Re: Re: Re: "How to Kill Orchestras" - NY Times


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Posted by Rick Denney on July 03, 2003 at 12:23:14:

In Reply to: Re: Re: "How to Kill Orchestras" - NY Times posted by Bill Nazzaro on July 03, 2003 at 11:09:01:

On the subject of debt: I don't mind debt, if the value of the thing being bought will 1.) return more in increased revenue or quality of life than it costs in interest on the debt, and 2.) if the thing being bought is always worth more than the remaining debt. Orchestras violate the second principle more often than the first, taking out longer term loans to pay short term obligations like the payroll. This snowballs into a first-class disaster in a hurry.

We borrow money to buy houses, knowing that the house will always be worth more than what we owe on it. I don't see a problem with that, if we can afford the cash flow and still be good stewards of our money. If a symphony invests in renovating a music hall, then they should know that the return from investing in that hall will exceed what it costs them. The San Antonio Symphony is in trouble partly because its investment and rent payments for the Majestic Theater are too high for them to earn back enough to cover it.

But making no investment might turn out just as bad. The Florida Philharmonic's problem stems at least in part because they don't have a consistent performance space, and I think San Jose's failure was partly due to that same problem.

What's nuts is when people take out a 30-year loan to buy a car that will be worn out in five, as they do when they refinance their house and pull a bunch of cash out of the deal. Or when they buy their once-per-year vacation on a credit card that will require ten years to pay off. Nothing is more painful to me that making payments for something I can no longer use because it's worn out.

If the debt one incurs to buy something is always worth less than that something, then they can sell it in an emergency and relinquish the debt.

I disagree that we are not put on this planet to work for money. Working for money is a principle going back to the Bible, and built into our moral heritage. That's why slavery was eventually and rightly overturned. As a model of how it treats people, slavery wasn't really any worse than the hired labor in non-slave-states at the time it was being debated. In fact, slave owners, having made a capital investment in the slaves, were incentivized to take at least minimal care of them, while labor employers in non-slave trades considered their hireling workers disposable. But slavery violates that Biblical notion that people should work for hire and be paid for their work. Though in the 1850's, hirelings really did have it bad, perhaps worse than slaves in many cases. Ultimately, the Biblical principle won out. Hirelings in the 1850's may have had it bad, but the system ultimately produced vastly greater wealth and freedom for everyone than slavery ever could have done.

Labor for hire is always under attack, but the systems that would replace have an even more dismal record of success.

You can find examples of working for money back to Egyptian times and before. Capitalism isn't just working for money, it is just one system of working for money. Money isn't a great motivator, but it is an excellent compensator.

As to those capital gains, let me outline a scenario for you. My wife bought a townhouse to live in 15 years ago (long before we met). She paid X for it. The income she used to make payments on that house were taxed all long the time she owned it. Last year, we sold it for 1.2X. We had to pay taxes on the .2 part, at a tax rate controlled not by her salary, but by both our salaries. I assure you that we paid as much for that capital gain as we would have paid for an extra .2X in income. Thus, the value of that investment was just about cut in half. (It was actually worse than that: On the advice of an idiot tax moron, she had depreciated the house over the time that she rented it out after she moved. The few dollars she saved on her taxes cost us dearly when we had to pay it all back at a much higher rate.)

The only people who benefit from lowered capital gains and dividend taxes are those who took a share of their taxed income and invested it in someone else's employment in the first place. Where do you think companies get the money to hire people and to buy things from other companies that hire people to make them? If that investment is good, then we can encourage more of it by reducing taxes on it. Thus, people will invest in enterprise rather than hiding the money in their mattress (so to speak) because that investment is worth more. And lowering taxes on dividends will encourage companies to start paying dividends instead of focusing solely on capital growth, which was the big problem in the recent downturn. Dividend income can feed a retirement portfolio much better than capital growth income, and managers who deliver the goods on dividends take a longer-term view than those who focus solely on capital growth.

Capitalism just means that companies are offered for sale on the open market, one share at a time, so that companies can obtain the money needed to make and sell things from the public rather than solely by borrowing from banks or depending on the personal investments of one or two people (or the government). Companies can grow much faster that way, and the money turns into jobs and wealth for regular people (who own most of the stock in this country) more quickly.

On the subject of health care, the current systems sucks. It's almost as bad as a single-payer system would be. There's a reason why citizens of countries with single-payer systems travel to the U.S. to get health care--it's better here. But it's not better uniformly, and the connection between payment and quality is too far removed at present so that people are making sensible economic choices. I don't know the answer, but I do know that a government-run health-care system would more equitable, in that everyone would have lousy health care instead of just some of us. Is that progress? I don't think so.

Rick "who thinks doctors beg for government health care when they drive around in a Mercedes" Denney


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