You know that experience where you're idly channel surfing and something just stops you cold? I had one of those moments yesterday. I landed on Bloomberg tv, just in time to hear an interview with hedge fund guru Jim Chanos. Chanos first drew national attention for shorting Enron and has gained a reputation as a whistle-blower, because he does the kind of due diligence few in the financial industry seem inclined to pursue.
I was interested to hear his take on current world economic conditions, but was rewarded with something even better toward the end of the interview. I began by nodding head in agreement with many of his points and progressed to actually clapping my hands and cheering.
The interview starts out with a discussion of the global economic situation, and at a little after the 3:10 mark, speaking of the European austerity programs, he says (my paraphrases throughout here): “We’re in this weird trap of the fact that no one seems to have ever taken MacroEconomics 101 in terms of trying to cut their way to prosperity.”
Not just in Europe, Mr. Chanos...
He also has strong concerns about China’s economic condition, and the real debt there, obscured by their accounting techniques, which he describes as “at European levels” in terms of Chinese GDP. Chanos expects the Chinese property bubble to burst by the end of 2011 or beginning of 2012.
My ears perked up at that one, but if you watch nothing else, follow me below the squiggle for the video and my rough transcript of the really good stuff.
For those of you who want to cut to the chase, fast forward the video to the 9:45 mark, where interviewer Carol Massar asks him about the “Buffett Rule”:
Jim Chanos: Taxes as a percent of the economy are extremely low, as shocking as that is for people to hear.
Carol Massar: Doesn’t feel that way.
JC: No, I know it doesn’t feel that way, but keep in mind, marginal tax rates were much, much higher in the past, and, you know, by the past, I don’t mean the last ten years, and yet the economy grew just fine.
JC: Um, it’s just something…something…The discourse level in our country has really gotten to a point where you have to wonder where we’re demonizing teachers and firefighters and policemen, so that the highest wage earners can continue to earn very, very, very large amounts of money, and pay very, very low marginal tax rates. I just think, “When did this country become so mean-spirited?”
CM: mmm
JC: So, I’m for the surcharge, I’m probably going to have to pay it.
CM: But as you say, the marginal tax rates didn’t slow the economy in the past, did it?
JC: It hasn’t. Top marginal tax rates were 90% in the 50’s and that was one of the greatest growth decades in the U.S. The problem is we have to focus on the middle class. And too much of the discourse in this country is on the very highest and the very lowest ends of the spectrum. “Oh, we should make the low feel some pain.”
My God, if you’re a single mother working two jobs to make ends meet, I’m pretty sure you’re feeling the pain even if you’re not paying any federal income tax.
CM: Fair enough.
JC: I really think what we need to do is get the middle class, where wages have stagnated for, we now get some data, for 15 years now, that’s what we’ve got to get going—that’s the engine of this country.
CM: mmm
JC I’m not going to work any less hard if my marginal tax rate is 39% or 35%. I’m still going to try to make profits, hire people. So this argument that the rich are the job creators and won’t work as hard if their taxes are raised is just ridiculous.
Thank you, Mr. Chanos, for using your position to spread a little badly needed common sense.