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The Economics of Mass Destruction - Part II (Final)
From The Daily Capitalist
This is the final part of two parts of "The Economics of Mass Destruction." For Part I, go here.
The Fallout of Economic Conformity
The logical conclusion of these failed policies is economic stagnation. Here is what massive government spending and taxation has done to our economy:
- Total government (federal, state, and local) share of the economy has exceeded the tipping point, estimated to be between 15% and 20%, which is the point when it hinders economic growth. Presently total government spending for 2010 is estimated to be about 47% of the economy.
- Taxation must rise substantially in order to pay for government debt, health and welfare entitlements, and other fixed government costs. The 2010 estimate of federal, state, and local taxes amount to about 30.4% of GDP (about $4.480 trillion).
- Our total government debt (federal, state, and local) is estimated to be $16.635 trillion for 2010, approximately at 114% of our GDP (2010 E$14.623 trillion). Of total government debt, federal debt is estimated to be $13.787 trillion in 2010.
f=federal govt.; s=state govt.; l=local govt.
The larger the share of governments’ take of capital out the economy, the less money there is available for businesses and consumers. The less capital available for the private economy, the less it will expand, and the result will be a decline in GDP.
While progressive utopians believe that taxation of the “rich” is acceptable to fund social benefits, mathematics, demographics, and the laws of economics prove them wrong. Progressives have yet to understand that government produces nothing.
The table, below, shows tax rates of many major economies as a share of their GDP. The welfare states have taxes approaching 50% of their economies, with the median in the high 30th percentile. The U.S.’s tax burden on the economy of 30.4% is less than most of these countries. While we ramp up our welfare state which assures higher taxes, Europe’s welfare state services are crumbling and face drastic shortfalls as their GDP falls, as their populations age, and as their companies find better conditions abroad.
The Economics of Mass Destruction
The Organisation For Economic Co-Operation And Development (OECD) is an economic think tank put together by 33 countries of which the U.S. is a member (see above chart for members). Most members are economic powers. China and India are not members. It generates a lot of data, but very little useful research. It is located in Paris and has 2,500 international staff members. They take a rather hard Keynesian line. One need only look at their logo to see where they stand:
The OECD just came out with their Interim Economic Assessment, “Recovery slowing amid increased uncertainty” said the headline. They, like the Obama Administration are realizing that their Keynesian policies are failing.
The world economic recovery may be slowing faster than previously anticipated, according the OECD’s latest Interim Economic Assessment. Growth in the Group of Seven countries is expected to be around 1½ per cent on an annualized basis in the second half of 2010 compared with the previous estimate of around 2½ per cent in the OECD’s May Economic Outlook.
The OECD says the loss of momentum in the recovery is temporary although uncertainty has increased. …
If the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus might be warranted in the form of quantitative easing and commitment to close-to-zero policy interest rates for a long period," the OECD said. "Where public finances permit, planned fiscal consolidation could be delayed. [my emphasis]
It is clear that the OECD does not understand what is happening. Otherwise they wouldn’t need to suggest more fiscal and monetary stimulus if they really believed the “loss of momentum in the recovery” was only “temporary.”
Its announcement sounds almost as if the Fed had written it. Here’s what Chairman Bernanke said on August 27, 2010:
Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year. …
We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.
The Obama Administration is proposing more government fiscal stimulus spending to boost the economy.
The only thing these policies have achieved is the destruction of capital.
The Fed and other central banks have been printing money to pump liquidity into their economies. These policies aren’t working. Credit is declining, money supply is declining, and the creation of fiat money is destroying capital by devaluing currencies.
Massive government spending on politically favored projects adds nothing to the economy and destroys more capital. One need only look at U.S. stimulus spending at Recovery.gov to see where the billions are going. If it worked the economy would be growing and unemployment would be declining. The opposite is happening.
How does repairing a highway in Ohio lead to economic growth? The answer is that it won’t; once the money is spent, the repair jobs go away and the capital is gone.
Is it possible that the private economy would find better things to do with that capital? We need to ask what the person whose capital was taxed away by the government was going to do with it. I am sure that the answer would be that it would be preserved or used for new economically viable businesses. Only savings, not spending, creates capital for renewed growth by private enterprise.
Eventually governments run out of capital if they dominate their economies long enough. High taxes and a welfare state lead to lower incentives to produce and lower incentives to save. Most of these countries are still spending the capital earned in former, freer market economic times. If they destroy enough capital they will go bankrupt and plunge their economies into serious depressions.
The outcomes of policies that destroy capital will vary from country to country, but none of them will be good. In the U.S. we can look forward to stagflation: years of high unemployment, low productivity, and rising inflation. Japan will continue its 20-years of low productivity and deflation. China will experience capital destructive boom-bust cycles. Germany may be the sanest of all by ignoring the conventional Keynesian wisdom by cutting government spending.
A sobering thought is that these capital destroying policies are being exported to developing countries as well. As these economies emerge from controlled economies to freer systems, they need time to amass capital to drive their growth. Most advanced economies experienced a century or more of rather hands-off capitalism before they turned into welfare states and regulated economies. China cannot morph into a dynamic capitalistic economy by burning up capital of its entrepreneurs through graft, wasteful spending, and harsh regulations.
There is no refuge from the world’s plunge into massive capital destruction. At one time in history you could flee to countries with freedom and free markets, such as America. With the globalization of Neo-Keynesian economics, there is no refuge. Watch out for EMDs: the economics of mass destruction is here.
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For those who wish a printable PDF of the entire article, go here.
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1. I'm not a Marxist. Call me a statist or a progressive if that pleases you.
I believe in capitalism but I understand its limits. For instance capitalism does a terrible job at managing public goods and taking into account externalities of all sorts.
2. My approach is certainly not to create even more growth of government and indebtedness. Where did I write anything of the sort?
I disputed, witrh evidence, Econophile's claims. Read what I wrote.
I believe the #1 rule of a sound Government should be to balance its budget. Zero deficits.
3. you claim not to be an anarcho-capitalist yet you believe Govts produce nothing. If Govt produces nothing we should get rid of Govt entirely. You believe free market capitalism without any sort of Govt intervention can work. That's anarcho-capitalism.
4. you repeat again the baseless claim that the growth of government has/is pushing aside realinvestment capital . That's an absolutist claim which I have already shown doesn't hold. The growth of Govt in the USA from 1900 to 1980 didn't push aside real investment capital from this country.
Do you understand the difference between disputing this claim, which I did as it is evidently false, and supporting the opposite, which I didn't.
You seem to have a problem with understanding that saying a claim is false (growth of government hinders private capital) doesn't necessarily mean the opposite is true (growth of government helps private capital). Both are absolutist claims that are evidently false.
Logic : you are doing it wrong.
Asto your assumptions about the SNCF (French railway system) and EDF ( French Electricity company), they are wrong. Go and study them first, then come back and discuss something you have actually studied before you make more assertions based on ignorance.
Having stuck my neck out, as it were, in complimenting chrisina above, your damning argument here forced me to go back to her original commentary on the article under discussion.
You assert "Your approach seems to be to create even more government growth & indebtedness...beggaring the taxpayer's idea's of useful capital investments...through government spending on unwanted or unproductive or unprofitable things like windmills, solar panels, health insurance (you are fined for not exercising a right? really now . . . "
I see no reasonable evidence in this thread that this is her position or argument. What I have seen is that she rejects what she regards as econophile's simple-minded damnation of the inherently evil hand of government and that, more globally, she seems to believe that those who adhere to such an "idealistic" perspective are espousing more or less a religious belief system, given that no examples of successful capitalisim without a strong government role can be found in the "real world." Such people she has characterized--quite fairly, within the normal bounds of language, it seems to me--as "anarcho-capitalists."
Although she in turn can be called any names anyone cares to hurl, I'm not hearing her promoting Marxism. Rather, she seems to be rejecting absolutism.
So I find your characterization perplexing (though I admire your arguments regarding full cost-accounting.) Is there a history here that I've missed?
Bob,
http://dailycapitalist.com/2010/09/01/battle-between-my-disagreeable-rea...
Regards.
Great answer! Must say that the comments there were interesting as well. Sorry about the intense history--it makes everybody more prone to jumping the shark.
Best of luck!
You must understand I have little tolerance for "progressives" who believe somehow that once in places of power they have a duty reorder the personal affairs of men & women.
I have zero tolerance for socialist's/communists/fascist's who believe somehow once in places of power they have a duty to control men & women right down to the very air we breathe out.
There are many people who have been sucked into this mindset vision of "progressives".
To the point of belittling someone who wishes to protect their earnings from their own labor from confiscation by taking them offshore, away from the threat. Even as they themselves do the same with PM's. They somehow don't see the comparison. It is the same thing.
Take care.
The problem is that the threat can always come to you, no matter where it is, and win. Then make an example out of you.
Trying to starve people out only makes the target on you that much larger. The better idea is to survive in spite of the conditions handed to you, and make that target smaller.
I understand completely.
But I am not alone ;-)
Many in Washington seem convinced that the solution to the problem with capitalists is always less capitalism. To be sure, a free-market society is in some sense a government program. The government must prosecute criminality, enforce contracts, and demand that the rules be observed. Few lovers of free markets are so laissez-faire as to want to strip the government of its role as REFEREE. But few should want the REFEREE to suit up and play the game.
Govt should ONLY be doing what is enumerated in the US Constitution: Protecting the people's liberties and their PROPERTY!
Fixed it for you.
What about state and local Govt?
Econophile's article and the data provided is about Government, whether it's Federal, State or Local.
NB: I'm all for stripping down the powers of the federal Govt so that they are in line with the US constitution, as well as stripping down the powers of the European Commission and Parliament who adopted the Lisbon treaty AGAINST the will of the European people.
But I'm not anti-govt per se, as I believe a more resilient and prosperous future can only be achieved with the decentralisation of powers, whether they are those of Govts or of private corporations : local for local is the only solution and we need to strike the right balance between public local entities and private local entities.
WTF is "the right balance"?! Who decides? What if I think your "balance" is wrong?
Idiotic, wishy-washy, mumbo-jumbo!
Statism is dead. We need a free market and individual choice.
What if I think your assumption that capitalism can exist without government is wrong?
Anarcho-capitalism has always been dead. And it has not a chance of living as a society based on its principles would be such tyranny of the few who own everything that it would collapse within a few months.
I'll try and put this as politely as I can: You are a fucking moron!
Democracy and Fabian Socialism have had 100 years to try and prove themselves and all they have achieved is a mountain of debt that stretches with C-notes piled to the moon, economic collapse, starvation, unemployment and [very soon now] debt slavery.
You need to get out of the fucking way with your failed collectivism ... you are not part of the solution, you are part of the problem!
Just because you can't organise your life without big brother telling you what to do and managing your money, doesn't mean that the rest of us are similarly retarded.
PS. Your cliches don't hold water.
I see as usual anarcho-capitalists can only result to junk and insults.
I wrote my comment #589307 with counter evidence and facts that dispute Econophile's baseless claims, you chose to reply with only insults and more religiously enclined rethoric. Normal you hate evidence because it shatters your religious doctrine and your absolutist principles. So all you have is insults and not one ounce of evidence based reasoning.
To your point about "fabian socialism" being the cause of the mess we are in, I'll just reply that the debt bubble started in 1980 when the mantra of laissez-faire capitalism, free trade and efficient free markets started dominating the political and business world pushed by Reagan, Thatcher and the Chicago School Economists, who were definitely not members of the Fabian Society but their opponents.
Those developped countries that had a far more interventionist govt, social democracies such as Germany, Nordic countries, Canada, have today a far lesser credit bubble than the adepts of unfettered anglo-saxon capitalism such as the US and the UK.
Oh, and you know nothing about my life so please stop with your baseless assumptions.
Look, I wish you get to create your anarcho-capitalist dystopia in some part of the world, but I don't want to be part of it, okay? It seems that only then will you finally understand that anarchism and capitalism are fundamentally incompatible.
That was one of the most beguilingly civil bitch-slapping coup de gras that I've ever seen.
Kudos on the entire thread, chrisina.
Agree: Thanks for sticking to your guns chrisina. Rightwingers are so rigid that you could dig trenches with them.
That appears to have been the knock-out punch. I salute you.
This cheers me up. A rap song about spamware blocka!
http://www.youtube.com/watch?v=mFQxIFvzyms&feature=player_embedded
Lol.
As for the rest of the article I have nothing to contribute as I am drunk and frankly go give a fuck less about the economy as it's fucked anyways.
Th expectation of "higher taxes on the rich" isn't so much a belief that the benefit will be a "balanced" or "improved" economy, rather it is an expression that the imbalances of the economy have burdened the lower half so treacherously for the past 30 years culminating in TARP that the only solution seen is a punitive assessment of the beneficiaries of the bailouts.
It is always easier to take what someone else has rather than build something yourself. Government (taxes) makes it legal to steal from your neighbor.
In the current ever-inflationary environment at all costs to those who actually work for a living, the Fed has essentially created a sinkhole for the lower and middle class that equates to foreclosure and bankruptcy, while removing the natural consequences of bankruptcy from the uber-wealthy banks.
Wiping out Bank of America and Citigroup was too politically charged and resulted in a cascade of defaults as the zombie banks were allowed to continue operating off government money.
Where's my bailout? What makes Citigroup more entitled to free money than me?
By creating two societies, the Fed has changed class warfare, and it is displayed in the Tea Party victories.
Since Bank of America, it's shareholders, bondholders, investors are going to be protected explicitly from bankruptcy WITH tax payer money ... then logically, they should PAY MORE!
The Rule of Law would have shuttered the doors of these massive zombies ... instead Congress and the President re-wrote the accounting laws to allow them to ignore their insolvency.
Our politicians are co-conspirators with the corrupt banking elite. Higher taxes for them is just the begining. I would expect much more political backlash at the next round of money printing.
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For instance, Sprint (a company bought out by Verizon) sent me a bill for a debt from the early 1990's. Deliberately being able to break the law and pursue debt collections that are outside the statue of limitations ... why? Because the banks know that there is nothing to stop them from committing fraud.
"FreeCreditReport.com" is the most blatant attempt by the banks to commit fraud.
At this point, our President is complicit to their thievery.
Taxing the rich as a punative measure?
So, you want to make sure the lifeboat is full as we all watch the Titanic slide beneath the waves?
I got news for you. The rich know how to get their money into a safe haven even if currency controls are in force.
All that marginally high taxes on the rich will do is drive more liquid assets out of the US...or any other country that attempts to impose them. Ask the Greeks.
BTW, I am not rich...just an observer of what has happened in the past...it's called history.
The better idea is not to do things that motivate the government to pursue.
The problem is when the government is willing to make those "safe havens" less safe. It does no good if the US government is waiting at every safe haven, with full cooperation and secrecy of said country. Also, Europe would not mind joining in if it meant they got their own.
Never mind that the size of more than a few of them are small enough to be within reach of a "military accident". An accident that happens fast enough to catch more than a few off guard.
Isn't that the point? There ARE safe havens set up for those who have the money.
As a common man my safe haven is a 401k or IRA or Passbook Savings Account or Certificate of Deposit? Right.
As for me the safest haven now is gold and silver, in my hand.
News Flash: Rich people pay the vast majority of taxes, not "people who work for a living".
BTW, where does this "taxation is theft" thing come from? This belief is the political equivalent of Creationism.
It's your government. You've got to fund it.
They do not pay enough. Sure they pay more, because they get more, much more.
We have made billionaires out of millionaires. We have also created more poverty.
Were is the tide lifts all boats. Those billionaires had to squash somebody.
Lloyd Blankfein and all at GS live well at a cost to the larger mass.
"It's your government. You've got to fund it."
As the Mogambo Guru would say, "HAHAHAHAHAHAHAHAHA!"
"We're freakin' DOOMED."
My federal "Representative(s)" (none of whom I voted for, BTW), are spending currency where they ought not to. While this is technically NOT theft, it sure is close to it!
Of course it's theft! None of us volunteered any of it ... nothing they spend it on was approved by the taxpayers (indeed, a lot of it is unconstitutional) ... they are burning trillions to provide protection for the Anglo-American drug traffickers in Afghanistan ... and, if you don't pay what they dictate you should pay, they'll come and shoot you (if you continue to object).
Banks, corps, drug traffickers, don't forget we pay for government employee pay, pensions and benefits that are now far superior to most of the working slobs whose pockets they pick. Governments do directly steal from us to feather their own beds.
As noted in the above posts; This article contradicts it's self on the first page. If the 'tipping point' is anything above 20% then where is the crisis in places like Denmark and others.
Just like I noted on Bill Mahr's seaon premier tonight.
Everybody looks for 'one' answer. Even the more bright people around.
The best 'one answer' (or at least the closest to being one answer) to me is that lobbyist have taken control of the function of government by the people.
But that does not mean a small group of suits sitting in a mahogany paneled room in some unknown building ploting the take over of the free world.
It is a pervasive mind set that holds the same goal. Selfish and self serving and almost a beast unto it's self with no name and no face.
It was given up by greed of all of us. Investing in Wall Street programs that gave the best annual returns. Even if those returns included eliminating long term views and settling for the 'next quarter'.
It's not expanded government per say that has slowed economic growth all by it's self. It's several factors including government growth that accomplishes nothing but feeding the large corporations and banks.
They talk about how evil it is to tax business but when you get to the really large companies we find they pay almost nothing. Haliburton is in Dubai and not because of the weather. G.E. paid almost nothing last year.
So again we have an article that aims at just one thing and misses the whole target.
Good points.
I quote another here: The economy is not a machine, it is an ecosystem.
Small events may result in large changes.
"It was given up by greed of all of us."
No it wasn't; it was taken from us long before we were born, via the institutionalized theft of the state. And however greedy one or another of us might be, it is the state's self-granted license to steal that attracts the greediest among us, appealing as it does to the lowest common denominator in our species. And putting it out of our misery is the "one answer" to vast majority of the problems we face.
+1
Every child is born into debt. That is the same thing as, "Every child is born into servitude."
(Currently in the USA, depending on the math, that born-today-baby already owes some $360K, although only half the babies will pay taxes, so you can double that.)
Literally, that yet-to-be-born child is already pledged as collateral against US Treasury debt owed to the Federal Reserve. Baby Boomers everywhere have high expectations that the baby will start making those payments as soon as possible.
It is silly to suggest that the baby to-be-born this afternoon is greedy. (He *is* greedy from an eat-and-poop perspective, and certainly not environmentally sensitive, but he as-of-yet has no interest in high finance.)
It is all about power, greed and self serving interest, from somebody with much money who's objective is more for me. The answer as suggested by many is not less or more, it is about balance. So, who has the balance favored in time.
The Share of USA Income gains Going to the Top 1 Percent at Highest Level Since 1920.
1923 to 1929 was 70% to the Richest
1960 to 1969 was 11% to the Richest
1976 to 1979 was 33% to the Richest
1982 to 1989 was 41% to the Richest
1992 to 2000 was 42% to the Richest
2002 to 2007 was 62% to the Richest
…………………………………………………
The Share of USA Income gains Going to the Bottom 90 Percent at the Lowest Level Since 1920.
1923 to 1929 was 18% to the Poorest
1960 to 1969 was 62% to the Poorest
1976 to 1979 was 43% to the Poorest
1982 to 1989 was 22% to the Poorest
1992 to 2000 was 29% to the Poorest
2002 to 2007 was 12% to the Poorest
Fairness? Balance? Why have the Asian immigrants not stayed poor on average? Because they value hard work, family, proper diet and education. If all the poor were to follow the habits and lifestyles of these families, where would they be? Some Americans spend their time reading Zerohedge to understand the world, others are watching rapstar videos. Give some credit to those with wiser survival skills.
Our society as a whole has degenerated culturally, morally and educationally and that is an important factor in our impoverishment. Ever seen the website people of Walmart? What would our grandparents and great grandparents say? My great grandmother was appalled that women no longer wore hats and gloves and dresses and let themselves go. What would she say? http://www.peopleofwalmart.com
Exactly.
The real measure you want is malinvestment as a percentage of GDP. Conservative/Libertarian types presume - quite wrongly - that government produces no value.
Ironic, isn't it, that they always demonstrate that to you with the vast statistics produced by governmental agencies.
Enormous, excessive rewards for passive investors, bad managers and fraudulent products and services escape their notice. That stuff is all presumed to be fine simply because the private sector does it.
Idiocy.
Please explain what "value" a state, or government produces that it doesn't first take by force from a non-government source.
And please explain how, even if there is a "value" to any government service, it is not worth less than the cost to the non-government source immediately due to the additional costs that government imposes?
Government is theft by thieves who desire, from those who allow. The Allowers' patience is growing thin, as it does every few dozen years. End results of loss of patience: lots of politician/bureaucratic heads detached from politician/bureaucratic bodies.
Be like the boy scout.
Okay, so where's the Denmark crisis?
Denmark tops the leader board for taxation as a percentage of GDP, so surely Denmark must be a catastrophe, right?
And of course the countries where government taxes? Turkey and Mexico. Paradise.
If you want to live in a sh&t country, look for low tax revenue as a % of GDP.
Ah, yes, "Taxes are the price we pay for a civilized society."* It follows, then, that the more we are taxed, the more civilized we'll be, the logical conclusion being that 100% taxation will make us 100% civilized. Seems like that's already been tried, however, and the results weren't so good, the truth being, of course, that taxation is theft and that legalizing this theft makes no difference morally.
*Oliver Wendell Holmes
I direct you to the Laffer Curve. There is a point in taxation at which its benefits begin to deteriorate. Perhaps there should be another factor or two which accounts for other societal or economic factors? But, hey, I'm not an economist so I am not qualified to comment further.
"There is a point in taxation at which its benefits begin to deteriorate."
On the contrary, there is no point in taxation at which it benefits the taxpayer. If there were, we'd all pay them voluntarily, in appreciation for the return on our "investment." Which is to say that taxation can never offset the damage it does, since it cannot return to the taxpayer more than was extracted from him in the first place..
Taxes benefit the taxing agent and the taxing agent alone, period.
I can name one voluntary form of tax. The Lottery.
Constitutionally speaking, there are certain functions of the Federal Government which are funded by specific taxes/tariffs. I think the lighthouse example is a good one, and the Coast Guard might also suffice. You simply cannot say that taxes to a federal government are uncalled for. That is just as extreme as saying that the Gov't should be given all our money to make whatever decisions they like. There are beneficial taxes in that sense and I would wager that most people are willing to pay them. Roads, police, firemen, and dog catchers at the local level are a more visible range of taxation benefits. The line for me is tax money going to another specific, named person for their daily needs such as food and shelter. That is not providing for the "general" welfare as outlined Constitutionally. See this:
http://www.juntosociety.com/patriotism/inytg.html
EDIT: Upon reading your comment again I have concluded that you are delusional.
I am living proof that one can live in a high tax to GDP country and still live in a 'shit' country.
Okay, so where's the Denmark crisis?
Denmark tops the leader board for taxation as a percentage of GDP, so surely Denmark must be a catastrophe, right?
And of course the countries where government taxes? Turkey and Mexico. Paradise.
OIL. Denmark can afford to be an absolute welfare state because they are swimming in oil. You don't have to produce anything else if you are swimming in the one resource everyone wants.
How convenient that you selected the Danes while ignoring that small detail.
My turn. Cuba. If your argument is that more taxation and government regulation and services increase the GDP and overall wealth of a nation, explain Cuba.
No, you are confusing with Norway.
Denmark produces 0.3% of world oil, with a GDP of 0.5% of world GDP. Which means oil production represents a smaller share of Danish GDP than the average country.
Cuba has close to 100% of its economy in the hands of Govt. Somalia has close to 0%. Both aren't functioning well.
Nobody in their right mind ever suggested that the highest possible share of GDP in the hands of Govt, the better the economy.
The discussion is whether, as Econophile claims, the tipping point is around 15%-20% which it can't be as most of the countries on the list are between 30% and 50% and have seen growing economies.
A large percentage of a small GDP is NOT necessarily greater than a smaller percentage of a LARGE GDP, capiche?
but hey, didn't we just de-regulate and privatize SOOO many government functions?? didn't that just spur wonderful long term stable growth??
no?? its just a scam like always, just a fight to see which crooks are stealing the most.. Corp or gov
Excellent! Now I go back to read a second time before putting my foot in my mouth.
Some great information here that needs digesting.