Mormonism & Capitalism

By: Nate
December 4, 2013

Last week I submitted a post comparing and contrasting Communism with Mormonism. Today I’d like to do the same with Capitalism.  In doing so, I attempt to explore where it is Mormons might stand between these two opposite poles of the political and economic landscape.  Capitalism is easier for most Mormons to sympathize with, because it happens to be the most successful and transformative economic system in human history.  Communism is a big loser, and easy to hate.

Capitalism is More of a Science than an Ideology

Capitalism is not so much an ideology as a set of quasi-scientific principles used to understand economic behavior when individuals are 
given autonomy.  There are no real articles of faith, no 
beliefs to enforce or encourage, nor is there any ultimate vision or
 utopian goal.

  But the fact that Capitalism is an impartial expression of scientific 
truth is the reason why Mormons, as truth collectors, 
should embrace and accept it’s reality, just as we should accept all demonstrable 
science.  Just because the science of Capitalism expresses truths about some of the more base and competitive instincts of mankind doesn’t mean we should ignore those instincts.

Capitalism demands certain basic parameters in 
order to operate effectively; and these parameters are very consistent
 with many of the basic beliefs of Mormons: individual freedom, and 
basic security from crime, war, or government interference such as excessive taxation and regulation.  These same values are highly 
regarded in The Book of Mormon, where the 50% tax of the Lamanites was 
viewed as a burden almost equal to slavery.

But freedom and security are just the parameters necessary for 
Capitalism to flourish.  The fundamental law that powers Capitalism is
 called “the profit motive.”  It states that humans are most 
highly motivated by their own self-interest, and self-interest is 
the most powerful motivator for economic growth and prosperity.  The
 profit motive works in harmony with competition among individuals or 
groups for economic resources and dominion.

The Problem of Self-Interest

Hugh Nibley, Richard Bushman and other LDS academics have sometimes argued that Mormonism is incompatible with Capitalism because of these “natural,” profit motivated instincts.  The Book of Mormon says that the “natural man is an enemy to God.”  Christ invites us to become saints, reject self-interest in favor of selflessness and charity, and reject competition for unity in 
the body of Christ.

But it would be a mistake to say that self-interest has no place in the gospel.  The Book of Mormon continually appeals 
to our own selfish interest:  ”If you keep my commandments, you shall
 prosper in the land…if you do not, you shall be cut off from my
presence.”  Brigham Young claimed that everything he had ever done in 
the church, he had done for his own self-interest:

“What object have I in saying to the Latter-day Saints, do this, that or the other? It is for my own benefit, it is for your benefit; it is for my own wealth and happiness, and for your wealth and happiness that we pay tithing and render obedience to any requirement of Heaven.  We can not add anything to the Lord by doing these things.”

It might be said that our self-interest, while an understandable motivation, is not the highest and noblest of human instincts, and that it should eventually be replaced with pure, unselfish love.  But as we live in a fallen world, God and his prophets have continually appealed to our self interest to motivate us, and thus Capitalism is no great evil, but simply a pragmatic solution to the fallen state we find ourselves in.

The Problem of Competition

The principle of competition is more problematic.  It produces winners
 and losers.  The strong thrive and the weak flounder.  While 
weaknesses and strengths are sometimes the result of individual choice 
and merit, more often they are distributed among people by virtue of 
their birth: through DNA, monetary, educational, or upbringing 
advantages.  Through competition, Capitalism becomes an unequal form
 of government, where the poor, lesser educated, and the less astute tend to get poorer, while the smart, educated, and rich tend to get richer.  These gaps grow over time when Capitalism is left unfettered.

Proponents of pure Capitalism argue that this is the natural order of 
things.  This idea is called “Social Darwinism,” because it mimics the theory of evolution, wherein strong species thrive, and weaker ones
 become extinct.  This theory was popular in intellectual circles 
around the turn of the century, and many of the horrors of the
 Industrial Revolution were rationalized by this idea.  While thousands
 were dying in poverty and terrible working conditions, the rich were 
creating an unprecedented amount of money and power.  People like
 Andrew Carnegie and J. P. Morgan built America into the great world
 civilization it is today, but they did it at extraordinary cost in 
terms of cheap, expendable human labor of those too weak to become
 like them within the Capitalist system.  I can think of nothing 
compatible in Mormon doctrine with this kind of ruthless competition.

Bridling our Passions: Regulated Capitalism

However, this kind of pure Capitalism is not what is practiced today.
 While Communism was overthrowing Imperialism in Russia in the early
 part of the 20th Century, in the US, the excesses of Capitalism were
 creating a backlash as well.  This led to a rise in government 
regulations that control Capitalist phenomenon like monopolies, and the rise of
 workers rights and labor unions.  Two world wars, and a depression led
 to a reawakening of religious values over the secular ideas of Social
 Darwinism.  Thus what we have in the US today, is a Capitalism 
bridled by government regulation, with some basic social safety nets put in place for those who fall behind in the Capitalist race, and a highly religious populace, that moderates through charitable giving.  This mixture of Socialism, religion, and
 Capitalism has led to the rise of the middle class, wherein a much 
greater percentage of the populace enjoys prosperity, education, 
homeownership, and opportunity.  It has been the most remarkable and
 successful economy in the history of the world.

This bridled form of Capitalism fits well within Mormon doctrine.  The 
Book of Mormon teaches us that we should “bridle our passions.”  We
 don’t deny that we have passions and instincts, rather we bridle them 
through obedience to basic laws and commandments. Likewise, we don’t
 deny that Capitalism is the true and natural expression of human 
passion and instinct.  But instead of squashing that instinct, we 
bridle it through appropriate government regulation and religious 
commitment.

Conclusion

What Mormons should find most compelling about
 Capitalism, is that it expresses basic truths about human nature.  As 
Mormons, we are to collect all truth, whatever the source.  God made us human.  He made us Capitalists.  That is our 
nature.  But he also gave us laws and commandments so we could eventually overcome our selfish instincts and embrace the Law of Consecration.  In the meantime, as we journey slowly towards perfection, bridled Capitalism is an excellent compromise.

Discuss…

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44 Responses to Mormonism & Capitalism

  1. Lew Scannon on December 4, 2013 at 2:49 PM

    There have been many attempts to defend capitalism as being compatible with Mormonism. None of them are very successful, including this one. Of course, what we have today is not capitalism as Adam Smith and other early worldly philosophers imagined. We have corporate capitalism, which is a creation of the past 150 years. The history of the corporation is a fascinating study, and the expanding power of corporations in the world makes most of what Adam Smith envisioned irrelevant. (For instance, the invisible hand—a feature of what Smith considered a suboptimal society—simply doesn’t work where large corporations totally destroy any balance of power between producers and consumers.)

    I’m not suggesting that communism is compatible with Mormonism. It is not. But most people are conditioned to see the world as a binary place. Capitalism and communism are the only options, and they are therefore opposites. But anyone who reads the scriptures with an eye to economics will recognize that God has spelled out pretty clearly a third way, and that when compared to this third path, capitalism and communism are more similar than they are different from each other. They are not opposites as much as they are simply different manifestations of an authoritarian economic arrangement (yes, capitalism is authoritarian in most cases).

    One final thought. The primary justification most Mormons give for supporting capitalism is their belief in economic freedom, and they somehow equate that with agency. But nowhere in scripture will you find God or his prophets saying anything in support of economic freedom. By contrast, there is plenty of support for economic equality (particularly in D&C 104). That’s why Brigham Young was so determined to establish cooperatives and communitarian economic systems and why he was such an ardent anticapitalist. FWIW.

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  2. Jeff Spector on December 4, 2013 at 2:54 PM

    You are going to run into problems with this post, because many members associate financial success with personal righteousness. It is a complete misunderstanding of the scriptures that talk about gaining riches.

    They also equate capitalism with America as the “promised” land. And yet, capitalism, as currently practiced in the US is nothing but complete greed-inspired madness, where the means of many are funnel to the pockets of the few and completely incompatible with he Gospel.

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  3. ji on December 4, 2013 at 3:04 PM

    “The principle of competition is more problematic. It produces winners and losers. The strong thrive and the weak flounder.”

    I don’t see why this has to be true. Maybe some win more and some win less (but everyone wins), and some thrive more and some thrive less (but everyone thrives) — maybe everyone can win and thrive, in varying degrees, based on some balance of his or her blessings, opportunities, skills, and even luck. That’s fair. That’s life.

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  4. log on December 4, 2013 at 3:51 PM

    Doctrine and Covenants 49:20
    20 But it is not given that one man should possess that which is above another, wherefore the world lieth in sin.

    Doctrine and Covenants 70:14
    14 Nevertheless, in your temporal things you shall be equal, and this not grudgingly, otherwise the abundance of the manifestations of the Spirit shall be withheld.

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  5. Will on December 4, 2013 at 4:37 PM

    Nate,

    Let’s go to a real world example to illustrate why a fee market system works best.
    Ronald Reagan (reaganeconomics) explained the free market economy the best with the term trickle-down economics. You know it is a good term because the left uses it as a bashing point. It works. It can be explained. It creates a middle class. How? Let me provide a real world example.

    A developer buys a piece of raw ground. They pay an agent and hire a development team and contractor. The contractor hires hundreds of sub-contractors and vendors. These sub-contractors and vendors hire employees. The development team, contractor, sub-contractors and vendors get paid. With their payment, they pay their employees. The developer leases the finished building to tenant. All of them buy goods and services throughout the community, including and most likely the tenant in the building they just participated in constructing. All of them make a profit and with that profit they buy more land, equipment and tools to continue the cycle. This is trickle-down economics. It works. It can be explained. It creates a middle class. It provides a living for families in the community.

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  6. Nate on December 4, 2013 at 5:14 PM

    Lew, thank you for your insight. I’d be interested to hear more about your interpretation of “corporate capitalism” as being different than Adam Smith “capitalism” and how both communism and capitalism are “authoritarian.” I’m not sure I understand what you mean by this. As for the “third” way, I agree that it is spelled out in the scriptures. However, one must understand that it doesn’t exist as a practical economic system, because Mormons live as a minority among Gentiles, and thus must share whatever economic system they happen to be in. This “third” way might work in the Millennium, or in some future economy where everyone is in the covenant. But right now, I think it exists as a Millennial dream, and something we should aspire to in our own life by being generous and subduing selfish instincts (if someone asks for your coat, give him your cloak as well, as Jesus said.)

    Jeff, I agree that people associate financial success with personal righteousness in the church. But there is a reason for this. The Book of Mormon says: “Inasmuch as you keep my commandments, you shall prosper in the land.” One must understand however, that “prosper” does not always mean financially prosper, although it sometimes means that. My view is that financial success comes from a combination of hard work (obeying the Law of the Harvest), and good luck, in the form of talent, upbringing, education (the Law of Grace.) People who are financially successful in a capitalist society must likely have been obeying the Law of the Harvest, and have been touched by God’s grace, (God giving one man 5 talents, and another just one talent.)

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  7. Nate on December 4, 2013 at 5:50 PM

    Ji, I think what you are describing is what I called “bridled capitalism,” which seeks to spread the blessings of Capitalism to everyone, even the “loosers,” or the people who don’t thrive in a purely capitalist environment.

    Will, thanks for outlining the principles of “trickle-down” economics. It’s a very accurate discription of the market. I agree with you that it is important to make sure that the people at the top are given enough freedom so that their investments can reign wealth down upon the rest of us.

    However, I think that we must remember two things about trickle down economics.

    1. The rich do not always willingly invest their assets in projects that trickle down. They are also trying to avoid risk. Entreprenurial activity is risky. So many rich people simply park their money. Understanding this is important, because it helps us gauge how much taxation hurts trickle-down investment in the market. Too much taxation will depress trickle-down investment, because the rich will obviously not have enough to take the risk. But too little taxation allows the rich to simply park vast amounts of wealth in non-trickle-down investment. This money could be better spent by the govenrment, paying down the debt and funding programs voted for collectively by the people, without overly hurting the economy. But it is madness to allow the government to go unfunded, and the debt unpaid, simply because we are blindly believing that all the assets the rich have will trickle down. This is not true. Only some of the assets of the rich will trickle down.

    2. Trickle-down often doesn’t trickle to the very bottom. Your picture shows how trickle down works with middle men, but what about those earning minimum wage. When entreprenuers are soley motivated by profit, and can take advantage of scarcity of work, or build up monopolies, they can abuse their workers with very low wages and poor working conditions. They can strong-arm middle men, who then have to squeeze and abuse their own underlings to be able to survive. The people at the bottom, minimum wage earners, they never see any trickle-down, because as long as Capitalists CAN pay people inhumanely low salaries, they will, even while they give multi-million dollar bonuses to people at the top. For this reason, humane minimum wages are extremely important, as are labor unions and regulations which protect our most vulnerable workers, and try to give them advantages.

    This was all outlined by the Savior in the parable of the talents. The person who is given one talent, is destined to bury his talent in the earth. This happens over and over again. “The poor you will always have with you.” The one talent person cannot be expected to behave like the 2 or 5 talent person. They are going to bury their talent. “To them that hath, shall be given, and to them that hath not shall be taken even that which they hath.”

    This is the terrible prophesy of the Savior, and I believe He means that we need to try to give a helping hand to the poor and vulnerable workers in the system. We cannot expect the market to “take care of them.”

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  8. brjones on December 4, 2013 at 6:08 PM

    In fairness, Jeff, I don’t think most Mormons take their cues on temporal success equaling righteousness from the scriptures. They take them from Joseph Smith and the early church. JS was fairly explicit on the connection between righteousness and temporal blessings. It has been suggested by some that this is one of the things that made many contemporary Americans so distrustful of JS and the church.

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  9. Will on December 4, 2013 at 7:29 PM

    Nate,

    “This money could be better spent by the govenrment, paying down the debt…”

    Yea right, like that would ever happen. You live in fantasy land.

    “…and funding programs..”

    and programs and programs and programs and programs and programs like a drunken OCD teen on crack

    “without overly hurting the economy.”

    Yea right. When has that has EVER happened.

    “minimum wage earners, they never see any trickle-down”

    A motivational lesson to make yourself valuable and work hard. And an object lesson for your kids.

    “humane minimum wages are extremely important, as are labor unions and regulations which protect our most vulnerable workers”

    You mean like the entire UNION manufacturing sector in the mid-west who followed this model. The Asian countries opened a can of whoop ass on them and created better products at a better price with non union wages and reasonable benefits. It bankrupted the US icon GM and many others chocked by unions. This is precisely why Toyota opened plants in right to work states in the US. Please see the economic term; “the Principle of substitution”

    The harsh reality is you cannot regulate market forces and when you try it harms the very people you try and help the most. Just ask the union employees of Detroit City who will lose their pensions. Detroit is the first of many to fall. Like the great Margaret Thatcher once said “the problem with socialism is that you eventually run out of other peoples money”

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  10. Jeremy on December 4, 2013 at 8:08 PM

    I saw this quote by economist Hernando de Soto I thought it was a pretty good summation of our reality:
    “I am not a die-hard capitalist. I do not view capitalism as a credo. Much more important to me are freedom, compassion for the poor, respect for the social contract, and equal opportunity. But for the moment, to achieve those goals, capitalism is the only game in town. It is the only system we know that provides us with the tools required to create massive surplus.”

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  11. Hedgehog on December 5, 2013 at 2:07 AM

    To keep the markets running, you want everyone to have money to spend, else it’d all grind to halt. Either that or a section of the population are going to find themselves outside the market. And that’s not stable. The problem we seem to have run into is that over the last few decades that spending came from credit, and that’s not sustainable either. So I’d certainly suport fair wages. It’s all become rather unbalanced.

    The thing that bugs me the most about current conditions is the income gap between the top and the bottom. If bonuses worked like tithing, and all employees got the same percentage bonus that’d be one thing. They don’t. In big corporations for the most part, the higher up you go, not only are there higher salaries to start with, but the percentage of salary used to calculate the bonus is also higher. Businesses need and should value all those who work for them.

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  12. Will on December 5, 2013 at 9:00 AM

    Nate/Hedgehog:

    I have explained how the free market economy works.

    A serious questions without my smart allec comments. Please explain HOW you create fair wages without a complete government takeover? And more importantly, how to do it without damaging the people you are trying to help?

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  13. Jeff Spector on December 5, 2013 at 10:12 AM

    brjones,

    “JS was fairly explicit on the connection between righteousness and temporal blessings.”

    I agree with you to a point, but we need to remember that JS was talking to extremely poor people and telling them they would be able to prosper and improve their station in life upon the principles of righteousness is a far cry from what we are seeing today.

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  14. hawkgrrrl on December 5, 2013 at 12:00 PM

    Jeff makes an excellent point about the difference between elevating one’s station from poverty to elevating from the middle to the wealthy class. Those are two different ball games, not the same behaviors.

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  15. Nate on December 5, 2013 at 12:03 PM

    Jeremy, loved your quote from Hernando de Soto. Capitalism creates massive surplus. This is exactly what has made it so increadibly successful and transformative.

    Will, thank you for your questions. You are absolutely right that ALL regulation and ALL taxation weaken the economy. I think I explained it before like a horse and a bridle. Taxation and regulation have no power in and of themselves to create ANY capital. They only serve to redistribute, throttle, cool off, or quench that capital for whatever reasons government may have. The purpose of regulation and taxation is NOT to get the best and hottest possible economic growth.

    You and your compatriots in Washington are engaged in a type of political warfare known as “starve the beast.” You see the federal government as an out of control monster, continually adding “programs and programs…like a drunken OCD teen on crack.” Therefore, it doesn’t matter to you that by refusing to fund these programs, you increase the deficit and the national debt. For you, the bigger problem is not that we should pay for programs lawfully created, but that those programs are fundamentally illegitimate, and don’t deserve taxpayer money. You hope that by refusing to fund programs, you can limit their creation, and eventually destroy them.

    But this is a foolish endeavor, because the majority of Americans vote for politicians who create and defend these types of government programs. You can’t fight the majority. You can’t pretend that you represent the “real” America, the America the founding father’s wanted. Real America comes from the people, and whoever they vote for, and whatever programs they want to start.

    The Tea Party provides an important counterbalance to the liberal wing of American politics and culture. Yes, they should be trying to cut programs and limit the creation of new ones, and they should fight for low taxes, because they rightly understand that taxes hurt economic growth. However, they shouldn’t be so blind as to believe that they are the “real” America. The real America wants a certain limited welfare state. The welfare state is here to stay. Thus, this welfare state MUST be funded in order to balance the budget and pay down the debt. Thus, Tea Party politicians must be able to compromise in the face of these realities, and agree to raise taxes to fund the government, in order to reach the goal of a balanced budget, which is also a very important Tea Party goal.

    Many conservatives understand this, but are also ideologically against any tax hikes. So they have a big dilema. To get out of this dilema, they have adopted this fiction: that cutting taxes, or keeping rates low, will do more to increase revenue than raising taxes. Keeping taxes low will keep the economy roaring, and thus revenue will be increased.

    But this is only true to a certain exent. Yes, taxes hurt the economy. Huge tax hikes could devastate the economy, and actually decrease revenue as a result. But the opposite is not true. If you cut taxes to 0%, you will still have zero revenue. If your tax rate is 1%, and the economy is great, you still get low revenue.

    However, there is an optimal tax rate. One that will create the greatest amount of revenue, while still leaving enough capital in the economy for it to continue to grow. Right now, we are well below that optimal rate, as taxes are currently at historical lows. There is quite a bit of room in the tax rates for us to increase revenue while still continuing to have economic growth. Finding that optimal rate might be tricky, but I think trusting the job to impartial, smart economists would be a good start.

    As far as your question of “fair wages.” There is no way to make society “fair.” We can only make it a little “fairer.” We can try to lift people out of poverty by engaging in various social experiments in wealth redistribution. I agree that some of these social experiments have failed. But that is no reason to stop trying. And many have succeeded: social security, medicare, medicaid, and the minimum wage have been a godsend for millions of people, even though they are not working perfectly.

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  16. Jeff Spector on December 5, 2013 at 2:15 PM

    Nate,

    “Thus, this welfare state MUST be funded in order to balance the budget and pay down the debt.”

    There are two ironies associated with this. One is the perpetuation of the welfare state is continued by starving the programs which help people get out from under it. which in the long run, costs so much more than the programs themselves. it is the concept of teaching a man to fish rather than providing fish to him.

    The other irony is that the capitalist fans on the right (and the left) seem to have no problem with corporate welfare and credits and breaks to them. This also costs the economy as the burden is shifted to the average taxpayer who, in the long run, pays either way,either through taxes or higher prices.

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  17. Will on December 5, 2013 at 4:08 PM

    Nate,

    You don’t know it, but you are proving MY point.

    The European model includes high taxes, high unemployment and anemic increases in GDP (job growth). Almost all of the European and Scandinavian countries have tax revenues that are about 45% (total tax revenue relative to GDP) of GDP. The US is about 25% and China is about 15% (which I think is ideal). In a VERY, VERY important correlation, real GDP growth is almost non-existent in Europe and Scandinavia. Germany (.7%), UK (.2%), France (0%) , Finland (-.2) – then to the bad ones Spain (-1.4%), Italy (-2.4%) and Greece (-6.4). So you know I am not picking and choosing selective countries in Europe, overall EU is (-.3%). The USA has about a (2.2%) growth in GDP; whereas China is (6.5%). The correlation coefficient is 1 (a perfect correlation) between tax rates and diminished job growth.

    What this is saying for those that do not understand the correlation is the high taxes in Europe are SHRINKING these economies and they will eventually collapse under their own weight (proving Margaret Thatcher’s point quoted above). It is slow, but it is happening. Germany and the UK are nearing the breaking point; France is at the breaking point of zero; and Finland down have reached diminishing returns. They will continue to have negative growth until they collapse. It is the redistribution you are talking about. Redistribution that has reached diminishing returns is like taking a water pump and pumping water from the deep end of a pool to the shallow end – taxing one and giving to another. The pool never rises (negative job growth), but slowly drains due to evaporation and leakage (government handling fees) from the pump. The private sector has drowned in the wake from the pump as all of their investment capital has been taken via taxes. They are just sharing a shrinking pie.

    In contrast, the US (still to some extent) and China for sure have hoses (injected capital from the private sector money) filling the draining pool. They are increasing the size of the pie.

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  18. Nate on December 5, 2013 at 4:41 PM

    “So you know I am not picking and choosing selective countries in Europe.” No, but you are picking a specific point in time (during a serious European recession) which gives a very skewed picture. These rates change constantly in time.

    But you are right that tax rates in Europe impede growth. They are probably well above an optimum tax rate for maximum revenue, and they have many other serious problems as well.

    You yourself believe in an ideal tax rate which is not 0%, but 15%. By Tea Party standards, you are practically a Socialist by advocating 15%. I happen to think that number could be higher. But higher…lower, that’s not the point. The point is: we have a welfare state, we will always have a welfare state, so…how are we going to fund it responsibly, without running deficits, and without crushing the economy? How much are we going to tax, and how much are we going to spend? It’s not a question of IF we will tax and spend, but how much.

    To answer these questions, we have to stop attacking each other with categorical accusations. I’m perfectly willing to hear an argument presented that a 15% tax rate would increase the revenue needed to balance the budget. Maybe that’s true. But at the same time, other economists are going to argue that a 15% tax rate will not balance the budget without also enacting politically implausible spending cuts. They will say that a 15% tax rate will not stimulate the economy enough to make up the difference. Maybe they are right, maybe they are wrong.

    So lets hear your argument, and lets hear other arguments, both impartial and partial, and then we can come to a reasonable compromise. That’s how good politics works. But I believe it starts with embracing the idea of “bridled capitalism” as the reality of the American economy.

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  19. Will on December 5, 2013 at 6:26 PM

    Nate,

    You missed what I was saying entirely. Those are not TAX RATES; they are tax Revenue as a percentage of GDP. This is extremely relevant because taxes in the US are so extremely progressive. 86 percent of ALL federal income taxes are paid by the top 25%.

    As far as tax rates go I am behind Herman Cain and the 9/9/9 plan. That was catchy, but I would go 10/10/10 – if it is good enough for God it should be good enough for Ceasar. After setting the rate, then adjust the budget to meet the income. Now there is a novel idea, spend what you make. Isn’t that what we have to do in our personal lives, families, businesses, churches, charities and most city and state governments who are required to balance a budget.

    As for being selective about time, you missed my point on that as well. Sure, anyone can increase their lifestyle living on a credit card, but what happens when you can no longer pay off your Visa with your MasterCard? What happens when bond holders say no more?

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  20. Mormon Heretic on December 5, 2013 at 8:26 PM

    Will, 90% of all income is made by the top 10%. They should pay more taxes. (Funny how you left out that statistic.)

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  21. Will on December 5, 2013 at 9:34 PM

    “Will, 90% of all income is made by the top 10%. ”

    Baloney. As usual your data is wrong

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  22. Mormon Heretic on December 5, 2013 at 9:52 PM

    Ok Will, what is the exact percent? (Since you obviously know.)

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  23. Mormon Heretic on December 5, 2013 at 9:59 PM

    Will, here is another perfect example of the corrupt system we live in. CEO of KFC makes $100 million per year in performance bonuses tax free, KFC saves $33 million in taxes for paying this enormous salary, while taxpayers pay $650 million for his employees welfare. And you will justify this as moral. http://iacknowledge.net/major-ceo-makes-100-million-as-taxpayers-spend-650-million-on-his-employees-welfare1/

    Here is David Callahan summing up the catch-22 nicely:

    Yum! Brands’ low-wage business model doesn’t just impose big costs on tax payers, it also hurts businesses and the overall economy. Why? Because Yum! workers don’t have much extra spending money when they’re making poverty wages, and that makes them lousy consumers. Instead of Yum! Brands’ soaring profits filtering out into the broader economy through parallel rising wages — which is how capitalism is supposed to work, by the way — all that money is piling up in the hands of shareholders or is being used for stock buybacks or is being shovelled into David Novak’s bank account.

    None of those destinations for Yum! profits is all that stimulative to the economy. For instance, there is only so much money that Novak can spend in consumption. The rest just gets stashed away and, yes, while Novak’s piggy bank is surely being invested somehow, that’s no big benefit either. There’s already plenty of capital sloshing around for investment. The big economic problem today is inadequate demand.

    There are ways to fix this. One is the raise the minimum wage. That would tackle the bottom part of the problem. Fortunately, there are ways to tackle the top as well.

    A bill introduced by Senators Jack Reed (D-RI) and Richard Blumenthal (D-CT) would simply set a firm $1 million cap for executive pay deductions — with no exceptions. Corporations could still pay their CEOs whatever they choose, but at least taxpayers wouldn’t be subsidizing anything above $1 million. The Joint Committee on Taxation estimates this legislation would generate more than $50 billion over 10 years. [source]

    Go ahead Will. Defend this, and show what a truly corrupt, crony capitalist you are. Seriously you are sooooo corrupt.

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  24. Will on December 5, 2013 at 10:09 PM

    MH,

    According to the IRS, the top 10% earned 43,2% of the 7.85 Trillion in total AGI REPORTED to the IRS.

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  25. Mormon Heretic on December 5, 2013 at 10:48 PM

    Meanwhile, KFC’s CEO pays no taxes on his $100 million “performance bonus”…..Why don’t the minimum wage workers get performance bonuses exactly?

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  26. Nate on December 6, 2013 at 3:08 AM

    Will, sorry I misunderstood, and accused you of being a Socialist! I think there are compelling arguments to be had about changing the revenue model in the tax code. But again, many of those models are pie-in-the-sky political impossibilities, like the 9/9/9. The model we have now, where the rich pay more, was something Democratically instituted by politicians voted for “by the people,” and still popular enough, that it will never go away. Ironically, most of the Tea Party people are not anywhere near the top tax bracket, and many high wage earners continually vote for Democratic politicians who fight to raise their taxes. So we have the tax code we want.

    As far as living within a budget, how do you do that when you refuse to fund programs lawfully and democratically instituted? Consider you are in a marriage where you and your wife have different financial priorities. She has no job, wants to buy a giant house with your money and fill it with expensive furniture and decoration paid for on her credit card. You are a miser and prefer to live in a small house and save money for a comfortable retirement. Suppose also, that you love your wife, and divorce is not an option. Are you going to risk divorce by refusing to pay off the credit card debt your wife has incurred, allowing it to spiral more and more out of control? Or are you going to pay the bill? We have the money in America to pay our bills, but we don’t pay them. Why? Because we are arguing (after the fact) as to whether we wanted those purchases to begin with. But because we cannot divorce ourselves from the other 50% of the country that wants a big welfare state, without starting another civil war, it is madness to simply refuse to pay the bill.

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  27. Nate on December 6, 2013 at 3:14 AM

    MH, thanks for the quote from David Callahan. I also think that raising the minimum wage could get more people off welfare roles, and into active participation in the economy, offsetting the costs raising the minimum wage incurs to the economy. Minimum wage is always low, because it doesn’t follow inflation, and then when we raise it, we raise it too little, and we don’t raise it to levels that reflected it’s original value when it was instituted.

    So my question is, if we thought the minimum wage was a good, humane idea to begin with back when the dollar was of much less value, which didn’t unduly hurt the economy back then, why do we think it’s not a good idea now, and that it will crush the current economy?

    There are some great arguments for it in Krugman’s recent column:
    http://www.nytimes.com/2013/12/02/opinion/krugman-better-pay-now.html

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  28. Will on December 6, 2013 at 7:26 AM

    MH,

    Seriously, you are embarrassing yourself by trying to make your case with false information. First, your ridiculous claim that the top 10% make 90% if all income. Then by making the claim any executive makes TAX FREE income. That is just totally false. Keep in mind I have an accounting and finance degree. He did not make tax free income. The higher your earned income, the higher the rate you pay.

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  29. Mormon Heretic on December 6, 2013 at 7:42 AM

    Will, do you support or oppose “a firm $1 million cap for executive pay deductions”? If you oppose it, as I suspect. please defend your kleptocracy. I’m sure your finance degree will help you defend the corrupt system.

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  30. Mormon Heretic on December 6, 2013 at 8:28 AM

    More food for thought will. Freakonomics author Steve Levitt shows that “the hierarchy of drug dealers is not much different than the average fast-food chain. Those at the top make a lot of money, but those at the bottom make very little.” See http://freakonomics.com/books/freakonomics/chapter-excerpts/chapter-3/

    In other words, a crack gang works pretty much like the standard capitalist enterprise: you have to be near the top of the pyramid to make a big wage. Notwithstanding the leadership’s rhetoric about the family nature of the business, the gang’s wages are about as skewed as wages in corporate America. A foot soldier had plenty in common with a McDonald’s burger flipper or a Wal-Mart shelf stocker. In fact, most of J. T.’s foot soldiers also held minimum-wage jobs in the legitimate sector to supplement their skimpy illicit earnings. The leader of another crack gang once told Venkatesh that he could easily afford to pay his foot soldiers more, but it wouldn’t be prudent.

    That’s unbridled capitalism that Will wants. He wants to exploit the worker just as a crack dealer does. McDonald’s and KFC play the rules just like a crack dealer–only fast food is legal, while crack is not. Ain’t capitalism great?

    I think these scriptures describe Will’s philosophy very well. From 2 Nephi 28

    8 And there shall also be many which shall say: Eat, drink, and be merry; nevertheless, fear God—he will justify in committing a little sin; yea, lie a little, take the advantage of one because of his words, dig a pit for thy neighbor; there is no harm in this; and do all these things, for tomorrow we die; and if it so be that we are guilty, God will beat us with a few stripes, and at last we shall be saved in the kingdom of God.

    15 O the wise, and the learned, and the rich, that are puffed up in the pride of their hearts, and all those who preach false doctrines, and all those who commit whoredoms, and pervert the right way of the Lord, wo, wo, wo be unto them, saith the Lord God Almighty, for they shall be thrust down to hell!

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  31. Will on December 6, 2013 at 9:46 AM

    MH,

    Up to this point, I have never agreed or disagreed with someone making a $100 million dollar salary. Personally, I think that is way more than you need. All I have said is, just like you (well get to that in a minute), a company should be able to spend the money they earn any way they choose. But to your point and to the distorted information you gleaned from a web-site. Please see Yum’s annual report:

    http://www.yum.com/annualreport/pdf/2012yumAnnReport.pdf

    First off, he was not paid 100 million as you claim, his annual Salary in 2012 was $1,450,000 (not far off what you think is fair); and his performance bonus was 4.6 million (see page 38). With stock distributions, dividends and retirement benefits his total annual compensation was 14.6 Million. And the dope that told you it was tax free is well…a dope.

    The real question is why does Yum (and others) have these executive incentives. They are performance based incentives, meaning if the executive team increases market share (which helps everyone in the company) they are paid extra. I don’t want to argue about amounts, but I strongly agree with the idea that they are paid to perform. Keep in mind, Novak increased revenue by 2 BILLION and profit by 400 Million over the past two years.

    Secondly, I would ask you the same question I asked (and never got an answer from) Nate and Hedgehog. How do you create fair wages to the Yum employees, the VAST majority of which are low skill jobs ?

    Finally, since you compare Novak to a drug dealer, let’s use President Kimball’s solution. He said regarding those that peddle pornography and drugs: “laws can be passed and arrests can be made but until you stop the demand for such filth you will never solve the problem”.

    These executives are smarter than the folks in Washington, especially the dope in the Whitehouse. They will find ways around tax laws and regulations and pass costs on to franchisee’s and consumers. So any law you pass won’t impact them. For instance, if you pass a stupid law limiting executive salary to $1 million, they will pay them in other ways – stock options, they will create a subsidiary and pay them from that company, they will offer them equity in other ventures, etc. Case and point, Larry Miller with John Stockton and Karl Malone: to get around the cap and keep costs down in the Jazz organization, Miller offered them equity in car dealerships. A win, win situation really; while most retired NBA pros (who make WAY more than Novak and you don’t seem to mind) are broke, Stockton and Malone have equity in car dealerships that pay them a salary the rest of their life. So to answer your question I am not for or against your idea of a maximum salary, I am saying it won’t work.

    So getting to a solution (offered by President Kimball) that will work: do not buy any product produced by minimum wage workers. Lost revenue will get their attention. So, with that in mind, I would suggest if you want to maintain your integrity in this fight that you not buy any product that had a minimum wage worker involved. YOU can make the difference with YOUR money.

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  32. Nate on December 6, 2013 at 5:33 PM

    Will, interesting to hear you say “I think that is way more than you need,” and also, good points about the difficulties inherent in capping salaries.

    I’m also against capping salaries, but that is because I am in favor of a super-rich class in society, as they often spread their wealth in sectors that I value culturally: the arts, education, charitable giving. I’m also a fan of plutocracy, because I believe, like Will says, that the super-rich are probably smarter than the average American and the intelligence they take to the voting booth. Money is power, and I like to see power in the hands of the more intelligent as oposed to the less intelligent. I also value excess, because it is a symbol of the abundance God one day promises us in even greater measure, “eye hath not seen…” It teaches us that the grace of God is limitless, and also utterly arbitrary on earth.

    But Will, since you don’t think taxing the rich will actually work, what about the hidden tax or cost of raising a minimum wage? If Novak had to pay his employees a higher wage by law, his bonus would be probably a little less, which would amount to a kind of tax.

    Also, I don’t think we can boycott as you suggest. Everything in life is built upon the minimum wage, or even the lower wages paid to people in other countries. Suppose a rich man buys a yacht. That yacht is sold by upper-middle class dealers making great salaries, and built by lower-middle class artisans making decent salaries, and using luxury materials found in third world countries by people making better-than average salaries for that country. So the rich man can be proud that he is not supporting anything “minimum wage.” But that is an illusion. True, his world might be built upon the backs of the middle class, but each person in the middle class has their own world built upon the backs of the lower class. The artisan building the yacht shops at Big Lots, KFC, and JC Penney, and the money the rich man pays to him eventually trickles down to those at the bottom. I was wrong about the money not trickling down to minimum wage workers, its just that it trickles down so diffuse, that it doesn’t really help these people do anything more than barely scrape by, if even that.

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  33. Will on December 6, 2013 at 6:16 PM

    Nate,

    “If Novak had to pay his employees a higher wage by law”

    This is a bad idea, a really bad idea. Here is why:

    First off, as I indicated, these people are smarter than the folks in Washington and MORE IMPORTANTLY than can (and do) act a lot quicker. They have already shielded themselves from minimum wage increases.

    Let’s take Yum Corporation for instance. It is a subsidiary of PepsiCo (the reason you can only buy Pepsi products from KFC, Taco Bell and Pizza Hut) and they have setup franchises. They have passed the responsibility for payroll onto the franchisees. Their income is chiefly derived from franchise fees. Thus, when congress commits an act of stupidity and increases payroll costs, it mostly damages the franchisee NOT the parent company. Mostly, it damages the minimum wage workers. Here’s how:

    Again, these are mostly owned and operated by ma and pa owners who if they work hard and have a good location will squeak out maybe $50 to $70 K per store. Maybe. My neighbor worked at his own Subway for a year (driving back and forth from northern Utah to Salt Lake City) just to break even until he finally sold out. He had 3 employees on average and had store hours from 10 to 10. If the President gets his way and we get a $15 per hour minimum wage, that translates into an additional $21 per hour for this one Subway store. That is $210 PER DAY or $75,600 PER YEAR with five holidays out of a year.

    The store owner has two options: 1) work for free as his profit has evaporated. 2) Increase his revenue by AT LEAST $210 per day just to cover his payroll costs PLUS 3, 4 or 5 times that amount to account for the added cost of goods sold, which were most likely grown and shipped with minimum wage employees. Assume he sells 500 sandwiches a day; the cost has increased $1.50 to $2.00 per sandwich. He will not lost all, but will definitely loose some customers who can no longer afford the sandwich. The ma and pa owner is getting it from both ends.

    The other problem it created by this increase is that ENTRY level employees are now making as much as his assistant managers and managers. He either has to live with the political implication and morale issues or he has to pay these people more. Either way, it increases his costs EVEN more.

    In summary, it will cause a GREATER income disparity as people will go out of business and minimum wage employees with lose their job. Instead of trickle down wealth, you will have increased trickle up poverty. Again, it will hurt those you are trying to help the most.

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  34. Will on December 6, 2013 at 7:21 PM

    Nate:

    Math error: should have multiplied 21 by 12 not 10; the total expense of adding $7 per hour for three employees is actually $90 k before payroll burden (FICA, FUTA and SUTA)

    Also consider Walmart who has well over 2.3 million employees. The Vast majority (guess 2 MM) are entry level. That is 336 million PER DAY ( 2MM x 7 x 24). This 365 times is 122 BILLION per year BEFORE payroll burden and added costs from distributors and suppliers who have added costs.

    In other words a huge increase to consumers, including and mostly the people that jus got the raise.

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  35. Douglas on December 6, 2013 at 9:23 PM

    A fallacy is that “workfare” payments are the responsibilty of the employers of low-wage workers. Were these payments not forthcoming, but the welfare state continued, they would simply rely on welfare as the immediate financial incentives would be destroyed. BTW, low prices made possible in a competitive market are the best aid for the “working poor”, or even the taxpayers (look at how many use their EBT). Or would you suggest that the poor shop at Safeway or Raley’s instead of WalMart or WinCo and run up higher grocery bills just to support your misguided egalitarian notions?

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  36. Hedgehog on December 8, 2013 at 3:30 AM

    Will, to answer your question (#12), I think capitalism has only survived because there has been government interference bringing in things like minimum wage. Greed, on it’s own is ultimately short-sighted and self-destructive. As it is, capitalist society is out of balance, as I said in my first comment.

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  37. Will on December 8, 2013 at 6:34 AM

    Hedgehog & MH

    To both of you, and to a much lesser extent, Nate.

    You are not prepared as authors of these kind of posts. When confronted with factual data you either 1) resort to personal attacks (this is mostly directed at MH) 2) avoid the actual question with a miss America style “we should have fair wages for everyone” or “the government is the answer” type of response. This implies people like me that live in reality and have been and are an executive that deals with this very real issue think people should be treated unfairly or that we lack a social conscience, As one who vales my relationship Christ I am asking an honest and fair question. HOW (the mechanics please) do you create fair wages WITHOUT causing more harm than good? 3) when your imaginary data (Novak makes 100 MM per year) is confronted with ACTUAL data (he really makes 1’45 MM) or when confronted with the REAL challenges presented by raising the minimum wage you just disappear.

    Perhaps Wheat & Tares needs to find more qualified authors on these subjects.

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  38. mh on December 8, 2013 at 3:35 PM

    Will, I learned to avoid questions from you. You never responded to Any of my questions in here. Furthermore, your ability to defend John swallow, bankers, and Olympic bribery conspirators hardly makes you qualified to speak on matters on financial or political ethics. You are the most unethical person I’ve ever encountered, and that is a fact.

    Seriously, I had a low opinion of you prior to a few weeks ago, and I was astonished that you were able to convince me that your ethics were worse than I ever imagined. The god you worship is the greenback.

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  39. Nate on December 8, 2013 at 5:37 PM

    Will, I think you were trying to argue (in no. 33) that raising minimum wage increases inflation. All salaries go up, all prices go up.

    Of course it is true that raising the minimum wage would contribute somewhat to inflation. But all prices would not go up evenly with a minimum wage increase. If you raise the minimum wage by a dollar, the price of gasoline doesn’t go up by a dollar. Inflation is caused by many different things. The extra value that low wage workers would gain from higher salaries could still give them more buying power in the market, even if it becomes slightly inflated from the salary increase.

    Minimum wage is constantly decreasing in buying power, as inflation marches on. Raising minimum wage has to be done carefully, strategically, and in small increments, because it does cause problems. But it has to be done, because salaries constantly lag behind.

    Everything you say is true, it’s just that I don’t think it’s the whole picture. Economics is a complicated reality. I don’t like to put down many numbers, because I think numbers can be decieving. You accuse MH of faulty numbers, but how can I trust that your numbers are not misleading as well? If you get your numbers from political sources (and almost everything is political), then you are getting them from people who are highly skilled at using them deceptively in order to support whatever their ideology is. And I’m suspicious of anything that claims to support highly partisan perspectives. But at the same time, I’m willing to hear any argument.

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  40. Will on December 8, 2013 at 8:34 PM

    Nate,

    “You accuse MH of faulty numbers, but how can I trust that your numbers are not misleading as well? If you get your numbers from political sources”

    I appreciate this comment as the numbers are so vastly different and tell a completely different story. This tells me you are an honest guy trying to seek the truth. I have provided the Source or basic math in all cases. Let’s review the discrepancies between MH and I in this post:

    MH made the claim the top 10% make 90% of the income. I have no idea where this came from, only he can answer that. I got my information from the Internal Revenue Service (the source required to publish such information from the freedom of information act) that the bottom 90% have 58% (after rounding) of the total AGI; thus, the top 10% would be 42% after rounding as I claimed. You can download the file at:

    http://www.irs.gov/file_source/pub/irs-soi/09in06tr.xls

    MH made the claim Novak made 100 Million in tax fee income working as the CEO of KFC. He provided a web-site, which was wrong or MH did not understand what they were saying. I knew it was garbage with the ‘tax free claim’ and I also knew KFC is part of YUM Corporation as I own stock. Thus, I went to Yum’s web-site and downloaded the actual annual report. I provided a link to this in my comment above. This is audited and reported to the SEC (Securities and Exchange Commission) and provides salaries (all compensation) of executives along with the financial statements. If Yum provided false information in this report they would be removed from public exchanges. I learned the following (see executive salary on page 38):

    Novack’s salary was in fact $1,450,000, which is close to the one million MH thinks is fair;

    Novack’s bonus was tied to performance (which it should be) and he was paid a 4.65 million bonus, not the 100 million HM claimed. He made the company 2 Billion over 2 years and 400 million in profit (see income statement summary). Had he not performed, he would not have been paid the bonus;

    Novack is the CEO of YUM Corporation (not just KFC as MH claimed) which includes Pizza Hut, Taco Bell and KFC. These are three huge companies with thousands of stores across the world. You could easily hire one CEO for each of them (at 1MM), but PepsiCo consolidated them into one entity. That is a huge operation and the wrong executive could cost the company billions instead of making the company billions.

    MH’s worst comment was that his bonus was tax free. There is no such thing. Trust me, if Novak did not pay taxes he would be arrested. By procedure, the IRS audits EVERY tax return with AGI over $1,000,000.

    The figures I used in my discussion on the minimum wage are based on the $15 proposed minimum wage by Obama. The rates were and are just basic math based on the current minimum wage. The number of employees on he Subway example are based on my friend’s franchise (totally subjective I realize, but it was presented as example and I stated such) and Walmart employees are published in their annual report. They have more employees than the US military.

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  41. Hedgehog on December 9, 2013 at 3:52 AM

    Will, I’m not an economist, though my BIL is.
    But I will say, this current crisis looks to me like the games of monopoly my brothers used to play. They were always eager to keep the game running as long as possible, and that being the case came up with their own version of the rules that permitted extensive borrowing from the bank. The game always ended with most participants bankrupt and the bank out of money. Me, I never enjoyed monopoly, and mostly didn’t play.
    I’m with Nate, there are ‘harms’ if choose to term them that way, associated with minimum wage, even living wage legislation. But certainly the introduction of a minimum wage in this country didn’t cause anything like the difficulties the doomsayers predicted. They are of course making the same arguments in respect of the living wage nevertheless. I agree with Nate that these ‘harms’ are outweighed by ‘benefits’ for a capitalist society, not least because it keeps those people at the bottom invested in supporting that society. A minimum standard of living, access to education and medical care increases not decreases the personal freedom and ability to exercise agency in the direction of ones life.
    Of course we could just trample the poor, but history shows that that way revolution lies.

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  42. Will on December 9, 2013 at 9:26 AM

    Hedgehog:

    I here you on the monopoly example and I am not saying there are not people out there trying to milk the system or damaging the economy with their greed – Warren Buffett and Carlos Slim are perfect examples. They have respectively turned the stock market and telecommunication system into a joke. Because of people like Buffett and other hedge fund managers the stock market is no different than gambling (limit your investment to $50 K and buy appreciable assets like real property and precious metals). On the other hand, Gates, Ellison, the Koch Brothers and the Walton’s (at least Sam) have provided very useful products and services to the world. They have also created enormous wealth for others and MILLIONS of jobs. Last count, Wal-Mart employs 2.3 MILLION people employed.

    I know a lot of wealthy people – not the super rich like Slim, Gates, Walton’s or Buffett – but people that are closer to the lower 1% ($350 K per year) to the 5% ($150 K and up). My guess is given what Hawkgril (American Express Executive) and Mike S (Orthopedic Surgeon) says about themselves, they would be in this group. The people in this group are upper management professionals and business owners. Most of the ones that I know are members of the church that have served as Bishops, Stake Presidents, Mission President and/or General Authorities. They are good and decent people that have spent years in school and easily put in 60 to 80 hours a week. They invest their OWN money into a business and take enormous risk (I have likewise known people that have lost everything). Contrary to what you and other say and possibly think, they really do care about their employees. They really do want to be fair and pay them a fair wage. I think it is unfair to categorize them as corrupt or greedy. You can be guilty of mocking the rich, just as easily as mocking the poor.

    As I said previously, if you raise the minimum wage to $15 per hour (the current buzz by Obama), that would be at least $90,000 per year for a small sandwich shop and $122 Billion for Wal-Mart (they only had profit of $16.9 Billion). These are real numbers. Business owners would either: 1) CUT employees and make the remainder pick up the slack. 2) Go out of business as they would not be able to compete with the larger corporations that can better absorb the cost. 3) Raise prices on consumers, which will impact the low income people the MOST.

    Think about this, you don’t have to be an economist. What I have said will happen and it will create a WIDER disparity between the rich and poor.

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  43. Mormon Heretic on December 9, 2013 at 10:07 AM

    Will, I never said Hawkgrrrl or Mike S were corrupt and greedy. I said you are. Hawk and Mike aren’t defending corrupt politicians, olympic officials, or bankers. You are. You defend corruption. It’s unconscionable. And having worked as a manager at Wal-mart, I can tell you from first hand experience that they not only exploit minimum wage workers, they exploit their managers as well. They are just as immoral as you are. They have problems polluting the enviroment, and through watchdogs have had to clean it up. They don’t do this to be a good citizen, but to avoid lawsuits and bad publicity.After I quit, I actually got a pretty substantial settlement from a class action lawsuit because the government made them pay back wages for overtime I worked but wasn’t paid for. They are not the model organization you pretend they are. They are greedy, just like you are.

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  44. Hedgehog on December 11, 2013 at 12:29 PM

    Will, I realise there are complexities, especially in fields competing with a global market. However, there are many field dealing with local markets, in which small businesses are involved. Take the care sector. That’s very local, and there are small local businesses competing with larger companies. I was listening to an interview the other week, where the owner of such a small business was saying they wanted to be able to pay their staff a living wage, but because the larger competition were not doing so, they would be priced out of the market otherise. In those instances, an enforced living wage would create a level playing field in a local market. Employees in that sector work very hard. They have a responsibility for the care of people, which ought to be afforded higher status than it actually is.
    One of my brothers created his own business, and worked very hard to do so. I’ve been employed by a small business in the past. As I’ve said before, it was a great environment to work. I listen to business discussions etc. on radio, which cover many of the difficulties legislation can cause small businesses. But I am also aware that ethical practice, at least in Britain and Europe is becoming increasingly important to consumers.

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