Month: August 2012

Newsflash: GOP Begs Obama for Tax Cuts via Radio? Seriously?


ImagesDear readers!  We interrupt our previously scheduled postings for a series of very special announcements:

Radio waves are the last political resort. 

Apparently all other political channels are either broken or backed up by "more important" problems.  This passed Saturday, frustrated by the House/Senate stalemate, GOP asked Obama to keep Bush tax cuts intact via their radio address.   Is that what's going to work?  What is this the 1920s and everyone is glued to their Radiolas?    

Clearly, the issue that affects not just the monetary policies of this country, but also "minor" sociopolitical concerns such as, for example, the economic principles of true capitalism and definitions of social classes, cannot be successfully discussed in the policy-making branches of our government – the partisanism overpowers the reason.  So, the republicans decide to address the President directly… on the radio.  Moreover, on Saturday.  Don't they know that radio is primarily a weekday medium?  Most listeners tune in either on their way to and from work, or online in their offices.      

On the other hand, who the fuck cares? It's just an empty, check-mark step.  In reality, everyone is resigned to wait until November elections for the resolution anyway, because it's not the fiscal reasoning or survival logic that will dictate the decision.  The only thing that matters for the outcome of the tax-cut issue is which party prevails.  Meanwhile, GOP is trying to impress on their constituents that they are "doing something about it."   Just don't call it "pressing Obama" – that's way too blatant even for politicians.

Proof-positive: politicians are not real people.

Nearly 18 months ago, when President Barack Obama first threw the number $250,000 into the tax-cuts discussions, at least some financial publications, including MSN Money, questioned the suitability of that number as a middle-class ceiling.  Now, overwhelmed by the barrage of bad news, nobody talks about the number itself anymore.   

But I was always interested in understanding how the fuck they came up with that number?  What made "them" (whoever they are)  think that $250,000 salary qualifies someone as "wealthy?"  What kind of perverse minds decided that a small-business CEO, a senior financial executive, an adman, an average doctor, a sales person who spends 300 days a year on the road, don't belong in the middle class?  Are they an upper-crust?  Is it correct to bunch them up together with the private-equity billionaires or public companies' CEOs and make them pay taxes at the same rates? 

Yes, the majority of the general population will never make over $250,000.  But the same majority do not possess talents, perseverance, and drive of people who apply themselves to the best of their abilities and work 16 hours a day in order to make 6, 10, or even 15 times more than an average schmuck, who doesn't really try too hard and spends his workday surfing the Internet for TMZ news and shopping bargains.   

In fact, people who make $100,000 – $750,000 a year are usually the hardest-working sector of the middle class.  Most of them have built their careers or businesses from scratch.  And guess what?  They are not really that reach.  I know CFOs, doctors, lawyers, who make $300-$350K a year and worry that they will not be able to afford $245,000 a head in tuition, room, and board to send their children through a good college.   

And here lies the truth: the reason a random number is picked to determine who belongs to the middle class and who doesn't is because politicians are not real people.  Just like the super-rich, they are far removed from the reality of the every-day life.  Many of them are actually wealthy people.  And even those who are theoretically "middle-class" enjoy a lot of paid perks.  How can you possibly formulate the idea of social classes if most of your meals are paid by lobbyists and their clients?   

Administration doesn't care about the economic recovery of this country.

In principle, I would be very reluctant to agree with any official political statement.  But, whoever is actually behind the text of the GOP radio address got one thing right: small-business owners will be the first to suffer from increased taxes imposed on the earnings above $250,000.  Maybe the plastic people in Washington don't know this, but the majority of privately-held businesses are S-Corporations and transfer their incomes to owners' individual tax returns.

So, let's imagine such small business ran by two single partners, who work very hard to keep their business going, retain their 15 employees, and maybe even create new jobs.  If they are very good at what they do and also lucky, they may overcome all the difficulties of today's economic conditions and make $1,000,000 in net income. Good for them! 

Now comes the tax season.  Even though they left the entire million in the business, they have to split it and report $500K each  on their individual tax returns.  If the proposed tax rates are applied, together they will have to pay $335K to the federal government.  Add to that, state and local taxes – about $150K more, and the hard-earned $1,000,000 is immediately reduced to $515,000.  The $485K is taken away from the struggling business.

So, where is the incentive for the entrepreneurs to go on or go into the business?  What about the "middle-class" employees of these small businesses, those who make under $250K?  What will happened to them, when their employers go out of business squashed by these additional fiscal burdens on top of all other difficulties?  Do you think that the government cares about them, or the "economic recovery" altogether?  Or do they care about having enough money to bail out the next banking giant or a failing automaker?

Arts & Entertainment by the Numbers, Part I – Books


Images I frequently say that people who really know accounting and finance don't care what to count, analyze, fund, etc. I obviously include myself into this group – not to toot my own horn, but simply because my career has proved that I am actually able to successfully plunge into any type of business, any industry.  

The essential prerequisite for this level of expertise is an extensive fundamental knowledge combined with a propensity for applying general principles to specific situations.  There is also a very special knack that plays a crucial role in the making of  universal financial experts: a natural ability to convert everything into monetary units. 

I do it almost automatically, almost with everything, sometimes to a fault.  However, my reverence for creative endeavors prevents me from crudely slapping price tags onto them.  It's only somewhat recently, as a result of certain developments in my own life, that I became curios about various numerical aspects of arts and entertainment.

Of course, some numbers are commonly known.  The others are easily derived through general financial acumen and cultural intuition.  But I must say, some of my findings turned out to be simply bewildering.

I. Books

The PEN Award recipient Grady Tripp (Michael Douglas's character in Wonder Boys)said that the only reason the University's Chancellor fell in love with him was because "she was a junkie for the printed word.  Lucky for me," he continued, "I manufactured her drug of choice."

I have to say that if there were such a thing as Arts Addictions Anonymous, I would probably end up, together with the Chancellor, in the "books group."  (After that they would move me to the Theater and Cinema rehabs.)  The question is, how many other people would be there with us?  Here are a few sad  numbers about my first love - the written words.

According to various publishing specialists, if an advance of $3,000 is paid to a book's author, the life-time sale of 10,000 copies is considered to be a success.  Most debut literary story collections sell no more than 2,000 hard-cover copies.  For the first literary novel this number falls into the range between 3,000 and 7,000.

An average professional-interest book sells about 5,000 copies in its lifetime.  This includes e-Books (which, as you know, can be easily stolen).  If the author hires, naturally at his own expense, a book agent and a PR firm, the sales may go up as high as 12-13 thousand copies.  

Just for the sake of the statistical integrity, let me remind you that the population of this country is 315 million. 

Now, here come the dollars.  This is derived from my own first-hand experience: an author's royalties range anywhere between $1-$4 per sold book.  So, if your book has sold 5,000 copies, you can hope to generate somewhere between $5,000 and $20,000.   Astonishing, isn't it?  We are talking about the payoff on the multi-months (sometimes years) struggle.

This explains why 99% of American authors have day jobs.  Most literary writers with respectable names teach creative writing classes in Universities.  One of my idols, the late Kurt Vonnegut, taught at the University of Iowa Writers' Workshop (the most prestigious post-graduate program in the country) practically until he died.  Many authors write for magazines (and I am not talking about just The Atlantic or The New Yorker).  Of course, less known fiction and non-fiction writers also teach, research, consult, hold executive positions, etc., etc.  

It also explains why so many literary awards come with the words Fellowship or Grant at the end.  It signifies that the author was provided with sufficient funds to sustain her or him through the writing of the next masterpiece. 

Of course, there are bestsellers.  It is said that in order for a book to get on the bestselling list, it must sell at least 7,000 copies a week (in any category).  So, if you see that a book stayed on The New York Times Bestsellers list for, let's say 20 weeks, it means that it has sold at least 140,000 copies.  Now, we are talking about different kind of money – about $500,000 in royalties from a single title.  Of course, if you had an agent who hooked you up with the right publisher, 10% of that goes to him.  

Unfortunately, it is quite rare that a true literary novel or a scientifically brilliant non-fiction becomes a bestseller.  With the exception of a few (Kurt Vonnegut again, John Updike, John Irving, Muriel Spark, Alice Munro, Norman Mailer, Jennifer Egan, Johnathan Franzen), most contemporary writers (royalty-free old classics are not the subject of this post), whose work measures up to my standards of quality, never see their names on the bestselling lists.       

It's the thrillers, the soft-porn romances (the Fifty Shades of Grey trilogy still occupies the top three spots), the vampire stories, the heroic fantasies, and the chick-lit opuses that top the charts of fictional hits.  Children and young-adult adventures are distributed by bucketloads through schools and city libraries. 

Most popular non-fiction titles are memoirs, biographies and autobiographies, self-help books that promise to remake and happify you by the time you turn the last page, cook books, chronicles of staggering financial rises and downfalls.

And then there are mega-sellers - books that appeal to armies of readers, generating multi-million-dollar revenues for their authors and publishers. Among the most recent fortune-making printed commodities are the Harry Potter series (over 500 million copies world-wide and counting), Twilight series (over 120 million copies), Diary of a Wimpy Kid series (75 million copies), The Hunger Games series (50 million) [all young-adult books, by the way]; The Da Vinci Code (80 million) [a pseudo historical thriller with a feminist twist]; The Purpose Driven Life (30 million) [a 40-days spiritual journey manual for finding God]; The Girl with the Dragon Tattoo (30 million) [sexual deviance thriller with even stronger feminist twist].

Note that all fictional books on the mega list were also turned into movies, thus multiplying their author's wealth.  To be fair, I must say that it doesn't happen only to low-brow mass-market hits.  High quality literary books are frequently adapted (at much smaller prices, of course) for the silver screen as well (the aforementioned Wonder Boys, Brokeback Mountain, 25th Hour, Fight Club, Forrest Gump, The Color Purple, Stand by Me, Schindler's List, The English Patient, to name a few).  It's another way for a good writer to earn a little bit of extra money. 

We will return to movies later in this series.

Continue to Part II

Newsflash: Even NBC’s Economy Watch Finally (Somewhat) Wakes Up


Stuck in the Mud

Wow!  Like a fucking parrot I have been repeating the same thing for years now.  But it's okay, I can do it again:

People (not just the economists and market analysts, EVERYONE!), stop applying old concepts to current economic situation!  This was not a recession and we are not experiencing recovery!  This is our new reality.  Get used to it! 

Look at the graph above.  That historical +15.6% gain after severe recessions of the past – it's never going to happen again.  Moreover, even the 1.7% reptilian movement upward, we supposedly experience right now, seems to me miraculous.  And it is definitely not assured – we may start rolling down at any given moment.

The picture is so undeniably obvious, even the politically-controlled outlets, such as NBCNews.com, have no choice but to talk about it.  They are the ones, who published this morning the Credit Suisse's chart above in their Economy Watch blog's post cautiously named "Economy may be permanently stuck in slow-growth mode."  The more appropriate title would be "Economy May Be Permanently Stuck." Period. 

The article is basically a compilation of data and quotes obtained from various resources, including a number of "prominent economists" and the Federal Reserve Chairman Ben Bernake.  The blogger, John Schoen doesn't express his own opinion or adds any commentary.  Nevertheless, the piece as a whole leaves an impression that all cited contributors and the policy-makers are also stuck in a perpetual state of having no clue, of not knowing what to do. 

This doesn't surprise me at all.  These people have been in denial far too long, but they cannot hide from reality anymore.  And now fear seizes their beings, because they start realizing that it's only going to get worse.  It's beyond depressing, it's funereal.

Invariably, one particular tidbit of information puts me into a vile mood, whenever it catches my eye.  In this assortment of bad news Mr. Shoen mentions in passing that 70% of US economic activity comes from consumers.  To me this is a reminder of terrifying fact that our country predominately retails (largely imported goods) and creates services for end users instead of producing industrial products for domestic commercial market or export.  

And it's astonishing that not a single of the quoted "dignitaries," not even for shits and giggles, raises a voice of reason and demands that the politicians stop sticking crutches into the armpits of clay giants and let them fall; that the Feds stop buying long-term bonds with our social security contributions; that the Supreme Justices stop passing laws guaranteeing highest ever compensations for CEOs of health-management companies.  Is Lynn Tilton and I are the only people who understand that only by supporting smaller privately-held DOMESTIC businesses we may be able to revive the economy?  That if "the powers that be" don't start this process right away, the country will become more and more restless?