Threads from Henry's Web

Category: The Economy

  • State of Income Inequality in the United States

    I’m posting this for discussion. I plan to use as the question in our Energion political debate in April. Right now the participants are discussing the budget. From the middle of March (March 21) into April they’ll be discussing the role of government and why they take the position they do. Then starting April 18 we’ll be discussing income distribution.

    But here’s the video. Get started thinking!

    Note: While there are just two official participants, I will link from the debate posts to anyone who sends me a response on the current topic. Note that any essays on income distribution will not be posted until after April 18. Through mid-March, essays and comments are welcome on the budget.

    HT: Upworthy

  • Bleeding Heart Libertarians and Austrian Economics

    I found this video enlightening. I like to note that I read von Mises before I met (encountered her writings) Rand. Rand is a cultural phenomenon, but von Mises is a deep thinker. In any case, this is an interesting interview. The more libertarians pay attention to this, the better, in my view. I’m a regular reader of the website referenced in the video, Bleeding Heart Libertarians.

     

  • On Externalities and Libertarianism

    I’ve often wanted to write something about externalities, but I’ve never gotten the time. Specifically, I’m interested in how these relate to regulations and in turn to economic freedom.

    I lean libertarian, and many people  who know that are surprised that I’m not always opposed to environmental regulations. Why is that?

    Well, Ed Brayton has written an excellent summary, and all I can say is I couldn’t agree more.

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  • Jon Stewart on the Debt Deal

    Sometimes one finds more truth in comedy than in the regular medai.

     

    Of course, if you think about it, we, the American people, would thus be our own worst enemy. And regarding the 77% who think our leaders behaved like spoiled brats, how many do you suppose would have behaved like spoiled brats themselves if their representative made a “hard decision” they didn’t like.

  • And so We Have a Debt Deal

    A few weeks ago I saw a political ad supporting the budget proposal by Congressman Ryan. One of the points made in support of his plan in that ad was simply that nobody eligible for Medicare now, or if I remember correctly, becoming eligible in the next ten years, would be impacted by the plan. (I may remember the number of years incorrectly.) My point is not to gang up on the Ryan plan, but rather to point out a basic problem with all our attempts to deal with budget issues: They all leave the actual solutions to the future.

    If it’s a good idea, it’s most likely a good idea now as well as in the future. If I personally support, or would support, someone who would replace Medicare with a subsidy program, I should be willing to apply that solution to myself. But the method used in Washington is to put forward resolutions mapping out a future course over a period of years that may or may not (generally not) be followed by those future congresses. A similar approach was used in much of the health care reform bill. It phases in the unpopular parts over a period of time.

    Recently I read a quote from Joseph Singer in which he suggested that Americans are ambivalent about government. I wouldn’t use that term. I find nothing surprising about it. It’s very human. Yes, it has distinctively American details, but at root it’s very simple. We want to get benefits, but we don’t want to pay for them. We want privacy in our own homes, but we want to make sure that the police can spy on people enough to catch terrorists (lacking, of course, any real idea of how much that might be). We want our social security to be secure, but we don’t want to pay enough to make it so.

    And we have politicians who are willing to pretend. This pretense, in my view, is not limited by party. Each party has elements of the budget that must be protected, while there are other items that just must be cut because we don’t have the money to pay for them. Members of either party are willing to promise economic benefits without requiring their constituents to pay the cost. There are many ways to avoid requiring that the cost be paid. It can be done by borrowing, thus requiring that the constituents’ children pay the cost. It might be that a poorer district gets the money from the federal government, which moves money from a richer district in order to pay. It might even be that the cost is concealed. But the cost exists and must be paid sometime.

    I entered politics by working as a precinct worker in the 1976 Republican primary in Maryland. I was just 18. What attracted me to Ronald Reagan was his $90 billion plan to eliminate the budget deficit. I support Reagan again in 1980. By 1984 I was no longer a registered Republican. I found that Republicans did not really believe in a balanced budget. Supply side economics took over.

    Now there is a point to supply side economics. Lower taxes can increase productivity and thus revenues. But it is not a magical formula that allows you to buy anything you want, and expect lowered taxes to resolve the difference. At this point, I find the Democrats to be the best argument for voting Republican, and the Republicans the best argument for voting Democrat. And I do vote–every time in every race and on every issue.

    So now we come to the current debt deal. When it was announced, I turned to my wife and said, “All that and we only got $1 trillion (Ah for 1976 and a $90 billion plan!).  Remember that further cuts are for the future, no matter what triggers we have in place to force them. In fact, I would suggest the triggers will simply make the political waters muddier when the time comes.

    I view economics practically. I run a small business, and while I haven’t gotten rich, and have had many, many very difficult seasons, I’m still in business. My computer support business has been going since 1997 (though it’s only part time), and my publishing business has been going since 2004. When economic times get tough there are several things I can do.

    • I can borrow money, which means I have to demonstrate just why such borrowing is going to make my business pay in the longer term.
    • I can economize, which may mean either finding ways of doing the same thing at lower cost, or even eliminating some things I do. One thing I can assure you is this: Every expense gets examined for its productive potential in a difficult economy.
    • You can increase revenues, of course, but that means bringing in more business, selling more goods, and that goes back to the first two points.

    I’ve done all of those things during the previous recession, and I’m still here. I’m a practical economist. I hear about these people who understand what’s going on, and I’m sorry, but they don’t sound so much like they understand and their results aren’t that good. Recent experience with the banking industry makes me question either their motivations and goals on the one hand, or their competence on the other. Perhaps it’s both.

    It’s fairly humorous to see the banking industry, regulated largely by its own, about to reduce the credit rating on the government that failed to keep them in line. But that’s another story.

    So what I ask in a plan like this is just what it’s going to accomplish. What’s the end game? Who enforces the rules that are laid down? What happens that brings us out of this mess?

    And the answer to all of those questions is: Nobody knows. We’re making a plan that reduces a $10 trillion or so deficit over the next ten years by, at the most, $2.4 trillion. What’s more, we haven’t asked fully what our priorities are. In business, I might borrow money to launch a new product. When I do so, we assume that a certain period of time after that product launches, it is expected to pay back the result.

    Translated to the government’s activities, that would mean we need to ask what in the current government plan is going to result in new production on which taxes will be paid (at whatever rate), to increase the money going into the treasury and eventually reduce the debt. The answer is that this isn’t really a consideration. This is one of those survival plans. It keeps things going for between a few months and a couple of years, but it doesn’t do anything about how we’re going to get to a better place.

    This is why I oppose across the board cuts and absolute limits such as “no new taxes.” We need to not only reduce spending; we need to make spending more intelligent. “No new taxes” might be fine with me, but when it makes it more difficult enact needed reforms to the tax system, then I think it gets in the way. Such solutions are ways of avoiding making difficult decisions and taking responsibility for those decisions.

    I recognize that the final blame belongs to voters. We are the ones who send politicians to Washington who promise us things they, and we, can’t pay for. We’re the ones who keep sending them back when they fail. As much as I disapprove of many of the social policy goals represented by Tea Party candidates, on one thing I can definitely commend them. As a general rule they are doing what they said they’d do. Another voter habit is being shocked when politicians do what it was obvious they were planning to do. Of course, when they do what they say, we have some cause for surprise.

    So what would I prefer? Considerations of electability aside (mine would be 0%), I would suggest:

    1. The whole debt ceiling thing is a distraction. We should put everything on the budget itself. That allows us to place responsibility at one specific place. A business can’t budget on the basis that they will borrow in order to fund the budget; neither should the government. I know this takes away one more piece of leverage to reduce the deficit, but I believe there is only one possible answer to this problem–responsible budgeting. Anything else is a band-aid.
    2. Everything should be on the table, including such essentials as defense and law enforcement.
    3. Look where a change of spending strategy can accomplish our goals at lower expense. This would include:
      • Defense – increased spending on mobile special forces and intelligence; decreased spending elsewhere; strategy change away from a war on terror that requires occupying foreign countries. A single terrorist can kill hundreds. Occupying other countries won’t stop that.
      • Law enforcement – read “the drug war.” It’s costing us a bundle and it’s accomplishing very little. We need to review our drug strategy from the ground up. In addition, I think we could look at sentencing for non-violent crimes in general. Technology gives us more options.
      • Social programs – some consolidation is in order to reduce the cost of delivering the needed help to the right people. The Earned Income Credit might provide a good basic example.
      • Education – this is one of my favorites, so I must put it on the table. I like a good public education system and regard it as part of infrastructure. But there’s a great deal of waste, I think. Perhaps a reduction of the federal role of shifting money around.
    4. Simplify and streamline the tax code. Make it easier to enforce and more fair. Eliminate loopholes at the same time. We debate a great deal about increasing rates for the rich, but eliminating some of the ways to avoid the rates might be more to the point.

    These are ambitious goals, but I don’t think our problems can be solved without looking at all these options. I may well be wrong on what can be saved through some of these options. I’m suggesting putting them on the table. And yes, entitlement programs such as Medicare and Social Security need to be there as well. I just have fewer ideas about what to do with them.

     

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  • On Cutting Spending and Investment

    Rand Paul campaigning in Kentucky.
    Image via Wikipedia

    Mark at Pseudo-Polymath links to this post on Rand Paul’s ideas for cutting the budget, using the line: “Someone is forgetting that the left prefers social entitlements to science programs.” I think Mark has a good point, but not the best point.

    This illustrates one of the reasons I oppose across-the-board spending cuts. Some argue–and I understand their point–that since we can’t seem to cut spending point by point, the only way to proceed is with a general spending freeze. I would suggest, rather, that a general spending freeze won’t solve the problem; it just lets us pretend, because after the freeze, we still won’t have the courage to go after the real spending problem, which needs to be done program by program. I don’t see the courage on either side of the aisle to accomplish that mission.

    There are things the government does well, and there are things better done privately. Of the things the government ought to be doing, there are better and worse ways to accomplish those goals. This includes military, security, and law enforcement spending, which Republicans often hold sacred. It includes choosing which moral issues deserve to be enshrined in law and just how much we want to spend enforcing those positions.

    On the other hand, it includes looking at social programs to determine which ones are actually accomplishing their stated goals, not to mention asking whether the stated goals are likely to be accomplished at all.

    Science spending, in the right areas, is particularly important for our future, as is education spending. We could save huge amounts in social spending if we had a better educational system. How much of reforming our educational system involves spending more money, versus changing the structure or spending our money more intelligently, is another issue.

    Right now I’d merely like to suggest that if we want to both shrink the deficit and grow the economy we will need to look carefully at spending point by point. A freeze, unless it is immediately followed by such a reevaluation won’t do the job. And people on all sides of the aisle will need to be prepared to sacrifice things they love, especially if careful evaluation shows their favorite programs aren’t doing what they’re supposed to be doing.

    I like to suggest specifics, which the politicians rarely do. I’d also like to congratulate Rand Paul on giving specifics, even though I disagree with some of them, for the same reason. Amongst the things we need to ditch I would include almost all of public campaign financing. I don’t think it has made politics any cleaner. It certainly hasn’t made it more civil. It has only made it more costly. Add that to the suggestions I made earlier. There are more!

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  • Credit Card Companies Find Creative Ways to Get Your Money

    If this surprises you, then you must not have been dealing with bankers and credit card companies that much.

    Might this also be part of the reason that regulations tend not to work all that well? You have to think of everything, but if you really plug all the loopholes, the result will be tightened credit, not necessarily a bad thing, but probably not what the government wants right now.

  • Why Democracy Fails

    In Preserving Democracy, Elgin Hushbeck quotes Alexander Fraser Tytler:

    A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. (quoted on pp. 26-27)

    I thought about that quote today when I read the somewhat deceptively titled story Current Mood Toward Congress: Throw The Incumbents Out. I don’t mean that CQ Politics intentionally wrote a deceptive title. Headlines always miss part of the article. The title refers to the part of their survey results that indicates that 53% of voters do not want to see the majority of members of congress reelected next year.

    The next paragraph has the really interesting result, and I knew it was coming, because I’ve seen this before. A statistically similar number, 52%, do like their own representative.

    Now unlike poll results that indicate that people hold contradictory views, and there are some of those, I think this points to a different problem. Let me use my own congressional district as an example. Here in the Florida’s 1st congressional district there is one issue on which any candidate who wishes to be elected must take a particular stand–keeping “our” military bases here.

    Further, this favors the incumbent absolutely, because he will undoubtedly be able to argue that his seniority makes him better able to protect those bases from any closure. Now I’m not necessarily saying that the bases here are not well placed. But that wouldn’t matter to the voters. The bases are well placed because they are a substantial part of the economy of this area. If our congressman were to become completely convinced that some substantial base or even a facility on a base should be closed, he would be committing political suicide by advocating it.

    When somebody else’s congressman makes that argument for the bases in his district, of course, the voters in this district are not so happy.

    It’s less obvious sometimes in other areas, because the projects and the money are spread over a wider variety of locations and types of activity. But a congressman must produce stuff for the voters or he’ll get voted out. That’s why we hear a great deal about reform out of congress, but we aren’t likely to get reform that prevents members of congress from doing nice things for their districts.

    The same problem continues more broadly. Rather than admitting that smaller government will have to provide less services, many people on both sides of the aisle like to argue that somehow increasing the efficiency of government and reducing waste will let us keep the services, reduce (or not increase) taxes, and still receive more.

    Unfortunately, we always count chickens before they’re hatched in this case. A current good example is health care. Now I think we do have a problem, and that we are not a nation that can actually refuse basic care to our citizens, whatever the economic problems. Currently, we require emergency rooms to provide stabilizing care, for example, which spreads the cost to those who pay. But in writing health care plans, everyone counts savings that they believe they will get.

    Those deficit projections about health care? They are guesses. They’re making assumptions about what various options will do to prices, and how much they can save.

    I could do this with my family budget. Let’s say I want to buy a car today, but I lack $100 of the monthly payment. In order to justify my deficit spending to my wife, I tell her that we’ll get $100 out of the grocery budget. (Since I do the grocery shopping, I might get by with that–or not!) I would say that by saving $25 per week on our grocery shopping we can afford the new car.

    Now there’s two ways to go about this. First, I could find and test ways of saving the money and then test them for a month or so. Can I reduce our grocery bill enough by buying bulk, making better use of the freezer, and so forth? If I go out and test this, and only buy the new car after I know it will work, I’m being responsible. On the other hand, I could simply guess that I can manage the savings, go buy the car, and then find out.

    In the case of health care, we guess certain savings can be achieved. Bluntly, the current proposals are so complex, I really can’t tear them apart on that point because I would have to give up my income producing work (and see what that would do to my budget!) in order to have time to follow it all. I do know, however, that advocates of the public option tend to assume that it will force the general price of insurance down, using the very capitalist argument that the public option will involve an increase in competition.

    Whether you buy that argument or not (and I don’t), the fact is that we haven’t actually seen it work. Advocates of health care reform something like what we have proposed are probably annoyed to have this sort of thing pointed out. After all, we need reform, so we all need to be as positive as possible. Opponents will crow by saying that this shows that the plan won’t work. The bottom line is that the voters are being promised something, but are not truly being told the cost. Would they support it if they truly knew the cost? I don’t know, but we’re not going to get to find out.

    I don’t regard this as a partisan issue. Republicans tend to take a similar approach on defense. We can plan strategy and buy equipment because we need whatever it is, but talking about cost-benefit is often regarded as anti-military and anti-defense. But we need to have good cost-benefit analysis, testing, and most importantly, we need to change our strategy, whether on domestic or foreign policy based on actually observing the results.

    Such a thing will only happen if voters demand it. I think that’s unlikely, because I think voters would rather hope that one or another politician can manage to come through and produce something from nothing.

  • Liberal illiberalism: Olbermann on Banks and News Outlets

    Keith Olbermann, regularly angry about many things, is angry about the bank bonuses. (I blogged some about this here.) His answer?

    Break up the banks. Regulate the financial industries, to within an inch of their existences. Roll back corporate legal protections. Make liable the officers of corporations, for their debts, and for their deeds. Resurrect the rallying cry of a hundred years past: bust the trusts! (from MSNBC)

    It amazes me how quick people on either side of the political spectrum are to throw law, reason, and caution to the winds when they’re angry about something. If the Bush administration, for example, had gone after businesses in such a manner because of some security issue, doubtless Olbermann would have been shocked at their perfidy–rightly so. There are right and wrong ways to go about these things.

    But more importantly, the reason the banks are behaving badly with the money they were given is that:

    a) they behaved badly
    b) they got in trouble
    c) the government bailed them out without asking them to change their behavior

    In other words, our government has been rewarding just this behavior. We’re asking when who knew what. But my question is this: What reason did anyone have to expect anything different? The obvious result of a set of actions takes place, and people are shocked.

    But Olbermann, who is quite capable of recognizing something unconstitutional or illegal (or sometimes even stupid) when done by his opponents is unable to see it when he himself proposes it. What he suggests in that paragraph involves punishing the guilty with the innocent, destroying the very foundation of corporate law, and would certainly tromp right on across constitutional boundaries.

    But Olbermann is not finished. Because the media didn’t get out the information, we need to get the government to make sure that the media is fair and that good information get out. Remember, this is the same government that failed to provide any reason why these people should not behave in this manner. People who can’t even write a decent contract for a loan are then asked to make sure that the American people get accurate information.

    Never mind that he is now jumping all over the first amendment. He’s on a roll. If people don’t choose good information sources, make sure that they have to do so.

    Like this:

    Make sure both sides are heard. Re-regulate the radio and television industries to limit station ownership and demand diversity of management and product. Re-instate the old rules that denied one man all the voices in a public square. End all waivers of multiple ownership of television stations and networks and newspapers in the same market. (from MSNBC)

    He continues by calling for similar regulation for the cable industry.

    This is rampant stupidity. Olbermann wants to limit ownership to produce diversity. I think that was wrong even when there were limited broadcast outlets, but in the modern world, it is close to insane. People are not that limited as to what they can hear, but even more, there’s no reason to expect that having the government decide what is “in the public interest” and what the people need to hear is going to somehow improve the flow of information.

    Besides some folks in the corporate world, who is close to the information here? The government. And who is falling flat and lying to cover it up? Those very government agencies charged with the task of keeping it from happening!

    So let’s see. In order to improve the regulation, let’s give the people who failed more power, to “[r]egulate the financial industries, to within an inch of their existences.” Of course we have been told all along that these institutions must somehow be protected. But when the veneer is stripped off, we get down to the real idea–let’s destroy them.

    Having admitted that goal, Olbermann proposes similar treatment for media outlets. Can one doubt that destruction of even the value that there remains in our media would be the ultimate result?

    I am often called liberal, and I don’t argue. I am certainly libertarian. When it’s time to deal with issues such as the rights of the accused at trial, a willingness to provide every opportunity for exoneration if there is evidence, providing safety nets to the weakest folks in our society, or taming rampant militarism in foreign policy, I am rightfully called liberal. I don’t reject the label, even though I prefer “passionate moderate.”

    But there are plenty of liberals running around who don’t deserve the title. When “liberal” spells handing all the power to government, and none to the people, then it isn’t “liberal.” With the same passion that I want to make sure that someone accused of a crime receives due process and eventually receives justice, I also want to make sure that a trader on Wall Street who has broken no law should not be deprived of his lawful earnings. If they are undeserved (and these bonuses are) there are proper ways of dealing with it.

    The Republicans have been accused of having contempt for people who are from cities, or are part of the intellectual elites, or various other folks who are’t from the “real America.” The Democrats have been accused of despising small town America, gun owners, church-goers and so forth.

    Unfortunately, it appears to me that both accusations are absolutely right. To some on the liberal side of the spectrum the guy who does his ordinary job for an ordinary work week, and spends the weekend in a hunting blind with his rifle or his shotgun, then heads off to church on Sunday moring just isn’t real. To some of the folks on the right–and now on the left as well, if you work in investment instead of digging a ditch or being a university professor, you aren’t quite real and your rights don’t matter.

    It may be stupid for a company to give bonuses to those who produced catastrophe, but there is a proper forum for action on such things, and that is the shareholders’ meeting. What about the public money? If we didn’t want it used in that way, we should have specified that in the law, just as a lender might when making a loan.

    Now we have representatives and senators who presumably meant it when they swore to uphold the constitution, voting for a special law to tax certain people’s specific earnings. It’s ridiculous. They know better. They’re using the legislative process to make people believe they’re truly outraged, but in doing so they’re expressing contempt for the constitution they chose to uphold. (To those who are going to say “What did you expect of Keith Olbermann?” I will call attention to the actual lawmakers who seem to be singing from the same hymnal.)

    After my criticisms of Republicans over the years there have been some who wondered why I will not in turn register as a Democrat. Well, you can see it in action right now. My problem, a problem I intend to keep, is that I care about the rights of rich people and poor, ditch diggers and Wall Street investors, college professors, builders, waitresses–everyone who tries to produce at all.

    I believe they should have the opportunity to carry out their business under a rational set of laws. If the law isn’t rational, you need to blame the people who wrote it and pretended it was something different, not the people who did their best to work under it.

    But even more importantly, I believe that people must have the opportunity to seek their own sources of information, even if they choose Fox News, or newspapers of which Keith Olbermann doesn’t approve. You do not diversity the flow of information by limiting it.

    I try to accept it when I’m called a liberal, because it’s usually the result of beliefs I hold very dear. I think the fear of the label is silly. But when you call for regulating banks “to within an inch of their existences” or when you want the government to make sure the media is “fair” then either you’re not a liberal or I’m not.

    I won’t fight over the label. I’ll just call the ideas stupid and destructive.

  • Before Complaining about Corporate Taxes

    . . . consider this note. Many of these corporations don’t actually pay the rate specified, for the very good reason that there are many special loopholes.

    This is redistribution, but in which direction and for what purpose? Yet we’re “redistributing” even more via bail-out money. And to those Republicans who will blame this on the Democrats, the biggest and very poorly managed bail-out was passed under a Republican president, and some of the most irresponsible suggestions were made by a Republican candidate.