Thursday, October 7, 2021

Debt

 

Sixteen Tons

You load 16 tons, what do you get?
Another day older and deeper in debt
St. Peter, don't you call me 'cause I can't go
I owe my soul to the company store

The battle over the national debt is also a  battle over the nation’s soul.

The US debt ceiling is being extended until December.  That the US budget has debt is neither good nor bad.  Charles Dickens in David Copperfield said

 “Annual income twenty pounds, annual expenditure nineteen pounds and six , result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”

but if those extra six pence were an investment in the future, say a college loan, a home mortgage or a car loan, that result would probably be happiness too, not misery.  While we may be in debt at a given point in time, that does not mean that we will always be in debt.  Under Republican Presidents the national debt has always increased.  Under Democratic Presidents the national debt has largely decreased.

Presidential Administration

Change in Deficit
(Billions of USD)

Lydon Baines Johnson

-$8

Richard Nixon

+$9

Gerald Ford

+$48

Jimmy Carter

+$25

Ronald Reagan

+$74

George H. W. Bush

+$102

Bill Clinton

-$383

George W Bush

+$1,500

Barak Obama

-$735

Donald Trump

+3,000

Source: Boston Globe: Fast Forward Newsletter (Tuesday October 5, 2021)

Yes, the table above could be adjusted to account for inflation, but that will only change the magnitude of the numbers, not their sign.

Debt is the difference between revenue ( i.e Taxes) and spending.  If revenue is decreased (taxes are reduced), but spending stays the same or increases, then the debt increases.  All of those tax cuts do have a consequence.  Growth in the stock market only reflects  the growth of capital, not growth  of the economy.

Republican's problem over the debt is not on how big the debt is, because clearly Republicans appear to increase debt.  Their issue is over how much revenue there will be and what kind of spending there will be.  Republicans cleary want no revenue, i.e Taxes, and are at least honest about that or haven’t you been reading their lips or reading Tea Party screeds.  They also do not want the “wrong” kind of spending.  They have discovered that if there is no revenue, then there can be no spending, and if the debt is increased so much that all of the income will have to pay off the debt then there will be no “wrong” kind of spending.  If society can’t play their way, they are perfectly willing to smash all of the toys so we can't play with them either.  Wise up America and save our soul.  The argument is not over the size of the debt.  The argument is over taxes and the right kind of spending.

Tuesday, September 28, 2021

Political Parties

 

It’s My Party

It's my party, and I'll cry if I want to
Cry if I want to
Cry if I want to
You would cry too, if it happened to you

Are political parties making us cry?

The founding fathers did not anticipate the formation of political parties.  If they had, the Electoral Crisis of 1800 would never have happened. This was an inadvertent tie between the Democrat candidate for president and  Democrat candidate  for vice president.  That led to the adoption of Twelfth Amendment to the Constitution which implicitly acknowledged the existence of political parties by separating the election of the president from the election of the vice president. 

Single member districts were also not a constitutional requirement.  The constitution required that votes in the House of Representatives should be apportioned by a decennial Census. More than one representative per state could was expected.  But the Constitution was silent on whether those representatives would be proportionally elected in a state (i.e. at large) or whether those representatives should be for specific districts within a state.  Single member districts were the result of Congressional apportionment act of 1842.

The result of single member districts and a plurality system is, according to Duverger’s Law, two political parties.  If the winner is determined by plurality, merging any political parties that did not receive  a plurality was proposed as inevitable.  Consequently there are two political parties in the United States, while there are more than two parties in proportional systems of representation,  e.g. parliamentary systems in Europe.

A consequence of a two-party system is that supermajority votes become a way for one of those two parties to block the actions of the other party if it is a minority, but not a super-minority.  Thus a supermajority action, such as advise and consent; ending debate and bringing a bill to a vote, popularly known as the filibuster; etc. can be blocked by the political party that is a minority.  If votes for a supermajority were secret, then retaliation against the “defectors” could not be enforced by that political party. Thus supermajority votes might then serve their intended purpose, to make sure that actions of a majority do not come at the expense of the minority.  Actions to block votes by a majority, by the party that is a minority, but not a superminority, are the current impasse.

Just as the framers of the Constitution did not anticipate the formation of political parties, Congress did not anticipate the consequences of single representative districts.  There is a good reason for a single representative for a district.  It ensures that the representative is closer to the people being represented.  However the consequence of this single representative  per district  system is to makes it possible for  the minority party to block all actions of the majority party,  unless that majority party is also a supermajority.  Rather than change the electoral system, require that all supermajority votes ( e.g. advise and consent, declarations of war, ending filibusters, etc.), be by a secret ballot. This would recognize that there are 50 States, 100 Senators, and currently 435 Representatives, and not just 2 political parties. A secret ballot in supermajority votes should serve to unite us, rather than divide us. Will that portion of the minority that is also a superminority object? Of course, but the alternative may be to allow simple majority action in all cases instead of requiring a supermajority.  Let’s not eliminate the protections against a tyranny of the majority because we don’t want  a tyranny of the minority.

Sunday, September 26, 2021

Capitalism

 

Mary Poppins - Fidelity Fiduciary Bank

You can purchase first and second trust deeds
Think of the foreclosures!
Bonds, chattels, dividends, shares
Bankruptcies, debtor sales, opportunities
All manner of private enterprise

Are the interests of investors the interests of society?

In economics, a production equation that determines the quantity of goods from a seller/producer is often given as

quantity=function(capital, labor). 

For example, if a child sells lemonade from a stand, the production function might include the cost of pitcher, the cost of the lemons, and the cost of the labor.  The lemons are the raw materials in making lemonade and do vary with the amount sold, but the pitcher is only purchased once.  Thus capital is the investment in the pitcher, which is a one-time cost, and costs of the lemons, which is a variable cost . The investment in the pitcher should have a return on investment, ROI, but the lemons don’t require the same return on investment, (e.g.  if you sell less, buy fewer lemons). Additionally economists classify goods as private (exclusive and priced) and common/public (exclusive and non-priced) goods.  You can’t make lemonade without water, a common good. Therefore the expanded production function should be

quantity= function(investment, private goods, public goods, labor).

Producers/sellers want to maximize the amount that they produce,  since revenue is quantity sold times price, and thus they will receive  more revenue.  If they reduce the unit cost for labor, then then can produce more goods. But slavery is illegal and there are minimum wage, maximum hours and child labor laws.  If the labor is not supplied by the producer, then society has an interest in requiring that there is a reasonable cost for that labor, to protect itself, other producers, and those laborers.  Similarly the cost of using common goods are regulated/priced by society to ensure that these common goods are used responsibly.  Producers should not lower the price of private goods. There are anti-trust and anti-competitive laws to prevent producers from lowering the price of private goods for only themselves.  If there were no controls on private goods, public goods, and/or labor, or these controls are violated, then the Return On Investment, ROI, could be higher.

But this is only from the perspective of the investors.  Society can, and often does, ensure a reasonable ROI, e.g. for regulated utilities, but it also can not ignore protecting private goods, public/common goods, and labor.  Protecting only the interests of investors is not in society’s interest. Supply side stimulus is NOT ensuing a higher ROI on investment, e.g. by reducing taxes on investment.  That is only an investment stimulus and ignores the other components of supply. Capitalism is support for free markets.  Those free markets do NOT consist only of investors.

Saturday, September 25, 2021

Voting Rights

 

19th Amendment

They thought we were a joke
They tried to dash our hopes
With every word they spoke
They tried to revoke
A woman’s right to vote
But we made it

Restricting anyone’s right to vote is no joke.

In Georgia, a driver’s license can be renewed by mail. In Texas, a driver’s license renewal form is mailed to every driver, even if that driver does not intend to renew his license.  In Florida, it is not illegal for someone else to mail that driver’s license renewal form.  In Alabama, a photo ID is required to buy alcohol but it does not require a special photo ID.

A driver’s license allows a person to use a deadly weapon (e.g. a vehicle weighing many hundreds of pounds, which travels at high speeds) but that driver is expected to act responsibly.  Alcohol can be purchased by adults because they are expected to consume responsibly.  Renewal of a driver’s license is often not confined to business hours in recognition that many people are working or otherwise occupied hours during the RMV/DMV office hours.  I have paid my local, state, and federal income taxes by mail for over 60 years, and in fact I don’t know if, or how, they can be paid in person.

And yet voting is considered such a dangerous activity that the right to vote is restricted.  Mailing ballots to those who are registered, but may not choose to vote, is often prohibited.  Handling a ballot of another, by mail or in election drop boxes, is restricted.  The ID to vote does not include many forms of photo IDs.

Let’s be honest.  Voter restriction laws are enacted because the people who vote by mail, vote not during poll booth hours, or don’t have the right kind of proof of ID, etc. are the “wrong” people. If only the “right” people were voting, these restrictions would not have been enacted.

If these same restrictions were put on driver’s or other government licenses, paying taxes, buying alcohol or tobacco, etc. they would be viewed as a joke and would not be even considered. Placing restrictions on the right to vote is no less of a joke,…. but it is a very poor joke.

 

Debt Ceiling

 

Tomorrow

When I'm stuck a with day that's gray and lonely
I just stick out my chin and grin, and say, oh

The sun'll come out tomorrow
So you gotta hang on 'til tomorrow
Come what may

Tomorrow, tomorrow
I love ya tomorrow
You're always a day away.

It is shame that not everyone believes in tomorrow. 

“Senate Minority Leader Mitch McConnell, R-Ky., said if Democrats “want to tax, borrow and spend historic sums of money without our input, they’ll have to raise the debt limit without our help.”(NBC News  , Sahil Kapur, NBC News, Sept 25, 2021)Recommended

Debt is not inherently bad, despite what Republicans may say.  I have lived in my home since 1981 because I took out a mortgage ( long since paid off, but I was able to live in the house while I paid off that mortgage).  I have taken out loans to pay for all of my cars ( long since paid off, but I was able to drive while I paid off the loan.).  I took out student loans to attend college, (but I was able  to work and use those degrees while those loans were paid off). I took out loans for my children to attend college but those are also long paid off.  The point is debt that is an investment in the future is never bad.  I imagine that many Republicans own some corporate bonds, which is after all corporate debt, so just holler Emerson at them ( "a foolish consistency is the hobgoblin of little minds" and boy are they foolish.) 

The debt limit needs to be raised because the spending that has already been approved can not be paid by the taxes that have been collected. ( and do remember that Tax Cut and Jobs Act of 2017!).  This is not about new taxes or new spending.   It is about old spending and old taxes.

 One of my favorite scene in the movies is the bank run in It's a Wonderful Life.  
https://www.youtube.com/watch?v=iPkJH6BT7dM&t=42s.

Don't sell out to Mr. Potter.  I don't want to live in his slums. I want to invest in the future and I will get by on $17.50 as Mrs. Davis did in It’s a Wonderful Life.    Belief in the future used to be a bi-partisan issue.  Do Republicans really wanted to cede the future to Democrats.

Thursday, September 23, 2021

Social Security

 

Illegal Smile

Last time I checked my bankroll
It was gettin' thin
Sometimes it seems like the bottom
Is the only place I've been
I chased a rainbow down a one-way street dead end
And all my friends turned out to be insurance salesmen

Is insurance a bad thing?

People who say that Social Security Insurance is a Ponzi scheme neither understand Insurance nor a Ponzi scheme.  Insurance is a method to pool risk.  And as I have written in previous postings, risk is the product of likelihood and consequences.  If there is one chance in a thousand of losing a home (e.g. the likelihood) and that home is worth $100,000 (e.g. the consequences) , then 999 individuals would have a cost of $0 and one unlucky individual would have a cost of $100,000.  But if those 1000 individuals pool their risk, they would each pay $100 and the manger of the risk pool ( e.g. an insurance company) would pay the $100,000 cost to replace the home. You would use your own money to pay into the risk pool ( i.e. the insurance company), but once you paid, it is no longer your money.

A Ponzi scheme is not insurance, it is an investment.  Your money is your money even after it has been invested.  You expect to get back your money plus a Return, e.g. interest, On that Investment,  ROI.  If both your investment and its ROI comes from the investments paid by others, then it is a Ponzi scheme. 

Saying that you have “paid” into Social Security is one way that the Social Security benefit is computed, but the amount that you paid is NOT your money and ceased being your money once you paid it.  That makes it insurance (which is after all its name) rather than an investment. The fact that the government is serving as the insurance company does not change this.  Just because you call it your money, doesn’t make it your money. It used to be your money but is no longer your money.  If it is not your money, then it can’t be a Ponzi scheme.

The fact that government required you to purchase this insurance ( and your “contribution” to Social Security IS a purchase), does not change this fact.  My favorite sign in the last few years was “Government keep your hands off my Social Security!”  The irony was lost on the carrier of that sign.

Tuesday, September 21, 2021

Reverse Engineering

 

Impossible

And if they said I'd find you beyond the rainbow's end
I would have said "Impossible, impossible, my friend"

To dream about what might have been
Is strange enough for me
But now it seems I'm living in
A dream too beautiful to be

So what is impossible?

“Man will never fly”.   “Bumble bees in flight violate the laws of aerodynamics ”.  “A man will never walk on the moon”  So said science at the time, according to how science understood it.  But engineers are asked to go beyond science all of the time.  Roman engineers built roads that we still use today, even though they did not yet have the benefit of Newton’s Laws.  The Sea Battalion, SeaBees,  the engineering arm of the US Navy, has the motto. "CAN DO" and the phrase "With willing hearts and skillful hands, the difficult we do at once, the impossible takes a bit longer." . 

Engineers are fine with doing the “impossible”, even if it takes a bit longer.  That is why man flies, bumblebees fly, man walked on the moon”, etc., because it really was possible.  Engineers observe something and then reverse engineer how it must have been done.

One of my favorite reverse engineering stories involves the original Star Trek ( yes, the William Shatner version). To make the Starship Enterprise seem more futuristic, there were automatic sliding doors in the corridors.  Today, this is commonplace. When I go to the supermarket, the front door automatically slides open when I approach it. However at the time of Star Trek, in the 1960s, these did not exist and a special effect created the illusion by having an off-screen technician manually slide the door.  But engineers looked at this effect and reverse-engineered how you would create an automatic sliding door, not knowing that in this case it was only a special effect.  If it doesn’t violate real laws of nature, and not just mankind’s current understanding of those laws, which is after all what science is, then reverse engineering may be useful.  Maybe the reason that scientists have to be careful about saying that something is impossible is because they were tired of engineers proving them wrong.