America’s Small Towns as Opportunity Zones, Part II

We continue the discussion of the provision in the new Federal tax bill for designating small towns in trouble in this country as “Opportunity Zones,” thus making them eligible for assistance in the form of tax incentives.

One in six Americans lives in what the Economic Innovation Group calls a “distressed community,” where median household incomes remain far below the national level, which is $59,000 a year, and the poverty rate is well above the national average. Those communities are urban, rural and suburban. On average, the communities lost 6 percent of their jobs and a similar share of their business establishments from 2011 to 2015, according to census data.

        Gassaway, West Virginia                     Princeton, West Virginia

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America’s Small Towns as Opportunity Zones, Part I

The news about small-town life in America is not all bad. We have discovered through this recent article in The New York Times that there is an intriguing provision in the recent tax bill that would allow—in fact encourage—long-term investment in troubled towns. By being designated  “Opportunity Zones,” these towns or neighborhoods within towns would be targeted for development by means of tax incentives. What finer use of this country’s wealth than the reinvigoration of its civic life at this sub-metropolitan level? Before investing overseas let us look to our own. Our responsibility to our immigrants—our “huddled masses”—does not cease with their admission at Ellis Island.

If the zones succeed, they could help revitalize neighborhoods and towns that are starved for investment.

They could also deliver a windfall, in the form of avoided capital gains taxes, for corporations and financiers who invest in the Opportunity Zones.

Yet risks remain, including whether investors will steer dollars toward areas that really need investment.

         Tim Scott

The zones were included in the tax law by Senator Tim Scott, a South Carolina Republican who was born into poverty in North Charleston, and based on a bill he co-sponsored in 2017 with several Democrats. The effort to create the zones was pushed by an upstart Washington think tank, the Economic Innovation Group, and its patron, the tech mogul Sean Parker, of Napster and Facebook fame, who enlisted Mr. Scott and others to sponsor the legislation.

         Sean Parker

“I had to explain it several times to folks,” said Mr. Scott, whose co-sponsors on a previous iteration of an opportunity zone bill included Senator Cory Booker, Democrat of New Jersey, and House lawmakers from both parties. “I came out of one of these communities, so I believe that there’s untapped potential in every state in the nation.”

Mr. Scott said that he had discussed the plan with Mr. Trump and that the president had later spoken approvingly of it. But in the rush to pass the bill over the course of a few frenzied weeks, the idea was never debated on the floor of the House or Senate. It was never promoted by Republican leaders or the White House.

         Kevin Hassett

“This is a little billion-and-a-half dollar part” of the law, Kevin Hassett, the chairman of Mr. Trump’s Council of Economic Advisers, said in an interview. “But if it’s successful, we’ll look back 10 years from now and say this was one of the most important parts of the tax bill, and one we didn’t talk nearly enough about.”

Mr. Hassett has a longtime interest in providing tax incentives for economic development in distressed areas. He said he first began discussing opportunity zones with Mr. Parker several years ago at a meeting in Mr. Parker’s Greenwich Village home. Before joining the Trump administration, Mr. Hassett wrote several white papers to help elevate the idea as part of an extensive, multiyear effort by the Economic Innovation Group to win support.

Mr. Hassett said he was never paid for any of that work. His interest, he said, stems from growing up near Turners Falls, Mass., which has struggled since the closing of its longtime paper mills.


Mr. Parker, who made his fortune as the first president of Facebook, was looking for a way to steer investors to parts of America that have been starved for economic activity in the wake of the Great Recession.

To be continued


Small Town Banks III

People’s Federal Savings and Loan on the corner of South Ohio Street and East Court Street across from the Spot restaurant in Sidney, Ohio by Louis Sullivan

The last chapter of this essay on the disappearance of small town banks today brought about by the new dependence of nearby big cities on other major world cities rather than on them.

By RUTH SIMON and COULTER JONES Dec. 25, 2017  for The Wall Street Journal

Another headache for bankers in rural areas, says Jerry Rexroad, CEO of Carolina Financial Corp. , is that “it’s very hard to find highly competent commercial loan officers who want to live in these small towns and can produce an adequate amount of production.” He said rural businesses often have less sophisticated reporting systems that make their finances tougher to analyze.

Carolina Financial, of Charleston, S.C., in November acquired First South Bank, of Washington, N.C. “The smaller towns are really more for deposit-gathering that gives you funds to lend to larger towns,” says Nick Nicholson, chief credit officer First South Bank.

Carolina Financial’s Mr. Rexroad says it is “equally committed to growing our market share in rural and urban markets,” and recently assigned senior loan officers to help cover rural areas.

Small-town businesses say bank pullbacks weaken local economies further.

PNC installed an ATM 6 miles from Woodland in Rich Square, population 884, when it closed its branch there in 2016, leaving the area without a bank branch for the first time since 1902.

“It’s hard to get a business to come in” when there is no bank to cash workers’ paychecks, says Rich Square Town Commissioner Reginald White. Rich Square has a barber shop, grocery, hardware store, pharmacy, post office and three restaurants. But the storefronts on one side of Main Street are vacant.

Horace Robinson, owner of Upper Cutz Barber Shop on Main Street, makes weekly deposits at the ATM. When he needs change, he unlocks his soda machine or one of the shop’s arcade games rather than drive to a PNC branch 17 miles away.

A PNC spokeswoman says the bank, “continuously evaluates its branch network to assure we are meeting customer needs in a cost effective way.” Customers, she says, “are banking very differently today” with online and mobile channels and ATMs.

After deciding to close the Rich Square branch, PNC “contacted 15 banks, in some cases multiple times,” in an unsuccessful effort to find another financial institution to take it over, she says. PNC donated the branch to the community, installed a full-service ATM and made other investments, she says.

The interior of People’s federal Savings and Loan by Louis Sullivan

Ms. Baker, the peanut-business owner, says 45 years ago, when her mother moved her ceramics classes from home to a storefront, a local banker took a personal interest in the business and gave her a loan.

In Ms. Baker’s 15,000-square-foot operation, workers make peanut brittle and water-blanch and fry peanuts, then season them or cover them in chocolate. It employs up to 18 during peak season.

When she sought a loan to expand into a new building, she figured the family’s decades-old relationship with Southern would help get her one. Instead, she says, a banker at Southern “told me I should close the business down” or operate it just during the busy Christmas season. PNC, she says, told her there wasn’t enough foot traffic to support a store.

She received a loan from Carolina Small Business, a nonprofit lender a two-hours’ drive away in Raleigh. It offers financing, education and training to small businesses but doesn’t collect deposits or offer checking accounts, wire transfers and other traditional banking services.

Because it takes so long to get to the closest PNC branch, where she does her business, Ms. Baker sometimes makes deposits at a Southern branch about 8 miles down the road. Doing business with two banks, “you end up having double fees.”

Simple transactions require more planning. Employees must leave earlier to cash their paychecks, says Ms. Baker, who plans to add automatic deposit next year. When the peanut business runs out of change, Ms. Baker and employees go through their pocketbooks.

Moving to a town with more foot traffic might have made sense, but her business “was like that last thing in our town,” she says, and “I didn’t want to take it away.”

A shuttered storefront in Rich Square, N.C. Photo: Veasey Conway for The Wall Street Journal

This concludes the three-part article on Small Town Banks.

Small Town Banks II

National Farmer’s Bank at Broadway and Cedar Street in  Owatonna, Minnesota, designed in 1908 by Louis Sullivan. A national architectural treasure, it has been called the most beautiful bank in America.

We continue the article on small town banks—how they are vanishing as the services these small towns once provided the big cities dry up due to globalization, making it harder and harder to conduct profitable business in these towns.

By RUTH SIMON and COULTER JONES  Dec. 25, 2017  for The Wall Street Journal

The Gap’s Effect

Around Roxobel, population 220, and other parts of rural northeastern North Carolina, the banking gap is hurting business. Three months after PNC closed a bank branch in Colerain, population 187, Tommy Davis closed his Nationwide Insurance office there. Losing the bank branch meant he had to drive 25 minutes each way daily to make deposits. And he lost foot traffic from people who once dropped by on their way to and from the bank.

“It’s really like a death sentence for a small town because the bank is the center of all activity,” says Mr. Davis, who owned the Colerain location for 20 years. He moved the business to Windsor, a larger town 25 miles away.

Twelve miles north of Roxobel in Woodland, population 729, Sharon Ramsey closed the DeJireh Grill because, she says, she couldn’t get bank financing. At first, she says, the restaurant “was turning a profit, but it was just enough to stay open.”

She was told she didn’t have enough credit history to qualify for a loan, Ms. Ramsey says. She closed DeJireh in 2013 after three years to focus on her variety store in nearby Conway, which lost its only bank branch several years ago.

Southern closed its Woodland branch three years ago. Then the local grocery store shut down. The loss of both means “most people drive through here” without stopping, says Joe Lassiter, owner of Lassiter’s Used Cars. He keeps no more than 10 cars on his lot, down from about 20 before.


Barbara Outland, owner of Grapevine Cafe down the street, drives 11 miles to Murfreesboro, N.C., to get change and make deposits. Ms. Outland, 71, says that as defense against any thieves eyeing that cash she locks up at night with a .38 Smith & Wesson revolver “in my hand, in plain view for all to see.”

Woodland Mayor Kenneth Manuel says Southern rejected the town’s request for an ATM, saying it needed 4,000 transactions a month to justify one.

Southern Senior Vice President John Heeden declines to comment on Woodland. “It is never easy to make such decisions that impact our friends and neighbors in these close-knit communities,” he says, “and Southern Bank certainly takes these decisions very seriously.”

The bank, with $2.6 billion in assets, was started by local investors in 1901 as Bank of Mount Olive. It has 61 branches, including the only bank in Woodland’s Northampton County. Southern says that 36 of its branches are in towns with populations under 6,000 and that in most areas where the bank has closed branches, there is another bank fairly close. “Southern Bank embraces its ongoing commitment to serve rural communities that are overlooked by many of our larger competitors,” Mr. Heeden says.

In considering closures, he says, “profitability and market dynamics are primary drivers, along with other factors that can vary over time and by market.”

Interior of National Farmer’s Bank by Louis Sullivan

Economic Ills

Rural communities in parts of the U.S. have become less attractive to local banks because they are suffering from a variety of economic ills that have taken a toll on business activity and new business formation.

Weak school systems have made many rural communities less attractive to employers, says Peter Skillern, executive director of Reinvestment Partners, a nonprofit based in Durham, N.C., that works with rural communities.

Dollar stores and big-box retailers drained customers from some local shops. The financial crisis left some residents with battered credit and collateral. Populations dropped as youth moved out.

These communities have been hurt by declines in the textile and furniture industries, consolidation in agriculture and decreased government support for tobacco. Average annual employment in North Carolina’s 80 rural counties fell 6% between 2007 and 2016, according to the Raleigh-based NC Rural Center, compared with a gain of 11% in its six urban counties.

“It would be great if there were branches and people in all these rural communities,” says Kel Landis, former CEO of RBC Centura, which once owned the rural North Carolina bank locations purchased by PNC in 2012. “But I do understand, as a former banker, the economics. If you have a place that used to be thriving, but the downtown has closed up, having a branch there is a money-losing proposition.”

To be continued

Small Town Banks I


Merchant’s National Bank at 833 Fourth Avenue in Grinnell, Ohio, designed in 1917  by Louis Sullivan

We continue this story of small town America today: globalization, as was explained in our three blogs on the “megacity,” has left these small towns with no role to play in the economy. In the past it was these small towns (and many medium-size cities) that sustained the major cities through their manufactured parts and the skill of their artisans in a symbiotic interrelationship. Today cities like New York, San Francisco and Chicago reach overseas for the parts and skills they need, leaving small towns devoid of purpose. As a consequence, banks that traditionally were at the center of the town’s commercial life are closing because of the lack of any sustainable business, undermining the very life of the town. What is America without its small town life?

To illustrate this article, presented here in three installments because of its length, we have chosen the small town banks designed by architect Louis Sullivan during the decade before the First World War, a period when these institutions were still an integral part of the vitality of the towns they served. Sullivan’s banks are considered architectural treasures, among the finest this country has produced.

By RUTH SIMON and COULTER JONES  Dec. 25, 2017  for The Wall Street Journal

 ROXOBEL, N.C.—Danielle Baker wanted a $324,000 loan last year to expand the peanut-processing business she ran from the family farm. She had a longstanding relationship with the Roxobel branch of Southern Bank, and she thought Southern would help fund the peanut operation she had spun off, too.

But that branch—the town’s only bank—closed in 2014.  A Southern banker based in Ahoskie, 19 miles away, said Bakers’  Southern Traditions Peanuts Inc. was too small and specialized, she says. A PNC bank branch also turned her down.

“If you are not a big company with tons of assets and a big bank account,” Ms. Baker says, “they just overlook you.”

She finally got a loan from a nonprofit in Raleigh two hours away that provides financing to small businesses but not other traditional banking services. She must drive 19 miles every afternoon to make cash deposits or get change for her cash register, and expects to make a two-hour trip when she wants to refinance. Without a local branch close to her business, she says, “it’s very aggravating on a day-to-day basis.”

The financial fabric of rural America is fraying. Even as lending revives around cities, it is drying up in small communities. In-person banking, crucial to many small businesses, is disappearing as banks consolidate and close rural branches. Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans.

Distant banks with few ties to local communities—which often rely heavily on algorithms to gauge creditworthiness—are also less likely to have the personal relationships that have helped local bankers judge which borrowers were a good bet.

The phenomenon, almost automatically, is getting worse. Bankers say they don’t see enough business in small towns. Small towns say bank closings make it harder to do business.

“We’d like to make loans in all the markets we are in,” says R. Lee Burrows Jr., chairman of Union Bank in Greenville, N.C., population 91,495. “But sometimes the demand isn’t there,” he says. Banks’ “risk tolerance is substantially lower than it was pre-2008,” he says. Union was called “the little bank” until July, when it acquired another bank and moved from Kinston, population 20,923.

Southern Bancshares Inc. and PNC Financial Services Group Inc., the lenders Ms. Baker contacted, say they don’t comment on specific customers.

The interior of Merchant’s National Bank by Louis Sullivan

The value of small loans to businesses in rural U.S. communities peaked in 2004 and is less than half what it was then in the same communities, when adjusted for inflation, according to a Wall Street Journal analysis of Community Reinvestment Act data. In big cities, small loans to businesses fell only a quarter during the same period, mainly due to large declines in lending activity during the financial crisis. Adjusted for inflation, rural lending is below 1996 levels.

Of America’s 1,980 rural counties, 625 don’t have a locally owned community bank—double the number in 1994, federal data show. At least 35 counties have no bank, while about 115 are now served by just one branch.

“There’s been a slow seep, a slow letting air out of a balloon over a long period of time,” says Camden Fine, chief executive of Independent Community Bankers of America, a small-bank trade organization. “There’s less demand for credit. There’s less supply.”

Colorado State University economist Stephan Weiler found that declines in small-business lending in rural areas are linked to declines in the number of new businesses two to three years later—a phenomenon he didn’t find in urban areas. The falloff in lending is particularly important, he says, because other types of startup capital are typically scarcer in rural areas.

“To say that I am concerned is an understatement,” says Ray Grace, North Carolina’s commissioner of banks. The number of community banks is shrinking, and larger banks are taking deposits gathered in rural areas and deploying them in urban communities, he says.  “It sucks the capital out of rural communities.”

Between 2009 and June 2017, North Carolina counties currently considered rural by the Centers for Disease Control and Prevention lost 131 bank branches, banking-regulator data show. That 18% drop compared with a 2% drop in Mecklenburg and Wake counties, home to Charlotte and Raleigh.

The gap is the more striking because North Carolina is a banking center, home to Bank of America Corp. and BB&T Corp. Bank of America has eight branches in seven rural counties in the state, down from 21 in 17 rural counties three years ago. “As the U.S. population continues to move to larger population centers,” a Bank of America spokesman says, “we want to insure that our branch coverage matches where people are moving.”

To be continued

European Union Finds Leading Fight for Open Trade a Tough Task

Activists staging a protest against the EU-Canada trade deal in front of the Austrian Parliament in Vienna in September. Photo: Joe Klamar/Agence France-Presse/Getty Images

The other side of the coin: Europe, which, unlike our president, believes in globalization and open trade, is having difficulty convincing its own citizens of its benefits. Perhaps the world is not yet ready for completely open borders.   

By EMRE PEKER  Dec. 28, 2017 for The Wall Street Journal

BRUSSELS—The European Union started this year by announcing a global trade offensive to counter rising U.S. protectionism. Now the bloc faces an uphill battle to prove it can deliver.

With U.S. President Donald Trump’s “America First” policies upending the world trading system championed for seven decades by the U.S., the EU was quick to suggest it would assume the mantle of globalization’s standard-bearer.

“Those who, in the 21st century, think that we can become great again by rebuilding borders, reimposing trade barriers . . . are doomed to fail,” European Trade Commissioner Cecilia Malmström said in January, four days after Mr. Trump’s inauguration. “It is important the EU shows confidence and leadership.”

Almost a year later, Brussels has a mixed record of success on the trade front. While the EU strives to fill the void left by the U.S. as an advocate of trade liberalization, it is also grappling with political divisions among its 28 members and calls for safeguards against China’s rising economic might.

Mr. Trump withdrew the U.S. from the 12-country Trans-Pacific Partnership on his first day in office, and soon after froze trade talks with the EU and demanded a renegotiation of the North American Free Trade Agreement with Canada and Mexico.

Brussels responded by extending a hand to all the trading partners the White House shunned.

So far, that has produced an agreement on world’s biggest trade deal, between the EU and Japan. It has also spurred frenzied talks to complete negotiations, or start new ones, with partners from Latin America to Asia.

The EU has also provisionally implemented a deal with Canada that slashed almost all tariffs between the two trading partners.

Brussels, however, fell short on its ambitious agenda of clinching deals this year with Mexico and Mercosur, the South American bloc grouping Argentina, Brazil, Paraguay and Uruguay. . . .

European Commission President Jean-Claude Juncker, the bloc’s top executive, has made strengthening the EU’s role in global trade his first priority as Washington retrenched.

In September he asked EU governments to approve fast-track negotiations with Australia and New Zealand, seeking to engage two more U.S. trading partners burned by Washington’s exit from the Pacific trade pact.

“Partners across the globe are lining up at our door to conclude trade agreements with us,” Mr. Juncker said. “Europe has always been an attractive place to do business.”

EU governments still haven’t greenlighted Australia and New Zealand talks, and such hesitation has frustrated efforts to get any EU trade pact fully approved.

Yet EU governments, leery of the populist backlash that fueled Britain’s decision to exit from the bloc and resistance to the Canada trade deal, are reluctant to yield more powers to Brussels.

Most European leaders—including strongly pro-EU ones such as French President Emmanuel Macron —want to preserve a national say in trade pacts. Some EU governments also demand safeguards against China, whose mix of state support, acquisitiveness and domestic protection have prompted the EU to bolster its trade defenses and consider screening foreign investments.

Next year will test the EU’s capacity to deliver on its liberal trade principles. . . .

. . . with the U.S. considering unilateral action against Chinese trade practices, Brussels will likely lack critical support from Washington in pressuring Beijing to abide by international rules.

“When the EU and the U.S. are not aligned, you have a much more fragmented landscape, with no clear leader, and it’s much harder to drive policy,” said Stephen Adams, a former EU trade official now with U.K.-based advisory firm Global Counsel. “The ambition can leak out of the process very quickly.”

Almost Everything Is Wrong With the New Tax Law

BN-WT601_3ll6Y_OR_20171227102908The president’s signature and his notes on his Oval Office desk, Dec. 22. Photo: Brendan Smialowski/Agence France-Presse/Getty Images

This article, surprisingly critical of the new tax law, appeared in this morning’s Wall Street Journal, which has otherwise written favorably about the new law. Mr. Blinder, who wrote the article, is a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve. 

Read it and weep.

By ALAN S. BLINDER  Dec. 27, 2017 for The Wall Street Journal

Dec. 20, 2017, should go down in political history as a day of infamy or absurdity, probably both. After passing a massive tax bill without a single Democratic vote—something highly unusual in itself—congressional Republicans gathered with President Trump on the White House steps that day to engage in an orgy of self-congratulation.

The president patted himself on the back so vigorously that he might have required physical therapy. One after another, Republican senators and representatives competed for the honor of offering the most unctuous praise for their Maximum Leader. But Sen. Orrin Hatch of Utah, who was previously thought to be level-headed, set a new standard for fawning by declaring that Mr. Trump may be the greatest president ever. Ever? Not Lincoln? Not Washington?

Was this love-fest because Republicans had just passed an economically sound and wildly popular tax bill that was winning praise from tax experts and scoring marvelously in public opinion polls? Not quite. Polls show that Americans hate this bill.

As they should.

First, while the president is wildly inaccurate when he claims the Tax Cuts and Jobs Act is the biggest tax cut in history—as a share of gross domestic product, the Reagan and George W. Bush tax cuts were far larger—it may be the most regressive. Ordinary people don’t know the details—does anyone at this stage?—but they understand that the new law is larded with provisions custom-made for the rich and superrich while offering mere crumbs for the middle class. Further, once the phase-outs occur at the end of 2025, even most of the crumbs disappear. The Tax Policy Center estimates that the share of tax cuts accruing to the top 0.1% of taxpayers will rise from 8% in 2018 to an astounding 60% in 2027 if Congress doesn’t extend the expiring cuts.

Second, the act emphasizes cutting taxes on corporations, not on people. Few Americans buy into the “trickle down” argument that tax benefits showered on corporations will translate mostly into higher wages and vastly faster economic growth. Most of the economic evidence supports their skepticism.

 Third, the tax cuts blow a large hole in the federal budget, and most Americans think the deficit is already too large. Have you noticed how Republican politicians stop caring about the deficit when their minds turn to tax cuts for the rich? Some of them are already clamoring for cutbacks in spending on income support, nutrition and health care because—you guessed it—the budget deficit is so large. They didn’t even wait for the ink to dry.


Fourth, many Americans are rightly suspicious of deals that get rammed through Congress on a strictly partisan basis, with no public hearings, but with language drafted by lobbyists under cover of darkness. But Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan understood the wisdom of the old adage that a rotting fish smells worse the longer it sits on the dock.

Let’s imagine that Mr. Trump and the Republicans really wanted to reform the tax code, rather than just deliver tax cuts to the rich. What might they have done instead?

First, Congress could have simplified the tax code rather than complexified it. To be fair, there is some genuine simplification in the Tax Cuts and Jobs Act. A few loopholes did get closed, and the near-doubling of the standard deduction will make paying taxes easier for millions of Americans. Terrific. But the new law also includes complex new provisions for taxing pass-through income from unincorporated businesses and corporate income that is earned (or, rather, booked) abroad. These defy description, will baffle people for years, and will spawn quite a few tax shelters.

Second, the tax changes could have been designed to be distributionally neutral, as the 1986 tax reform was, or even progressive. But once you decide to concentrate on reducing the corporate income tax, giving a sizable tax preference to pass-through business income, cutting the estate tax, and lowering the top income tax rate, you are headed down a highly regressive road.

Third, a true tax reform would have been revenue-neutral—again, as the 1986 reform was. Some taxes would have gone up while others went down, leaving only a negligible effect on the budget deficit.

 Fourth, a Congress truly focused on tax reform would not have thrust a completely unrelated dagger into the heart of ObamaCare. I refer to the repeal of the penalty that enforces the individual mandate. This mean-spirited provision is a first step toward “repeal without replace,” a foolish and cruel approach that Congress rejected last summer. Notice that the huge savings from this provision don’t come from cutting anyone’s taxes. They come, according to Congressional Budget Office estimates, from 13 million Americans dropping off the health insurance rolls over a decade.

And that’s just a hint of what’s to come. Already, Republicans are taking aim at other parts of ObamaCare, Medicare, Medicaid, food stamps and more. Class warfare? Yes, score the first round for the upper class.

Peggy Noonan’s Christmas Carol

You must read this editorial by Peggy Noonan, The Wall Street Journal columnist, in its entirety. In our mind she has got it exactly right. We all want this tax thing to turn out well. Her appeal to her fellow Republicans to act for the good of the nation as politicians of yore did, we share. Her view of the young, progressive spirit in the Democratic party as a warning to them is accurate and heartening (if only Nancy Pelosi and Chuck Schumer could see it).

What more is there to say? Merry Christmas!

By PEGGY NOONAN  Dec. 21, 2017 for The Wall Street Journal

On the tax bill we begin grouchy and wind up, as befits the season, hopeful.

Grouchy: Wednesday afternoon’s big White House rally celebrating its passage was embarrassing. All these grown men and women slathering personal, obsequious, over-the-top praise—“exquisite presidential leadership,” “a man of action,” “the president of the United States, whom I love and appreciate so much”—as Donald Trump emceed and called new praisers to the stage. They do this to keep the president happy, feed his needy ego and insist on his competency. It looked less like praise than self-abasement.

Actually, and I’m sorry to say this, the mood reminded me of the tale of Stalin telling some lame joke in a dinner speech. His ministers all laughed as if it were the wittiest thing they ever heard. Then they kept laughing, louder, and wouldn’t stop, because they knew the first one to stop would be noticed by Stalin and would soon be gone. So boy did they laugh.

The president thinks this kind of thing makes him look good. It doesn’t, it diminishes him: Keep the buffoon happy. Here is what would make him look good, and elevate him: normal human modesty. If he modestly waved off the praise, shut it down, said, “Please, let’s talk about the bill and how it will help our country . . .”

He would look bigger, as modest people always do, and his praisers would not look smaller.

On to hope: The fair way to judge the tax bill was never through the mindless, whacked-out rhetoric on both sides—the worst bill in the history of the world, the best thing since Coolidge was a pup—but through the answer to one question: Will this bill make things a little better or a little worse? There is much reason to believe it will make things better. It is imperfect, to say the least. But it is good to cut the corporate rate from an absurd and uncompetitive 35% to a more constructive 21%; it is compassionate to double the child tax credit; it is fair to cut taxes for small businesses, many of which are struggling.

America is waiting and hoping for a boom. By all means encourage the circumstances in which it can take place.

And the bill is going to prove popular. The Democrats bet wrong on this. Almost immediately on passage, Wells Fargo and Fifth Third Bancorp announced a raise in their lowest wage to $15 an hour. AT&T said it would give about 200,000 unionized workers a $1,000 bonus and increase capital spending $1 billion. Comcast said it would give 100,000 employees bonuses and spend more than $50 billion in infrastructure improvement.

You can sit back in your sophisticated way and say, “Hmm, that looks like a curiously orchestrated public relations push.” You can say, “How nice, the malefactors of great wealth are giving their workers a little tip.” You can wonder if they’re spreading cheap good cheer to grease their mergers. But if you are working the line in Smalltown, U.S.A., and just got bumped up to $15, or you’ve been surprised by an unexpected thousand dollars at Christmastime, you will see this not as a tip but as a real and concrete break, thanks to that most unexpected of benefactors, the U.S. government.

Who cares about CEOs’ motives if they’re doing something good?

It is true the tax bill is not popular in the polls. A recent Wall Street Journal/NBC survey put support at 24% with 41% opposing it. But here’s something I’ve been meaning to mention for a while: During the Reagan era, I noticed a funny thing about public opinion and tax policy. When you run for office and promise you’ll cut taxes, the crowd cheers lustily. Then once in office you put together a tax bill and the polls show public support is lukewarm. Then you pass it and its popularity bubbles around in the polls. Then an election comes and you win and the voters tell pollsters they backed you because you cut taxes. There are a lot of reasons this might be—a campaign vow is intentional and abstract, a final bill is real and messy—but I suspect there’s something in this: Voters don’t like to tell pollsters they’re for tax cuts. They have the feeling it’s the wrong position, that it’s small-minded and if they were nicer, they’d be less self-interested.

Anyway, polling doesn’t matter right now. Down the road it matters.

As for me, I am interested in my own lack of sustained dismay. I share this information because I’m wondering if there isn’t something of a broader public mood in my reaction. As a salaried worker in a high-tax state, I am about to get clobbered with the loss of the state and local tax deduction. And yet I find myself not minding so much. America is in so much and so many kinds of trouble that if this thing makes it a little better, then OK. Please, 2018 tax bill, make it better.

I end with this. This bill gives American big business more than a boatload of money, it offers a historic opportunity—a timely and perhaps final one.

Big corporations can take the gift of the tax cut (and the continuance of the carried interest loophole, that scandal) and do superficial, pleasing public relations sort of things, while really focusing on buying back stock and upping shareholder profits.

And they’ll do this if they’re stupid, and craven.

Or they could set themselves to saving the system that made them, and helping the country that made their lives possible.

They can in some new way see themselves as citizens—as members of America, as people with a stake in this nation, a responsibility for it. They can broaden, invest, hire, expand and start the kinds of projects that take the breath away. They can literally get young men and women out of the house, into the workplace, learning something. They can change and save lives. This would be costly. Spend.


One of our two political parties is being swept by a young and rising new left that is fiercely progressive and on fire for socialism. It may well in coming decades sweep the CEOs and their corporations away if they cannot rouse themselves to present economic freedom as an ultimate and democratic good.

This may be the last opportunity for business leaders to do what hasn’t been done in a generation, and that is defend the reputation of capitalism. 

Wall Street once had statesmen; it wasn’t dominated by dumb quarterly-report jockeys. Shareholders were assumed to be patriots, and grateful ones, because they had so profited from the luck of being born here, into a system where the quick and sturdy could go from nothing to everything.

That system is troubled. If they cannot see private interest as utterly aligned right now with public interest, then they are truly as stupid and venal as their enemies take them to be.

Are they? I hope not. But I also hope they see this moment for what it is.

And now on to Christmas. God bless us every one.



Huge Human Inequality Study Hints at Revolution


 This piece with its terrifying conclusion was discovered over a month ago by one of our members, Cynthia Cuza, in a science magazine and distributed by her to several of us in the Santa Monica Meeting. We have been slow to pick up on it, but now, recognizing its importance, we are reprinting it for the readers of this blog. Thank you, Cynthia.

By YASMI TAYAG  Nov. 15, 2017 for Inverse Science

There’s a common thread tying together the most disruptive revolutions of human history, and it has some scientists worried about the United States. In those revolutions, conflict largely boiled down to pervasive economic inequality. On Wednesday, a study in Nature, showing how and when those first divisions between rich and poor began, suggests not only that history has always repeated itself but also that it’s bound to do so again — and perhaps sooner than we think.

In the largest study of its kind, a team of scientists from Washington State University and 13 other institutions examined the factors leading to economic inequality throughout all of human history and noticed some worrying trends. Using a well-established score of inequality called the Gini coefficient, which gives perfect, egalitarian societies a score of 0 and high-inequality societies a 1, they showed that civilization tends to move toward inequality as some people gain the means to make others relatively poor — and employ it. Coupled with what researchers already know about inequality leading to social instability, the study does not bode well for the state of the world today.

“We could be concerned in the United States, that if Ginis get too high, we could be inviting revolution, or we could be inviting state collapse. There’s only a few things that are going to decrease our Ginis dramatically,” [see the end of article] said Tim Kohler, Ph.D., the study’s lead author and a professor of archaeology and evolutionary anthropology in a statement.

Currently, the United States Gini score is around .81, one of the highest in the world, according to the 2016 Allianz Global Wealth Report.

Kohler and his team had their work cut out for them, as studying inequality before the age of global wealth reports is not a straightforward task. It’s one thing to measure modern day economic inequality using measures of individual net worth, but those kind of metrics aren’t available for, say, hunter-gatherers chasing buffalo during the Paleolithic. To surmount this obstacle, the researchers decided to use house size as a catch-all proxy for wealth, then examined the makeup of societies from prehistoric times to modern day using data from 63 archaeological digs.

Overall, they found that human societies started off fairly equal, with the hunter-gatherer societies consistently getting Gini scores around .17. The divide between rich and poor really began once humans started to domesticate plants and animals and switch to farming-based societies. Learning to till the land meant introducing the concept of land ownership, and inevitably, some people ended up as landless peasants. Furthermore, because these societies no longer lived as nomads, it became easier to accumulate wealth (like land) and pass it down from generation to generation.

The Gini scores got higher as farming societies got bigger. The small scale “horticultural” farmers had a median Gini of .27, and larger-scale “agricultural” societies moved up to .35. This pattern continued until, oddly, humans moved into the New World — the Americas. Then, over time, the researchers saw that Gini scores kept rising in Old World Eurasia but actually hit a plateau in the Americas. The researchers think this plateau happened because there were fewer draft animals, like horse and water buffalo, in the New World, making it harder for new agricultural societies to expand and cultivate more land. A selection of Gini scores from the 2016 Allianz Global Report are shown in red. A score of 1 is given to societies with the highest inequality.

Overall, the highest-ever historical Gini the researchers found was that of the ancient Old World (think Patrician Rome), which got a score of .59. While the degrees of inequality experienced by historical societies are quite high, the researchers note, they’re nowhere near as high as the Gini scores we’re seeing now.

A selection of Gini scores from the 2016 Allianz Global Report are shown in red. A score of 1 is given to societies with the highest inequality.

“Even given the possibility that the Ginis constructed here may somewhat underestimate true household wealth disparities, it is safe to say that the degree of wealth inequality experienced by many households today is considerably higher than has been the norm over the last ten millennia,” the researchers write in their paper.

On Monday, a global report from Credit Suisse showed that modern humans are continuing the trends set by our predecessors: Now, the report showed, half of the world’s wealth really does belong to a super-rich one percent, and the gap is only growing. Historically, Kohler says in his statement, there’s only so much inequality a society can sustain before it reaches a tipping point. Among the many known effects of inequality on a society are social unrest, a decrease in health, increased violence, and decreased solidarity. Unfortunately, Kohler points out, humans have never been especially good at decreasing inequality peacefully — historically, the only effective methods for doing so are plague, massive warfare, or revolution.

According to The Wall Street Journal, the Democratic Left Rules the Party

Would that the newspaper were correct. However, we suspect that neither Charles Schumer nor Nancy Pelosi reads the Journal.

We extracted the following three paragraphs from today’s Journal editorial. They sum up what we have hoped for: a party more  concerned with providing a decent living standard for American workers—and for their health and education—rather than with the business executive’s bottom line. People in business can take care of themselves; they always have. They don’t need an assist from the government. But the American worker does or he’ll soon be gone. Follow our subsequent blogs on this topic. 

   Elizabeth Warren and the Democratic left

Lead Editorial from The Wall Street Journal  Dec. 18, 2017                                            [The bulk of the article berates the Democrats for not supporting the Republican tax reform.]

. . . Part of the explanation is ideological. The Democrats as a party moved sharply left during the Obama years—on economics nearly as much as on identity politics. They have made income inequality their main economic priority rather than growth, and the fact that the slow-growing Obama economy increased inequality hasn’t changed that obsession. 

One result is that there isn’t a pro-business Democrat left in the Senate, except perhaps on energy policy in fossil-fuel states like West Virginia and North Dakota. Democrats are now the party of Thomas Piketty, the French economist who thinks tax rates should return to pre-Kennedy levels to reduce inequality. 

Democratic economists who might have offered an alternative view have no choice but to go along if they ever want to serve in another Democratic administration. They all saw what Elizabeth Warren and the Democratic left did to block Larry Summers from getting the job of Federal Reserve Chairman. . . .

   Thomas Piketty and Larry Summers—which man do you believe?