On Big Stores and Advertising

Earnest Hemmingway wrote in his memoir, “If you are lucky enough to have lived in Paris as a young man, then wherever you go for the rest of your life it stays with you, for Paris is a moveable feast.” I agree completely. Not a day goes by that I do not think back fondly on my years walking the historic and fashionable streets of Paris. France left me with the indelible conviction that life is better when society is not so obnoxiously full of huge chain stores and pervasive advertising. Although the United States should avoid many Western European policies like the plague, we should follow their example by helping small shops and regulating manipulative, in-your-face advertising. Corporate stores and rampant advertising contribute to a materialistic culture and an undesirable physical environment, both of which are enemies of American spiritual, emotional, and physical wellbeing. Our American Dream should be about the contributions we will make to our families and to society, not about the stuff we buy.

Big Corporate Chain Stores

There are fewer and fewer small consumer-oriented businesses left in America. We buy our Chinese-manufactured clothing from chain stores. We buy our genetically modified groceries at chain stores. We buy our furniture from chain stores. Same goes with our electronics, hardware, beauty supplies, and sports equipment. Although there are a few Ma & Pa restaurants and shops around, we buy almost everything from big corporations. I dislike shopping at big chain shops because the quality of products and service is poor. There is a plausible argument that big chain stores are cheaper and more convenient than shopping at small shops. I generally disagree; but the argument is intelligent. However, that big corporations put out better quality products and services than small shops, nobody has even begun to prove. Owners of small shops take greater pride in their services and products. Products are higher quality when they are made by a particular craftsman for a particular customer. Unfortunately, many Americans have become habituated to poor quality products—plastics, wax, and cheap construction are everywhere. Similarly, small service providers tend to outdo their corporate counterparts.

I’d like to briefly address the arguments that big chain stores are better because they are cheaper and more convenient. Products are generally cheaper at big stores, but their duration is shorter, which costs more. For example, a tailored suit will be more comfortable, look better, and last longer than a mass-produced, cheap suit. It is very possible that the a man would have to buy two or three cheap suits to dress himself for the same amount of time that the tailor-made suit will last him. Big stores are probably cheaper than small stores to some extent, but much less than many Americans seem to think. If there were much fewer big shops around, shopping at little shops would be more convenient than shopping at the big places. It isn’t much more convenient to walk the length of a street in the same store; you might as well walk the same distance from little shop to little shop. Since all of our stores are huge nowadays, we have to travel longer distances to get what we need. If shops were smaller, we would be better able to walk to buy our food and supplies rather than have to drive—healthier, more sociable, and generally more pleasant.

I have found that many people do not know that public corporations are required by law to put the pecuniary interests of shareholders before all interests of consumers. Frequently, pleasing customers translates into increased profits, but not always. Big corporations wield their influence over government and society to make their job easier and more lucrative. They use their power to make things more convenient to make money, not more convenient for the consumer. They get customers addicted to a product or service and then decrease the quality with time. As a result, frivolous consumerism is way too much a part of American culture. The companies convince people that they need more stuff, not better stuff. The corporations convince people that they need things, they don’t really need. The corporations use advertising to teach people to envy others for their things and to feel like they are inadequate if they don’t keep up with the Joneses. It is even rather rare for critiques of corporate stores to show up in reputable publications because they are hesitant about publishing anything that will offend their sponsors.

In my opinion, this consumerism is exemplified by smartphone buying. I know a few people who spend exorbitant amounts to constantly upgrade from the iPhone 3GS, to the iPhone 4, to the iPhone 4S, and for what? Finicky voice-recognition software? A slightly improved camera? More likely, it is to keep up with the Joneses because they have fallen prey to the corporation’s message that your phone is a status symbol. Or, they have convinced them, through sly psychological trickery that stuff makes them happier than it actually does; that things are better than time. Despite all of the freedom and money we have in America, we are not the happiest people because we are too stressed about things that don’t matter. We need to stop spending our resources on stuff and status and start spending them on enjoying our family, nature, and culture—for that is where real happiness lies.

Additionally, the growth of big corporate stores concentrates wealth in the hands of fewer and fewer citizens. Some of my friends who disagree with my sentiment here argue that I am going against the free market. I am not so sure that I am—but, perhaps I am to a degree. I measure the value of the free market first by its ability to bring about a good society and secondarily by its ability to maximize wealth and American political power. Regardless, I think that these big chain stores are engaging in anticompetitive activity by elbowing out their competitors with an onslaught of manipulative advertising, political influence (e.g. procuring favorable changes in the tax structure, business regulation, etc.), and even pushing urban designs that favor big stores over little ones, even to the detriment of city beauty and the health of the environment.

Some businesses perhaps provide more public good to us as Americans if they are big. I do not doubt it. This essay is not against all big natural resources, pharmaceutical, manufacturing companies, etc. What I am convinced of is that quality of life is better when there are more SMALL SHOPS than there are corporate mega-chains. Having a few big stores is fine. But, the proliferation of corporate chain stores has weakened local economies, stripped communities of their beauty and character, and impoverished civic and cultural life in American towns and cities. 

Advertising

But wait, there’s more! We are practically drowning in the manipulative marketing of big shops. I have tried American-style advertising for free and I want to return it for a full refund. The trial was definitely not risk-free. It was fraught with puffery, misleading information, psychological chicanery, and false portrayals of reality. The ubiquitous nature of the loud and bright advertising is so constant that it fatigues you and pounces when you are too tired to adequately defend against its cunning attacks. You see, advertising works. It sells. But, it is annoying and bad for America on a cultural and moral level. Even the advertisements online are worse in the United States. They are more common, more in-your-face, brighter, and cheesier.

In my opinion, the only proper purpose of advertising is to inform people of their options with regard to products and services. Advertising in America is, to some degree, protected by the First Amendment and is backed by big-time support of lobbyists; but we need more truthful advertising, fewer commercials, fewer ugly billboards, and fewer product placements in the media. We need to emphasize America’s natural beauty and family values by making the places we live and the activities we engage in supportive of those things. 

Capital Gains Overview

INTRODUCTION-- WHAT ARE CAPITAL GAINS?

With all the recent talk about Mitt Romney's taxes and the impending "fiscal cliff," I realized that I, as well as many people, had only a rudimentary understanding of the taxation of capital gains. Indeed, I feel many retain some misinformation on the topic.

Long-term capital assets receive preferential tax treatment under the Internal Revenue Code. Long-term capital assets are any property held for more than a year EXCEPT for property that is the normal source of business income (e.g. inventory held for sale, business equipment, office space, etc.). Perhaps the most familiar form of capital gains are those associated with stock in companies. For those realizing capital gains whose marginal tax rate is 15% or lower, they pay NO tax on capital gains (0%). For those in higher tax brackets, capital gains are taxed at a maximum rate of 15%. However, the rates on capital gains are slated to go up to 20% on December 31, 2012 unless Congress does something to change it (part of the "fiscal cliff").

PROS & CONS OF PREFERENTIAL TAX TREATMENT ON CAPITAL GAINS

Justifications advanced for the preferential treatment of long-term capital assets are generally threefold:

1. Part of the gain realized on the sale of capital assets represents inflation. Thus, although the market price of property increases after ten years, the true value has not after factoring in inflation. Taxes should be lower on capital gains to take inflation into account.

2. Lower taxes on capital gains incentivizes responsible savings. 

3. Preferential tax treatment of capital gains makes for mobile capital and more efficient markets. Lower taxes on capital gains makes it easier for investors to take money out of stagnant or failing companies and put it into more promising businesses. Lower capital gains taxes helps socially beneficial or popular enterprises raise capital.

But, there are strong counterarguments too:

1. Differentiating gains and losses as capital or ordinary requires complex and hard to understand regulations. The administration of preferential treatment of capital gains, this argument goes, is too expensive and cumbersome to be worth it. Opponents of lower taxes on capital gains argue that there are better ways to accomplish the purposes of favorable capital gains treatment. For example, tax bases can be adjusted for inflation. 

2. The strongest repost of opponents is that favoring capital gains is just not fair. Only those with lots of capital with which to invest have capital gains. In 2010, the top 1% of income earners realized over 70% of the capital gains.

SOME SUGGESTIONS FOR CHANGE

Regressive Capital Gains Tax: Clayton Christiansen of the Harvard Business School, and others, suggest taxing capital gains regressively over time. In other words, the longer you hold on to an investment, the lower the tax rate should be on that investment. He believes that the relatively minor loss in tax revenues for the government ($38 billion in 2012) are well worth the increase in capital available for job creation and innovation. Indeed, many or probably most economists agree that lower capital gains increase revenues in the long run through quickened economic growth. But, this notion is challenged. The true effects of high and low capital gains rates are hard to measure because there are so many other historical factors that affect the state of the economy. Evidence seems to support and deny the benefits of low taxes on capital gains.

No Capital Gains Tax: There are many voices calling for the government to stop collecting taxes on capital gains entirely. This would have effects on businesses' choice of entity (i.e. pass-through entities like LLC or LPs may lose importance) which may require some legislative tweaking; but, would increase capital mobility and, in theory, make for a more efficient market.

No Preferential Treatment for Capital Gains: Another option would be to tax all gains at the ordinary rates. Whether a gain is realized on stock or through lending services, the tax on income would be the same. This would raise government revenues and make for more equality and result in more fairness. After all, why should income from labor be taxed more than income from investments in big corporations.

Comprehensive Change: Perhaps my idea would be to alter the entire structure of the Code. I would widen the base and flatten the taxes for all but those making more than $5 million per year except for income from patent and copyright royalties. The rate could then be steeper from there. I would do away with a number of counterproductive tax subsidies. I would cut spending and regulation. Perhaps I will elaborate my nascent tax plan in a forthcoming post. 

Overvaluing Automatons: Workaholism or Hard Work?

"I did not want [my child] to end up like one of those weird Asian automatons who feel so much pressure . . . that they kill themselves after coming in second on the national civil service exam."

- Amy Chua, Battle Hymn of the Tiger Mother

Hard work and workaholism are not the same thing. Hard work is a character strength. Workaholism implies poor priorities and an imbalanced life. And yet, Americans increasingly have to be more like workaholics than hard workers to attain the highest levels of success in this country. Although many businesses, hospitals, and professional firms promote work-life balance to attract and keep high quality employees, many still have corporate cultures that value very long hours and promote employees based almost entirely on productivity ($$ per person) without regard for other circumstances. Firms say and do two different things. They advertise that they value employees and then treat them as liabilities rather than assets. In fact, many of the most prestigious career fields in America require at least a few years of totally unbalanced devotion to work. To become a top lawyer, you have to put in backbreaking billable hours as a junior associate. Then, of those workaholics, only one in five makes partner: the one who puts in the most hours. To become a physician, you have to do a few years as a resident putting in 75-hour workweeks with a frenetic schedule and then you're on call (in 2003, OSHA adopted an 80-hour limitation with exceptions, how generous of them). To become a business executive, the standard path involves doing your time at a major consulting, accounting, or investment banking firm.  But, are these long hours really good for us? Or are these long-hour rites of passage really just chest pounding, bragging rights, proof of manhood? Workaholism is fostered early on too. Test scores at universities are based solely on productivity and are the greatest determinant of career opportunity. In the end, this is understandable right? Businesses are profit-maximizers and getting more work out of fewer people seems like it would cut costs and increase net income.

But, even if overworking employees does make for higher profits, isn't it the government's job to correct for the excesses of business' constant quest for profit? Shouldn't we have a system where those living a balanced lifestyle are rewarded? America lags far behind developed countries with regards to family-oriented workplace policies like maternity leave, support for working mothers, maximum working hours, and vacation time. On average, Americans work 30% more hours than Europeans, yet American and European workers are virtually equal in their productivity. Studies show that working more than 50 hours a week might increase productivity for some people, but only very marginally. In other words, if you are a workaholic, you might get the most done, but insignificantly in the big picture. The hours aren't worth the increase in productivity. Studies show that, on average, productivity after 50 hour of work in a week drops off precipitously. For example, Albert studies for 50 hours in a week and scores a 90% on his law school exam. Bertrand studies for 80 hours a week and scores a 95% on that same exam. Since most law schools have a mandatory curve, Albert gets a B+ and Bertrand gets an A. Now, in law school terms, the difference between a 3.3 (B+) GPA and a 3.7 (A-) GPA can be as much as $100,000 difference in salary. But, is that how it should work? Should we really value Bertrand's marginal increase in legal knowledge (that can be found with a click of a button) at $100k? While Bertrand was outlining campaign finance law in the library for 30 extra hours, Albert took his son fishing, his daughter to swimming lessons, went on a date with his wife, volunteered for the Special Olympics, went to the gym three times, read a book, took a nap, and helped a friend change his brake pads.  Who is really more productive? Who is more honorable? Who would you want as your leader?

The overworking of Americans has a number of negative effects on individuals and on society as a whole. 

Materialism: First, emphasis on long work hours puts a premium on money and devalues time (time with family, time with friends, time doing service, time on hobbies, etc). Hours worked per person in America has steadily increased since the late 1940s while salaries per hour worked have doubled since then when adjusted for inflation. In other words, Americans could work 4-hour days and have the same quality of life as they would have earned for themselves in an 8-hour work day in 1940. Commercialism has convinced too many Americans that stuff is more valuable than it really is.

Sleep: If you need an alarm clock, you are probably not getting enough sleep. Every year, the sleep deficit among American workers grows. Most Americans are getting over an hour less sleep than they should.

Experience: There is an argument that we are getting boring as we take less and less vacation and fewer and fewer hobbies. We aren't traveling as much for pleasure or learning. Jobs are requiring us to become increasingly specialized and job satisfaction declines with the diminished variety. We can't pursue hobbies or side-jobs anymore. There's not time to produce that great idea for an invention, write that book, or teach yourself to knit. We work, eat, sleep and repeat. We don't have time to meditate and think about life or to engage in meaningful conversation.

Health: Stress in American workers is measurably higher with each passing year. This contributes to a host of mental and physical health problems that are on the rise. The stress also has a negative effect on our relationships with others. We are less happy and more depressed than ever. In addition, long work schedules often make for more sedentary lifestyles that contribute to problems like, among others, obesity and cardiovascular complications.

Unemployment: Increasing hours for employees means less people get hired.

Family: This is the most unfortunate casualty of our overvaluation of long hours at work. I don't even know where to begin. Marriages are strained as husband and wife spend less time with one another and don't have time to complete household chores. Parents spend less time with kids. Kids are left home alone more and more. Even when a person has time for their spouse or children, fatigue usually makes that time less effective for bonding. Couples are putting off getting married or having kids until after school or after my first job or after whatever so that they can be more successful in their careers. I think this lack of love and spending time together leads to lower morals too. When we don't feel cared for, we generally hold ourselves to lower standards of conduct. Friends can be a strength, but family is where moral support most happens. Mothers should be able to put their families first and still become physicians, but the system does not allow it nor does the impossible ideal of "supermom" help the situation. It ignores the problem.

One way to deal with this problem would be to set a maximum work hour ceiling. Perhaps employers would be prohibited by statute to work their employees for more than an average of 60 hours a week over a ten week period. That isn't setting the ceiling too low. Or, perhaps tax incentives could be set up to encourage employers to work employees at reasonable hours and to make it not worth overworking employees. Perhaps a minimum vacation requirement of 14-days a year should be instituted. I would also like to see policy incentives for improved maternity leave and accommodations for mothers at work (e.g. breastfeeding breaks, mothers' rooms). 

As an aside, I prefer that protecting employee work-life balance is better accomplished by statutes than by empowering labor unions. Labor unions have a natural tendency to carry their fight for workers to excess just as unchecked businesses seem to go too far the other way. Can everyone agree that working more than 60-hour weeks with only one week of vacation time, and zero sick pay is inconsistent with a balanced life? In my opinion, the law could appropriately set some minimum standards through taxation or outright prohibitions.

Finally, I'd like to see education policy shift to better esteem students with balanced lives and talents that fit particular career fields rather than abstract academics only. Work-life balance is not so much a problem in public high schools where the homework load is relatively quite low; but in graduate professional schools it is certainly a problem. Slightest differences in capacity are blown out of proportion in assessments and in school's representations to employers of a student's worth. Perhaps simply measuring competency in individual subject areas and forcing employers to sift through potential employees would be a better system for many professional graduate schools. The current system seems to enable elitism too much as well. I'd also like to see alternatives to medical residencies or grueling junior associate rites of passage. Perhaps a 5-year residency at 40 hours a week rather than a 3-year residency at 75 hours per week. Maybe a 12-year partnership track rather than a 7-year track.

We don't want to become automatons that feel they have to sacrifice faith, family, friends, or service to become a law firm partner or a physician. For stronger families, happier citizens, and (yes) a stronger economy, we need to reward those who live balanced lives. 

Equality of Opportunity and Equality of Outcome

There are two notions of equality that drive different political ideologies. The first is equality of opportunity. An equality of opportunity approach seeks to level the playing field by making the law apply equally to everyone. The second kind of equality is equality of outcomes. Equality of outcomes seeks to ensure that everyone ends up in the same conditions. The two are mutually exclusive to some degree as equality of opportunity implies certain inequality of outcome. Only equality of opportunity is consistent with pure liberty. But, what kind of “equality of opportunity” should we seek in America? And, is the line between the two as clear as one might like to think?

Let’s look at a case study of affirmative action. The issue is obviously complex and some oversimplification will unfortunately be necessary to fit this into a neat little blog post. Racial inequality is measurable by educational indicators, socio-economic circumstances, crime rates, single mothers, and by a number of other sociological gauges. To correct for these inequalities, various affirmative action policies have been put into effect. Affirmative action policies can perhaps be grouped into two primary types. First, there are systematic remedies that seek to level the playing field and make the rules apply to everyone the same. Secondly, there are redistributive policies that seek to open up new opportunities.

What would justify affirmative action? Presumably, most all affirmative action policies would be unjustifiable if racial inequality arises from (1) innate biological inferiority (overwhelming evidence refutes this notion entirely); (2) cultural pathologies that deemphasize hard work, education, etc (some empirical evidence supports this); or (3) voluntary choices to pursue the paths that they do (very unlikely). However, what affirmative action policies are justified if (a) discrimination and stereotypes play a role in keeping a race down (informal barriers) or (b) structural based obstacles like segregation or a lack of family connections work against a race (formal barriers)?

Even libertarians think that structural or systematic obstacles stemming from government’s duplicitous treatment of different races should be abolished. But, to the extent that discrimination (overt and unconscious) still exists, should quotas, recruiting campaigns, or employee support programs be provided to members of a disadvantaged race? Although express quotas in hiring and school admissions are prohibited by law, unspoken redistributions of opportunity in many careers and school admissions are measurable statistically and legal. So, should discrimination be remedied by redistributions of opportunities? Such an approach would be an equality of outcomes approach. 

Affirming a belief in equality of opportunity implies a belief that government should make sure everyone starts off in the same place, not that everyone ends up in the same condition. However, the issue is complicated by the fact that people aren’t born in the same place. Although we are all of equal value in the eyes of our Heavenly Father, some of us are born to poor parents, others to rich parents; some are born in the United States, others in Somalia; some to parents who love one another, others never know one of their parents; etc. The only way to get everyone started off equally would be to institute some Spartan program of community child-rearing and a total prohibition of any gifts whether given inter vivos or after death. However, that just seems inherently wrong and completely inconsistent with freedom.

Should we simply ignore birth inequalities? I am tempted to say that it is better to let mysterious fate distribute opportunity rather than the arbitrary or fleeting preferences of government. But, I don’t think such an extreme view is the only answer to this puzzle.

A certain degree of economic inequality is desirable. Inequality provides rewards for hard work, talent, and achievement. It provides lubricant for social enterprise and progress. However, when inequality becomes too great, it animates pride, exploitation, discontent, and rebellion that cause societal decline. When crafting solutions to inequality, government should not focus on where to strike a balance between inequality and equality. Rather, I think the focus should be on balancing economic mobility with the freedom to bequest good things to our loved ones. That isn’t very precise; but I don’t think precise is possible. The slightest possibility of reaching the top of the Forbes Richest People list in a single lifetime is all that is necessary for proper income mobility in my view. 

I am thus only in favor of redistributive policies to the extent that all people have the minimum necessities of education, food, shelter, medical care, and life guidance to change their own fortunes and achieve unlimited success with the probabilities of economic success (for full-time, committed individuals mid-career) being chartable on a bell curve. With a more virtuous society, the bell curve will shift towards the prosperous; with a society in moral decline will shift towards the poor. But, the possibility to succeed or to lose should always be present. Real freedom can only be present if we are responsible for the consequences of our choices.

Given my acceptance of some forms of redistributive policies, it is worth mentioning that such policies have been egregiously mismanaged. First, the government not only redistributes things that are not the minimum necessities I described, but are actually detrimental to a disadvantaged person's chances of improving his or her situation. People don’t need a T.V. In fact, TVs do more damage than good. Somehow, people on government stipends for poverty, unemployment, etc afford televisions. People don’t need more bedrooms than there are people in their family; yet I see that in my service to those in government subsidized (or furnished) housing.  And, even the things government provides that people do need as minimum necessities are mismanaged on a large scale. Student loans are given in excessive amounts and without any risk assessment. Medicare pays for unnecessary stuff and pays more for the same services when compared to Veteran Affairs. Redundant programs (there are 23 agencies that provide independent and overlapping assistance to former USSR countries, 12 agencies that ensure food safety requirements are met, and the list goes on for a very long time) are the norm. The mismanagement of what should be proper government redistribution and regulation purposes cannot be understated.

I should also say that income mobility is not the most important thing in the world. Even people who end up not able to break through their birth social class can live joyful and meaningful lives. Indeed, the rich are often less happy, probably because they focus too much on money and too little on the more important things of life like faith, family, friends, and developing an honorable and virtuous character. Equality and freedom are instrumental in bringing forth a virtuous society. But, neither is the end in itself. Government policies should reflect that emphasis on virtuous living through freedom and equality rather than freedom and equality at the expense of virtue.