, starts acting. You take your means – bread, tuna, salad, mayonnaise and your skills in preparing those yummy sandwiches of yours- and employ them to make that great product which will be consumed by you and, hopefully, brings you the desired satisfaction -feeling full.

You just encountered one of the economic rules (remember economics means rules of the household) “Humans act, that is they purposefully employ means, to achieve what they desire”.

We have already scratched the surface of another rule when we talked about the difference between air and the other vital things. It is the rule of subjective value. Subjective means, that it is always you, or more accurate, the individual, that gives value to an item. Air has no value to you, as you do not have to act (that is purposeful employing means to achieve ends) to get it. It is abundant in a normal environment. Remember the scuba diver (he is still trapped in that wreck)? To him air is pretty valuable, don’t you think? He probably would put a lot of effort into getting more. To him air is a good.

Another important rule we have here. Goods are things that have a value to individual humans. For something to be a good, it must be a means that an individual can use to achieve what he/she desires and it must be scarce. Bottom line, whether something is a good or not, depends on its usability for individual men. Another word for usability is utility.

Before I close this first short excursion to “common sense” economics another example tho show that something is a good only, if it has a utility for individuals.

Oil was the pest of every piece of land until only a hundred years ago. Whenever a farmer encountered those black, ugly, stinking springs on his land he was probably going to curse, even if he was a puritan(not meant offensive). Oil was not only worth nothing, yes it has been used in ancient warfare to ignite enemy ships, but this was long forgotten, oil was seen as bad luck if you had it on your property. Why? Because no one had any use for it until a guy named Rockefeller showed up and invented a way to make stuff called kerosene out of it. Now Kerosene was pretty useful. You could use it in lamps (can you imagine to have only daylight, how boring nights, especially in winter, must have been…uhm), and some people even experimented with it to build engines that might one day drive coaches without the need for horses which would be called cars or automobiles(which is a bad name because they do not drive by themselves as the name suggests).

All of a sudden, a good rose out of a totally useless thing like oil. And today, we tend to believe, with good reason, that our civilization might fall, if oil vanished.

Economics is not about complex equations in an ivory tower, but about human ingenuity to transfer the natural resources man finds into something useful.

This is an intelligent man, someone who is aware, who’s job it is to look behind the façade to see what is really happening. This is also a man who is a consultant, a businessman, an entrepreneur, a profiteer and , in leftist radical terms, a capitalist pig. It is difficult to imagine that he is unaware of that fact. He is, in essence, an example of what is good and moral and right about capitalism.

He offered his service and he was paid very handsomely. The participants went away with something of value. He has clients all over the world that also pay him a lot of money, and I would expect that he is very busy because he gives something worth paying for. That is the essence of free markets, another name for capitalism, people trading freely with others who are willing to deal with them.

He is a small scale capitalist, but size doesn’t matter. Whether the market is for a gallon of milk or a billion dollar manufacturing plant, as long as the parties to the transaction are free to make their own decisions and use their own resources, economic freedom gives the best result. Consistently good judges of value and of the future are the most profitable and contribute the most to society. The only exceptions are those businesses that use government coercion for their profits, rather than market competition. They are the source of injustice in the markets.

Our consultant friend was committing the error that so many people commit these days. They assume that the markets are actually free because that’s what they have been told. They assume that economic freedom is the source of the problems. The natural inclination with that frame of reference is to look for government to save the day. He refuses to see that there isn’t a single market in this country that is truly free. Further, the markets that are experiencing the most disastrous problems are the ones that are most seriously impaired by government manipulation.

When our futurist cited his sources of economic understanding, it became clear as to why he was so far from the economic truth. Economist Joseph Stiglitz was a key reference in the economic analysis. He is one of a breed of influential economists who have been trained in the discipline of central planning. As intellectual superiors, they know how things should work. For this group, the stated aim of economics is to guide government intervention to bring economic nirvana to the people. Lowly peasants don’t know what is good for themselves, so they need the experts to cram it down their throats.

These economists lead intelligent but unwitting people to believe that banking deregulation caused the credit crisis. They say that the boom-bust cycle is an inherent evil of capitalism and that free markets lead to exploitation of the masses. What they don’t say is that the entire banking system is built on a foundation of government manipulation of banks, prices and markets. The Federal Reserve Bank directly and indirectly controls interest rates and monetary policy, the sources of economic instability. Artificially low interest rates initiate and expand credit and asset bubbles. We are living through the latest Fed induced bubble and crash as I write this. The Fed is, at this moment, laying the groundwork for the next big bubble and crash in 5 or 8 or 10 years, which may be worse than what we are experiencing now.

Our world traveling consultant seems to be a brilliant man. He has the answers to many questions and has a good grasp of technological and demographic trends. When it comes to economic understanding, however, it seems that he is missing the obvious. He imputes injustice on capitalism when it is, in fact, the only road to true justice and prosperity. “Capitalist pigs” like him are the reason that all people, rich and poor, are better off in free economies. His comments only empower the enemies of freedom. Moreover, his indictment of capitalism is an indictment of himself. Neither he nor capitalism deserve such treatment.

Occasionally, in order to clearly see the mechanisms of a process, it is necessary to isolate the elements involved and view them without extraneous factors. This leads to the “Thought Experiment” or gedanken in German. The Gedanken is a frequent tool in theoretical physics, and here I intend to use one in economics. I am going to imagine a particular scenario that is not theoretically impossible and examine the workings of that scenario to better understand the forces that we are interested in. An earlier example was my article on the Cost of youth. So here goes.

Image Credit: ocean.flynn

Imagine that we have an Island with a hundred people living on it. This island has only fifty houses however. The law of supply and demand has raised the prices of the houses to a particular level that allows only fifty people out of hundred to afford it. The rest will live in shacks, make shifts or find another alternatives. The important thing is that there are fifty houses, and all fifty of them are occupied by the richer half of the population. The fifty people are paying ready cash. No mortgages.

Under the circumstances, this is a fair arrangement. After all, everyone can’t have everything. Sad as it may be for the fifty people who are left out, it can’t get any better than this. Since space on the island is limited, more houses of the same sort cannot be built.

Now, imagine a twist in the scenario where people no longer need to have ready cash at hand, but can spread out their payments over a period of time. Perhaps over a period of 30 years. Suddenly a lot more people can afford the houses at the price level that was earlier set since they need not pay everything at once. Therefore, the demand for the houses goes up. Unfortunately, the suppy being constrained cannot keep up with the demand. So what happens? The prices of houses go up. What initially cost a 100 units one time payment, now costs over 15,000 (say) units spread out over a period of 30 years. Again, the exact price will depend on how much the fifty richest people can afford to pay.

The end result is that the same fifty people now occupy the same fifty houses (since they are still the richest) but at a much higher price than they would have paid without the whole mortgage system. This is one side effect of the mortgage structure, in that it artificially raises prices to the level that you have to spread out payments over several years. But this by itself (ridiculous as it may be), is not really unfair. The real catch arises during an economic crisis.

Say now that the economy slows down and over 80% of the people lose their jobs. This means that out of the fifty richest people who were living in the houses and were paying monthly payments, forty of them can no longer do so. As a result, they get kicked out.

End Result: 100 people on island, and 50 houses. However, only ten houses are occupied! Forty houses are too expensive for anyone to afford. Is this possible? Is it logical? Is this not grotesque? The banks that foreclose the forty houses are reluctant to drop the prices since they incur a loss on their balance sheets if they do so.

What went wrong? Two things. First, the fifty houses artificially boomed the prices of the houses to unimaginable levels. Second, it lead to a situation where hardly anyone could afford anything.

Doubtless in the real world, there are many other factors that can either mitigate or aggravate this scenario. But that doesn’t mean that the forces at work in our imaginary island are non existent. The purpose of this article was to isolate and view in undiluted glare, the tendencies that arise due to mortgages. In my opinion, the idea that you can pay for something over a period of time is counterproductive and ultimately makes everyone’s life miserable because in the long run, prices increase because of it and the same people get the same goods that they would have got if the mortgage system wasn’t there.

I rest my case m’lud.

The Treasury decided to increase the spending stakes. Paulson sang a familiar tune today, humming $600 billion for mortgage backed securities, and $200 billion meant to thaw credit for consumers. He aims at greater credit availability for student loans, car loans, and healthy new mortgage loans.

For average Jack and Jill citizens like me, the complex jargon of Paulson’s plan may sound good and well. We hear that the availability and affordability of credit will once more flow our way. For those of us that dare to ask the question of ‘why?’ underlying the decision to spend additional borrowed money in this manner, Paulson’s answer is clear. The answer is that financial institutions are still not performing as expected. Trend turned risk-averse, the lending industry is still shaking from their own mistakes, and non-existent viable risk policies. Go figure.

Here’s the deal. The fact that lending institutions are not performing as expected is the argument put forth at the bailout turn around each, and every corner. Paulson was forced to act again as the GDP fell 0,5% in the third quarter. However, the focus of average citizens is once more diverted from their own everyday realities.

Let’s bring the subject home.

Despite Citi’s rescue plan, the public was informed that they still plan to lay off 50,000 employees, and that interest and fee rates will increase. Yes, this includes credit card debt, as if those rates were not already sky-high. Considering the size of this giant conglomeration, the potential number of Americans affected is unsettling.

Furthermore. The plan that Paulson outlined in his press conference today will take a few months to implement, so any potential consumer effects cannot be evaluated until after he has left Treasury. The plan aims to solve the availability problem of new credit eventually applied for. That is, if the plan proves to work. It does nothing with the existing credit troubles of taxpayers, and we have to remember where the first bubble burst.

Although consumers are accountable for living beyond their means, forgotten is the predator lending that has taken place. Meanwhile, foreclosures continue, the unemployment rate of 6.5% is rising, and more jobs will be lost in the meantime. Although a credit thaw may save a few jobs in the future, most taxpayers with maxed-out credit lines and increased fees, may not necessarily increase their spending. They will most likely exist in survival mode, and be less concerned with ’stimulating the general economy’.

They say that certain entities are too large to not be saved. Yet, the ‘meanwhile’ effects are grossly underestimated, and these ripples may prove to be catastrophic. Will Paulson’s plan prove to work in the future? Don’t hold your breath, because the roller coaster ride is far from over.

Tamera Daun, Pentad©.

However, these appointments are a key tell in what should be a key strategy for economic recovery- monetary expansion.  While the Federal Reserve has already implemented major rate cuts and recently undertaken quantitative easing, the effects of these policies will not be felt for 6-9 months, as is the general case with monetary stimulus.  The greater risk could be that, just as a brief monetary expansion was put on hold in 1932 (not a good decision, it turned out), renewed concerns about inflation could create pressure on the Fed to cut short an effective monetary response.   But these appointments indicate that will not be Obama-led pressure.

All three- Geithner, Summers, and Romer- have indicated an understanding of monetary stimulus to provide short term benefits for economic growth.  Geithner, for example, was one of the leading proponents of keeping rates lower back in 2006 and has historically been dovish on monetary expansion.  Summers, while touting the benefits of fiscal stimulus last year, has also supported monetary expansion.  The most interesting pick here could be Mrs. Romer, as she has has expressly written that nearly all the positive economic shifts during the Great Depression were attributable to monetary expansion rather than some Austrian school view of natural economic recovery.

While President Obama has indicated a desire for redistribution of wealth in the US economy, and based on the election results, will oversee it, there are different ways to effect this redistribution.  Taxation and welfare is one way, but monetary expansion is another, because it ultimately creates higher levels of inflation.  As long as capacity and technology can come to the rescue (and there is plent of both available) so that core inflation can be moderated, this monetary expansion can be expected to continue.

Just as money has time value, it should also have a half life.  Without inflation, the wealthy can all too easily hoard their capital.  With inflation, they must either spend, or invest- or their wealth is, in fact, redistributed.  And redistribution to money earners- those who labor and invest- is not a bad idea for growing an economy.  And make no mistake, Mr. Obama and his team are focused on growing this economy.

Questions regarding the reemerging push for a return to a gold standard and our discussions of earlier Austrian school of economic theories abound.

Such discussions especially flourish during major financial crises.

Certainly, gold has been viewed by civilizations for some five thousand years as stable and desirable. Why? Simple – man cannot easily destroy it, nor create it. It has been considered both wealth and money.

It certainly meets both ancient and modern economics’ criteria for wealth. To a lesser degree, it meets the definitions for money.

First, it is a medium of exchange. Almost everyone agrees to trade if gold is involved.

It serves as a store of value. In other words, gold cannot only serve as money, but it is actually a tangible representation of wealth.

It is a standard of value. People can agree that one ounce of gold is equal to a fixed amount of some other good or service.

Since it is rare instead of plentiful, that standard remains in tact as long as people agree. Richard Nixon unilaterally arranged for the United States to leave the gold standard in 1971 for political and economic interests. Gold prices “floated” against other currencies, and no country since then has remained on a gold standard.. Nonetheless, gold has been and can remain a basis for contracts, debts and other private or national obligations.

Finally, it is a unit of account. That simply permits us to set prices, costs, or profits. In short, any money, whether gold or silver or fiat (paper) money issued by a government, gold can fulfill that function.

Without too much difficulty, gold can also simply exist to guarantee the use of fiat money. That places a currency on the gold standard, and simply means that a government certifies that it has enough physical gold (as in Fort Knox or the IMF vaults in New York) for every dollar of fiat money it issues.

Your, or a country’s credit, is limited by the amount of gold owned.

Enter the problem.

It may be simplistic, but bears repeating. It is, after all, the reason why economics came into being in the first place. Supply and demand.

The fundamental law of economics assumes that mankind wants an almost limitless amount of goods or services. That includes everything from basic foods to intangible things like religion.

Those “wants” may have both positive and negative effects.

In a world where all physical goods are limited, if supplies are finite while wants are unlimited, we instantly see the basis for having to make choices. The choices can be resolved in civil manner by trade or, in the extreme, by war.

Therein lies the fundamental problem of gold as a backing for fiat money, or as a direct global currency.

There simply is not enough gold on the planet, existing above ground or yet to be mined, to back all the fiat currencies that have been created to accommodate the continually rising population in this world.

Better yet, if we applied simple supply and demand laws, the price of gold would reach enormous proportions compared to the universally accepted world standard of the equivalent US$700 per ounce at today’s values. Careful, please, the price may rapidly move or down from that level!

We know reasonably well how much gold there exists on the planet. We also know approximately who owns how much, both in physical gold and in reserves still to be mined. With the expected gold craze to continue, major exploration and mining companies are hoping to bring those underground reserves to daylight to join in the speculative fever of potentially recovering gold.

For example, Northgate Minerals Corporation (TSX: NGX, AMEX: NXG) announced September 8, 2008 that it found new mineral reserves at its Australian site, including some 140,000 ounces of gold. In their press release, the company stated that the find “will extend the current mine-life by an additional 18 months until the fourth quarter of 2011.” (biz.yahoo.com). (www.northgateminerals.com)

If you do simple math and use today’s value at $700/oz., that results in some $98 million. At a cost of some $20/oz, that results in a nice profit for the company and its shareholders.

However, that amount pales on a macroeconomic level.

It would make little difference on a world-wide basis for the United States, the International Monetary Fund, South Africa, Russia or Canada as countries. Russia, for example, recently announced continued progress in its Kamchatka gold discoveries.

Trans-Siberian Gold’s Asacha mine is estimated to process some 608,000 ounces of gold over the expected six and a half year life. It has not yet commenced drilling. The company is traded on the London stock exchange. (TSG-L)

In short, the supply of gold is reasonably fixed with only relatively small increases foreseen in the near future.

We can also reasonably predict general industrial and commercial uses for gold, such as electronics, medicine and personal jewelry.

With normal supply and demand predictable, the excess demand for speculation drives the price on the international gold market. It is a speculator’s and gambler’s heaven!

There are good and bad aspects to a national or world-wide gold standard.

Making gold convertible into a certain amount of dollars, yen, Euros or whatever would certainly restrict the amount of money each nation could spend. As such, it would artificially impose a certain financial prudence on the part of government issuance of fiat money. It would be likely to sharply curtail spending and investment.

It should certainly cause policymakers to think twice before wasting assets in such futile endeavors as wars not designed merely to defend a nation’s borders against intruders.

However, a return to the gold standard would impose a limit on growth, and thus on employment. History shows that unemployment was far more extensive under the gold standard than without it. Despite the speculation, irresponible credit use and eveb criminal activity, no one can challenge the tremendous growth in entrepreneurship worldwide sice the Reagan and Clinton administrations.

Whether it is the Federal Reserve or another central bank, interest rates would still have to be adjusted – even in a 100% gold-backed currency - to maintain that currency’s value relative to the arbitrary value agreed to and set upon an ounce of gold.

It all ultimately depends whether you want to put your trust in your fellow man (or woman) based on a shiny metal to back your country’s currency or on a piece of paper backed by the “full fait and credit” of the United States or any other country.

If you truly believe more in gold than in the ultimate productivity of the dollar, the yen or the countless others, by all means buy some gold directly through any one of dozens of legitimate gold currency dealers. Not issued by any bank, but backed directly by the gold you purchase, some of that gold is denominated in Dinars or Dirhams or Rials. Islam does not believe in interest or usury, but fixed fees. Remember, though: the value of your gold could rise or fall, depending on what the market dictates.

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Estate tax legislation was first passed in 1916 as a response to the excesses of the Gilded Age. The objective was to shift the tax burden from the Midwestern and Southern states to the rich Northeastern states. The tax burden in those days was mainly in the form of tariff duties and excise taxes. The legislation was recognition that democracy was at risk if too much wealth and power was concentrated in the hands of a few.

One cannot deny the contribution of estate tax to the progressivity of the tax system. The estate tax is the most progressive of any of the federal taxes. The main objective of estate tax is to reduce inequality of wealth and income. It basically applies only to the rich.

Only the super rich stand to benefit from the repealing of estate tax. Without estate tax, billions of dollars in revenue would be lost. The revenue loss over the next decade could be over a trillion dollars. This, at a time of record deficit, could impose an unconscionable burden on future generations. The trade deficit is at a historic high of $61 billion and growing. There are no plans or methods to repay it. This can plunge the U.S. into a drastic economic depression at any time. To make up for this, the government will have to increase taxation or cut Social Security, Medicare, environmental protection and many other government programs which are essential for the overall development of the nation. Any cut or decrease in these programs would be unfair and life-changing to middle class Americans and to the needy, children, elderly, and disabled.

Estate tax also encourages contributions to charity. The present system of estate tax afford the affluent a way of reducing the size of their estates by making contributions to charity. In fact the system operates as an incentive to contribute to charity.

Opponents of the estate tax system harp that it has led to many middle-class Americans losing their estate because of the taxes owed. This has been proved wrong by a study conducted by an organization called United for a Fair Economy. When the exemption increases to $3.5 million in 2009, the share of estates taxed will be about 0.16%. Rest of the estates will pass to the heirs tax free.

Another favorite argument of the critics is that estate tax is a form of double taxation - the estate holder has already paid income taxes and property taxes. Estate tax is not a tax on the estate-holder. It is a tax on the heirs who inherit the estate as an unearned gift.

Repealing of the estate tax will only benefit the rich. Middle class American will end up paying more taxes to make up for the revenue deficit.

In many respects, it seems vastly less developed than my own country - India. In this article, I will focus on just one aspect of it. Namely how consumers are happy to let big corporations walk all over them. I realize that coming from another country gives me a unique perspective on what I see is very wrong with the economic structure here.

Image Credit: MSH*

Let me take the first concrete example of what I mean. In India, a consumer has complete freedom as to which telecom company they want to stay with. Say I have a handset. Based on whose service I like, I can choose to use that handset with any telecom provider I choose. And next month if I want to change over to another one, I can do so immediately. I can just replace the SIM card with that of another company. This is perfectly legal and is very much the norm.

Imagine my surprise when I found out that in America you have to buy a phone attached to a particular firm (Either AT&T or T-Mobile or whatever)! Not only that, you are obligated to pay them every month, or else your credit history is tarnished. It’s amazing. How do customers put up with such shabby treatment? It seems as if the big telecom firms are holding customers to ransom. I say shabby, because compared to India where the consumer dictates terms, in America the big corporations call the shots. You can’t switch schemes without paying a contract breaking fee etc. In other words, the corporations have you locked in.

In addition, people here are forced to pay for incoming calls. Regular Americans seem to be okay with this. In India, if a telecom company started to charge incoming calls they would be laughed out of business. As I said, you can switch over anytime you want. In fact (and this is hilarious), a particular telecom provider (Virgin actually) pays consumers for incoming calls! Yet American consumers are unaware that they’re being fleeced. And in fact, what choice do they have? All telcos are the same. Even if they were willing to switch after paying the “Contract breaking fees”, it would be like jumping from the frying pan into the fire.

Moving on, I will now proceed to demonstrate that Internet companies also take advantage of their consumers and force their whims and fancies down their throats. As of now, what is to prevent say AT&T from imposing a cap of 50 GB download per month on their consumers? In fact, proposals to limit and even monitor traffic are in the pipeline. If Americans are outraged by such activities, who cares right? What choice do they have? Shifting to Comcast is no better! Once more, honest Americans seem unaware of the fact that service providers can do whatever they want by just imposing their policies down people’s throats.

This could never happen in India. And I know why. In India, most of the infrastructure for telephone lines and the Internet (Over 95%) is owned by the government and private companies lease it from the government. The government has it’s own telephone and Internet service (Called BSNL). If at any time the major Indian telcos decide to collaborate and shove a policy down the throats of the consumers (including raising the prices to any level they want), we will just shift en masse to the government service! For the government to change it’s policies is a different issue altogether. If the government suddenly decides to charge incoming calls, they will be voted out of power in a heartbeat. Thus it will never happen.

Before coming to America, I thought that complete privatisation was a good thing. Now after coming here I see that it leads to exploitation of consumers through cartels. Having certain infrastructure in the hands of the government is a saving grace for Indian consumers who love their freedom and hate restrictions. And the first opportunity I get, I am going back. America isn’t the land of the free that I thought it was. Enslavement by corporations, and being held to ransom by having your credit history checked at every point is the norm. And I never want someone to be looking over my shoulder like that.