Let’s Talk About Taxes, What’s Fair?

There is no such thing as a "fair" tax. For any system of taxation you can contrive, I (or another) can show how it's "unfair" to some person or group. Therefore, I never discuss taxes in the context of fair/unfair (e.g. "fair-share"). There simply is no such thing, so it's a futile discussion.

The only useful context for discussion taxation is workability. Specifically, a workable taxation system is one that provides sufficient revenue to provide the agreed upon services, while minimizing the impact/burden on each individual.

By impact/burden, I mean it the effect on the ability of the individual to live with the "socially agreed upon" minimal necessities of life IN THAT SOCIETY, AND minimizing the impact/limit on his ability to better his situation via education, work, and/or investment.

Thus, if a person makes at or less than the minimum required for necessities in a society, ANY taxes on him are a very heavy burden, even "undue" burden. For someone who makes just a small amount more than minimum, taxes are a heavy burden as they limit his ability to better his circumstances, therefore, they should be as light as feasible, but he can reasonably be expected to pay some taxes. The greater the difference between a person's income, and the minimum necessary in that society, the lesser the impact taxes will have on his ability to improve his circumstances.

This is the fundamental principle for which progressive taxation is the system with the lowest impact/burden. Now, some will try to claim it's unfair to those who earn the most, but as Ii said, "fair" isn't a useful context for discussing taxation. However, because it's very difficult for human beings to remove "fair/unfair" from their context for consideration, I will address a couple items in the context of what is fair/unfair:

1. It should never be considered "fair", or "just" to tax more than 50% of what a person earns (after deducting the minimum required to live in that society). That is, taking more than half of a person's "discretionary" or "disposable" income as taxation should be avoided unless it's simply not possible to operate an agreed upon govt using less (e.g. it might be necessary to have a higher tax during times of war or national emergency, and then must be for as short a time as practical).
2. To reduce a person's ability to afford luxuries is less of a burden than reducing his ability to improve his circumstance. Is it not more of a burden to take 10% from a person who has $1000 above the "minimum necessary", than taking 20% from a person with 100,000 above the minimum?
3. Those who earn more, do so, not solely of their own labor, but in part by the freedoms afforded by the society in which they earned it, thus those who "earn" the most, have also benefited the most from the society. Is it not appropriate that those who benefit more, pay a greater share to continue the society that enables them to earn those amounts?

The Nature of Money

Many people misunderstand the nature of money, and that misunderstanding leads to misunderstandings about "hard money", "fiat currency", and the nature of banking, including "fractional reserve banking" (FRB). In this post, I'll cover these topics and attempt to clear up many of those misunderstandings.

The Nature of Money

Money is not value itself, money is a near universal (within an economy), temporary store of value, it exists solely for the purpose of facilitating exchange/business. Barter is complicated because you have to find buyer and seller who each have something of value to the other one, and the items can be bulky. If buyer and seller don't have items of value to the other, there will be no exchange. Money is the solution to that by creating a universal, easily exchanged, easily carried, unit of value.

It is only necessary for money to maintain it's value until it can be exchanged for other goods. Ideally, its value should be fairly stable for years, however, most money is exchanged within a few weeks, so stability over a period of a few months to a year is more than sufficient for it to function as money. The longer it's value remains stable, the better.

Money is not wealth. The total wealth in the US is ~$95T. Total economic activity (as measured by GDP) is ~ $18.5T. But the amount of money in circulation is ~$1.6T. Clearly, money, economic activity, and wealth are distinct measures. Money supply and economic activity are related, but aren't the same. Money and wealth (stored value) are only very loosely related.

Hard Money vs Fiat Money

Hard money refers to money made of, or backed by, something of intrinsic value, such as gold, silver, copper, platinum etc. The problem with "hard money" is that any such "thing of intrinsic value" has a value that changes relative to other goods, as its supply and demand change. Gold, silver, copper, etc. all change in value relative to other items because they have non-monetary uses that dramatically alter the demand, and new discoveries of deposits (or new ways of extracting them from known deposits) increase the supply. That makes for a money of limited stability of value. When those metals were used only for money and jewelry, it made sense to use them as a form of money, because they were scarce and the demand was largely driven by use as money, while supplies were constrained and usually belonged to the govt/ruler. However, all of those have significant industrial uses now, as does every other conceivable element or mineral.

For something to be an effective hard money, it must meet these requirement:

1. Have intrinsic value.
2. Be scarce, or have limited access by any means other than the money issuer.
3. Have no other demand for usage that could cause a supply constraint.

While #2 can be theoretically be enforced by law (aka fiat), #1 conflicts with #2 & #3. If something has no use other than as money, it has no inherent value. If it has competing uses, then it's either virtually unlimited in supply (which reduces it's inherent value), or it's subject to shortages and "increased value" due to the other demands. It simply can't exist in any meaningful way now. A well-managed fiat currency is actually more stable than any hard money can be. This is obvious when you grasp the nature of "hard money".

Money Supply and Fiat Currency Under FRB

Having established that hard money is not inherently stable, nor more so than a well-managed fiat (established by law) currency, that in fact, hard money is inherently limited in stability of value because it is subject to the same laws of supply and demand as all other goods, it is in fact less stable and thus less ideal than a well-managed fiat currency. It's now time to look at the nature of money supply with a fiat currency, which turns out to be significantly different from that of hard-currency.

The essential factor in maintaining a stable money supply is that money must never be introduced without the receiving party exchanging something of suitable value. As it turns out, this is the same as for any hard money, Thus, the amount of money in circulation is solely a representation of a portion of the wealth, in a conveniently carried and exchanged form.

To see this more clearly, lets look at the oft maligned fractional reserve banking (FRB) system. People deposit "money" into the bank, but the bank lends out more "money" than is on deposit. How does that not devalue the money in circulation? Consider each secured loan (we'll look at unsecured loans and limits to FRB shortly). In order to receive a loan, the borrower exchanges equity in some property for cash, thus making "liquid" some portion of the assets of that borrower. But notice that the total value of the property is unchanged, only which party has legal claim on the property. Now, from an economic view, it literally makes no difference if the bank used money that was deposited by others or whether they literally printed the money (e.g. issued a check), that money is backed by real property of value, exactly as hard currency is. As such, it makes no difference whether the bank lends out 1x or 10x as much as they have on deposit, because it's all secured by property of at least comparable value. The "money supply" has increased, but only because property was made "liquid" by the exchange. This is significantly different than with any hard currency, since the supply of the hard money material itself a constraint on the supply, and thus on the liquidity of the economy.

That additional currency now in circulation will stimulate economic activity (people don't borrow to hoard money, they borrow to buy and/or pay other debts). Likewise, the loan must be paid back, with interest, generating income for the bank to pay it's expenses, employees and shareholders, and to pay interest on the deposits, thus taking the borrowed money back out of circulation. FRB multiplies the ability to liquify property/equity, and increases the bank's ability to make money, and pay interest on, their deposits, effectively lowering the costs of banking.

Now, lets look at unsecured loans. Unsecured loans must be limited to a percentage of deposits, as there always exists the possibility that defaults could hamper the bank's ability to pay out deposited funds. Therefore, there must be a limit on the total amount of unsecured loans made vs total deposits. There is much more to consider with secured or unsecured loans, including creditworthiness of borrower, interest rates, demand accounts vs time deposit accounts, etc. but those are minutia not central to this discussion. The key is that there must be fairly strict limits on unsecured loans by banks.

Back to secured loans for the final portion. Clearly, defaults in either case will leave money out in circulation. For unsecured loans, that money comes out of the bank's profits, so it remains in balance. This creates a natural limit on the amount of unsecured loans, but that doesn't mean there shouldn't be legal limits as well. For secured loans, the bank foreclosing on and selling the property that secured the loan, brings in the money that was borrowed. Any shortfall comes from the bank's profits, thus creating a limit on the amount of secured loans that it's prudent to lend. History shows that bankers don't always act prudently when lending. This brings us to the realization that there should be legal limits on the percentage of deposits that may be issued as secured loans too. It will be a different limit than that for unsecured loans, but there should be a legal limit that prevents banks from being too imprudent in lending.

Thus we see that amount of money in circulation has no impact on the value of money itself, so long as how it enters circulation is controlled by the requirement that it always be exchanged for comparable value. It doesn't cause inflation either, although, the interest paid on loans and deposits are factors that indirectly contribute to inflation. The more interest borrowers pay, and the greater percentage of the economy that is driven by loans, will impact the rate of inflation.

Notes on Banks and Banking in an Economy

Banks occupy a special place in an economy. They don't themselves produce any products of value, but as they do have significant control of the liquidity of assets and the money supply, and they have deposits from many people. Therefore, their stability is vital to local, state, regional, and national economic activity. They also have the unique ability to crash an economy, as we have seen numerous times. As such, no bank should be allowed to exceed a certain percentage of the market/deposits for a given area (e.g. MSA, state, region, or nation), so there need to be established threshold market share at each level at which the bank incurs additional oversight or regulation, and a higher threshold at which the bank must divest itself of assets to get below the threshold. So, while FRB itself isn't a problem, it must be restricted by laws and regulations to limit the damage any bank can cause if it fails.

Related articles:

• Money Supply, Its Amount, and Its Effect on the U.S. Economy
• United States Money Supply M0 1959-2018
• United States GDP 1960-2018
• US household wealth ticks up 1.4 percent to $94.8 trillion
• Derivation of U.S. Net Wealth
• How much U.S. currency is in circulation?

SNAP vs Corporate Subsidies, typical $50k family

If you see a post claiming SNAP (formerly Food Stamps) costs a typical $50k/yr taxpayer only $36, those numbers are simply wrong. Long story short, the corporate numbers and other numbers are calculated using two different and incompatible methods, so they can't be compared. And, both sets of numbers are wrong, based upon flawed calculation methods.

"SO, my monies aren't going to pay corporate subsidies?"

Some are, but not anywhere near that amount. Corporate subsidies are AT MOST 8x as much as SNAP ($600B vs $75B). Of that $600B, only $87B are "direct subsidies", the others are various tax benefits, so we're not actually paying them anything. So, in reality, it's $87B in corporate subsidies vs $75B in SNAP, or about 1.16x as much. Even 8x is a far cry from the 108x shown in the meme. 1.16x is just over 1/100th the of the difference claimed in the meme.

The actual numbers for SNAP are very hard to calculate, because there are many different ways you can calculate them that have valid claims, and they all give different numbers. But using these methods, SNAP costs that typical $50K earner somewhere between $106/yr and $700/yr depending upon the method, with corporate subsidies costing 1.16x as much.

The other numbers are similarly wrong, and are at least 3x as much as shown in the meme/original article. They're not even close to accurate.

Further analysis using actual numbers for a $50k taxpayer:

"A married person with one child making $50,000 a year will pay exactly $3,820 in federal taxes. Of those, $2100 is allocated to Social Security, and $725 is distributed Medicare. This leaves a whopping $995 to be used to pay for programs administrated by the Federal government."

Even ignoring the problems I pointed out previously, the total taxes paid is less than the claimed $4,000/$6,000 in "corporate subsidies", so clearly, the numbers are nonsense.

Above quote from this article (site no longer works) which explains how the numbers other than the $4,000 were calculated. As I said, that methodology is grossly flawed, but it's sufficient to prove the meme isn't even close.

The $6,000/yr figure comes from another source, and has even bigger issues than the $4,000/yr claim.

Here's the original article where the $36 and other claims in the meme come from.

Capitalism and Minimum Wage

Contrary to popular belief, Capitalism isn't simply "buy low, sell high". Capitalism is founded upon several principles, including free-market theory. One of the core principles of free-market theory is that you pay the full, unsubsidized cost of the goods and services you use. Subsidies create an artificial and unsustainable market. If you don't meet that condition, you don't, and can't, have a "market economy" that is central to Capitalism.

The labor a business uses requires a certain amount of money to live and maintain the health and well being of the person supplying that labor. That "minimal living wage", that is, a wage that pays the full cost of the “necessities” of life in that society, varies by location, but it is indeed a real, measurable amount that is NOT dependent upon the lifestyle of any individual, it's calculable based upon what is necessary for a typical family to live and remain as a healthy, productive part of that society, and it is already calculated for all parts of the USA (see related links). If you are paying less than that minimum living wage, then someone else must subsidize your labor. For purposes of this discussion, it doesn't matter who is providing the subsidy, the fact is that your business is being subsidized, and therefore violates one of the core principles of capitalism.

The "X job isn't worth that much" argument is nonsense.
If that job is necessary to the operation of your business, and it can't be automated (or costs too much to automate), then you must pay some person to do that job. Without that labor, you have no business. Therefore, it is inherently worth at least the cost of a "minimum living wage". If the cost of labor (or other costs) forces you to price your product above what people will pay or keeps you from making a profit, then you don't have a viable capitalist business model. That is how capitalism works.

Therefore, paying at least such "minimum living wage", is actually necessary for capitalism to be sustained. Any business that cannot make a profit while paying a living wage is unsustainable as a for-profit capitalist business. For-profit businesses with unsustainable business models should be allowed to fail, to be replaced by better business models. That's part of the fundamental principles of capitalism. Since greed and the "profit motive" have repeatedly proven they will be used to distort and manipulate the market for personal gain when possible, having laws requiring businesses/employers to pay at least that wage, are prudent, if not required, for capitalism to be sustainable.

Shouldn't minimum wage be left up to the market to determine?
A person does not have a right (legally or ethically) to enter into a contract that obligates/requires anyone else to subsidize his life, unless he has explicit permission from the person/entity paying the subsidy. Nor, does an employer have a right to request or expect any employee to be subsidized by anyone else (taxpayers, parents, charities, etc.). Ergo, no employer has a right to offer, and no employee has a right to accept, a wage that requires subsidies from ANY OTHER PARTY, without the express consent of the person/entity providing such subsidy. So the market can and will determine how high wages are for any given position, except that the rate must not be less than the "minimum living wage".

Notes for clarification/completeness:
In capitalism, there are times when products are sold below cost, "going out of business", "clearance", "liquidation", "bankruptcy", "loss leaders", etc. but you'll notice that it's the "things" that are sold below cost, not the labor being paid less than a living wage. It's also not the normal course of business, all of those things are temporary in term, and all but "loss leader" items are one-time events when the business is failing/failed. No entity that relies upon subsidies should be operated as a for-profit entity.

Exceptions to the "minimum living wage" rule:
Some percentage of the population is not "able bodied" and/or has another form of disability. As a civilized society, we have said that government and/or charity programs will subsidize the living costs of these people. Similarly, teens/students living with their parents and/or seniors living with their family, may not need a full "living wage". In such cases, IF AND ONLY IF the person/entity providing the subsidy has agreed, then the person receiving the subsidy might be paid a lower wage consistent with their abilities AND the amount of subsidy provided.

Non-profit making activities:
The above is not to say that only profitable activities are valuable or worth pursuing, even in a capitalist society. For example, military, law enforcement, courts, and penal systems are necessary to society, yet they should never be organized to be profitable, as the profit motive calls for expansion and growth, and that is exactly what you don't want to encourage in those systems. It's not even appropriate to design those systems to attempt to recover their operating costs. Indeed, it's vital that such services be available to all, not just those who can afford to pay for them at any given moment.

There are also many types of activities that "serve the public good" which might not be economically viable as "for-profit" entities. Most government services, charities, and activities that serve the interests of society as a whole, are valuable and often necessary, and these activities are best operated as not-for-profit entities that rely upon taxes, fees, donations and/or other forms of subsidies for their continued operation. Not-for-profit entities, because they rely upon external subsidies, should be subject to caps on the maximum amount they can pay their labor, even/especially their most senior executives. That should be part of the terms or "costs" of operating on subsidies.

Expanded discussion and examples:
Labor is not a "thing", it's value isn't dependent solely upon how much you think it contributes to the company. Labor is a person, who must earn enough money to live on, and those costs rise over time, even if the contribution of their labor does not increase. Wages MUST increase with inflation.

Most "things", e.g. equipment, needs maintenance, and those maintenance costs increase over time. The same is true of labor. That the contribution of the equipment to your business does not increase over time, doesn't mean your maintenance costs will remain constant. The same is true of labor.

"Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them."
- Abraham Lincoln, 1861 in his first annual address to Congress.

It does not matter that you think the labor is only worth $5/hr. If it costs a minimum of $10/hr x40 hours/wk for "labor" to live in hat society, then you have to pay at least $10/hr, no matter how much you think the job is worth. In this regard, it's no different than buying a piece of equipment. You don't get to say "I'm only going to pay $5 for this $10 item because I think it's only worth $5". You either pay $10 minimum negotiated price, or you don't get the item to use.


Minimum wage is intended to be a "living wage"

It has been from it's inception. The claim that it's "not supposed to be" a permanent, wage that can support a family is a relatively modern one invented by minimum wage opponents. But even a cursory look at history proves that is has always been intended as a sustainable income for working adults.

"It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By "business" I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living."
- Franklin D Roosevelt, 1933 in his statement on the National Industrial Recovery Act, which established the federal minimum wage in 1933

Related Links:
• MIT Living Wage Calculator
• Wikipedia article on the National Industrial Recovery Act of 1933
• Wikipedia article" on Free-Market theory.
• Wikipedia article on economic equilibrium, a core component of free-market theory and capitalism
• "Study"": Minimum Wage increases do not increase unemployment nor slow job growth."
• "Another Study""Minimum Wage increases do not increase unemployment"

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Too Big To Fail, Never Again

I'm tired of hearing about the "onerous and oppressive regulations being imposed upon the financial services industry". They are specifically referring to the "Volcker rule" that is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Now, I'm not here to argue the benefits or weaknesses of the specifics of the Volcker Rule. I haven't read it's 300 pages, as I'm not in that industry, it may very well be a flawed piece of legislation.

I'm here to point out that the banking industry has only themselves to blame for this situation. First, they lobbied for, and successfully got key provisions of the Glass-Steagall Act repealed, allowing commercial and investment banks to merge and share assets and liabilities. These provisions were repealed as part of the Gramm-Leach-Bliley Act (GLBA) in 1999. This was strongly supported by Alan Greenspan, then Chairman of the Federal Reserve, the financial services industry, and particularly, by Sanford Weill, CEO of Citicorp, which later became the largest bank (Citigroup) when it merged with Travelers Group, and many others in Congress and the banking industries.

After passage and several mega-mergers of commercial and investment banks, they began engaging in the practice of making high risk sub-prime mortgages, funding the "housing bubble" of escalating prices, sold mortgage-backed-securities (MBS) to other investors assigning them a AAA rating, while simultaneously making investments that those MBS would go down in value. In short, they engaged in manipulation of the market for their own enrichment, at a cost of many hundreds of billions to millions of homeowners, and trillions to the overall economy. Only a massive USD$700 billion bailout saved them from bankruptcy.

And then there is the still pending possibility of another financial crisis from the "derivatives" market they created, a crisis that could very well be larger than the problems so far.

So, in summary, they lobbied for deregulation, got it, then proceeded to engage in risky, and possibly fraudulent practices that resulted in a loss of hundreds of billions or trillions of dollars to people who we not part of the investment scheme. And now, they want to complain about the new regulations being imposed upon them. They haven't even admitted fault for causing the problem, and none have been held financially or legally accountable for these practices. They were in effect, gambling with "our" money, and indeed, the entire US and world economy.

Sorry, but until they take responsibility for their actions and the damage they've done, anything they say about how "onerous and oppressive" these new regulations are will fall on deaf ears. They've demonstrated that they aren't trustworthy to self-regulate, nor hold themselves accountable for their manipulations. I, and I suspect most of the US public, have no sympathy for them, and no trust in their categorization of these new regulations.

Many of the primary backers of the repeal of Glass-Steagall, including Alan Greenspan, Sanford Weill, and others have since said it was a mistake, that "the big banks should be broken up", that "too big to fail" is too big a risk to the economy and the country, and that self-interest and self-regulation can not be relied upon in keeping the industry in line.

“I was an advocate of the deregulation movement and I made -- along with a lot of other smart people -- a fundamental mistake, which is that deregulation works fine in industries which do not pervade the economy,”
- Retired Federal Judge Richard Posner

"I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ...."
- Alan Greenspan, Chairman of the Federal Reserve when the Glass-Steagall Act was repealed in 1999 and he supported it's repeal, testifying to Congress on the banking crisis in Oct 2008.

“What we should probably do is go and split up investment banking from banking,” Mr. Weill, the former chief executive of Citigroup, told CNBC. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
- Sanford Weill, former CEO Citigroup and one of the primary advocates for the passage of GLBA, quoted in the NYTimes article below.

They created this situation, now they have to deal with the consequences. And until they accept responsibility for it, nothing they say about the new regulations carries any weight. If and when they take responsibility for, or are held accountable for, their actions, there will be room to discuss what level of regulation is appropriate and necessary. But until then, they're simply not believable.

I'll conclude with a quote from a NYTimes article:

"In 2009, John S. Reed, who with Mr. Weill forged the megamerger that created Citigroup, apologized for creating a lumbering giant that needed multibillion-dollar bailouts from the government. Philip Purcell, the former chief executive of Morgan Stanley and David H. Komansky, the onetime leader of Merrill Lynch, two other main figures in the fight to repeal Glass-Steagall, have echoed similar concerns about deregulation."
- NYTimes

Update: 2015-10-17
Banks (including investment/financial services) occupy a special place in an economy. They have a unique capacity to boost, or collapse entire economies, based upon the actions of a few. It's fundamentally a risk to everyone to allow a private bank to become a significant part of any economy/market. For this reason, the restrictions on banking should be even more limited than anti-trust/monopoly laws for other industries, but the same principles should apply. See my post about free-markets for some thoughts on limits on market share in general, keeping in mind that more stringent limits should be applied to banks.

Related Links:
• Causes of the Global Financial Crisis
• Subprime Mortgage Crisis
• State-Wrecked: The Corruption of Capitalism in America by David Stockman
• An accurate history of the Glass-Steagall Act and Gramm-Leach-Bliley Act.
• A post about the strengths and limits of Dodd-Frank
• A post about and an alternative approach
• A Bloomberg article on "too big to jail", which references this video by then Attorney General Eric Holder saying there is no such thing at "too big to jail", but his disclaimers also make it clear that there are considerations about the economic impact when preparing possible charges against large institutions.

Corporations Still Aren't People

In light of today's Supreme Court of the US (SCOTUS) decision to not hear arguments in Western Tradition Partnership v Atty Gen of Montana, it's time to review, and reiterate why corporations are not people, and how SCOTUS erred in both Citizens United v FEC and the current case.

I am not a lawyer, and this is not legal advice. This is my analysis and opinion. I'm exercising my right as citizen of the USA to criticize my government, and demand that they follow the US Constitution.

First, you may want to review my previous post Corporations Are Not People on this topic. In today's post, I'll strengthen the case by highlighting some key differences between people and corporations, including previous SCOTUS decisions that clearly indicate they are not entitled to the same protections as "natural persons".

Second, it's important to note that the SCOTUS decision in both cases was split 5-4, so it's clear that even among the justices, there are significant differences of opinion on these cases. Clearly, this matter is not settled.

Let us begin with a definition of "corporation":

"corporation n. an organization formed with state governmental approval to act as an artificial person ..."

Note the definition states "artificial" person.

Differences between corporations and people:

• Corporations are artificial entities created by the sovereign state(s). People are not, they exist independently of the states.
• Corporations can be owned, bought, and sold. People can not.
• A corporation's owners are shielded from liability for the actions of the corporation, and the officers can be shielded from liability. A person is not shielded from liability for his actions, nor for those for whom he/she is legal guardian.
• Corporations can not hold elected office. People can.
• Corporations can not be imprisoned. People can.
• Corporations can legally be killed, at the whim of the owner(s). This is not considered murder or homicide. Killing people is homicide. If it's without justifiable provocation, it's manslaughter or murder.
• Corporations can live indefinitely. People die.

Legal basis:
Perhaps the strongest legal evidence that corporations are not people comes from the Supreme Court itself:

...the Supreme Court has held that the Fifth Amendment protections against self-incrimination extend only to "natural persons." The Court has also held that a corporation's custodian of records can be forced to produce corporate documents even if the act of production would incriminate him personally.

Thus, previous SCOTUS decisions make it clear that the protections of the US Constitution don't automatically apply to "artificial persons". From this, we can determine that either none of the protections of the US Constitution apply to corporations, or that only certain rights apply. If it's certain rights, then we must define which ones, something that should be defined by law, not by court precedent.

Corporations are created by the sovereign states, not the federal govt, therefore, the SCOTUS has no business telling Montana that state laws limiting corporate contributions are invalid. The corporation is created by the state, and it derives it's rights from the state. The Federal govt only has jurisdiction over corporations engaged in interstate commerce.

A state has no right to grant corporations any rights in national elections as this would create unfair power for states that grant such rights to corporations. A state has the power only to grant, or deny the corporations rights in state elections and rights and privileges under state law. Thus it's untenable to claim that corporations can make any contribution to federal election campaigns, much less "unlimited" contributions.

This isn't a new concept. Montana has limited their contributions since 1912, and even President Theodore Roosevelt knew it over 100 years ago:

Let individuals contribute as they desire; but let us prohibit in effective fashion all corporations from making contributions for any political purpose, directly or indirectly.

Summary:
Corporations are protected by state laws governing their creation, liabilities, rights, and dissolution, not the rights guaranteed to people by the US Constitution, those rights come from a different creator. The Citizens United decision is wrong, and today's ruling is wrong. They're wrong under the US Constitution, they're inconsistent with previous SCOTUS rulings, they're inconsistent with common sense, and they're wrong ethically. It was wrong in 2010, and it's wrong today.

Update:
In light of the recent SCOTUS decision in Sebelius/Burwell vs Hobby Lobby/Conestoga Woods, where the court again mistakenly applied the 1st Amendment, specifically religious rights, to a corporation in a 5-4 split decision, I'm adding additional references and commentary, including the dissenting opinion of Justice Ruth Bader Ginsburg (the actual dissent begins on page 60 of the above link to the SCOTUS decision, this link is just a few key points from the dissent).

Related Links:

• Theodore Roosevelt quotes and more
• 35 Quotes from the Founding Fathers supporting the separation of religion from government, illustrating how Burwell vs Hobby Lobby is inconsistent with the intent of the Founders and the US Constitution.
• A picture that points out some of the problems raised by the Burwell vs Hobby Lobby decision.
• Another look at the current SCOTUS, and their rulings.
• NYTimes First Amendment Protections Embraced By Corporations

Wondering what Occupy Wall Street is about?

Here is some background for anyone who may be wondering what OWS is all about:

Who lobbied Congress to repeal the Glass-Steagall Act, thus allowing banks and financial institutions to merge? Wall Street

Who created the "derivatives" that made the real estate crash a huge problem for Wall Street? Wall Street

Who invested in all those 95%-100% sub-prime mortgages? Wall Street.

Who created and participated in all the reinsurance deals that caused the failure of AIG? Wall Street.

Who got a $700B bailout loan from the taxpayers? Wall Street

What is the first thing Wall Street did with their bailout loans? Paid hundreds of millions of dollars in bonuses to the very people responsible for the above. If you borrowed money from WS to bail out your failing business and proceeded to pay out huge bonuses to your executives and managers, they would probably call the loan. Yet they defended it when they did exactly that.

How many WS execs have been charged (in a civil or criminal suit) for any of the above? Few, if any.

They've lied, cheated, changed the rules, and manipulated the system, while the majority of the country (and much of the world) has paid the price. Yet they have not been held accountable for any of it.

We the People are pissed off about being pissed on!

These are not the only issues driving the Occupy movement, but they're some of the major ones behind OWS specifically. Here are some of my posts on related issues of "corporatism":
Corporations Are Not People
The Paradox of Free Markets.

A NY Times op-ed piece about some of the deals.

And a Washington Post blog about the growing income disparity of the top 1% in the US and other countries.

An Interview with Jeff Greene, a billionaire who has begun to see the nature of the problem.

The Paradox of Free Markets.

There has been a lot of discussion the last few years about deregulation and allowing "the free market" to operate. In many/most cases, that is the most effective solution. Allow buyers to "vote with their dollars" by supporting the sellers who offer the most suitable (including price, quality, performance, etc) product for the buyer's needs. That is fundamental to capitalism as an economic model.

However, "free markets" do not work when any of the following are true:

• One company controls 45%+ of the marketplace, or a few companies control over 75% of the market.
• There are high barriers to entry for new competitors (including regulatory or capital cost barriers).
• There is a limited supply or distribution chain. This includes "natural monopolies" such as utilities, cellular providers (since RF bandwidth is a limited resource), etc.
• Corporations/companies get special interest exceptions or special benefits (e.g. tax abatements) from the government.
• Regulations to prevent collusion by sellers are absent or ineffective.
• The "buyer" has a medical emergency or urgent medical/health need and therefore has no real opportunity to compare providers of medical services. Healthcare delivery is rarely a free market because the of the limited opportunity to research and compare providers, services, and prices.

Note that markets must be considered on a local, regional, and national level. Other levels such as state/province may also be useful measures.

Any of those situations shift the balance of power in favor of the seller, such that free markets don't work. In any of those situations, competition is limited and the buyer has very little power or choice, therefore, it is no longer a free market. When any of the above conditions (and perhaps there are a few I've missed) occur, progressively stronger anti-trust/anti-monopoly regulations should begin to apply as needed to balance the market. If the above situations are not properly regulated and limited, greed and power will always eventually lead to corruption and abuse, it's human nature.

"With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly."
- Ben Bernanke, November 15, 2005, less than 2 months before he became Chairman of the Federal Reserve. Approximately 2.5 years before the banking crisis that was as extensive as it was in large part because of trading said derivatives.

The restraint must be preemptive. Because corruption and abuse cause damage that is difficult (frequently impossible) to repair, and because history shows that they are inevitable, regulatory limits should kick in automatically as soon as one of those conditions exists, even if there is no actual evidence of corruption, collusion, anti-competitive activity, or abuse. I know some people will disagree with that statement, calling it a prior restraint of trade, etc. However, history has demonstrated many times that no matter how benevolent the intent, eventually it will become corrupt because power and money draw people who will abuse and corrupt the organization. By the time the corruption or abuse is clearly demonstrated, the damage is likely to be irreversible, extremely costly, and difficult to restrain.

"I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ...."
- Alan Greenspan, Chairman of the Federal Reserve when the Glass-Steagall Act was repealed in 1999 and he supported it's repeal, testifying to Congress on the banking crisis in Oct 2008.

Unregulated free markets don't work when any organization has sufficient power to manipulate the market. Corporations can not be relied upon to act in the best interest of their shareholders, much less the best interest of the market or the people. The history of anti-trust violations makes that abundantly clear. The repeated banking failures make that abundantly clear. The US auto industry in the 50's-60's (unsafe vehicles) makes that abundantly clear. There have been thousands of anti-trust suits filed by the US Government against companies alleged to have engaged in anti-competitive practices, manipulating a market, etc. Anti-competitive behavior is not a rare occurrence.

Even renowned economist and free market advocate Milton Friedman, acknowledged that monopolies arise in free markets, and that at least one of them has persisted (for over 130 years):

“A monopoly can seldom be established within a country without overt and covert government assistance…The De Beers diamond monopoly is the only one we know of that appears to have succeeded. We know of no other that has been able to exist for long without the direct assistance of governments.” -- from "Free to Choose".

Note that he acknowledges others have existed, but didn't last "for long". He doesn't say what the others were, or how long they lasted. Did they last 10 years? 20? 50?. How long does a monopoly have to exist before it causes harm to consumers or the market? While he dismisses them as not lasting for long, he never addresses whether the monopoly was harmful while it existed.

Now we have the paradox:
A free market is the most effective, most responsive, and least costly method of creating competition and allowing the market to respond to consumer wants and needs. Yet a free market can't be truly free, it must be guided toward balance via regulations that take effect when any of the above conditions exist.

The solution is not more laws and regulations. That's the solution proposed by many people whenever there is another problem, however, that usually makes matters worse. A better solution is to start by replacing almost all existing regulations with fewer, simpler regulations that have less overlap, less duplication, and very few exceptions. The regulations should be as few and as simple as necessary to prevent most abuse, corruption, collusion, fraud, and deliberate or negligent harm to buyers and to keep the market from becoming significantly unbalanced. As new situations arise that aren't addressed adequately by the laws and regulations, reevaluate and update or replace existing regulations. When I say update, I literally mean update the existing regulation, don't just add another new law or an addendum to the law, add, update, or remove sections to that the changes are incorporated naturally into the text of the law.

Keep it as simple and straightforward as possible. Complexity will make the laws and regulations ineffective and costly. The market should be allowed to operate as a free market so long as conditions allow for a balanced free market, with just basic regulations regarding fraud, liability, negligence, etc. Regulations to prevent abuse when the above conditions exist should be as few and as simple as necessary to allow a balanced market. The regulations should also be progressive, with minor restrictions when the threshold is crossed, and stronger restrictions if the market continues to be unbalanced (e.g. one or a few suppliers continue to gain control of a larger percentage of the market). The goal is to "nudge" the market into balance, not to manage the market. Markets are far too complex and dynamic to be managed, regulations must merely restrain abuse and promote a balanced free market, they must not attempt to manage the market or steer it in a specific direction.

Special interest exceptions or exclusions should almost never be included in a law or regulation, even temporarily. There will be some legitimate exceptions. Some exceptions might be permanent, and those should be part of the law. Temporary exceptions should be via an addendum that automatically expires and cannot be extended. "Temporary" laws must be kept temporary. Writing a new law that has the effect of extending a temporary law must require a "super-majority" vote for it to be enacted.

Laws and regulations should be simple enough for the majority of people with at least an 8th grade education to understand what the law says. Lawyers and judges can debate the details, limits, and exceptions when necessary as that's a legitimate purpose of the courts, but the legislation and regulations should be understandable to most adults. For instance, we don't need separate laws for computer fraud, insurance fraud, credit card fraud, securities fraud, etc, we just need one law that makes fraud illegal, and establishes penalties based upon the extent, value, and impact of the fraud. Fraud is fraud, how you commit it should be irrelevant. A similar approach applies to other crimes.

Update:
I stumbled across a document that covers this in some detail. It's longer than my post, but worth reading. Here's one relevant excerpt:

All economic systems are governed by certain rules of game, and the governing rule for a modern market economy is the rule of law. The rule of law has two economic functions. First, the rule of law regulates and limits discretionary interventions of the state in economic activities. Secondly, the rule of law regulates the economic behavior of individuals and enterprises to create an orderly, stable environment with fair competition, clearly defined and well protected property rights, and effectively enforced contracts. In essence, these two economic functions of the rule of law are about regulating the relationship between the state and the market through legal institutions so that economic development is both possible and sustainable.

According to a NYTimes article, Sanford Weill, former CEO of Citigroup, the man considered to be one of the most influential in the repeal of Glass-Steagall, and one of the people who profited most from it when Citigroup was created, now says:

“What we should probably do is go and split up investment banking from banking. Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

Many of his counterparts at other banks have agreed:

"In 2009, John S. Reed, who with Mr. Weill forged the megamerger that created Citigroup, apologized for creating a lumbering giant that needed multibillion-dollar bailouts from the government. Philip Purcell, the former chief executive of Morgan Stanley and David H. Komansky, the onetime leader of Merrill Lynch, two other main figures in the fight to repeal Glass-Steagall, have echoed similar concerns about deregulation." - NYTimes

Related links:

• Washington Post -Wonkblog on Healthcare Costs
• Huffington Post - Judge Richard Posner, Deregulation Movement Made A Fundamental Mistake.
• An article that points out a number of market failures, and why "market forces" will never be adequate for some markets.
• Another look at market failures
• Alternet Free-Market Boosters Just Don't Get It
• Salon My Libertarian Vacation Nightmare, a recovering libertarian visits Honduras and sees how all the policies he believed in fail in reality.
• Another view Why Free Markets Make Fools of Us

Updates:
2011-10-27. Updated with quotes from Bernanke and Greenspan, added examples where free markets have failed, and expanded the section on keeping the regulations simple.
2011-10-28. Changed the title from "What is a Free Market?".

Corporations are not people

Let me start with, I am not a lawyer, and this is not legal advice. This is my opinion about why corporations should not be considered a person.

What is a corporation? A corporation is an artificial legal entity created for the purpose of operating an ongoing business (for profit, or non-profit) or governmental unit (city, town, etc). They serve several practical business functions, and that is their only reason for existence. Corporations exist to allow a business to:

• survive the death of any individual
• be bought and sold via the issuance, sale, and purchase of stock
• offer limited (to amount of the investment) liability for the stockholders
• offer limited liability to employees, officers, and directors, except when they have violated the law or are found to have been negligent

As an artificial entity, they need to be endowed with certain rights by their creator. Who is their creator? Government, as an agent of The People governed. With the exception of the rights necessary to fulfill the purposes above, they should have no rights that a person doesn't have. Indeed, they should have fewer rights than a person.

Corporations should have very limited access to petition the government or lobby for/against laws and regulations. They are not people, the government doesn't represent them. The government is the creator of the corporation, not it's servant. Corporations must have no right to vote, and should not be allowed to contribute to political campaigns, PACs, or otherwise fund a political campaign in ANY fashion. Their right, if any, to lobby politicians should also be severely limited. As one commenter on this post put it:

If corp's can influence legislation then at least one will be unscrupulous enough to influence laws to give themselves an unfair advantage in their market therefore dominating it and becoming a duly ordained part of a growing oligarchy.

The individual owners, officers, directors, and even employees can personally contribute to and support politicians, but the corporation should not be able to do so, nor be allowed to direct them to do so, compensate them for doing so, nor penalize them for not doing so. Corporations as entities of business should have little or no involvement in the political process. The government is charged with serving and protecting "the People", and a corporation is not a person.

Corporations must have access to and protection under the legal system. Corporations must have the right to sue and be sued, and be subject to civil and criminal penalties. However, in criminal proceedings, only the officers, directors, or employees can be charged. There is no "body" (corpus) to the corporation to charge or imprison. This alone is ample evidence that a corporation is not a person.

The officers, directors, and other employees must be accountable for criminal charges and civil or criminal penalties when their actions as an officer, director, or employee of the corporation would expose an individual to the same charges or penalties. A corporation must not protect a person against being responsible for their actions, and a corporation may be required to share the financial liability for the actions of it's officers, directors, and employees. "I was just doing my job" or "just following orders" does not shield a person from any criminal liability for their actions. It may shield an employee from personal financial liability if they were acting as an agent of the corporation, in which case the corporation is at least jointly, and may be exclusively liable for financial damages and penalties.

Summary:
While a corporation in civil legal proceedings is treated very similar to a person, a corporation is clearly not a person in a criminal proceeding. In the political arena, a corporation is very different from a person. Corporations don't have the rights of a person, they have only the rights granted to them by their creators. Corporations are created by the government, which are agents of the governed people. Therefore, the rights of a corporation come directly from the government, and indirectly from the people whom those governments serve. For the reasons stated above, those rights must be different than the rights of a person.

Any interpretation of a corporation as a person is seriously flawed and eventually leads to the government being a servant of corporations, and that always leads to disaster.

Edit: 2011-10-21. Clarified the section on civil and criminal liability under the legal system.

Update: 2011-11-08. I just read an article that pointed out some of the concerns raised in the "Citizens United v FEC" case.

"... Its constitutional theory would permit Congress to ban a book as well as a 30-second TV spot if the book satisfied the operative definition of an ‘electioneering communication' and the book's corporate publisher paid for the book with general treasury funds (as it almost certainly would) ... The breadth of that concession is staggering," reads the brief, especially since it's common for such books to come out during campaign season.
The brief continued: "The fact that such books could be banned under the government's theory unless funded by a PAC vividly illustrates why those criteria (to protect speech) are insufficient to safeguard the important First Amendment interests at stake."

Limiting a corporations ability to publish and sell books of a political nature is certainly not the intent nor is it in the best interests of anyone to limit that ability. The rules need to be constructed in a way that allows them to publish and sell such books (or movies, magazines, etc), but doesn't allow them to use that as a means of contributing to campaigns or lobbying the government. For example, giving the books away (or selling them below cost) in support or a campaign, party, or candidate might be prohibited as an illegal contribution by a corporation. Offering a candidate a book/movie deal or job during a campaign or while in office might be prohibited as lobbying or an illegal contribution, or even bribery if the circumstances justified such a charge. This area of allowing commercial political speech is deserving of more attention, but it doesn't alter my position that corporate access to government must be extremely limited and any view of a corporation as a person is seriously flawed.

Update: 2012-06-29
My second article on this topic.

Related Links:
The Story of Citizens United vs F.E.C. video.