8 Comments For This Post

1. Gil The Jenius Says:
   March 22nd, 2009 at 2:36 pm

   Okay. Here We go:

   “The problem is that the money cycles into the government’s control, where theoretically that would be a good thing, but in practice it’s not. It’s being cycled into the pocket of a government administration that is bankrupt and shows no real signs of possessing the ability to find solutions to improve the economic situation of Puerto Rico’s citizens. Once the money reaches the government where it (under their control) may be badly leveraged (or not leveraged at all), it’s tied up and essentially lost without any clear value to the people.”

   Partially correct. The real problem with sales taxes is that they reduce consumption and reduce the incentive for business enhancement and start-ups. Even in states and countries where the sales tax was automatically funneled back to social support services (Washington, Missouri, Germany, England), the economies have stalled or regressed.

   “The government has been effectively able to collect the newly imposed sales tax from businesses.”

   Not so. According to a recent Hacienda report (Jan. 09), collections are deemed to be 30-35% under the estimated current (reduced) economic activity. I keep going back to this, but flea markets exploding all over the Island means cash is king and the sales tax an unneeded option.

   “We’ll keep the sales tax in place, but we’ll restrict the governments role to collections, NOT strategic decisions about where to place the money. We’ll democratize that part, and let the people decide by making individual “consumer” choices, not political ones. Bottom level consumer choices are subject to the force of needs/desires, not corruption.”

   To have one entity (government) collect monies and have another party (“consumer”) decide on how they are spent is a major problem, one We already have where a fiscal agency (“treasury”) collects monies and another entity (“Fools”) decide how it’s spent. I see your point about government getting out of that business, but consumer choices can be marred by corruption, as the drug trade clearly shows. Also, isn’t avoding the sales tax a form of corruption consumers have already shown?

   “Do you know what a millionaire does when you give him $1000? He puts it in the bank and invests it, locking it up. It has almost no impact on his current rate of consumer spending. Do you know what a poor person does when you give him $1000? He spends it. It can be large %-age increase in his normal spending activity, especially for consumer items.”

   This one is simple and misleading: By definition, the poor person lacks enough money to cover basic needs. Of course the poor person spends the money and the rich person “invests” it, because the rich person doesn’t need it. It’s been proven that the impact of money on a person’s choices are directly related to how much money the person already has and how much money they receive. To Bill Gates, a million dollars is (psychologically) 1/50,000th in level of importance; to you and Me, a million dollars is an unignorable tidal wave.

   “Putting money in banks ties up money in the economy.”

   Putting (taxpayer) money in (failed) banks (without provisions for its proper use) ties up (needed and gifted) money in the (devastated by the banking and financial industries) economy. There, that’s more accurate. Banks are the leading consumer-direct economic sector, and when run properly, are economic engines with wide impact. Run like Ponzi clubs with over-leveraged assets, in essence, gambling that fake assets and real profits can continue forever, then banks are nothing but government-protected thieves.

   “Then they (employees) pay their taxes which is certainly (right now) going back to Wall Street (i.e. government bailout). And the profits they earn for their employers from their hard work, goes back to Wall Street as executive bonuses.”

   Not entirely. The bailouts amount to a small percentage of the overall government budget, smaller than defense, education and social services. That the bailouts are being mishandled is a given; that they are the prime culprit of government mis-spending is very debatable, as the Iraq War continues to drain the Treasury.

   “If it were your tax dollars, where would your rather it go? (Option A) To the uneducated welfare mom down the street who got knocked up by an absentee father that’s no longer around to help support her, or (Option B) an executive at AIG making $1 MILLION a year in bonuses for a bankrupt company? If you are a Christian, which you are mostly likely if you are living in Puerto Rico, then your answer *should* be the former, but I realize your answers may vary (sadly).”

   Poppycock. First of all, being Christian (or Muslim or Buddhist or Jewish) has nothing to do with the choice made in your example. It has to do with empathy, conscience, experience and other moral factors such as kindness and generosity that make up ethics. Of course you want the choice to be the welfare mom; you set up the example as a straw man. But what if I framed the choice as between a “a drug-addicted slut on her fifth kid with a different father” and “a businessman who created several thousand jobs and made a few hundred people millionaires…and is now out of a job”? You’re entitled to feel badly about My choice—because it could differ from yours—but to claim that religion is a pre-requisite for noble thoughts and actions is unnecessary. In any case, I don’t want My tax dollars going to either of your choices.

   “Consumers work, but they are NOT in control.”

   Of course they are. The tragedy of pverty is that options are restricted and the flexibility of choice gets strangled. In that sense, helping people out of poverty is the greatest goal the U.S. has ever set for itself. But to indicate that consumers lack control is to box people into mindless drone syndrome. From education and career choices to where and how to work, then to what and why to buy or save, consumers above the poverty line have choices. The problem is not having enough knowledge and/or discipline to make the right ones.

   “Your mom did not wake you up at 4am to work on extra studies to supplement your education, before actually going to school for the day.”

   No, My mom didn’t do that. Hardly anyone’s mom does that. Barack Obama is the sum total of choices he’s made and the nurturing he received. So are We all.

   “Let’s keep having the government collect sales tax, but instead of giving them free reign on where to spend it, let’s direct most of it back to the poor and lower middle class workers in Puerto Rico. Let’s prop them up first, and they’ll return the favor by rapid consumerism that will bring the economy back without much help from the government at all, regardless of what they try to do, other than keeping this program in place.”

   Oh no no no. Getting the government to focus sales tax monies on what We think is right is simply part of democratic duties—not rights: duties. Your plan is a good step in that direction. But to continue the consumerism trend as economic engine for Puerto Rico is to doom Us to never being anything but open-mouthed cheeping chicks. To foster consuemrism is to foster passivity: I have money to buy what pleases My id. We need productivity, not passivity.

   “Why give the sales tax back to the people? They’ll spend it quickly and stimulate the economy (instead of locking it up in a bank immediately)
   They’ll spend the money in less corrupt ways than the government.”

   By numbers, We waste about 10-15% of Our government budget on corruption. That’s about $1.4 billion. Again, by the numbers, it’s safe to say We as a people spend more than that a day on “corruption.” By percentages, if avoiding the sales tax amounts to 7% “corruption,” buying stolen good and pirated material equals 3% on average (as per recent Police estimates) and gambling (“bolita” included) amounts to another 4% on average, then We, as a people, average about 13% “corruption.” Not proud of that, I am. But then again, don’t We elect leaders that “represent” Us?

   “They deserve it (the returned sales tax money). Often times, the more professional we are, the less “real work” we do. I do feel guilty waking up and going to my laptop, while the young guy outside comes to cut my grass in the heat. Who is really working harder? Why do we think we earned it more by avoiding hard work and staying in a classroom and reading more books for 4-10 more years? I think we earn the right to be qualified in our profession, not necessarily to be paid so excessively for it.”

   Here We have a classical example of “liberal guilt,” that free-floating anxiety that says “I’m so upset that I’m superior to others. Damn My excellence in avoiding the pitfalls of not-being-as-good-as-Me!” Get over it. You have nothing to apologize for. Born in the middle class? Good for you. Educated parents? Good for you? Decent schools you went to? Yay. Got into college? Wonderful. Graduated? Good for you. Didn’t overdo drugs or get a criminal record? Hurray. Now stop whining about your success and “blaming” the world for it. It isn’t the world’s fault that Life’s unfair and that you landed on the good side. Want to “balance” that? Throw it all away. Buy some crack, sleep with some skank for the STD thrill and when your money and health run out, land in jail. There, balance achieved. The guy cutting your lawn may be better-educated than you, smarter or even more capable than you. He could be less. In any case, he chooses to do that work for whatever reasons that have NOTHING to do with you. (Coming from a Jenius who believes the Universe was created solely for His amusement, that’s rich, huh?) People may “deserve” the returned sales tax monies, but not to assuage your needless guilt. A sound economy is built on the value of productivity. The guy cutting your lawn is giving you and your family (maybe your neighbors), a temporary benefit worth, say, $30. You might be working on a program—in your pajamas—that saves thousands of dollars, helps develop jobs and improves the values of businesses. (Hope you charge accordingly, and not based on guilt.) Who’s doing the more valuable work? Now here’s the question I focus on: Who’s more satisfied with their contribution?

   “It will stimulate the construction industry, especially for small contractors, specialized tradesmen, and building material/fixture providers.”

   Not in the short-term, for there is an abundance of houses and commercial space all over Our Island (and the U.S of part of A.) Construction is not directly stimulated by cash-in-hand, but by—here’s the kicker—cash in banks. Banks are the leading financers of construction because the returns are steady and reliable. Buth when derivatives and paper-profit gambling make the historical 17% average return on construction seem like piddling coin, then why bother? Once the glut of properties is reduced by business growth—not consumr spending—then We’ll see construction pick up.

   “It will reduce their reliance on credit cards, high interest debt, and allow them to pay down more than the minimal monthly payment.”

   No. Wrong. The historical data shows exactly the opposite. As income rose, people relied more on credit cards and Adjustable Rate Mortgages (ARMs) to continue to buy. The average credit card payment went from 35% above minimum monthly to 4%, due to higher debt load. The true culprit in this mess is real wages, the amount of money you make relative to market prices. In that regard, real wages dropped during the murderous moron’s 8 years in office, continuing a trend seen late in Clinton’s last four years. When prices remain steady or go up while your income falls behind, you have a major problem. Giving people money to “buy” while not doing anything about prices is to apply a small dose of aspirin to a plague victim. (And this point will emerge again soon…) However, you could be right given that debt is a major problem now, people could use the money to reduce it. But given how bad the overall situation is and how debt management is so bad amongst consumers (which is how they got in this swamp in the first place), I don’t see that happening.

   “They’ll buy products from corporations that have good products, and for the surviving ones that are good at marketing.”

   Again, wrong. Here’s one word that disproves your first point and proves your second, killing your first point again: Windows™. Then again, the focus on buying is the gist of My counter-argument here. Buying is the problem, not the solution.

   “Some will use their new savings to start their own businesses. Some will use the money to invest in a higher education for themselves, or for their children, which might otherwise be prohibitively expensive, thereby locking them into their low social order for life. They’ll start to feel like they can play a part in society and not be pigeonholed into the class into which they were born.”

   The first two are what I want to see, but don’t think I will, despite your plan. The third is a personal sentiment that says that the government is responsible for the feelings and self-esteem of some of Us. I don’t see that. I believe you are responsible for your own self-esteem and the rest are excuses. That the government can make the overall situation better and more accessible to more people, yes. But My point—and I’m getting to it—is that there’s an easier way to do this.

   “It will encourage others who have given up (like welfare recipients) to enter/re-enter the workforce.”

   Uh, no. Say you’re a welfare recipient getting $987 a month for sitting around the house. If you’re a typical recipient, you lack a college degree, have 2 dependents, rent your dwelling, have government-issued health insurance and work on the side. (Illegal, but common: $987 isn’t really enough to live well on.) Now your plan tosses in another $300 a month, to be generous. What incentive does a person have to re-enter the workforce with $1,287 coming in every month for doing nothing at all? If the average welfare recipient gets a job—it has been noted in numerous studies here and in England—their economic situation actually worsens. The average job pays minimum wage, isn’t full-time, carries tax deductions they don’t have on welfare, involves additional costs (transportation, child care, outside dining, clothing, etc.) and reduces their welfare benefits to boot. On average, a welfare recipient goes from $284 in real wages (income over cost-of-living at the poverty level) to $74 under. That’s a $368 negative difference that doesn’t take into account the money the person could be losing in unreported income. The solution is not just to give the person more money, but to seek reductions in living costs and expansion of options. (I’m getting there.)

   “Underground economy will have incentive to get legal, so that employees are eligible for incentives. Employees will insist on it!”

   No. They. Won’t. The employees have every incentive to continue being “off the books, off the radar and off the tax rolls.” Your argument implies that the sales tax is the only obstacle to “elevating” the underground economy. You are ignoring payroll taxes (FICA, Social Security, others), OSHA regulations and other Labor Department laws, Municipal and State permits, income taxes, business taxes and employee identifications for all of that. Opening a legitimate business in Puerto Rico is a needlessly heartless, stone-cold, acid-tongued, shrieking bitch. Opening a business in the underground economy has actually gotten easier lately, with venture capital and support services now making their appearance. Making legitimate businesses easier to start is the only way to reduce the underground economy and stimulate a widespread positive impact on Our economy.

   Your plan seeks to take tax monies and pay people to become better, more productive citizens, based on a detailed mathematical formula of what a good, productive citizen should be. I have serious problems with that, but rather than take on the enormous amount of work you put into the plan, I took on its assumptions. And from the assumptions, I see you are parting from the premise that the sales tax monies should be given back to the people in a systematic way, allowing the “freedom of choice” of consumers to hold sway over the “government’s corrupt mind.”

   Methinks you have complicated the solution. Here’s My starting point: Eliminate the sales tax.

   That automatically puts money “back” into the consumer’s pocket. It takes the government’s corrupt mind out of the equation. It also takes your reapportionment plan out of the picture, but We need its incentives, so more work needs to be done.

   1) The elimination of the sales tax will force the government to downsize immediately. A smaller government means less cost for Us.

   2) The only taxes that could generate enough income to keep the government from imploding will come from capital gains (all that money tied up in banks that ISN’T used in Puerto Rico; Banco Popular, anyone?) and property. Both are hugely sensitive issues that can be addressed by similar solutions: Either pay the taxes or invest in development. The billions of dollars held by local banks as part of Federal tax loopholes can either be taxed (at 33-55%) or must be funneled into the local economy for new projects. Imagine the impact of releasing an estimated $350-675 billion that are currently used by local banks to speculate outside of Puerto Rico. Finally, an economic stimulus powered by local sources. As for property taxes, homeowners are scared of them for they currently pay maybe a penny or two on the dollar. Who suffers? The government, for losing needed revenue to protect and service said properties. To avoid homeowner shock, exempt all properties that have been developed since 1970 and tax all undeveloped property at rates equivalent to the property’s market value in 1995. Why? Current values are just above 1995 rates, so future adjustments can be made upward to mirror economic growth, and We avoid penalizing recent property buyers whose investment value has gone down. Taxes are applied unless the development equals 20% of the property’s value (to avoid building a shack on 25 “cuerdas” and calling it “development”.)

   3) What to do with all those government employees who lose their jobs? Banks facing capital gains taxes will want to invest in new businesses: welcome entrepreneurs. Universities and colleges will compete to educate and re-educate displaced workers: welcome educational boost. Downsizing government means private companies need to step into the breaches: welcome successful formula for privatization (competitive outsourcing free of government control). Small business creates about 65% of the jobs in the private sector. If 70,000 government workers get laid off, We can target the creation of new small businesses and the expansion of existing ones for 45,000 jobs from bank’s unused capital. That’s about 10,000 new businesses in 18-24 months, a pace that needs…

   4) Reduced business start-up regulations. Australia and New Zealand have a 2-day process. Let’s copy that. Their focus is on who’s starting the business, what will it do and what health and safety sectors does it impact. Over 70% of new businesses have little or no significant impact on the community, but under local law, My home office–where I always awork aone–is required to have a Fire Department certification that takes 30-45 days. Really? Screw them. I’ve been working from home since 1987 and never had a fire. And if I do, I have fire insurance. The point is that to get more businesses up and running, to create thousands of legitimate jobs, We need to streamline the process to who, what, where and why, in one page, filed and stamped as received, and then allow the business 30-60 days to complete its other requirements as it operates. Yes, there is a difference between a consulting business, a day care center and a bakery, but there is an even bigger difference between 2 days and 340 days, a difference measurable in billions of dollar and tens of thousands of jobs.

   5) And finally (finally!), price reductions. Eliminating the sales tax will force prices down. There’s no way it won’t happen. Pueblo still charging you the same price? Econo isn’t; you buy there. Wal-mart isn’t the low price leader? Here’s Pitusa for you. I predict the impact of the eliminated sales will drop prices by closer to 10%, because the sales tax added “friction” in the form of administrative expenses. I’m not saying that consumerism is the key, only that reduced prices are needed to make other investments (debt reduction, savings, IRAs, etc.) true options rather than “someday wishes.”

   Why I invested 170 minutes on this is beyond Me, except that you did that and more and deserve to be commended. (Though I did hack away at some of your work.) Your plan might work at a smaller scale, say a company or homogenous community or maybe at a larger one, as social engineering at a national level. Your ideas have merit and should not be ignored.

   I guess that’s why I did this, to acknowledge the work and the thought and build upon it. I hope I did a fair job of reading it, of responding to it and of offering an alternative. In any case, thank you for the opportunity, for caring and for seeking to make a difference.

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2. admin Says:
   March 22nd, 2009 at 2:40 pm

   The Jenius on import tariffs and sales tax:
   http://gilthejenius.blogspot.com/2009/03/furgonazo-time.html
   http://gilthejenius.blogspot.com/2009/02/false-dilemma-true-options.html

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3. admin Says:
   March 22nd, 2009 at 3:20 pm

   Thanks for taking the time to provide detailed feedback Gil. I can see that you’ve made a lot of corrections and that’s exactly what I had hoped. I’m heading out of town at the moment, but I’ll review your analysis and provide a detailed response upon my return.

   To anyone else, coming upon this blog, please take Gil’s lead and tear this apart so we can put it back together, or find an alternative.

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4. Gil The Jenius Says:
   March 24th, 2009 at 2:26 am

   Insider, upon a second read, I found the tone harsher than intended. I’m sorry about that. My intention was to craft a response that did proper justice to your effort and I failed in that sense. But I’ll stay with it until We feel We have a viable plan, making sure I sound nice instead of cranky.

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5. admin Says:
   March 24th, 2009 at 11:52 am

   Actually Gil – your approach is excellent, and precisely what I was hoping for. You have indicated some extremely important points, that directed me towards further research. I actually found ways (I think) to strengthen the plan. If I (or anyone interested in contributing to the process) cannot respond or modify the plan to solve issues raised, then you’ve made a case for abandonment. And that’s a great thing: (a) Improve it/solve the problems, or (b) Re-direct efforts in another direction.

   As a layman in macro and micro economic theory, my experiences are limited primarily to that of consumer and small business entrepreneur, therefore my contributions will be primarily in a synergistic sense, but I believe that to be an important perspective.

   If we’re not open to criticism, we cannot improve. “Exposing issues” is a part of the mandate of this blog, and the blog cannot raise a shield against those forces. It would be hypocritical of me not to welcome criticism, given the type of commentary I’ve dished out here in various blog entries.

   I’m back from my short trip now, and I’ll provide detailed responses. The only thing I would caution is to keep that hardball style. If you feel this plan has no merit, please don’t pull any punches. I’d rather have your time focused on getting new stuff out there into the ether, than pitching me a non-breaking fast ball dead center of the plate. Keep the sliders, curve balls, and knuckle balls coming.

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6. admin Says:
   March 25th, 2009 at 10:32 pm

   Responding is certainly more time consuming than stream of conscious writing. I’ve provided responses for each of the Jenius’ comments. I think he did a tremendous job, as usual, taking the time to analyze the plan and provide constructive insights into it’s issues, rather than simply tearing it down without explanation. Some of the most important issues he’s identified in my mind, are how the plan would not likely do well to recruit citizens participating in the underground economy or welfare system. I believe it’s possible for the system to still have merit without these side benefits, however, I would certainly evaluate the plan with multiple phases and revisions if I were in a position to advocate it at the government level. Gil outlines an alternative plan, in which he’s been a consistent opponent to having the sales tax in the first place. His plan is straight forward at least in repealing the sales tax. It’s hard to argue with a plan that says (1) cut sales tax, (2) Downsize government, (3) Get the big capital gains active in the domestic economy, (4) Encourage privatization with small business participants, (5) Streamline business setup/remove hurdles. All are logical recommendations that completely escape the government.

   Insider >>>
   “The problem is that the money cycles into the government’s control, where theoretically that would be a good thing, but in practice it’s not. It’s being cycled into the pocket of a government administration that is bankrupt and shows no real signs of possessing the ability to find solutions to improve the economic situation of Puerto Rico’s citizens. Once the money reaches the government where it (under their control) may be badly leveraged (or not leveraged at all), it’s tied up and essentially lost without any clear value to the people.”
   
   Jenius >>>
   Partially correct. The real problem with sales taxes is that they reduce consumption and reduce the incentive for business enhancement and start-ups. Even in states and countries where the sales tax was automatically funneled back to social support services (Washington, Missouri, Germany, England), the economies have stalled or regressed.

   My proposal counteracts the structure of sales tax, as “regressive”. Specifically, it provides targeted funds directly back to productive work force participants living near the poverty line. It gives them discretionary spending abilities. Government controlled “social support services” are not equivalent to my proposal. I agree that in the short-term a sales tax naturally reduces consumption, and I enjoyed the insights in your article on the final cost to consumer (for the current structure, 14%). This is counteracted by directing cash right back to the worker/consumer demographic I’ve targeted, who should have a tendency (by force of necessity) to re-spend it quickly in the domestic market. The goal is to avoid having the funds go immediately to government waste, volatile investments, direct International out flow, etc.

   I have ignored large corporations, although they stand to benefit by the long term economic growth. They benefit already from favorable tax incentives, and will continue to see improvement in their financing capabilities as the economy improves. Smaller businesses should begin to quickly offset costs of implementation for sales tax (already ongoing) by increased sales, where the current sales tax implementation will be of more detriment (as you outlined in your articles).

   The government is still going to receive these funds back through multiple spending iterations as personal and corporate income tax. However, at that stage, it will have provided economic stimulus in the domestic market, with many positive side effects gained (To be discussed).

   Insider >>>
   “The government has been effectively able to collect the newly imposed sales tax from businesses.”
   
   Jenius >>>
   Not so. According to a recent Hacienda report (Jan. 09), collections are deemed to be 30-35% under the estimated current (reduced) economic activity. I keep going back to this, but flea markets exploding all over the Island means cash is king and the sales tax an unneeded option.

   I was referring to the collections procedure being in place, not the collections efficiency. Current collections are running at about 30% of personal tax revenues. However, I would expect this to actually increase economic activity, and has provisions that should actually help to boost collections through bringing a percentage of the underground transactions above board (if that materialized).
   
   Insider >>>
   “We’ll keep the sales tax in place, but we’ll restrict the governments role to collections, NOT strategic decisions about where to place the money. We’ll democratize that part, and let the people decide by making individual “consumer” choices, not political ones. Bottom level consumer choices are subject to the force of needs/desires, not corruption.”

   Jenius >>>
   To have one entity (government) collect monies and have another party (“consumer”) decide on how they are spent is a major problem, one We already have where a fiscal agency (“treasury”) collects monies and another entity (“Fools”) decide how it’s spent. I see your point about government getting out of that business, but consumer choices can be marred by corruption, as the drug trade clearly shows. Also, isn’t avoiding the sales tax a form of corruption consumers have already shown?

   Individual consumer choices require trends with growing collective participation to be truly dangerous. However, a single citizen acting outside of a power position cannot topple an economy. However, the handling of the economic situation by Fortuno or Barack Obama could result in mistakes that will impact every single citizen in the United States/Puerto Rico or even the global economy. Consumer level corruption (illegal activities), such as participation in the drug trade, is actually increased by poorly run economies (again pointing back to government leadership). Investment in cash payments to productive citizens near the poverty level will result in a predictable outcome of spending. $500 million set aside for legislated spending by a governor and his economic team is unpredictable and very dangerous.

   Investing in low level consumers is like playing perfect strategy blackjack while counting cards. Rewards are modest but positive and risk it limited. Letting political bodies distribute huge sums of cash is like betting it all on “7″ on the Roulette table.
   
   Insider >>>
   “Do you know what a millionaire does when you give him $1000? He puts it in the bank and invests it, locking it up. It has almost no impact on his current rate of consumer spending. Do you know what a poor person does when you give him $1000? He spends it. It can be large %-age increase in his normal spending activity, especially for consumer items.”
   
   Jenius >>>
   This one is simple and misleading: By definition, the poor person lacks enough money to cover basic needs. Of course the poor person spends the money and the rich person “invests” it, because the rich person doesn’t need it. It’s been proven that the impact of money on a person’s choices are directly related to how much money the person already has and how much money they receive. To Bill Gates, a million dollars is (psychologically) 1/50,000th in level of importance; to you and Me, a million dollars is an unignorable tidal wave.

   I believe we are saying the same thing. I expect the outcome to be having the poor person “spend”, yet his/her spending activities will be on a limited basket of goods/services compared with someone “rich”. Bill Gates won’t spend the $1000. In fact, he might forget to cash the check. So my expectation is predictable domestic spending.

   Insider >>>
   “Putting money in banks ties up money in the economy.”
   
   Jenius >>>
   Putting (taxpayer) money in (failed) banks (without provisions for its proper use) ties up (needed and gifted) money in the (devastated by the banking and financial industries) economy. There, that’s more accurate. Banks are the leading consumer-direct economic sector, and when run properly, are economic engines with wide impact. Run like Ponzi clubs with over-leveraged assets, in essence, gambling that fake assets and real profits can continue forever, then banks are nothing but government-protected thieves.

   I agree with your refined definition. Blue chip investments in stable entities such as banks used to mean something. This type of plan would probably never come up in discussion if the economy were not in a state of desperation. Although in a prosperous growing economy such as we have experienced in the past, there is still an issue with an increasing gap in class structure. I certainly believe that to be a big problem.

   Insider >>>
   “Then they (employees) pay their taxes which is certainly (right now) going back to Wall Street (i.e. government bailout). And the profits they earn for their employers from their hard work, goes back to Wall Street as executive bonuses.”
   
   Jenius >>>
   Not entirely. The bailouts amount to a small percentage of the overall government budget, smaller than defense, education and social services. That the bailouts are being mishandled is a given; that they are the prime culprit of government mis-spending is very debatable, as the Iraq War continues to drain the Treasury.

   Important point you’ve made here. I don’t intend to state that government is unnecessary. It’s vital, as is taxation (in one form or another) to support it. Personally, I am not pleased with tax dollars bleeding into the Iraq war or AIG executive bonuses. The important point is that tax dollars are being spent in areas where the workers who provide them to the government would not want them spent, but they don’t have direct control over those decisions.

   Insider >>>
   “If it were your tax dollars, where would your rather it go? (Option A) To the uneducated welfare mom down the street who got knocked up by an absentee father that’s no longer around to help support her, or (Option B) an executive at AIG making $1 MILLION a year in bonuses for a bankrupt company? If you are a Christian, which you are mostly likely if you are living in Puerto Rico, then your answer *should* be the former, but I realize your answers may vary (sadly).”
   
   Jenius >>>
   Poppycock. First of all, being Christian (or Muslim or Buddhist or Jewish) has nothing to do with the choice made in your example. It has to do with empathy, conscience, experience and other moral factors such as kindness and generosity that make up ethics. Of course you want the choice to be the welfare mom; you set up the example as a straw man. But what if I framed the choice as between a “a drug-addicted slut on her fifth kid with a different father” and “a businessman who created several thousand jobs and made a few hundred people millionaires…and is now out of a job”? You’re entitled to feel badly about My choice—because it could differ from yours—but to claim that religion is a pre-requisite for noble thoughts and actions is unnecessary. In any case, I don’t want My tax dollars going to either of your choices.

   We always have to be careful with religion, don’t we? The reality is that I injected the Christian example into the blog because I know that it reflects the values of the Puerto Rican demographic. I’m not a biblical scholar by any means, and I would hate to draw the focus away from the economic discussion. It would really turn into an unresolvable philosophical debate, where I would likely be able to reasonably debate both sides interchangeably if I wanted to waste time.

   One thing I must clarify however, is that this plan is NOT a “welfare” plan. I selected the example poorly, since the welfare mom would not be as directly impacted by this proposed plan, since she does not meet the criteria as a productive workforce participant. I.e. She would not receive a sales tax incentive. I did create the example to be somewhat of a no-brainer in what I considered to be a “common” moral/ethical context (I might be making an erroneous assumption here).

   I understand your point about the “drug addicted slut”. If we could break from the options, I would search for a way to have it invested directly into the at risk children she produces. I will certainly admit that I don’t feel sorry for millionaires, even if they did create jobs and wealth for others in the past, and then lose it all. If they were successful before, they’re already equipped with a network and smarts that will ensure their survival and comfort in life.

   Insider >>>
   “Consumers work, but they are NOT in control.”

   Jenius >>>
   Of course they are. The tragedy of pverty is that options are restricted and the flexibility of choice gets strangled. In that sense, helping people out of poverty is the greatest goal the U.S. has ever set for itself. But to indicate that consumers lack control is to box people into mindless drone syndrome. From education and career choices to where and how to work, then to what and why to buy or save, consumers above the poverty line have choices. The problem is not having enough knowledge and/or discipline to make the right ones.

   I believe a successful system is one in which the requirement of knowledge or discipline is not thrust directly upon the citizens, whom by the nature of the bell curve are going to lack the capabilities of the upper echelons. I believe a citizen can be moral and productive without making rational decisions or demonstrating exemplary behavior. Lack of ability to make the right choices (to me) equates to a lack of control. The problem of knowledge can be improved with education. But education cannot be improved without a more prosperous economy. That is the role of the government who manages the educational system. It’s certainly a suppressing force in Puerto Rico.

   Insider >>>
   “Let’s keep having the government collect sales tax, but instead of giving them free reign on where to spend it, let’s direct most of it back to the poor and lower middle class workers in Puerto Rico. Let’s prop them up first, and they’ll return the favor by rapid consumerism that will bring the economy back without much help from the government at all, regardless of what they try to do, other than keeping this program in place.”

   Jenius >>>
   Oh no no no. Getting the government to focus sales tax monies on what We think is right is simply part of democratic duties—not rights: duties. Your plan is a good step in that direction. But to continue the consumerism trend as economic engine for Puerto Rico is to doom Us to never being anything but open-mouthed cheeping chicks. To foster consuemrism is to foster passivity: I have money to buy what pleases My id. We need productivity, not passivity.

   I used a poor choice of words when I said “rapid consumerism”, which really should have been “increased domestic spending”. I did not want to create an image of out of control materialism, as a part of my recommendation. However, the plan does include mechanisms that help to boost productivity of these workers.

   Insider >>>
   “Why give the sales tax back to the people? They’ll spend it quickly and stimulate the economy (instead of locking it up in a bank immediately)
   They’ll spend the money in less corrupt ways than the government.”

   Jenuis >>>
   By numbers, We waste about 10-15% of Our government budget on corruption. That’s about $1.4 billion. Again, by the numbers, it’s safe to say We as a people spend more than that a day on “corruption.” By percentages, if avoiding the sales tax amounts to 7% “corruption,” buying stolen good and pirated material equals 3% on average (as per recent Police estimates) and gambling (“bolita” included) amounts to another 4% on average, then We, as a people, average about 13% “corruption.” Not proud of that, I am. But then again, don’t We elect leaders that “represent” Us?

   This is a great insight which provides perspective. I’ll just make some general comments. Without a sales tax, it cannot be avoided. I.e. anything collected is better than nothing if the goal is more revenue. The plan may help to boost collections. Stolen goods and pirated materials, and illegal gambling, will occur whether there is a sales tax or not so this can be held as a near constant. The recipients of the sales tax incentive would not avoid all sales tax, or spend the money entirely in illegal activities, so it would still be a economic stimulus for domestic spending.

   Insider >>>
   “They deserve it (the returned sales tax money). Often times, the more professional we are, the less “real work” we do. I do feel guilty waking up and going to my laptop, while the young guy outside comes to cut my grass in the heat. Who is really working harder? Why do we think we earned it more by avoiding hard work and staying in a classroom and reading more books for 4-10 more years? I think we earn the right to be qualified in our profession, not necessarily to be paid so excessively for it.”

   Jenius >>>
   Here We have a classical example of “liberal guilt,” that free-floating anxiety that says “I’m so upset that I’m superior to others. Damn My excellence in avoiding the pitfalls of not-being-as-good-as-Me!” Get over it. You have nothing to apologize for. Born in the middle class? Good for you. Educated parents? Good for you? Decent schools you went to? Yay. Got into college? Wonderful. Graduated? Good for you. Didn’t overdo drugs or get a criminal record? Hurray. Now stop whining about your success and “blaming” the world for it. It isn’t the world’s fault that Life’s unfair and that you landed on the good side. Want to “balance” that? Throw it all away. Buy some crack, sleep with some skank for the STD thrill and when your money and health run out, land in jail. There, balance achieved. The guy cutting your lawn may be better-educated than you, smarter or even more capable than you. He could be less. In any case, he chooses to do that work for whatever reasons that have NOTHING to do with you. (Coming from a Jenius who believes the Universe was created solely for His amusement, that’s rich, huh?) People may “deserve” the returned sales tax monies, but not to assuage your needless guilt. A sound economy is built on the value of productivity. The guy cutting your lawn is giving you and your family (maybe your neighbors), a temporary benefit worth, say, $30. You might be working on a program—in your pajamas—that saves thousands of dollars, helps develop jobs and improves the values of businesses. (Hope you charge accordingly, and not based on guilt.) Who’s doing the more valuable work? Now here’s the question I focus on: Who’s more satisfied with their contribution?

   If this had been a welfare plan, then I would absolutely agree with you in your interpretation of my comment. I assume my earlier reference to the “welfare mom” might have altered/skewed the context/weight of how you read into my expression of “guilt”. I was actually born into moderate poverty with non-educated (although skilled) parents who struggled their whole lives to break into the middle class. A life in the trades or the fishing industry had no appeal to me, so a combination of scholarships, bursaries, student loans and creative self-financing got me an excellent university education, and liberated me to become a full fledged member of the middle class or upper class if I choose to work towards that. My recent readings regarding culture enlightened me that I am from an individualistic nation, so as you might imagine I don’t have any compulsion to throw anything away. Again, the plan is focused on productive participants in the work force, and the cash incentives they would receive would be modest without their own personal development. I do believe hard workers (those burning calories) and not necessarily highly skilled/professional/knowledge based workers still play an important economic role and deserve to be compensated (What’s California without it’s illegals?). I also find my job extremely easy, as I am sure you do. I don’t know how long the grass on your lawn is, but I do recall you advocating victory gardens so I might be surprised. I do think there is a major rich poor gap, which provides giant hurdles to those at the low end of the spectrum to break through. Had I been stuck and not able to jump classes, I would certainly be upset about it. And this plan definitely takes that into consideration. It serves a dual goal of rewarding productive workers near the poverty line, while at the same time helping to stimulate the domestic economy (presuming it were to work as intended).

   Insider >>>
   “It will stimulate the construction industry, especially for small contractors, specialized tradesmen, and building material/fixture providers.”

   Jenius >>>
   Not in the short-term, for there is an abundance of houses and commercial space all over Our Island (and the U.S of part of A.) Construction is not directly stimulated by cash-in-hand, but by—here’s the kicker—cash in banks. Banks are the leading financers of construction because the returns are steady and reliable. Buth when derivatives and paper-profit gambling make the historical 17% average return on construction seem like piddling coin, then why bother? Once the glut of properties is reduced by business growth—not consumr spending—then We’ll see construction pick up.

   Great point. I neglected the big housing inventory that’s out there getting stale. In that case, that’s not the kind of construction we would want to stimulate until projections indicated it’s needed again.

   Maybe Fortuno could be convinced to re-direct investments into “beautification”. Mr. Fortuno: Tear down those bars. And by “bars”, I mean the ones plastered all over the houses here making it look (to non-natives) like everyone in the country is under house arrest. To do that, we’ll need to get the murder rate down. On a serious note, downtown beautification projects plus an advertising campaign to encourage citizens to improve their properties would be a great move forward. Unfortunately, Puerto Rico looks very “hood-ish” to me on almost every part of the island. I think I referred to it as “Return to Thunderdome” at some point in the past.

   For high end construction projects, the pre-existing inventory is a problem.

   Insider >>>
   “It will reduce their reliance on credit cards, high interest debt, and allow them to pay down more than the minimal monthly payment.”

   Jenius >>>
   No. Wrong. The historical data shows exactly the opposite. As income rose, people relied more on credit cards and Adjustable Rate Mortgages (ARMs) to continue to buy. The average credit card payment went from 35% above minimum monthly to 4%, due to higher debt load. The true culprit in this mess is real wages, the amount of money you make relative to market prices. In that regard, real wages dropped during the murderous moron’s 8 years in office, continuing a trend seen late in Clinton’s last four years. When prices remain steady or go up while your income falls behind, you have a major problem. Giving people money to “buy” while not doing anything about prices is to apply a small dose of aspirin to a plague victim. (And this point will emerge again soon…) However, you could be right given that debt is a major problem now, people could use the money to reduce it. But given how bad the overall situation is and how debt management is so bad amongst consumers (which is how they got in this swamp in the first place), I don’t see that happening.

   If having extra cash in hand, causes them to actually spend more than just the extra cash, then that would be extremely bad. I personally think legislation is needed to address credit cards in particular. This is outside of the context of what I proposed with the sales tax incentive. Consumers are setup to abuse them. They are not designed for consumers to be successful with them. The plan did include an additional incentive specifically targeted to encourage repayment of debt. I am not certain how this would play out in practice as a positive motivator without a related case study for comparative analysis, or seeing it in action.

   Insider >>>
   “They’ll buy products from corporations that have good products, and for the surviving ones that are good at marketing.”

   Jenius >>>
   Again, wrong. Here’s one word that disproves your first point and proves your second, killing your first point again: Windows™. Then again, the focus on buying is the gist of My counter-argument here. Buying is the problem, not the solution.

   I like Windows, so that’s not a great example for me. I’ve made a lot of money using Windows.

   Insider >>>
   Some will use their new savings to start their own businesses. Some will use the money to invest in a higher education for themselves, or for their children, which might otherwise be prohibitively expensive, thereby locking them into their low social order for life. They’ll start to feel like they can play a part in society and not be pigeonholed into the class into which they were born.”

   Jenius >>>
   The first two are what I want to see, but don’t think I will, despite your plan. The third is a personal sentiment that says that the government is responsible for the feelings and self-esteem of some of Us. I don’t see that. I believe you are responsible for your own self-esteem and the rest are excuses. That the government can make the overall situation better and more accessible to more people, yes. But My point—and I’m getting to it—is that there’s an easier way to do this.

   I am not a fan of the weak minded. I admire the fighting spirit. However, I do assert that the economic/social environment does lock people down. Just because some are able to escape it, does not mean that the rest are simply not worth it. When they complain, it’s sometimes a reflection of the adverse conditions in reality, and certainly not always excuses. My expectation for the government is that when they see inequality emerging, they take action to adjust the system for fairness.

   Insider >>>
   “It will encourage others who have given up (like welfare recipients) to enter/re-enter the workforce.”

   Jenius >>>
   Uh, no. Say you’re a welfare recipient getting $987 a month for sitting around the house. If you’re a typical recipient, you lack a college degree, have 2 dependents, rent your dwelling, have government-issued health insurance and work on the side. (Illegal, but common: $987 isn’t really enough to live well on.) Now your plan tosses in another $300 a month, to be generous. What incentive does a person have to re-enter the workforce with $1,287 coming in every month for doing nothing at all? If the average welfare recipient gets a job—it has been noted in numerous studies here and in England—their economic situation actually worsens. The average job pays minimum wage, isn’t full-time, carries tax deductions they don’t have on welfare, involves additional costs (transportation, child care, outside dining, clothing, etc.) and reduces their welfare benefits to boot. On average, a welfare recipient goes from $284 in real wages (income over cost-of-living at the poverty level) to $74 under. That’s a $368 negative difference that doesn’t take into account the money the person could be losing in unreported income. The solution is not just to give the person more money, but to seek reductions in living costs and expansion of options. (I’m getting there.)

   You’ve made a compelling case here. I can see that the incentives this demographic would qualify for would not be much of an incentive for them. At best, it could be thought of as a place for their kids upon reaching the age of eligibility to start off doing a little better for themselves than could be otherwise expected (i.e. when they make an attempt at entering the work force).

   Insider >>>
   “Underground economy will have incentive to get legal, so that employees are eligible for incentives. Employees will insist on it!”

   Jenius >>>
   No. They. Won’t. The employees have every incentive to continue being “off the books, off the radar and off the tax rolls.” Your argument implies that the sales tax is the only obstacle to “elevating” the underground economy. You are ignoring payroll taxes (FICA, Social Security, others), OSHA regulations and other Labor Department laws, Municipal and State permits, income taxes, business taxes and employee identifications for all of that. Opening a legitimate business in Puerto Rico is a needlessly heartless, stone-cold, acid-tongued, shrieking bitch. Opening a business in the underground economy has actually gotten easier lately, with venture capital and support services now making their appearance. Making legitimate businesses easier to start is the only way to reduce the underground economy and stimulate a widespread positive impact on Our economy.

   I agree, businesses must be easier to start. In my home state, I can start a home based business any day of the week (legally) I want by declaring myself to be in business and filing taxes at the end of the year. If I expect to make more than $30k per year, I must register for sales tax (simple form) and start remitting (presuming I need to collect it). If I want to operating under a business name, I need to pay less than $100 for a name search and registration. More complex business structures require more work, but certainly not anything like you have described for Puerto Rico.

   In fact, I simply cannot imagine why Puerto Rico has not completely streamlined this process and published a business starter kit with all information, how to, and forms required, etc.

   You’re right. If the cost of all the deductions exceed the size of the sales tax incentive, then it would not motivate them to go legit. It *might* reduce spending at the flea markets etc reducing their profits, as the incentives send some shoppers back to retail. It could encourage those eligible for a higher sales tax incentive to consider formalizing their business to get the incentive. I’m thinking university educated individuals who recently left the work force here. It’s extremely hard to predict the many different off shoots of behavior changes that would occur.

   Jenius >>>

   Your plan seeks to take tax monies and pay people to become better, more productive citizens, based on a detailed mathematical formula of what a good, productive citizen should be. I have serious problems with that, but rather than take on the enormous amount of work you put into the plan, I took on its assumptions. And from the assumptions, I see you are parting from the premise that the sales tax monies should be given back to the people in a systematic way, allowing the “freedom of choice” of consumers to hold sway over the “government’s corrupt mind.”Your plan seeks to take tax monies and pay people to become better, more productive citizens, based on a detailed mathematical formula of what a good, productive citizen should be. I have serious problems with that, but rather than take on the enormous amount of work you put into the plan, I took on its assumptions. And from the assumptions, I see you are parting from the premise that the sales tax monies should be given back to the people in a systematic way, allowing the “freedom of choice” of consumers to hold sway over the “government’s corrupt mind.”

   That sounds about right in a nutshell. I see your point in freedom versus requirements. I’m ok with the structure, because the requirements are not imposed, they are voluntary for self-benefit. Perhaps I am telling the target: “Here is what you can do to receive the biggest incentives. All criteria is of benefit to you personally if you achieve it. You’re not required to participate at all if you choose not to. If you get any incentive at all, feel free to spend it as you like in any legal way, or illegal way if you are willing to take the risk. Feel free to game the system within the rules. If your a Vegan who runs 10 miles a day in perfect shape, humor us with a prostate check and you’ll see an increase in your incentive.”

   The alternative, in my mind, is the government telling them “You have the freedom to do whatever you want, within the law. We have no expectations of you other than that and submitting your income tax. We will not guide you. We acknowledge that we’ve lead the economy to destruction and that we’ve handicapped you as an economic participant. Play the lottery.”
   
   Jenius >>>
   1) The elimination of the sales tax will force the government to downsize immediately. A smaller government means less cost for Us.

   I’m certainly in favor of that, since I consider much of the government to be non-productive.
   
   Jenius >>>
   2) The only taxes that could generate enough income to keep the government from imploding will come from capital gains (all that money tied up in banks that ISN’T used in Puerto Rico; Banco Popular, anyone?) and property.

   No income tax? Seems like this would be almost impossible to achieve. They would find a workaround.
   
   Jenius >>>
   3) What to do with all those government employees who lose their jobs? Banks facing capital gains taxes will want to invest in new businesses: welcome entrepreneurs. Universities and colleges will compete to educate and re-educate displaced workers: welcome educational boost.

   I love the idea. Are there “that many” capable entrepreneurs ready out there?

   Jenius >>>
   4) Reduced business start-up regulations. Australia and New Zealand have a 2-day process. Let’s copy that. Their focus is on who’s starting the business, what will it do and what health and safety sectors does it impact.

   I agree. Absolute must, and also something that should be extremely easy to achieve.

   Jenius >>>
   5) And finally (finally!), price reductions. Eliminating the sales tax will force prices down

   I was trying to deal with how to distribute it, if they *must* collect it. It seems like it’s not going anywhere, especially when it’s backing COFINA bonds. Of course, the same condition makes my distribution plan unlikely. An elimination certainly would be an easier implementation, but I think they’re desperate and addicted to it now.

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7. Gil The Jenius Says:
   April 5th, 2009 at 8:37 pm

   Hoo-boy. Let’s give this another run.

   Your comments/replies are quite informative and I have a better sense of what you seek to design here. From the standpoint of “A system receives the results it rewards,” you’re trying to create a process to get people to seek personal progress based on the goverment appropriately investing in them to help Us all grow. By the extensive nature of your plan, it seems to Me you’re trying to design a society, and that’s what I see as the obstacle.

   Rather than try to redesign society, My aim was to change only a few major sub-systems and see if that works. The two I focused on were elimination of the sales tax/substitution with capital funds and property (income tax would remain, I clarify, with the two I suggested as additional taxes) and streamlining business start-ups. Let Me look at both now from the angle of “a system’s rewards and results.”

   1) Eliminating the sales tax will force prices to drop and increase consumer confidence, the basis for consumption. A capital gains tax on funds in banks will cause these institutions to either lend the money (what the bailout SHOULD have been about) or invest in local companies, for any “foreign” investment will be taxed. Assessing property taxes will INCREASE home values (houses will cost more) and spur rebuilding/remodeling of dilapidated properties (think Boquerón, Old San Juan, downtown of any town.) Banks love to invest in buildings, they have the need to use the cash in hand and barring some industrial revolution of Our own, the only game in town will really be start-ups and construction. Of the two, buildings are better for (more familar to) banks.

   2) Streamlining businesses means getting rid of volumes of unnecessary rules and regulations to allow entrepreneurs the chance to earn money. The reason the underground economy here is so huge is BECAUSE IT WORKS. It has 3 characteristics: speed-to-revenue, no taxes and trust. Yes, I said TRUST. How else do you think these businesses, in general, stay solvent and productive? When the rules and regs are so daunting and obstructive it takes months to set up a new business, when taxes slash your income and take hours from your life and the government treats you like an annoying thug instead of a productive professional, you have the makings of a sick economy. Well, the healthy one is getting stronger and if you can’t beat them, imitate them.

   Now what could the government offer to help legimitize the thousands of micro-businesses that make up the underground economy and continue to foster thousands more? A tax credit to the business owner’(s’) personal income. Say My business makes $90,000 a year, and of that, $35,000 is My personal income. The government could give Me a 5% tax credit the first year of My business and drop it to 2% in the following years, so that part of My business development and the increase of My business’ success helps reduce My overall personal tax burden. Under that scenario, a cash payment gives Me a benefit (an eventually larger LEGAL tax credit) rather than a “free ride.”

   Extending towards a “societal” design, for education I suggest making homeschooling and charter schools easier to provide, free up the market for teachers to make more money (eliminate the union, increase professional standards to re-license teachers every 4-5 years and make capital gains funds available for new or expanded schools), reward schools with Federal funds for meeting OUR new (when We choose them) world-class standards (bonus funds targeted for 3 uses: teacher bonuses, content acquisition and in-school teacher-designed projects) and eliminate the automatic per child deduction for parents whose children are not legitimately enrolled.

   To cut down on welfare, reward getting off of it. Set welfare at 120% of current rates, then drop said rates by 20% a year until they settle at 40% of current standards (with cost-of-living adjustments for that “We keep track” feel) or down to zero as defined further below. Under this plan, total welfare costs go up in Years 1 and 2 and drop after that. The only way to retain the 20% “drop” (one does NOT get extra funds, only freezes the rate) is to start a business, show satisfactory progress in school (whatever level is appropriate) or get a part-time job. For a new business, welfare freezes at the annual rate for two years, then drops yearly to 0 to help cushion the effort. For education, welfare is frozen at the current rate until a bachelor’s degree is earned and if a master’s is desired, adding a part-time job is required to freeze the rate. If not in school or a start-up, a part-time job would freeze the rate for 2 years, then drop per year down to zero, to encourage moving to another job and finding full-time work. People who add children to the mix for additional funds now get cut off at one. Just one. The rest you raise on your own dime.

   As you can see, My idea is that welfare ends, at some point or another. Before it ends, a person here would either make progress or move out, an option you have discussed in your blog. Either way, the system would encourage change. And that’s what both you and I are trying to see happen.

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8. admin Says:
   April 6th, 2009 at 9:47 pm

   Thank-you for phase II feedback. These multiple iterations are so valuable for creating a complete understanding of an idea, and vital in helping to discover new flaws and/or opportunities.

   The first thing that jumped out at me was your comment regarding “designing a society“. I stopped and thought, am I really doing that? Did I really know what it was I was tackling when I first started writing?

   Can I define what I was doing? I supposed at the time that I was (specifically) trying to find a way to better apply funds collected from sales tax, assuming that it’s unlikely to be removed by the current government, with my own vested interest in a paradigm shift designed to shift in favor of the “productive” poor. This is consistent with a theory I have that money distributed to the wealthy (investors) is exported from an economy more quickly than if directed to members of lower classes/income levels (spenders). Or: “Tax is staying so spend it on lower class workers”.

   But… was I “designing a society”? I think the answer is both “yes” and “no”. I was certainly tweaking the current system. I was just not being comprehensive enough to cover the entirety of society itself. Perhaps over time, collected articles may amount to just that (i.e. a more comprehensive “suggestion”). Am I tweaking it in a socialist or communist direction? Perhaps that could be argued… In fact, my brainstorm system certainly does remind me of Barack’s comments regarding redistribution of income around the time that “Joe the Plumber” became such a hot topic in the presidential race. They called him a Socialist for that.

   Am I in favor of a rewards based society? Absolutely. Of course, I am also aware that gets me into deep water quickly as well, since a rewards based society would mean some important changes to workers’ unions, like (for instance) the United Auto Workers (UAW) or the teachers’ unions (which you mentioned). I personally believe that many/most unions have become so corrupt that they have outlived their original importance/usefulness. When you simply cannot fire non-productive workers, or have to give wage parity for all individuals based on bone head systems like seniority (as two important examples), the benefits are gone.

   In American society, most of the actual big “rewards” are provided to the upper classes, and they make them really easy to capture. The educated upper classes can leverage knowledge, investment capital, and connections to get what they need (tools + choices). So I naturally tend to direct my rewards structure down to the more restricted lower levels, hoping to bring (some of) them up and give them a real opportunity to progress to higher income levels consistent with the efforts they are willing to make and the positive value they contribute (as a result of those efforts).

   I know that the free ride does not help, and that includes anyone willing to take it which includes welfare moms and *some* United Auto Workers, as examples from the current discussion. Those worthy of the rewards should get them. On a related note, there is an African American author who recently published a book that suggests that wealthy countries do the poor ones (such as many African countries) a disservice by providing them anything more than the most basic of aid.

   There are some major issues with my system, particularly the feasibility within the existing framework and modus operandi of the government. You pointed out the clear issues with my welfare incentives. Actually I believe your proposed system has a lot of merit. It’s possible sales tax revenues could be used to direct towards the initial 20% boost on welfare income. It reminds me of a teacher who once told my high school class that “everyone starts with 100 here”. In other words, you don’t have to work up to the impossible. You just have to avoid losing points as much as can be with each quiz, assignment, or important examination, etc. Your system sounds similar. Start them off with an A (i.e. maximum welfare benefits), and let them progress along a time line where incentives (i.e. extensions of welfare funding, delay of reductions, incentives for educational opportunities) are available to them if they take them on; otherwise, the free ride will be not as favorable over time (as you’ve outlined, annual reductions in incentives).

   I’m bullet pointing some of the key points you’ve recommended:

   Taxation:
   - Eliminate sales tax
   - Capital gains tax on funds *held* in banks
   - Higher tax on foreign investments

   Business:
   - Streamlining business setup
   - Tax credit for business owners personal income
   
   Education:
   - Make home schooling/charter schools easier to provide
   - Eliminate teachers union
   - Increase professional standards for teachers (re-licensing every 4-5 years)
   - Reward schools with federal funds for performance

   Welfare:
   - Rewards for leaving it
   - Increase rates, then drop annually by 20% to 40% remaining.
   - Encourage part-time work, education, and business initiatives.

   Some of your suggestions are more difficult than others to achieve. For instance, eliminating the sales tax would be very easy, if they were not already addicted to the revenue.

   Stuff like eliminating the teacher’s union would become a legal nightmare, not to mention chaos for parent’s when they closed the schools down.

   Just speaking about changes to the welfare program will bring out the super liberals with their Nerf batons ready to give us a non-bruising beat down followed by a complimentary physiological evaluation.

   Yet, your plan is certainly still more in sync with how the government operates now, especially after a change in party leadership.

   My plan is actually quite simple (if you ignore what must appear as “Monopoly” instructions), and hence it is not as targeted directly to the 4 main areas you addressed, except directly on taxation and indirectly in the other areas because of my incentives model.

   The incentives model itself would make most government people write me off as some naive kid who plays too many video games (I don’t play at all actually & gray hair and medical issues have convinced me my claims to kid status are over). However, I do have expert level knowledge in efficient/automated IT systems design (if I may be so bold to assert it), which is why I believe in the feasibility of setting up such a system.

   One of the things that really bothers me is how advanced our technology is and yet how simplistic legislation and government systems tend to be (at least by appearances). They always talk about cutting tax, or increasing it, etc. What a simplistic model. A one button system. We have super computers modeling climate change 1000 years into the future, Walmart’s main automated distribution facility would make Nasa geeks get giddy, and even watching them make bread on “How Stuff Works” seems to be more sophisticated than the systems outlined in legislation and then mapped to government systems. Perhaps currently permitting issues wouldn’t be so bad if there was an assembly line structure processing them in the government offices, instead of the Tuesday to Thursday, 10am to 3pm, bloat staff.

   Fortunately (for those of us seeking hope), at the “Government 2.0″ session of the Web 2.0 Conference in San Francisco, they did profile some areas like Alabama (who knew?) that are doing a hell of a job implementing complex technology to help change society! Some things to Google include “DC CapStat”, “DC Data Catalog”, “DC Apps for Democracy”, “Virtual Alabama“, “Washington State dashboards”, and “SeeClickFix”. The speech was given by Andrew McLaughlin, the Director of Global Public Policy for Google.

   So I think it is possible to achieve technologically viable solutions, using systems designed by much smarter people than me, that can be modeled by super computers to get a better sense of how they would play out in reality before implementing. We can actually do multi-variat testing in government systems, and optimize them over time, multiple iterations. It really can be done.

   One of the key things I discovered in the Government 2.0 talk is that the government has created incredible barriers to entry for technology adoption, even effectively preventing them from adapting for use “free” technologies like youTube (for cheap video distribution). The solution seems to be *non-dependent* on government except for access to data feeds on *everything* so that smart people outside can build intelligent systems that mash up the data in collections that deliver a real ROI, and then sell the *use* of the system back to the government (effectively for FREE since the cost savings/value added with significant exceed the cost of acquisition).

   Private companies are not subject to the same limitations the government is due to legal barriers and the mandatory competitive bidding process, etc. If Barack Obama was not completely bogged down with unimaginable issues to deal with in his presidency, these types of things might be seen roll out state wide in the US creating a model for the world. Actually, his technological leadership in the IT area in particular, may dictate that he’ll be the one to make this paradigm shift happen in order to deal with the issues at hand. If Alabama can do it, why can’t we?

   To summarize, I think every important act by both citizens and government is effectively “tweaking society”, and any plan comprised of a large set of tweaks (i.e. a paradigm shift) would effectively be equivalent to designing society, or designing a transition plan to a new society. I think we need to embrace technology and knock down government barriers. I think systems like the one I proposed and yours can be viable, and simply require many interactions of discussion, tweaking and testing (modeling) before launching, such as by a group like the Brain Squad you proposed:
   http://gilthejenius.blogspot.com/2009/03/brain-squad-idea.html

   Ultimately though, the solutions available will be virtually unlimited once we remove the restrictions to designing, modeling, deploying, and trying them out using technology.

   For the time being, unless we switch our focus directly to the lobby for use of technology in government, we’ll need to find ways to make our suggestions viable within the existing government. Perhaps we need to structure it like a virus. Are we and/or anyone else interested capable of injecting them with a system that will bloom into a full blown paradigm shift? How do we map the genome of political action?

   Puerto Rico calling “Virtual Alabama”.

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