Win Ben Stein's Intellect

Fans of television game shows out there will remember one that may still be on the air, for all I know, called Win Ben Stein's Money. The idea was that you played a timed trivia game against Ben Stein and, if you won, you got to keep part of his stipend for participating on the show.

Ben Stein is a lawyer, economist, actor and television personality who first worked as a policy analyst in the Nixon White House. You may remember him from the film Ferris Bueller's Day Off, in which he played the dry and boring history teacher, putting his class to sleep talking about the the Great Depression and Laffer Curve. He is very adept at marketing himself, but also very intelligent and thoughtful.

Stein writes a regular column for a conservative newsmagazine and this was posted on 12 March. It is worth reading in its entirety:



A few days ago, a man from a slick new magazine about business sent me an e-mail. He wanted me to do a column for him about what was "new, hot and exciting -- or terrible -- in business today." The only catch was that he did not want me to complain about the rich. This is what I sent him:

Here is what's new and hot and exciting (or terrible) in the world of money today:The average wage of the American worker adjusted for inflation is lower than it was in 1973. The only way that Americans have been able to maintain their standard of living at the middle and lower ends has been to send more family members to work and to draw down savings or go into debt or both.

The most sought after jobs in the United States now are jobs in finance in which basically almost no money is raised for new steel mills or coal mines, but immense sums are raised to buy companies, recapitalize them -- which means pay the new owners immense special dividends and other payments for going to the trouble of taking over the company. This process results in fantastically well-paid investment bankers and private equity "financial engineers" and has no measurably beneficial effect on the economy generally. It does facilitate the making of ever younger millionaires and an ever more leveraged American corporate structure.

An entire new class of financial entity has been created called "the hedge fund." It is new not in the sense that there were not always funds that hedged by selling short or buying assets uncorrelated with other assets. The new part of this phenomenon is that it is based on a demonstrably false premise: that these entities can consistently outperform wide stock indexes. They have not and cannot, and yet their managers and employees for a time are paid stupendously well.

As with the private equity function, the main effect is to siphon money from productive enterprise into financial manipulation. Or, to put it another way, to siphon money from Main Street to Greenwich or Wall Street.

Starting MBA's at hedge funds, which are basically gaming enterprises, get paid multi-six figure sums. Starting teachers in the state of Florida get paid $28,000 a year.

Here's what else is new and exciting (or terrible) in money: there is real poverty among the soldiers who fight our wars. There are fist fights to get children into $30,000 a year kindergartens and pre-schools in the right neighborhoods in Manhattan. There are 40 million Americans without health care insurance. There are almost 40 million baby boomers with no savings for retirement. There is a long waiting list for Bentleys at the dealership in Beverly Hills.

There are soldiers' wives selling blood to buy toys for their kids. There is a man selling non-functioning body armor who threw a $10 million Bat Mitzvah for his daughter.

In Brentwood, where the houses start at $3 million, the housewives complain about what a terrible country America is. In Clinton, South Carolina, where the textile mill closed fifteen years ago and there is real hardship, the young men still believe in America and their fiancees at Presbyterian College wait for them while they fight in Iraq.

This is a small part of what's new and exciting (or terrible) in America in the world of money right now.

I never heard back from the man at the slick new business magazine.


Well said, brother. Well said. It is about time that people realized that rich is not synonymous with patriotic, and that greed is not a beneficial emotion.

Is it just me, or is it getting weird around here?

Happy New Year! Yes, I know. It is 1 March. Unfortunately, this is the first post of 2007. I am a regrettable and loathsome person, just ask my family. As the cognoscenti say, "My bad" (stifle disgusted shiver).

My theme today is weirdness. I say weirdness because odd stuff is happening in the world and I am beginning to wonder if I am slowly going insane. First of all, the surge. The best way to win the War in Iraq is not to pay any attention to the military, the diplomats, America's foreign allies, or the Iraq Study Group. The best way is to send more men and gradually increase the pressure on the insurgents. Then pull out. Sort of like the British Army did mere moments after the surge was begun. Am I alone in thinking that this is a really bad idea which makes no sense at all?

The next thing that concerns me is Seymour Hersh's article in the New Yorker, called "The Redirection". This argues, from fairly well-placed (and presumably, baffled) sources, that the United States and Saudi Arabia have been quietly changing their policy in the Middle and Near East. The new policy is to support Sunni extremists against Shiite extremists. So far so good. These Sunni extremists have, apparently, enjoyed the active support of Saudi Arabia for years against Shiite Iran, Shiite Hezbollah, Shiite Syria and Shiite militants in Iraq. The object of the strategy is to destablize Iran and Hezbollah. Why? Because Iran has filled the vacuum created by the destablization of Iraq, and because Hezbollah defeated the Israeli Defence Forces in southern Lebanon last summer. Apparently, there are significant numbers of extremist Sunnis throughout the Middle and Near East who would like nothing better than to check This Shiite ascendancy. According to Hersh, the most cogent argument in favour of supporting Sunnis against Shiites is that "my enemy's enemy is my friend".

Now, I am all in favour of defeating radical, militant Islam. For that matter, I am all in favour of defeating radical, militant Christianity, too. My rationale is that radical, militant religious types are inherently dangerous, no matter what make and model they may be. However, you will recall that Osama Bin Laden (who that and where he?) is a Sunni extremist. The Taliban are Sunni extremists. The men who brought us the September 11th attacks were Sunni extremists. More American soldiers in Iraq have been killed by Sunni extremists than have been killed by Shiite extremists, apparently by an order of magnitude, according to Hersh. Have we come full circle, or am I going crazy?

Still weirder yet, the junta in the Bush Administration led by Vice-President Cheney is determined to eliminate Iran before the next presidential election. I am not quite clear why, since Saudi Arabia has been far more active in supporting terrorism than Iran ever was and Cheney probably owns a condo in Riyadh. However, it seems to be an article of faith for Cheney that Iran is run by carpet-chewing Shiite madmen who will not rest until the United States is forcibly converted to Islam or wiped from the Earth, or both if need be. As a veteran of the Cold War, I have to say that the threat of forcible conversion to Shiite Islam does not keep me awake at night quite the same way as did Soviet ballistic missiles, but I guess you take your enemies where you can find them.

Anyway, back to my point. Various sources in the American media have failed to acknowledge that the Bush administration has not shied away from using nuclear weapons in this hotly-anticipated war with Iran. That is nuclear weapons, ie. the kind we used against Hiroshima and Nagasaki in 1945. Come to think of it, that was the last time nuclear weapons were intentionally used on people.

Now a few years ago, India and Pakistan were competing with each other to build ballistic missiles capable of delivering nuclear warheads. This was widely considered to be a bad thing, not least because the idea of these two nations fighting each other with nuclear weapons seemed about as wise as fighting a flamethrower battle in a gunpowder factory. Still more recently, North Korea announced its intention to actively develop nuclear weapons. This was widely considered to be a bad thing, not least because North Korea has pretty much always been weird and scary. The point was, the very idea of using nuclear weapons was so horrible, we did not want countries like these even owning nuclear weapons, no less using them. So what on Earth are Bush and Cheney doing saying that they would use nuclear weapons against Iran, for Pete's sake?

Their rationale is the following syllogism: Firstly, Iran is supplying small-scale explosive devices to Shiite insurgents in Iraq to use in blowing up National Guardsmen from Ohio. Secondly, Iran is building nuclear weapons. Consequently, Iran will soon be supply nuclear weapons to Shiite insurgents in Iraq to use in blowing up National Guardsmen from Ohio.

Leaving aside when Iran will have a nuclear warhead ready (sometime between "a few years from now" and never), does anyone else see the logical fallacy here? If you were the President of Iran and you had an arsenal of nuclear warheads, would you be handing them out to anybody who dropped in, like candy on Hallowe'en? Not if you were sane.

Iran is developing nuclear weapons because its President realizes the only way to keep the United States out of Iran is to threaten massive nuclear retaliation. That is the same reason North Korea is developing nuclear weapons. It is the same reason the United States, France and Britain deployed nuclear weapons in Western Europe in the face of the Warsaw Pact. It is deterrence, and it is the result of one country fearing that another country is way too aggressive. Kind of like the United States these past six years.

It just keeps getting worse...

So, the latest news from the Iraq Civil War front is that President Bush has decided to escalate the numbers of American troops in Iraq, apparently in a "last ditch" attempt to defeat the insurgents.

You will appreciate that this comes against the advice of the Joint Chiefs of Staff, the Iraq Study Group and just about every other sane person who has thought about the situation for more than an instant. The military is concerned that there are simply not sufficient numbers of men available to increase the American military presence in Iraq. Any increase will result in a disastrous shortage of replacements when scheduled rotations of units arise later in 2007. As we all know, the military is at the breaking point when it comes to personnel levels. The insurgents are winning the war of attrition, and they know it. Everybody seems to know it, except perhaps President Bush.

The President's position is incomprehensible, and may represent the biggest and most costly case of reality denial in American history. As one blogger pointed out yesterday, "If Bill Clinton had defied the Joint Chiefs of Staff like this, the GOP Caucus would be trying to impeach him." By the way, it also ensures that the GOP will be routed in the 2008 Presidential election.

By the way, four American soldiers died in Iraq today. That puts the total for December, 2006 at 67, as of noon EST on 22 December. The overall total for American servicemen and women in Iraq is fast closing in on 3000 since the War began.

Racism and Maher Arar

This week, the Honourable Mr. Justice Dennis O'Connor, formerly of the Ontario Court of Appeal, released his final report of inquiry into the detention and torture of Mr. Maher Arar, a Syrian-born Canadian engineer. In 2002, Mr. Arar was travelling back to Canada from a vacation in Tunisia. In New York City, he was apprehended by the American government and "renditioned" by private aircraft to Syria on the grounds that he was a suspected terrorist or terrorist sympathizer. In Syria, he was imprisoned and tortured before the Canadian government pursuaded his captors to release him.

Mr. Justice O'Connor's investigation was about Canada's role in this tragedy. He concluded that the Royal Canadian Mounted Police had been negligent in adding Mr. Arar's name to a list of persons with terrorist links. This information, once provided to the United States' government, provided the pretext for the rendition. It seems that the RCMP had no evidence whatsoever to link Mr. Arar with terrorism. To compound the error, the RCMP later attempted damage control by providing background information to news agencies in Canada which claimed that Mr. Arar did have terrorist links. Again, there was no evidence to support these allegations.

To his credit, RCMP Commissioner Giuliano Zaccardelli issued a wholesale apology to Mr. Arar. When he later realized that he had provided incorrect information to a House of Commons committee investigating the matter, Zaccardelli corrected his evidence and resigned.

Much to my dismay, when all of this was reported in our national newspaper, the Globe and Mail, many of the comments submitted by readers in response were rather singular in their lack of sympathy for Mr. Arar. Some complained that he was pursuing restitution at the taxpayers' expense. Some expressed suspicions that he must have been guilty of something. Some claimed that the police ought to be forgiven for making mistakes such as this.

Now, there are many people for whom the spending of tax money for any purpose whatsoever is execrable. Generally, these people are comfortable with their own finances but wish that they could keep more of their earnings at the expense of the less fortunate. This rather uncharitable approach to public policy governs many of the ambitions of the Conservative Party, and has been a blight upon public debate in Canada for too long. As I have said before, if you like living in a great country, you must expect to pay for the privilege.

Leaving aside the fact that Mr. Justice O'Connor said that there was no evidence that Mr. Arar had any connections to terrorists, one supposes that the commentators who claim that Mr. Arar must have done someting wrong have inside information which they have failed to share with the RCMP or the Inquiry. If they do not, then their position is truly baffling.

Given that the police and military are the only elements of our society which are both armed and authorized to use deadly force, I suppose that some constraints should be placed upon them. I don't know about you, but I would feel a lot better about things if the police did not make too many mistakes like this. I believe Commissioner Zaccardelli feels the same way. He certainly says that he does.

An undercurrent of all these comments was that Mr. Arar did not deserve the same treatment that a Canadian-born person would deserve. Presumably, the fact that Mr. Arar was born in Syria led many of the commentators to suppose that he is not a genuine, loyal Canadian. Of course, if he had been born in Glasgow, it is rather unlikely that he would have been judged by the same standard.

OJ, who?

I recently read a news story about a man named OJ Simpson. Now, understand, I have followed the news with avidity for the past 30 years; ever since I was a child. I am, in the cant phrase, a news junkie. However, until yesterday I had never heard of OJ Simpson.

Apparently, Mr. Simpson is some sort of retired film actor or golfer or something like that. Sometime in the late 1980s or early 1990s, he is alleged to have murdered his wife, Nathalie Wood, and a garbageman at their home somewhere west of the Mississippi. From what I read between the lines from the news reports, this killing did not sit well with Ms. Wood's family, the garbageman's family, or the police. That said, Mr. Simpson was not found guilty of the kilings in criminal court, but was found liable for the killings in civil court. Apparently, his larger crime to humanity was to expose the distinction between proof beyond a reasonable doubt and proof on the balance of probabilities. Moreover, I understand that Mr. Simpson moved to Florida to take advantage of the fact that, in that State, judgment creditors cannot seize or sell your home to satisfy your debt. Something to do with retired Republican politicians living there, I guess.

Now I want to ask you, the discerning reader, a simple question. First of all, why do I really care about OJ Simpson? Educated, objective researchers are saying that the American invasion of Iraq has led to the premature deaths of several hundred thousand people, including a six month old baby just the other day killed in an air strike. We are closing on 3,000 American men and women having been killed in action in Iraq since 2003. Earlier this month, President Bush suffered a political disaster when the American electorate sent the Republican caucus in Congress to the unemployment lines for its role in permitting this invasion. There is talk of impeachment, which is more than ever happened to Richard Nixon or Lyndon Johnson when they lost the Vietnam War.

I am sure that Nathalie Wood, or whatever her name was, and the garbageman, were perfectly nice people and should never have been killed, or not killed, depending on what court you listen to. However, they are indubitably dead, have been for a long time, and are not likely to be resurrected. Until the other day, that six month old baby was alive and was probably the apple of his parent's eye. He represented all that was hopeful and good about life. Then, an American bomb splinter tore his head apart and left him to die in pain, confusion and - no doubt - fear. George Bush is unlikely to be prosecuted for his role in the death of that six month old baby the other day, although he may be impeached. In the proverbial grand scheme of things, why is Mr. Simpson such big news when the newspapers failed to even mention that poor child's name?

Income Trusts, Part II

It is frightening how much American-style economic theory has permeated the thinking of the Canadian media.

This morning, on CBC Radio, a commentator was complaining about the decision to tax income trusts in the same manner as corporations. Among the commentator's concerns were that foreign investors would take their money to a jurisdiction with lower rates of corporate tax, that the Toronto Stock Exchange index collapsed after the announcement, that taxes on corporations are regressive, and that Canada has too much taxation to begin with.

It is true. Foreign investors did withdraw money from Canada immediately upon news of the change in Canadian tax law. I am told that the value of the Canadian dollar on international currency exchange markets fell by one cent in one day as a result. Leaving aside the fact that the Canadian dollar has been overvalued for quite some time now as a result of the diminished value of the American dollar on world currency markets, no one should be too worried that foreign investors are going to bankrupt the Canadian economy. Why? Because there are already plenty of places they can invest their money where corporate taxation is much lower, or non-existent. If you honestly believe that the only reason foreign investors invested in Canada was because of the existence of the income trust loophole, you are guilty of one dimensional reasoning. The real reason that foreign investors invest in the Canadian economy is because it is efficient, profitable and booming.

A one cent drop in the value of the Canadian dollar signifies that a minority of investors withdrew their money. Investment is amoral, but greedy. There are plenty more ways to make money in Canada than by taking advantage of a tax loophole.

It is also true that the TSX index dropped on 1 November as a result of the news. That is hardly surprising. Bell Canada and Telus saw their share values drop by about 13%, and Bell Canada is a major part of the TSX index's value. The reason the value of the Bell and Telus dropped was that they had already announced plans to convert from a corporate to an income trust structure. Investors had been snapping up shares on that news, and assuming the risk that the Government of Canada would not change the tax laws. They lost that bet.

Does anybody still believe that income taxes on corporations are regressive? Corporations benefit from carrying on business in Canada. Contrary to what many neo-conservatives will tell you, these benefits are real and significant. They get educated workers. They get a health care system they do not have to entirely fund out of their pockets after already paying taxes. They get a peaceful, lawful and wealthy society. They get close access to lucrative markets. Not the least importantly, their executives and directors get to live in a healthy and wealthy environment without having to live behind security fences and employee armed guards. All of these benefits are products of a society which values a significant government role in managing society. Neo-conservatives will call this "social engineering". That is nonsense. If running courts and prosecuting crimes is "social engineering", then we have had social engineering for an awfully long time in the western world. If a publicly-funded health care system is "social engineering", it is awfully popular among voters who see what private health care looks like in the United States. As I have said before, if you like what Canada has to offer, you have to contribute to the cost of paying for it. By and large, business corporations in Canada do contribute to that cost and are happy to do so. Otherwise, they would move to Panama.

Does Canada have too much taxation? This has been the touchstone of the neo-conservative movement since Ronald Reagan ran for President in 1980. It is based on the idea, espoused by Milton Friedman, that if you lower taxes, people get richer because the wealthy spend more money which "trickles down" to the rest of us. Margaret Thatcher believed this, and destroyed the British welfare state in her efforts to implement it. Britain has spent the last 16 years undoing the damage Thatcher wrought on her people, and I do not hear about a lot of people choosing to emigrate from Canada to Britain to improve the quality of their lives. Ronald Reagan believed it, too, but forgot to lower government spending at the same time that he was lowering taxes so that he (largely) was responsible for the US national debt. Brian Mulroney believed it, too, and he created the Canadian national debt, albeit with a generous head start provided by Pierre Trudeau, who did not believe it.

Truth be told, there will always be investment capital which gravitates towards what I call "lowest common denominator countries". Right now, that is places like Indonesia, India, Brazil, and similar places where you really would not want to live, but where you can have running shoes assembled for next to nothing. This is low end industry, and the world loves low end industry because it means the price of blue jeans and similar consumer products has not increased in 25 years. Would you buy clothing made in India? You probably already have.

That said, consumers do not just buy cheap consumer products. Automobiles are consumer products, and are decidedly not inexpensive. CNN is a consumer product, and people prefer it to Al-Jazeera by overwhelming margins because they consider it superior. The New York Times is a consumer product, and in North America it outsells The Times of India by a huge margin. Would you buy a car or a news service made in India? I think not. Does Honda make huge profits? Of course. Does CNN? Of course. Are Hondas and CNN made in countries with high rates of income tax, certainly.

Has Canada had income tax rates which were too high? Probably. Are they too high right now? I do not see a lot of Trabants on the highway, and the boutiques of Yorkville and Niagara-on-the-Lake are still busy, so I do not think so.

To belatedly make a long story short, Canada's economy is doing just fine, thank you. In order to keep it that way, income trusts needed to be taxed at an appropriate rate.

Income Trusts and Other Tax Avoidance Schemes

In case you did not hear, Finance Minister Jim Flaherty announced earlier today that the federal government will shortly begin taxing income trusts in the same manner as corporations. This set off a storm of controversy among low-brow financial types and knocked some wind out of the Toronto Stock Exchange index.

An income trust is a tax avoidance scheme which ensures that income tax is primarily paid by the beneficiaries of the trust rather than by the corporation and the shareholders. It is perfectly legal, and you have to admire the ingenuity of the lawyer or accountant who invented it (I suspect he or she was never adequately thanked). The fear from the Canada Revenue Agency's perspective was that, if companies like Bell Canada or the major banks suddenly set up income trusts, they would stop paying income tax and Ottawa would have to collect same from the beneficiaries in the mother of all income splitting schemes.

Now I dislike Revenue Canada as much as the next taxpayer, but I willingly pay my taxes each year so that my kids can continue going to school, the police and army show up to work, and our national park service is not sold to Disney for use as a chain of theme parks. Canadians pay a lot of tax, but we enjoy a very high standard of living, too. Companies like Honda and Toyota love building new factories in Canada because, although they pay high rates of tax, those taxes go to pay for hospitals, doctors, schools and infrastructure rather than the cost of invading Iraq.

There were a lot of letters in The Globe and Mail this morning complaining that the Conservative government has betrayed small-time investors such as retired people. These people tended to vote Conservative anyway, so this is probably a real blow to Stephen Harper's chances of forming a majority government.

Now, I appreciate old people. Some of my best friends are old people. But give it a rest, folks. The real beneficiaries of the income trusts were Bell Canada and other companies which basically stood to save a fortune in taxes. If the major banks had played along (and they would have), our nation's tax revenues would have declined precipitously, threatening all of the wonderful government programmes at the federal, provincial and municipal levels. Guess what that would have meant? Individual tax payers (ie. you and I) would have seen our rates of income tax increase. Instead of individuals paying more than 85% of the freight for government programmes, it would have gone up above 90%. Sound fair to you? Of course not. Income trusts did not benefit small-time investors. They benefited rich people, who barely pay any taxes to begin with.

Now I know that people with investment incomes are on fixed incomes. Actually, that is not true either. Investment incomes fluctuate with the market, interest rates, and any number of other factors - up as well as down. But let's pretend that people with investment incomes are on fixed incomes. The reason so many people in Canada own their homes, have investments, and can retire with a good deal more comfort than their parents or grandparents ever enjoyed is because Canada is both a rich and fair country. Say what you like about crazy left-wingers like Trudeau and Douglas, but we are the beneficiaries of their foresight in ensuring that people like Conrad Black do not keep all of the money.

Lately, we have seen a fair bit of laissez-faire mumbo jumbo in public forums. People assume that they can have all of the benefits of residing in Canada without having to actually pay for any of it. Indeed, many people assume that they have the right to not pay for it at all. They are happy to take the free health care, the RRSP tax shelters, the peace and the political and economic stability, but think that all of this should be funded with the absolute minimum contribution from the taxpayer. My favourite are those people who say that they should be entitled to "opt out" of the provincial health care systems, thus demonstrating a complete lack of understanding about how insurance actually works. I always tell them that if they really want to opt out, Buffalo and Detroit have excellent medical facilities that accept all major credit cards.

All of this is nonsense. If you really like laissez-faire government, move to Mexico, Panama, or Pakistan. Or move to England in 1830, for that matter. You will love it. No taxes if you do not want to pay them. No health care system to opt out of. No political stability. No economic prosperity. None of the stuff that tax money pays for.

Notice something else? In these sorts of countries, wealth is concentrated in the hands of a tiny minority while the majority of people live in squalor and old people die of neglect and hunger. That is what a laissez-faire system really provides for the vast majority of people. The people who really benefit from the laissez-faire system are people just like Conrad Black, and I bet he wishes that the US justice system was a little worse-funded these days. I find it horrifying that ordinary, middle class people who have worked hard all of their lives to build a nest egg fall for the nonsense that Black and his peers espouse.

I will take Trudeau and Douglas' vision over that vision anyday.