The foolishness of Estate Taxes

Given the current estate tax rate of 55% applied to estates over 1 million dollars, I repost this letter I wrote to Diane Francis from National Post who suggested that the estate tax is good because it stops the heirs of rich people from spending the inherited money foolishly (full copy of her article below). As an aside it seems to me that no day passes without the democrats coming out with another really stupid idea.

Dear Ms. Francis,

I am a great fan of yours. I read your “Underground Nation” and I was really impressed by the way you can clearly see the negative consequences of government intervention in the economy.

We all know that the government does not do a good job at administering its assets and that billions of dollars are wasted annually on useless if not harmful pet projects. Second best but a close one is the use of private money for charitable purposes. However we all know that most charities, even if they are Bill and Melinda Gates' charity, are spending a sizable share of their budget on administering their funds.

Some charities sometimes spend 70-90% of their budget on administration (including these silly half an hour advertisements on TV) and the rest they give away.

This is by any definition an industry.

Setting up such a trust or charity before your death will accomplish little. Some charities (like Rockefeller’s) are growing their assets over time. Their real purpose is to provide salaries for their administrators and not to champion their causes that created them in the first place.

On the other hand any economist knows that in deciding on how much to consume or to invest, a rational citizen is trying to maximize an infinitely long string of consumption, of course discounted deepening on your time preference. You have a preference to leave some money to your family so they can enjoy themselves and grow.

An estate tax, therefore trims considerably the potential for consumptions for your offspring and in the consumption- investment balance, the tendency goes more towards consumption, therefore reducing potential production in the future. Therefore less capital will be available for the future generations. If this is the price to pay for having an elite in America, I think that it is worth it.

The estate tax is clearly a socialist invention. The tax does not apply equally to all citizens. Why should there be a $2 million dollar exemption on the value of the estate is not clear to me. How about a $10,000 exemption and a flat rate on the difference?

I want to see how many people will go out and cheer for the estate tax.

It is true that there is some positive side effect to the estate tax (like Gates or Buffet giving out their money to the public), but this a much worse alternative than no estate tax. Gates and Buffet although the first and second richest people in the world, have less wealth than Toronto produces in a couple of months, a drop in the bucket compared to the worldwide or American wealth. I don't see why other rich Americans should live their life by the ideas of Gates/Buffet. These (other than Buffet/Gates) rich Americans don't want their wealth taken away by the state or don't want to make their name "immortal" by donating their money to charity. They want to keep their money in the family.

Let's imagine for a second that there is a 100% estate tax. How much capital will there be available for the next generation? I bet that all rich people will buy annuities and spend like drunken sailors. Trillions of dollars of capital would be wasted in less than 50 years.

Clearly the estate tax is not a good thing. I am not a rich man and I probably never will, however I want a lot of people to have money around me and save them if they are so inclined. The estate tax in US in a bad thing and I hope that the Republicans will repeal it as soon as possible. Everybody would be better off.

Dear Diane, I would also want to transmit my thoughts to Bill Gates and Warren Buffet and to tell them that I laugh at their attempts to have the estate tax increased. If they don't think that the tax is high enough and that Uncle Sam, will leave them with too much money in their pocket, I can give them my banking information and I expect a deposit from them.

Diane Francis original article

Tuesday, August 08, 2006

Bill Gates & Warren Buffett on Estate Taxes

The Republicans, fearing a bloodbath in this fall's mid-terms, have honed a cynical compromise. Most seem ready to agree to boost minimum wages by US$2.10 an hour to US$7.25 within a decade in order to camouflage their attempt to scrap estate taxes for a few thousand super wealthy.

But the camouflage isn't working, thanks to America's two richest individuals Warren Buffett and Bill Gates. Both are totally opposed to scrapping estate taxes which, by the way, Canada scrapped in 1972 and replaced with a 25% capital gains tax upon death or departure.

The two most successful men in the United States oppose scrapping estate taxes based on the indisputable logic that such taxes are absolutely essential in order to foster free enterprise.

This is because such taxes mitigate the creation of an elite which can control the economy and politics, thus removing opportunities for new, smarter players. Look at Latin America or Saudi Arabia if you think unfettered inherited wealth builds sound economies and good societies.

Warren Buffett described the rationale behind estate taxes best: "Repealing estate taxes is equivalent to choosing the 2020 Olympic Team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."

He made that statement the day he announced that his wealth was mostly going to the Bill and Melinda Gates Foundation (and four smaller foundations to be run by his three children). The Gates Foundation finances social development and healthcare projects that governments and the private sector have neglected.

Mr. Buffett and Mr. Gates not only oppose scrapping the tax but favor increasing it. Gates' father, a Seattle attorney, leads the political movement in favor of higher taxes.

Despite the compelling logic, the Republicans seem to be listening to the lobbyists on behalf of the richest families who have spent US$500 million since 1994 lobbying to repeal the taxes, according to U.S. think tanks Public Citizen and United for a Fair Economy.

By the way, these estate taxes are rarely paid to governments. The wealthy have a choice: pay the money to the government or set up a bona fide foundation and give it away.

And that's another benefit derived from the taxes. These foundations fill a void that's often missing. These foundations and families divest their wealth to build hospitals, universities or to make contributions to social development projects, foreign aid schemes, public-interest research or the arts.

It's a win-win situation for the public.
And estate taxes are one of the main reasons why Americans are roughly four times' more charitable than Canadians on a per capita basis.

Currently, the taxes in the United States are punitive and can total 90% in some regions. There is a federal estate tax of 55% on estates worth US$2 million or more and, in addition, most state governments impose a death duty.

By contrast, Canada is unique among developed nations in that it has no estate taxes.
Worse than that, Canada also allows its wealthiest citizens to pay a 25% departure tax on wealth created in Canada and then move to tax-free or lower tax offshore havens forever so they never have to pay taxes again.

This is what Canadian families headed by tycoons such as Frank Stronach, Michael deGroote and the billionaire Irvings of New Brunswick, among others, have done with their wealth.

While this is not illegal, morality is another matter. People who have made fortunes should pay back the country that gave them the opportunity to become wealthy. So should their offspring and their offsprings' offspring.

By contrast, the U.S. taxes its wealthiest citizens when they die but also wherever they live even if they have renounced their citizenship.

Mr. Buffett, who lives in a house he bought for $31,500 even though he is the world's smartest stock market investor, also articulated estate taxes as an important cornerstone of social justice.

"It's in keeping with the idea of equality of opportunity in this country, not giving incredible head starts to certain people who were very selective about the womb from which they emerged," he said.

He chose the Bill and Melinda Gates Foundation to give his US$31 billion to because he said the couple has demonstrated that it knows how to do its due diligence so that its "giving" is leveraged and provides sufficient scale to make a difference.

The Gates' Foundation has a very small staff and prefers partnerships or networks as a giving strategy. But it is selective in how to hands out funds.

For instance, the Foundation has provided badly needed technology to 11,000 public libraries in the U.S. It has given US$100 million to 8% of New York City's public high schools providing they met certain curriculum criteria. And it just announced US$237 million in grants to several research groups to come up with a vaccine against AIDs providing they all agreed to cooperate and to share their results globally for others to work on.

posted by Diane Francis @ 12:03 PM 0 comments

http://dianefrancisbusinessissues.blogspot.com/

Medical care in Canada - bad and getting worse!

Clive Crook from FT and Peter Orszag are wrong on government health care

I am referring to Clive Crook's article on Medicare and Peter Orszag's article. 

I am a Financial Times temporary subscriber (as in I won't renew my subscription when it will come up). I think FT is a leftist piece. (which is curious since finance should be about markets).

The US system is very expensive, as noted by Peter Orszag today; but it does the job for most Americans. 

What Obama and you have in mind is to replace the balkanized system that every state has with a monster federal system. 

Crook says that a Medicare-for-all system would give US a truly universal coverage and will better control the costs. 

Canadian experience, however, shows the exact opposite - a truly government system is absolutely unable to contain costs. Not only expenses increased from 77 billion CAD in 1997 to 177 billion CAD in 2008, but the quality improvement is nowhere to be found (that is I think the Canadian system at this moment is the worst ever). I lived in Canada until early this year - I know what I am talking about.

 

You must have near infinite patience to wait in the hospital emergency room. As for seeing your family doctor (1 million people out of 13 million in Ontario, Canada don't have one) it takes from a week to a few weeks. However, going from there to a specialist takes a few good months (unless you are connected with the mighty Ministry of Health bureaucracy). From a specialist to surgery it takes a few more months. 

Also, in Canada, there were cases of women having miscarriages in the emergency ward (after waiting a few good hours for a help that never came). Look at this case in Alberta.

What Obama wants to do is to shove some kind of Medicare down everybody's throats. Of course he will say he only wants to improve accessibility and lower costs, but if history is any guide, Obama's talk and actions point in completely different directions. Actually if he really wants to make America competitive (as Orszag claims in his piece) there is a better solution: get out of the business altogether. Don't provide any medical services. Just pay for the handicapped and the elderly to provide their own care from a private hospital/practitioner. 

But this won't fly. Obama's supporters in the nurses unions would not vote for him and he will lose his job come 2012. He would have to go back to community organizing, writing fluffy books and rubbing shoulders with Ayers and Wright. His wife also won't be able to be a trustee to a hospital associated with the University of Chicago, since Obama won't be able to direct pork from taxpayers to the above mentioned hospital. 

What Orszag said today in FT is no news. We all know that the costs of medical insurance is up and it seems (to him) that prices have no chance of abating. And while it's true that US health care lacks in quality (especially from government hospitals), he fails to mention that the runner up regarding costs (Canada) is the worst in OECD in terms of "bang for the buck". US care is more expensive, but it achieves more. From this perspective, I note Orszag's comments as misleading. 

What Orszag suggests is to 

- ration care: reduce it by 700 billion a year. 

How will he determine what is inefficient - he doesn't say. Maybe have a 800 billion dollar a year agency that can do that. 

- cut payments to private insurers 

So the insurers stop ensuring some procedures or better yet go bankrupt and let the government insurer take over.

- cut health deductions for the wealthy. 

The rich don't even use the government health facilities. He also assumes that they won't actually move somewhere else or cut on their work (why work when the government gauges you). 

- cut payments to hospitals for the uninsured 

That's when Orszag shows his real colors. He assumes there would be few uninsured if any, since the government will pay for them with taxpayers' money.

- improve medical records

It was tried in other places (Ontario), where the government spent over 500 million, no work was done, but those in charge got hefty bonuses. 

- changes in incentives (what changes - it's not clear).

Orszag's changes (and by extension, Obama's) don't even scratch the surface. It's like complaining that houses are too expensive when the interest rates are close to zero and sub-prime borrowers need no downpayment. The only solution then is to ask fannie and Freddie to lend more. 

The simple fact of dropping employer chosen health plan would be the best thing possible - for starters. 

What the healthcare system needs is a good dose of competition. Competition for insurers between state lines, a reduction in regulation regarding medical practice and a strong pressure on AMA (American Medical Association) to increase the number of medical students (or better yet, get rid of medical certification from AMA altogether). Also government discrimination against systems where the patients pay a fixed amount of money for care (while all costs are covered by the doctor/insurer). This in my opinion aligns perfectly the interests of the doctor (cut its cost) with the interests of the patient (good care). Tort insurance would also be useful (at least in capping the damages to a reasonable amount)

Milton Friedman wrote this great article in 1998. At the time he noticed that real costs of a day in hospital went from 30 dollars a day (in 1996 dollars) to 1200 in 1996. He also noted that the number of hospital beds per 1000 people went down as soon as the government programs of medicare and medicaid were implemented. The reduction in care produced a bureaucratization and an increase in number of nurses without any tangible benefit. Medical care professionals waste precious hours filling up papers for the government.

The share of government expenditure in healthcare is already 55%. Hardly a free market.

What incentives are there for providers of health services in a government system? None. As you might recall, in the US there was a scandal a few years back that soldiers coming from Iraq with serious wounds were "treated" in a dirty facility with rats (maintained by unionized workers of course). Also a family (I am sure it was not a singular case) was told that their loved one will never walk again, only to be treated in private facility and walk in a few months. 

Everybody can see the problems of the US health system. However, looking at Obama plan (or whatever crums he and Orszag revealed to the underlings), it's clear that their medicine is worse than the disease. 

It's seems to me that politicians enjoy using the machinery of the state to tax unwilling citizens only to redistribute the bounty with the other half (that is their voters). Sooner or later they will run out of other people's money. Then what?

Skidelsky is wrong to admire Keynes

Robert Skidelsky’s had this article published in FT, June 10 on page 9. 

In the article, he claims that Keynes, the intellectual behind big government intervention, is some kind of moral guru as well. 

The article really bothered me in being so utterly false. While I don’t know whether Mr. Skidelsky is trying to mislead his readers, or he is just misinformed. I personally think that he is misinformed, but it’s surprising to see someone who is a professor emeritus of Political economy have such skewed ideas on economics nonetheless. 

I will deconstruct and refute the main points of his article.

He claims that in economics there are no decisive battles. That is true, and the reason is because bad ideas keep coming back. 

Friedman in reason:

Quote:

Reason: I read an article recently in the Washington Monthly that repeated all the silly ideas about inflation that you've been fighting your whole career. Are battles like this ever won?

Friedman: No. All battles are perpetual. You go back in the literature of economics, and you'll find the same kind of silly statements 100 years ago, 200 years ago. And you'll find the same sensible statements the other way.

End quote.

Mr Skidelsky is definitely on the side of silly statements.

He claims that the proof that free markets are not self regulating came about as a result of the Great Depression. The fact is that the Great Depression got its scary name due to government hyper-intervention. Without government intervention, the depression would have been a deep, much shorter recession. The government introduced wage controls, decreased the amount of money in circulation and helped labor cartelize. Additional restriction to commerce between state lines were raised. Protectionist efforts were increased.

There is no doubt that bubbles will form on a free market. However, smart people will arbitrage other citizens’ herd behavior and keep the bubbles small. In order to have a massive bubble that can destroy tens of trillions of dollars worldwide, you need significant government intervention.

While Britain might be in better shape financially than US, it’s worth noting here that FDR’s reckless policies (Social Security) created the huge unfunded liabilities of the US government. Any institution operating on the free market with this ratio of liabilities to income would be bankrupt in no time. The only reason the US government is still solvent is because it has something no business has: the monopoly on taking money from citizens that live within its borders.

With respect to the policies that government pursued to produce “full employment” one must be really blind not to notice the perverse incentives the government provided some of its less fortunate citizens. High marginal taxes (partly due to quick withdrawal of cash incentives of being poor), are estimated to being over 100% in Canada for a certain income range (according to a National Post article). This is the poverty trap that keeps the poor poor and unwilling to work.
With respect to printing money or other fraudulent methods of “stimulating” demand, Milton Friedman proved decisively in the late ‘60s that an increase in the aggregate demand will only shift the real aggregate supply curve temporarily, while the price level increases to absorb the extra liquidity. An extra stimulus would be produced only by increasing the monetary mass at even increasingly faster rates. And so eventually a loaf of bread becomes a few billion dollars as in Zimbabwe.
Not only this, but other economists like Paul Ormerod showed that the Phillips curve is not a static relationship, but it is dynamic. Once inflation starts it goes spiraling up and you can have high inflation and unemployment at the same time. Remember the ‘70s?

The fact is that government intervention in monetary issues is very damaging. The fact is that temporary increases in liquidity can in principle keep the ball rolling. But as Milton Friedman said, there is nothing as permanent as a temporary government program. No government would dry the extra liquidity in time to starve inflation.
Additional problems appear when a structural deficit appears. Looking at the standard of living in France, one can observe that the standard of living decreased in the last 30 years because the disposable income decreased with increasing taxes. And these taxes appeared in order to create “temporary” programs to “jump start” the economy.

The reason why Keynes’ multiplier is less than one if not negative is very simple. In order for the government to provide funding for it’s so called expansionist programs (without printing money), it must tax the citizens. Now we all know that the government does not get a fixed proportion of its citizens’ income. No. It takes a higher proportion from those who know how to make money and a smaller proportion from those who don’t. The money is spent in uncompetitive ways by its workers and administered by bored underachieving bureaucracy.

For example, look at healthcare in the US. Since 1946 the cost per patient per bed in the US adjusted for inflation went up 40 times!!!! Milton Friedman blames most of it on Medicare and Medicaid.
Also looking at US government education, in the 1970s, US had some of the highest graduation rates and highest quality. In real terms, cost per pupil went up three times, while nobody in the world can consider the quality of US education world class. In terms of dollars spent only Switzerland spends more (but also achieves more). 

So according to Skidelsky taking money from those who make it, spending it badly on failed programs in order to get votes from the lower income citizens produce “growth”. Are you kidding me?

In another paragraph he discuses the financing of the deficit. First of all, financing any deficit would be very easy if there was no debt. However, the “temporary” programs become permanent. This way the current generation steals from their kids and grandkids.
But since we live in the “real word”, we know there is a lot of debt around. What is damaging about this is not only that this massive debt will diminish actual private investment. It also means that that future taxes will have to increase to pay for the future debt. This has a chilling effect on any hard working citizen. Future tax increases will make work even less desirable. 

In the last paragraphs of his article, Skidelsky states that the “Keynesian Revolution” was a triumph not of good science over bad science, but of good judgement over bad judgement. It seems to me that his article and his ideas are a joke to any thinking man (and despite his Nobel, I don’t think Krugman is a thinking man). The sad thing is that bad false ideas pioneered by some dead economist keep being perpetuated by individuals who don’t bother to look at the facts. And that has to stop. And the Keynesian Revolution must stop before the government bankrupts and enslaves us all.    

Jeffrey Sachs is WRONG if not ill-intended

A few days ago, Jeffrey Sachs, a well known economist wrote some quite nasty things about another fellow economist, Dambisa Moyo. Ms. Moyo, replied back to Mr Sachs accusations. 

As a rule of thumb, a white guy heavily criticizing a black woman would produce a flurry of accusations of racism. This of course if the guy is a conservative/libertarian and the woman/minority is a socialist (i.e. liberal in the N. American sense). Financial Times tried this Saturday to present a “balanced” view, but somehow failed. To quote from FT:

“It has been easy for critics to poke holes in both her analysis and her solutions. The book does not establish in any scientific way the link between hundreds of billions of dollars poured into Africa over decades and the poor performance of economies. It also studiously ignores evidence of development assistance working.” 

FT also quoted Jeffrey Sachs as saying that her ideas are “absolutely pernicious, and could lead to the death of millions of people”. 

It appears that Jeffrey Sachs is a desperate man. The first rule of science to present arguments and not come with ad-hominem attacks. However after years and years dealing with the UN and other bureaucracies, it seems that Mr Sachs lost his scientific mantle and got a politician’s. 

In a nutshell, Sachs arguments are as follows:

1) Dombisa Moyo and Bill Easterly got aid in school and this kind of aid should also be available to others. 

2) Moyo and Easterly are pure evil and want to pull the ladder of opportunity of poor people. 

3) Children in Africa and dying, but Goldman Sachs paid more bonuses last year than US help to Africa, while at the same time GS got help from the government. 

Paul Kagame, the President of Rwanda is hypocritical for getting foreign aid while at the same time being against it. 

Moyo and Easterly produce the misconception that aid doesn’t work, when in fact it mostly does. 

Help from the western aid decreases child mortality which in turn decreases the number of kids.

Countries need more money in aid to graduate into a more wealthy environment. 

Jeffrey Sachs employed the worse kind of logical fallacies against a fellow economist. I am personally outraged. Now the rebuttal:

Moyo and Easterly got help with their studies, that is probably true. What is also true is that both of them graduated and made their mark in the world and now pay taxes so other students get “student aid”.

Without the “student aid”, some effects would be felt: Firstly taxes would be lower (since they won’t cover for student “aid”). Then academics would be making less money (since their customers would be more careful if they had to pay 100% of their tuition. Also, a private system of lending to worthy students would appear. Akerlof  would argue that this way, due to asymmetric information, the number of loans for students would be less than now, since investors would find it hard to find worthy students that will eventually pay back their loans. This is true only if we assume that the cost of education stays constant as a percentage of the student’s post graduation after tax income. 

Evidence however shows the opposite: with the exception of medical schools that don’t turn out enough graduates (due to AMA enrollment restrictions), most schools have more graduates than required. In order to have most of them complete their education, universities are incentivized to water down their subjects and go at a slower pace. True achievers need to spend more time in school and get more advanced degrees in order to differentiate themselves from those who go to universities in order to get drunk and get laid and get a piece of paper on the wall. Also, because the government’s heavy involvement in higher education, many courses taught are completely useless if not dangerous: courses in sociology, marxism, post-modernism etc.

Also, due to the increased number of graduates, the employers find it harder to find the people that they need, and also due to the lemon problem, those overachievers will be paid less than they would if only the truth seekers got advanced degrees. Add to this increasing taxes to pay for those who were supposed to have more applied metier. My point is that Easterly and Moyo, having already proven themselves, I can guarantee you that they would have made it if they had to pay for their tuition themselves. For every dollar they got in “aid” they probably pay 3-4 dollars if not more in taxes so that slackers get degrees and under-achieving academics stay employed.

In a talk with Cato institute some while back, Easterly mentioned that once he realized that aid didn’t work, and some innovative solutions must be implemented, he was sacked by his employer. And why is that? Because the mandarins working for the World Bank not only get above market salaries and perks, but also most likely get  kickbacks from the loans they provide.

Paul Wolfowitz also tried to reform this failing institution and was shown the door. It is also worth knowing that a large portion of the World Bank loans are provided to China (30% in 2005) and other countries that don’t really need WB’s help.

I don’t see how these courageous people who aren’t happy with the status quo and pay for their idealism are somehow evil. A careful observer might actually speculate that Jeffrey Sachs is in this position. 

It is true, children are dying in Africa and maybe to the tune of 9 million a year. If this is true, then perhaps 9 million died last year, two years ago and so on. The point is to make sure that this number decreases fast and goes close to zero as soon as possible. Moyo is right in her assertion that billions were spent years ago and the problem is still there. Look at SE Asia. Fifty years ago Ethiopia and South Korea were at a similar level of development. Now the GDP per capita in South Korea is ten times higher than Ethiopia’s, while over the years Ethiopia benefited from hundreds of billions of dollars in aid. Also the problems that Sachs mentioned in Africa can be supplied by locals themselves at lower prices. What is needed is respect for private property in these countries. But why would government bureaucrats want economic growth when that would mean that aid from the West would dwindle as a consequence. Why not throw thorns in the way of progress and keep the population subservient, while the aid comes and is directed to their pockets. This is what Sachs fails to understand or more likely fails to mention in order to keep the status quo and his position of “development guru”.

However what western governments did in Africa was to provide some “free” food, thereby killing the local agriculture and industry. Also they (especially europeans) banned some agricultural products by claiming it’s genetically modified and dangerous to health. On top of that large amounts of aid was stolen by corrupt government officials in their home countries. People with integrity have no room in these corrupt governments.

Goldman Sachs provided some bonuses last year, but not as much as the aid to Africa. Also I don’t see how relevant it is what Goldman Sachs does. Moyo was not the CEO of Goldman Sachs, but just a bond trader. While GS got a small help from the government in a 5 bln TARP loan (that GS would repay tomorrow if the government would take its money back), without government intervention, GS which currently has about 164 bln of liquid instruments could buy Citigroup, Bank of America and/or other assets. Sachs’ attack on GS is disingenuous at best.

Moyo, in her defense mentioned that given the current situation in the world economies, President Kagame could have asked for more aid and blame it on the world situation. He did not. Sachs’ attack is like blaming the fat kid who lost some weight by working out and exercising for still being fat. Again very disingenuous if not mean.


5-7) Aid doesn’t work indeed. I would like Sachs to provide some examples of the contrary. If aid actually worked, Africa would have been so rich, while SE Asia should have still been a poor backward region. If aid worked, we would be talking about some “aid tiger”. Actually the countries that grew faster are those who got the least amount of aid. 


It seems highly suspect to me that a bright Ph.D. can’t see that the data does not support his hypothesis. Not only aid doesn’t work, but it becomes increasingly apparent that dirigiste economic policies in the west are bringing us closer and closer to poverty. Will Sachs live to advocate aid to the West from the now developing economies? 

Schooling Matt Miller from Center for American Progress

Matt Miller wrote this letter in Financial Times on Tuesday, April 21st, 2009.
I felt compelled to respond. You can read the whole article here (subscription might be required). Here is my response:

In the first paragraph he is discussing about the poor stewardship of Wall Street. While it is true that Wall Street's track record is not great, the government's track record is even worse. I mention the government here because reading his last half dozen articles gave me this inescapable impression that Miller is a big government socialist.

Miller's three basic thesis are that it's in business' interest to 1) cut executive compensation, 2) give workers job security and health care (post employment) and, 3) give jobs that can't be outsourced/increase compensation for the middle class.
It's obvious to me that either he doesn't understand anything about economics (despite having an undergrad degree in the dismal science) or he completely sold his soul (figuratively speaking of course) to a socialist organization (Center for American "Progress").

1) Executive pay is the business of the board. The board is elected by the shareholders. Executive compensation is a very difficult principal - agent problem. While the current credit crisis and recession turned out to be pretty ugly, some of the executives and deposed executives benefited from golden parachutes enshrined during the golden age of market boom. This problem is self correcting, as executive compensation lags economic activity and firm performance in general. Basically it's a self correcting system and obviously none of his business (unless he is a shareholder).

2) "A new social contract". Businesses main goal (and only goal according to many) is to make a profit for their shareholders. It is hard to nearly impossible to make a profit when the employees are not happy with the work conditions. Employers can provide job security, but only at a price (lower salaries). On the other hand, employees who cherish job security can provide their services to the government or left wing "think tanks" where hard work and dedication are not sought after, but a nice steady job is.

Unfortunately, given the situation of the world economy, there are many professionals and fewer jobs, so from a supply/demand standpoint the employers have the upper hand. Also the employees benefit from unemployment insurance and other government schemes, so why should the management beat the dead horse?

While it is true that the US health care system is in need of repairs, they should come from increased competition and diminished powers given to the American Medical Association. Incidentally, apart from Fannie and Freddie, AMA has been the biggest lobbyist in the last 10 years. Its power stems from the monopoly powers given by state governments to regulate the medical profession and by forcing medical schools to keep enrollment low despite increasing population.

Also, the fact that insured patients pay only a limited percentage of the health bill decreases their incentives to shop around and decrease their costs. I don't see what employers can do to insure their former staff. However, the government could fine health care providers who charge uninsured patiens more than the money they receive from insurers or Medicaire (very simple thing, never done).

3) Middle class jobs that can't be offshored. Over the last 15 years or so the middle and lower class benefited enormously from trade with emerging markets. While it is true that some jobs have been displaced, the biggest enemy of jobs is the high profit tax that US companies are subjected to and encroaching regulation. A weaker dollar will ensure that US companies' benefits from offshoring shrink towards zero. Let's not forget also that the Tax code is 70,000 pages and most tax experts have no clue of the loopholes in it. For more information, please read this article.

Miller's direct demand of higher wages flies in the face of reality (especially given his other request that businesses provide job security as well). It's one or the other: job security and lower wages or higher wages and less job security.

His threat that without job security, the executives would face direct physical threats from angry employees or other (poorer) citizens is ridiculous. We thought that 12 years of "free" government education produced enough civic minded individuals concerned mostly with their life, liberty and pursuit of happiness not to worry about these trifles.

Miller's totalitarian suggestion here is evident: pay your employees/ the socialist voters/ the mob more or they will come after you (while the administration presumably looks the other way). I wonder why he didn't suggest similar things to movie stars, many of them making more than executives: get paid less or angry movie goers will come after you. It must be the socialist ideology that many Hollywood actors and Miller most likely have in common.