Fantasy

 

Pure Imagination

There is no life I know
To compare with pure imagination
Living there you'll be free
If you truly wish to be

Is truth always better than fantasy?

In a previous blog post I proposed a framework for human behavior https://dbeagan.blogspot.com/2021/06/truth-justice-and-american-way.html, that included an attribute of Truth vs. Fiction.  I stand by that attribute, but it is not meant to be judgmental.

Being at an extreme for truth might mean reading only works of non‑fiction, watching only documentaries, and viewing a suspension of disbelief as a waste to time.  You can enjoy fiction without abandoning the truth.  Much of the humor in cartoons comes from the knowledge that the reality does not act that way.  If Wil E. Coyote runs off a cliff and doesn’t begin to fall until he realizes that he is running on air, or  the Road Runner enters a tunnel painted on a rock, the humor is that this is contrary to the way things work.  Superheroes smash and destroy buildings without injuring anyone but showing the probable injury might evoke horror instead of the intended excitement. We willingly suspend our belief and accept the conventions of fantasy.  If you read Harry Potter, watch Star Wars, Star Trek or Game of Thrones, you can accept the rules of the story even if those are not the laws of physics.

Believing in something that is not true does not mean that your other contributions are not valuable.  Isaac Newton developed calculus, the law of gravity, optics, etc., but he also wasted his time pursuing  alchemy and occultism and trying to find an elixir to turn lead into gold.

Being able to do stage magic, practicing the art of deception, can be useful in telling stories. Some of the most famous storytellers and performers (e.g. Charles Dickens, Walt Disney, J.J. Abrams, Arsenio Hall, Johnny Carson, etc.) were amateur magicians.  That does not mean that using the tricks of stage magic for deceit or swindling is not wrong. In fact some of the most famous debunkers of the occult were themselves stage magicians, e.g. Harry Houdini, The Great Randi, Penn Jillette).  They better than anyone understand that there is a difference between fantasy and reality.

Believing in fantasy despite facts to the contrary is an extreme that is just as problematic as denying all fiction.  I believe that people who believe in ancient astronauts, UFOs, astrology, a flat Earth, etc. despite facts to the contrary are to be pitied.  But those who swindle, lie, or deceive those who have those beliefs are to be condemned.  There is a difference between believing in fantasy ( e.g. “the WWE is real”) and being entertained by fantasy ( e.g. “I enjoy watching the WWE”).  Some of the greatest advances have come because people adapted ideas from their fantasies.  It is good to have an imagination. It is only bad if you start believing your imagination.

Ronald Reagan

 

The Hunter Gets Captured by the Game

What's this whole world comin' to
Things just ain't the same
Any time the hunter gets captured by the game

Ronald Reagan loved a good story.  Did he get fall in love with his story and get captured by the game?

The August 6, 2021, issue of Newsweek has a cover story on Ronald Reagan.  The proposed framework of rights versus duty; exclusion vs. inclusion; and truth versus fiction, https://dbeagan.blogspot.com/2021/06/truth-justice-and-american-way.html was tested on Ronald Reagan to determine its usefulness.

It is suggested that Ronald Reagan was more inclined to favor a User Optimal solution (rights) over a System Optimal solution (duty).  Remember it is not suggested that the framework is binary, either 100% rights or 100% duty, but a spectrum between those extremes,  It is suggested that in this case rights are favored over duty and not that there is no consideration of duty.

It is suggested that Ronald Reagan was more inclined to favor exclusion over inclusion.  His exclusion certainly extended to Democrats. His 11^th Commandment was to not speak ill of other Republicans.  If certain groups are more identified with Democrats, i.e. labor, government employees, blacks, he might appear to favor solutions that excluded these other groups.  He would put America first, which should not be misinterpreted as attacking those living in other countries.

It is suggested that Ronald Reagan was more inclined to favor fiction over reality.  His early specialty was rebroadcasting Chicago Cubs games where he embellished game statistics that  he received over the telegraph, in order to appear as if he were at the game in person.  He is noted for his career in Hollywood where the ability to act in fiction believable was a positive.

It is suggested that those who shared either user optimal solutions, exclusions of any kind, and favor fantasy might be inclined to think that Ronald Reagan shared their positions.  This appears to have led Ronald Reagan to support a redraft of the Tax Code which favored those users who had capital, favored states rights or any exclusions, and  fiction over reality.

The adoption of supply side, often called Reaganomics, as government policy arguably began with the Economic Recovery Tax Act of 1981. Supply side policies proposed two things.  That expenditures by government had no value to suppliers, and that reducing tax rates for wealthy suppliers would lead to more investment by those wealthy suppliers.  This position was enacted gradually beginning in 1981 cpntinuing over several Tax Acts such as the Omnibus Budget Reconciliation Act of 1990, Economic Growth and Tax Relief Act of 2001 and the  Jobs and Tax Cut Act of 2017.  These Acts lowered the marginal tax rate of the highest tax bracket and reduced the income ranges of the lower tax brackets.  Adopting Ronald Reagan’s dictum of trust but always cut the cards, it is worth seeing if growth was greater after these tax cuts and benefitted all the income for all groups and not just the wealthy.

Looking at mean and median household income during the period 1953 to 2019, the reported incomes suggest that growth would have been higher if government spending had not been cut.  It also suggests that the gap in income has increased, rather than decreased over this period.

This is hardly surprising.  The Kansas experiment enacted by Governor Brownback had more drastic tax cuts, and its impact was more immediately apparent.  The changes enacted under Reaganomics were more gradual and while the end result is the same: reduced government expenditures  and increased income gaps. It has occurred over a longer period and might be  thus less obvious.  It also occurred over a period of increasing inflation, which arguably began because of the Nixon Shock, and its impacts were also marked by increasing inflation.  Raising the cooking temperatures in a pot gradually might not be noticeable by a lobster in that pot, but in the long run that lobster is cooked and dead.

Ronald Reagan might have preferred rights over duty, Republicans over Democrats, and was willing to suspend his belief, but it appears that he might have been taken advantage of by those who shared similar positions, but for different reasons. 

Money Supply

Trade Winds

Yes we're caught up in the trade winds
The trade winds of our time
We are riding on the trade winds
The trade winds of our time

Trade is a good thing.  Not accounting for trade is a bad thing. 

The money supply should allow all buyers to complete their transactions with all sellers.  A problem is identifying buyers and sellers within the existing administrative /political boundaries.  Because there is no accepted international currency, the US Dollar serves as a major medium of international trade. According to SWIFT, 52% of international trade is in US Dollars.  Thus the money supply of the United States should not just be the US Gross Domestic Product, i.e. the  buyers and sellers in the United States. It should also include the use of the US Dollar in international trade, even if that trade does not contribute to US GDP. According to the World Bank, the US GDP was 21.43 Trillion US Dollars in 2019. The amount of international trade was 19 Trillion US Dollars in 2019.  If 50% of that is in US Dollars, then the US money supply should not be $21.43 trillion but should include an additional 8 trillion US dollars. The US money supply should be increased not only to accommodate the growth of the US economy but to accommodate the growth in this international trade.

The US currency in circulation in 2019 was $1.2 trillion.  But the total money supply incudes not only this cash, but also all liquid assets. According to the Federal Reserve in 2021, the M2 money supply was $19.4 trillion or about equal to the US GDP.  However  this does not include the use of US dollars in international trade, where this currency is used even when neither party in the trade is based in the United States.  Inflation has in recent times been continuous and pervasive in the United States.  In fact the Consumer Price Index, CPI, a measurement of inflation, shows a dramatic change in the early 1970s, when the Nixon Shock removed the conventions established at Bretton Woods. In fact inflation, as measured by the change in the CPI, was not a factor before Bretton Woods, was modest when the US Dollar was convertible into gold at a fixed rate as established at Bretton Woods, but became dramatic after the Bretton Woods conventions were abolished but the US Dollar remained a major international trading currency.

Year to year inflation was dramatic in the 1970s but has become persistent but lower than  2% per year in recent times.  This is exactly the situation that one would expect if the CPI changes were viewed year to year and not over a longer period.  The changes in the CPI have been consistent since the Nixon Shock.  It is only when the changes are viewed compared only to the previous year that the inflation rate has changed. The finding ins the blog post on the CPI from 2018, https://dbeagan.blogspot.com/2018/08/the-happening-riding-high-on-top-of.html, has been updated to use more recent CPI data, but the finding remains the same.  The best fit to observed data is still no inflation prior to 1945 ( the year that Bretton Woods convention took effect); modest inflation from Bretton Woods to the  Nixon shock ; and a constant and dramatic increase in the CPI in the period after the Nixon Shock.

The growth in US Money supply should consider not only the growth in the US GDP, but also the growth in international trade. If the demand for dollars increases because of increasing international trade, but the supply of dollars is fixed only to the US economy, then is it any surprise that inflation in the US economy is the result?

It has been observed that the relationship between the money supply and US GDP and other domestic measures has been unstable in recent decades.  It is proposed that it became unstable when global trade became significant compared to the US economy.

Credentials II

 

My Way

Regrets, I had a few
But then again too few to mention
I did what I had to do
 I saw it through without exemption

I did it my way too, but my way was wrong and I do regret that.

There is  a scene in the 1939 Wizard of Oz movie where the Wizard ( who remember is a charlatan) is asked to give brains to the Scarecrow (who remember already solved most of the intellectual challenges faced by Dorothy and her companions). The Wizard does this by giving the Scarecrow a diploma.

“Back where I come from, we have universities, seats of great learning  where men go to become great thinkers.  And when they come out, they think deep thoughts -- and with no more brains than you have.... But!  They have one thing you haven't got!  A diploma.”

I took this scene way too much to heart.  I also consider myself a Marxist, that is a follower of Julius Henry “Groucho” Marx. He once famously said that “I refuse to join any club that would have me as a member.”.  I thought that it was the man, not the club; the idea, not the diploma, that matters. “I was so much older then, I’m younger than that now”.  Because the system was one of caste I refused to participate and did not get the benefits of merit bestowed by that system.  Now that it is too late to get credentials, diplomas, social networking, etc. I have ideas but no one to vouch for them,  And people have to trust me before they listen to my ideas. If they don’t know me, then why should they trust me, no matter how good my idea is.  I should have gotten diplomas, certificates, memberships, joined clubs, etc., before I had an idea, if I expected anyone to listen to my ideas.

Inequality

 

Renegade

This jig is up the news is out
They've finally found me
The renegade who had it made
Retrieved for a bounty
Never more to go astray
This will be the end today of the wanted man

The moral arc of the universe may be long but it bends towards justice.

Mean income can increase if there is an increase in total income and no, or much less of an, increase in the median income. The mean will be equal to the median income only if the income distribution follows a statistical normal, i.e. bell shaped, distribution.  This is not possible because a truly normal distribution would require negative income, and no income less than zero is reported.  Therefore the ratio of the mean to the median income should be slightly greater than 1. This ratio could be a useful indication of income inequality. This is traditionally measured by the Gini Index, but means and medians are more commonly encountered.  To determine what ratios should be expected, the mean and median income for counties were examined using  the Luxembourg Income Study database (LIS). It is the largest available income database of harmonized microdata collected from about 50 countries in Europe, North America, Latin America, Africa, Asia, and Australasia spanning five decades. http://www.lisdatacenter.org/data-access/key-figures/

Based on an analysis of this database, it appears that most stable countries have a ratio of mean to median income of 1.2 or less.

.

Even in those countries where the ratio of mean to median income is reported to be high, e.g. South Africa, Chile, Mexico, etc., that ratio has been declining over time.  Only two countries show an increase in the ratio that has endured more than a few years: the United States and the United Kingdom. Those ratios are

The increase in the United Kingdom appears to have been during the 1980s to the mid 1990s when it became cyclic.  The increase in the United States began at roughly the same time but continues to this day.  It is notable that the supply side economics became the basis for economic and tax policies in both counties in the early 1980’s, but the tax policies have endured in the United States up to the present.

The LIS data does not show data points for the United States for every year particularly before 1990.  US Census reports were examined to provide this annual information.  Publicly available US Census reports on mean and median income were obtained for the period 1975 to 2019.  It confirms that the ratio of mean to median income was increasing in each year.  While median income, adjusted for inflation has increased during this period, mean income has increased at a faster rate, which suggests that incomes greater than the median have increased more rapidly. 

The gap between mean and median income has been increasing over time.  This is reflected in the mean income for each quintile of income as well as the top 5% of households by income.  As expected, a review of this Census data shows that the median income of the highest 20%, particularly the incomes of the top 5%, have increased over time, while the other mean incomes, adjusted for inflation, have remained virtually flat.

 

All income groups experienced a drop between 1979 and 1980.  Beginning in 1981, the income of the highest 20% and particularly the highest 5% have increased dramatically.  It appears that growth has been flat during this period , which coincided with a reduction in overall government spending, which also included a reduction in the marginal tax rate in the top tax brackets and the size of the brackets with the post1981 tax acts.   At that time, a misunderstanding of statistics led to a reduction in the marginal tax rate of the top tax bracket and an increase in the marginal tax rate of the lowest tax bracket, as well as a change to smaller income ranges for the lower tax brackets.  This meant that the distribution of incomes did not reflect the distribution of taxes. The lower income groups paid a larger share of taxes than the highest income group.  Prior to that time, the tax brackets had largely reflected the distribution of income.  Since the 1980s the income tax brackets did not reflect the distribution of income, taxes raised less governmental revenue that might have contributed to higher growth, and income inequality has increased.  The fact that it happened over the period of half a century only means that changes from year to year were less noticeable.  The fact that change was gradual did not mean that the change did not happen.  The jig is up, the change has been noticed.

Economics

 

Three’s Company

You'll see that life is a ball again,
laughter is calling for you...
Down at our rendezvous
Three's company too!

Three may be important for every company

Three is a powerful number.  The strongest polygon is a triangle.  The minimum number of legs for  a stable stool is three.  There are trinities in Christianity (Father, Son, and Holy Spirit), as well as in Hinduism (Brahma, Vishnu, Shiva) and Greco-Roman Mythology(Zeus/Jupiter, Poseidon/Neptune, Hades/Pluto). There are three primary states of matter ( solid, liquid, gas).  There are three primary particles ( electrons, protons, neutrons),  Quarks come in triplets.  We live in a world of three dimensions of space.  Third time is the charm.  Economics is not only about two components: capital and labor. There is an implicit third party: society. The popular name for the system of economics practiced in the United States is Capitalism, but that name places an emphasis on only one of those components.  A name which is more inclusive of all three components is Free Markets.

Labor and Capital are basic components of any production equation.  In classical economics, price is determined by the law of supply (producers) and demand (buyers).  The production equation makes it clear that this is NOT just capital.  There are no goods for buyers to purchase without labor. For producers who are sole providers, the source of the capital may also be the source of the labor. Most corporations (producers) are different.  Society limits the liability of those providing the capital and labor in the production functions.  Without those protections, lawsuits could also go after the assets of those supplying the labor as well as the capital.  (I would however fire my lawyer if, in a lawsuit against an unprotected corporation, he went after the assets of the janitor rather than the president or the stockholders.  Willie Sutton robbed banks, not because he had a grudge against banks, but because “That was where the money was”).  Society also regulates the production functions ( e.g. no harmful materials are used, etc.).  However except for employee-owned corporations, Boards of Directors typically represent only the interests of the capital of corporations and not the interests of its labor (i.e. employees), nor the interests of society. Since corporations can own assets, pay taxes, and can exercise free speech, they need some one to direct them.  Currently only capital  shareholders are typically represented, but it is not clear why society or labor are not also represented as directors of corporate boards.

The Distribution of Wealth

 

If I Were A Rich Man

Lord who made the lion and the lamb,
You decreed I should be what I am
Would it spoil some vast eternal plan?
If I were a wealthy man.

What does it mean to be wealthy?

Donald Trump, Jr. famously was taken to task when he said that when the average increased everyone benefits because that is how math works.  Unless they taught a different version of math at the Wharton School than I learned UPenn’s nearby Towne School of Engineering, the problem is that average is often taken to be the mean and what DJT, Jr. probably meant is that when the median increases everyone benefits.  It is possible for the mean to increase and only those at the top to benefit, and the median to be unchanged or even become worse.  Under a normal statistical distribution the mean, median and the, seldom used statistic, mode, are all the equal.  ( Mathematicians  also call this a Gaussian distribution, but  the bell-shaped curve is popularly called the normal distribution.)

The normal distribution is what may be used by the general public to determine when a distribution is “fair and equitable”.  In that case when people say the average, they may intend to use the median, not the mean.  The mean is easier to compute.  It requires only the totals of the two values, e.g. wealth and population.  The median, the point where 50% is above and below a quantity, e.g. wealth, requires knowledge of the value for every member of the population.  If in a normal distribution, the mean and median are equal,. The ratio of the mean to the median is an indication of how skewed is the distribution.

The United States is the wealthiest country in the world based on the 2021 Global Wealth Databook published by Credit Suisse. https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-databook-2021.pdf.  Its wealth is 168% of second place China even though it has only 22% of the adult population of China.  The United States is in second place for mean wealth per adult to Switzerland. The US’s mean wealthper adult is 76% of the mean wealthper adult in Switzerland.  However the United States is in 26^th place among countries ranked by median wealth. The ratio of mean to median wealth, weighted by adult population, among the countries listed in the Global Databook is 3.54.  The ratio of mean to median wealth in the United States is 6.48 which places it third behind Brunei (7.63) and Bahamas (7.56) and just ahead of Bahrain (6.03) and the United Arab Emirates (5.34).  The country with the lowest ratio of mean to median wealth is Iceland (1.46)

According to an article in Business Insider, https://www.businessinsider.com/personal-finance/average-american-net-worth, all subgroups of the population in the United States are higher than 3.54, the weighted global ratio of mean to median wealth per adult population.  The group coming closest to the weighted world average is households living in rural areas (3.59) compared to  those living in urban areas (6.40).  This probably is because the very wealthy, those that are cause of this disparity, have chosen to live in urban areas, not because of some attribute of those rural areas.  The ratio for Blacks is 6.02 which is higher than the ratio of White, Non Hispanics, but that ratio (5.06) is still higher than the global ratio. The ratio of mean to median worth is greatest for those owning a home (4.32) versus those not owning a home (15.17).  This suggests that computing means and medians, excluding the principal residence from net worth, might be instructive.