In my earlier post I commented on how many people confused the debt and the deficit. Rick Perry, never known for being the brightest tool in the shed, does so here. But I would hope most of my readers are a lot smarter than he.
But I also wish to make a further point about the deficit. We hear all of this talk about a balanced budget but no one ever explains why this is a good idea. Even households rarely balance their budgets. As I explained last time, the important number is the amount of debt as a percentage of GDP. This is analogous to saying that rich people can afford to borrow more than less affluent people, something that should be self evident. In the normal course of events, the GDP increases every year. If the GDP doesn't increase and instead decreases, we call this a recession and we all know this is not good. There are many factors why GDP increases, not least that the population increases, either by childbirth or by immigration. As a result there are more people working, more consumers, more people needing cars and houses, etc. So if GDP rises from one year to the next, it stands to reason that the debt can increase by the same percentage and still maintain the same debt to GDP ratio. Viewed simplistically, if the GDP increases by x% then it is reasonable to increase the debt by x% to maintain the same Debt to GDP ratio. That increase in the debt means that the deficit in that year can be x% of the initial debt. In practical terms that means that, at current values we can run deficits of about $450B per year without increasing the debt to GDP ratio.
Even minimum thought leads one to the conclusion that by far the easiest way to solve the "deficit problem" is to increase GDP. GDP is currently growing at around 2% in spite of the efforts of Congress to derail the recovery. Had we had a robust stimulus package, not laid off al the teachers and firefighters and police around the country, the economy might now be growing at 4% per year and we would be well on our way to solving the problem.
Sadly, the chances of Congress being reasonable any time soon are somewhere south of none, by which I mean they are far more likely to hurt rather than help the economy. I cite the current sequester as evidence.
Friday, March 15, 2013
Tuesday, September 6, 2011
On Priorities
We hear so much talk these days of budget priorities, especially in the wake of Hurricane Irene with Eric Cantor, the Majority Leader of the House, insisting that other cuts have to be found to balance the aid given to victims, that it got me thinking about proper priorities. The Republicans are also telling us constantly that the nation, like a family, has to balance its budget. So I posited a normal family, still employed, but trying to dig out from debt. And I further posited that they were responsible and planned properly.
So I imagined that they had a family meeting and went through the entire budget and decided where they could cut. They decided they had to pay the mortgage and the car payments, but they did consider buying a cheaper car or delaying replacement when the time came. But they decided to make some sensible measures to cut discretionary spending. Here are some decisions they took.
Now this is a contrived example, but it does seem to me to mirror the totally inflexible Republican approach to budgeting. They are quite happy to argue about where cuts should be made, all the time ignoring that the economy is being destroyed by an unemployment rate of over 9%. A normal family wouldn't have bothered for a minute about using extra water or electricity as their house was being threatened. They would have taken any and all steps necessary to save it. But our Republican friends are far more interested in dogma for its own sake than they are in any common sense solutions.
Let's hope that in November of 2012 the Republicans and especially the Tea Party are sent packing and banished from Washington for a long while.
So I imagined that they had a family meeting and went through the entire budget and decided where they could cut. They decided they had to pay the mortgage and the car payments, but they did consider buying a cheaper car or delaying replacement when the time came. But they decided to make some sensible measures to cut discretionary spending. Here are some decisions they took.
- To forgo eating out
- When eating in, to reduce portion size and get healthy as well as save money
- Ensure all lights were left off when leaving a room so as to save electricity.
- To limit showers to 10 minutes instead of luxuriating, in order to save both electricity and water
- To run the lawn sprinkler system only twice a week in order to save water
Now this is a contrived example, but it does seem to me to mirror the totally inflexible Republican approach to budgeting. They are quite happy to argue about where cuts should be made, all the time ignoring that the economy is being destroyed by an unemployment rate of over 9%. A normal family wouldn't have bothered for a minute about using extra water or electricity as their house was being threatened. They would have taken any and all steps necessary to save it. But our Republican friends are far more interested in dogma for its own sake than they are in any common sense solutions.
Let's hope that in November of 2012 the Republicans and especially the Tea Party are sent packing and banished from Washington for a long while.
Saturday, August 6, 2011
The S&P downgrade
I'm not an economist but I am capable of rational thought. So here is my take on the decision by S&P to downgrade America's credit rating from AAA to AA+.
The only part of the decision that appears to make any sense at all is their assertion that the political decision making in the US is broken. They are correct in this as the "debate" over raising the debt limit showed. I placed debate in quotes because it doesn't rise to the level of an adult debate on issues. Mitch McConnell has gone so far as to signal that all future attempts to the raise the debt ceiling will be met with the same intransigence. Since the next occurrence will be in 2013, they do have a point that there is a chance the US may not meet its obligations.
At the same time, I find it very hard to believe that anyone thinking of investing in US Treasuries even cares what any rating agency says. Does anyone really think that the Finance Minister of China or Japan, or the Fund Managers at Goldman Sachs consult with S&P before making a decision? I can understand that an investor in India might consult with S&P before deciding to buy municipal bonds issued by Podunk, Arkansas since no one knows all about every bond. But US treasuries are hardly an obscure instrument.
But the story goes back further than that. One of the major reasons for the current recession is that none of the rating agencies were even close to getting the ratings on all of the Credit Default Swaps correct. So the question that arises is why would anyone care what they have to say about anything, since they appear to have a pretty poor record of being accurate.
The US has no problem attracting investment. If investors were at all worried, then interest on US treasuries would be higher than they are.
And let's not forget that they even got their basic mathematics wrong and had to have their mistake pointed out to them by the US Treasury.
So I consider this to be a tempest in a teacup and will ultimately hurt S&P more than the US.
And here is Paul Krugman's take on this.
The only part of the decision that appears to make any sense at all is their assertion that the political decision making in the US is broken. They are correct in this as the "debate" over raising the debt limit showed. I placed debate in quotes because it doesn't rise to the level of an adult debate on issues. Mitch McConnell has gone so far as to signal that all future attempts to the raise the debt ceiling will be met with the same intransigence. Since the next occurrence will be in 2013, they do have a point that there is a chance the US may not meet its obligations.
At the same time, I find it very hard to believe that anyone thinking of investing in US Treasuries even cares what any rating agency says. Does anyone really think that the Finance Minister of China or Japan, or the Fund Managers at Goldman Sachs consult with S&P before making a decision? I can understand that an investor in India might consult with S&P before deciding to buy municipal bonds issued by Podunk, Arkansas since no one knows all about every bond. But US treasuries are hardly an obscure instrument.
But the story goes back further than that. One of the major reasons for the current recession is that none of the rating agencies were even close to getting the ratings on all of the Credit Default Swaps correct. So the question that arises is why would anyone care what they have to say about anything, since they appear to have a pretty poor record of being accurate.
The US has no problem attracting investment. If investors were at all worried, then interest on US treasuries would be higher than they are.
And let's not forget that they even got their basic mathematics wrong and had to have their mistake pointed out to them by the US Treasury.
So I consider this to be a tempest in a teacup and will ultimately hurt S&P more than the US.
And here is Paul Krugman's take on this.
Monday, August 1, 2011
On Fair Elections
At the heart of any democracy is the election process. If this isn't fair
then the nature of the democracy will suffer. Americans are raised to
believe that the US is the finest democracy in the world and taught that
their elections are fair. While I think this may have been true at one
point, I think the election process in the US today is far from fair. In
fact, I would so far as to say that within first world nations, we have the
least fair election system. So let's examine what I consider to be the flaws
in the system.
There are no other eligibility requirements. Voting eligibility started with
white property owning males over the age of 21 and through a series of
amendments has grown to include ex slaves, women, and ultimately people over
18. This should be the end of the story. But alas, that is not the case.
Over the years political parties have made tremendous efforts to suppress
voting. Let me be clear on this issue. This is something of which both
parties are or have been guilty.
After the civil war it was the Democrats who instituted the Jim Crow laws in
the South that effectively banned blacks from voting. Presently it is the
Republicans who try to stop people from voting. While I find it
unconscionable that anyone would try to suppress voting, I assume the party
that inherently has less support among the population thinks that it can
gain victory by stopping voters rather than by making itself more popular.
Even if that is true, it's despicable and, in my view, akin to treason since
its aim is to corrupt the electoral process. And fair elections are the
foundation of a democracy. Let's take a look at some of the ways voter
suppression is achieved.
Republican campaigns often send out flyers at the last minute to
predominantly Democratic areas made to look as though they are from
Democrats urging people to vote and then directing them to the wrong place
to vote or giving them the wrong date for the election.
Some states are currently passing fairly draconian laws ostensibly to limit
"voter fraud" demanding all sorts of photo identification to vote. These
rules can be difficult to comply with by poor people without transport, or
seniors without access to transportation. As an additional impediment,
Wisconsin is closing some DMV offices, especially in traditionally
Democratic areas. This makes it even harder to get to the DMV. It should be
noted that for all the fanfare about voter fraud, the number of cases has
been infinitesimal. Additionally, such fraud as has been discovered would
not be prevented by these measures. This shows that the measures are solely
about making it harder for Democratic supporters to vote. But I repeat,
Democrats have been just as guilty in the past. Since they are inherently
the more popular party now, they have no interest now in suppressing
turnout.
independent electoral commissions. However, in the US elections are
administered by political appointees of the state Governor. This leads to
all sorts of shenanigans as you can imagine. Even if the elections are run
fairly, it's not the right way to do things. It's the same principle as
Justice. Justice must not just be done, but justice must be seen to have
been done. That's why court proceedings are open. Imagine if the judge just
issued a statement "I heard 5 cases today, all were dealt with properly".
In 2000 the Secretary of State for Florida was a Jeb Bush appointee called
Katherine Harris. She had the responsibility for overseeing and certifying
the elections. In the 2000 presidential election the co-chairperson of
George Bush's presidential election campaign in Florida was Katherine
Harris. Yes, the same Katherine Harris who was secretary of state. In most
years, this apparent corruption would have gone unnoticed, but with the
fiasco in Florida it all came to light. In addition to the obvious
impropriety of this arrangement some other unsavory facts about the election
came to light. Approximately 60,000 Floridians were removed from the
electoral rolls because they were felons. The truth was that most of those
60,000 merely had names similar to felons in other states. But nonetheless
they were removed from the rolls.
Later we will see how state legislatures interfere in the politics of a
political party other than their own.
normally span the ideological spectrum from maybe Communist on the left to
maybe an extreme right wing Nationalist group on the right. By knowing a
party's place on the ideological spectrum, it's often possible to predict
their position on various issues. Political parties in the US are different.
They aren't based on ideology, but rather they act more like "gangs". This
is not to say the parties don't have ideologies; they do, but they aren't
what define the party. A party tends to drift to an ideology for convenience
rather than from conviction. For example, the Republican Party fought the
Civil War and freed the slaves. But today's Republican Party can't find a
single minority it likes. The Civil War was fought to keep the Union
together, but today's Republican Party advocates strongly for States'
rights. Or rather it does when it suits it. Similarly, the Democratic Party
today is the champion of the under privileged, but at one time they were the
Party of Jim Crow. Look at the southern Unites States - most southern states
are now Republican whereas 50 years ago they were Democratic. But the
politics of the inhabitants haven't changed at all - the parties swapped
ends.
This functioning of the parties as gangs rather than being driven by
ideology has consequences. For example, a more normal scenario would have
been for the Tea Party to have formed a separate party just to the right of
the Republicans. This may seem like a distinction without a difference but
later we will see the negative effects of this. It also means that the two
parties function as a duopoly. The overriding objective of both parties is
to ensure that no third party can form. They do this by exploiting the fact
there are just the two of them working in cahoots. As discussed above; there
is no independent electoral commission. This manifests itself particularly
in the functioning of electoral debates. The League of Women voters used to
organize debates between the candidates. The casual observer thinks, and
indeed is intended by the parties to think, that the debates are arranged by
an independent agency so as to make them fair. The reality is that the
organizing entity had very little say in the format of the debate. The
candidates themselves would lay down very strict rules about the format,
questions, etc. The duopoly that controls the US political process, i.e. the
Republican and Democratic parties, go to great lengths to ensure no third
party candidates can take part. Further, since the challenger has more to
gain from the debate than the incumbent, the incumbent can use this to bend
the rules of the debate in his or her favor.
This desire by the duopoly to retain control means that it is very hard to
start new parties. This means that new movements get coopted by one or other
of the parties. The Tea Party recently has become part of the Republican
Party. This is done specifically to deny the voter a choice. If the voter
were allowed to choose, the new party might gain traction and thus take away
from one of the duopoly. We will discuss this more later.
though, the 24th Amendment to the Constitution, guarantees everyone the
right to vote in these elections that are not mentioned anywhere in the
document. Primary elections are an attempt to make democratic a system
whereby party elites picked candidates for election in secret in the
legendary smoke filled rooms. Like most poorly thought out schemes, they are
subject to abuse. Primaries would work quite well if there were an
independent electoral commission. They also work quite well if the
participants behave like ladies or gentlemen. This is why they no longer
work fairly, but instead are actually used to make the process more unfair.
The principle behind a primary election is that "democrats" should be
involved in the selection of Democratic candidates and "republicans" should
be involved in the selection of Republican candidates. I place "democrats"
and "republicans" in quotes to indicate that they are mythical entities. If
one wanted to ensure that only members of a political party were allowed to
vote in the primary election for that party that goal would be very simple
to arrange. But instead, government has effectively said that anyone who
identifies himself or herself as a member may participate. This is open to
all kinds of abuse. Two immediate cases come to mind. In the 2008 Primaries,
Rush Limbaugh urged Texas Republicans to register as Democrats and vote for
Hillary Clinton in the primary; presumably because he thought she would be
easier for McCain to defeat. Although it was unsuccessful, people did it.
Another example is more recent. In Wisconsin some Republican Senators are up
for recall. In order to delay the election, some Republicans entered the
Primary Contest for the Democrats. This forced Democrats to have a primary
election even though there was only one Democratic candidate and a "Fake
Democrat". Both of these examples show that the primary system is inherently
undemocratic. There is no way one party should be able to influence the
other party's choice of candidate.
Another serious problem with primaries is that they are organized by the
state legislature. This means that a Democratic legislature controls the
timing of the Republican primary and vice versa. This can lead, as it did in
2008 to the Democratic primaries being scheduled before the dates set by the
Democratic Party rules allowed.
determine how many people there are in each state. Seats are then assigned
in Congress so that each state gets an appropriate number of seats. As the
population migrates, the number of seats in a state may change. When this
happens the legislature of the state has to draw new boundaries for each
district. This is known as redistricting. While this process should arguably
be done by an independent commission it isn't and as such it becomes very
partisan. The party that controls the state legislature controls the
redistricting process. Instead of drawing rational or fair lines they tend
to draw strange shaped districts so as to make their party more successful
at the polls. Typically this is achieved by making some districts that are
overwhelmingly for the opposite party, but then creating a lot of districts
in which your party has a minority large enough to win even in bad years.
The hope is to guarantee your party a majority in the congressional
delegation in excess of that justified by the votes. Not only is this unfair
on its face, it has terrible side effects. Since the general elections are
never competitive, because each seat is a safe Democratic seat or a safe
Republican seat, then the actual election takes place in the primary. Not
only is this inherently unfair, because not everyone can vote in the
primary, but it has the effect of encouraging extremism. For example, let's
take a safe Republican seat. Since the general election is never in doubt,
there is no incentive for someone to move to the center to get Democratic
votes, so someone like a Tea Partier can launch a primary challenge. The end
result of this is that members of each party are driven, by the primary
voters to their respective extremes. And given that, for extremists,
compromise is a dirty word, the members in Washington are terrified to
compromise because they can get a primary challenge. The result is the
absurdly partisan bickering we seen happening now over the raising of the
debt ceiling.
honest commitment to free and fair elections. Elections shouldn't be
considered a game to be manipulated. Instead the free exchange of ideas
between political candidates and the population is essential to democracy.
The goal shouldn't be the attainment of power by any means, but rather the
attainment of power by convincing a free electorate to vote. To this end, we
should strive towards a real universal franchise, the creation of an
electoral commission to administer elections and a fair redistricting
procedure.
This may need a Constitutional Amendment to create an independent board with
the authority to regulate elections because without this, the US Supreme
Court will continue its current process of allowing elections to be
purchased.
then the nature of the democracy will suffer. Americans are raised to
believe that the US is the finest democracy in the world and taught that
their elections are fair. While I think this may have been true at one
point, I think the election process in the US today is far from fair. In
fact, I would so far as to say that within first world nations, we have the
least fair election system. So let's examine what I consider to be the flaws
in the system.
Who Can Vote?
According to the Constitution any US citizen over the age of 18 may vote.There are no other eligibility requirements. Voting eligibility started with
white property owning males over the age of 21 and through a series of
amendments has grown to include ex slaves, women, and ultimately people over
18. This should be the end of the story. But alas, that is not the case.
Over the years political parties have made tremendous efforts to suppress
voting. Let me be clear on this issue. This is something of which both
parties are or have been guilty.
After the civil war it was the Democrats who instituted the Jim Crow laws in
the South that effectively banned blacks from voting. Presently it is the
Republicans who try to stop people from voting. While I find it
unconscionable that anyone would try to suppress voting, I assume the party
that inherently has less support among the population thinks that it can
gain victory by stopping voters rather than by making itself more popular.
Even if that is true, it's despicable and, in my view, akin to treason since
its aim is to corrupt the electoral process. And fair elections are the
foundation of a democracy. Let's take a look at some of the ways voter
suppression is achieved.
Republican campaigns often send out flyers at the last minute to
predominantly Democratic areas made to look as though they are from
Democrats urging people to vote and then directing them to the wrong place
to vote or giving them the wrong date for the election.
Some states are currently passing fairly draconian laws ostensibly to limit
"voter fraud" demanding all sorts of photo identification to vote. These
rules can be difficult to comply with by poor people without transport, or
seniors without access to transportation. As an additional impediment,
Wisconsin is closing some DMV offices, especially in traditionally
Democratic areas. This makes it even harder to get to the DMV. It should be
noted that for all the fanfare about voter fraud, the number of cases has
been infinitesimal. Additionally, such fraud as has been discovered would
not be prevented by these measures. This shows that the measures are solely
about making it harder for Democratic supporters to vote. But I repeat,
Democrats have been just as guilty in the past. Since they are inherently
the more popular party now, they have no interest now in suppressing
turnout.
Who runs the elections?
In most, if not all first world countries, elections are administered byindependent electoral commissions. However, in the US elections are
administered by political appointees of the state Governor. This leads to
all sorts of shenanigans as you can imagine. Even if the elections are run
fairly, it's not the right way to do things. It's the same principle as
Justice. Justice must not just be done, but justice must be seen to have
been done. That's why court proceedings are open. Imagine if the judge just
issued a statement "I heard 5 cases today, all were dealt with properly".
In 2000 the Secretary of State for Florida was a Jeb Bush appointee called
Katherine Harris. She had the responsibility for overseeing and certifying
the elections. In the 2000 presidential election the co-chairperson of
George Bush's presidential election campaign in Florida was Katherine
Harris. Yes, the same Katherine Harris who was secretary of state. In most
years, this apparent corruption would have gone unnoticed, but with the
fiasco in Florida it all came to light. In addition to the obvious
impropriety of this arrangement some other unsavory facts about the election
came to light. Approximately 60,000 Floridians were removed from the
electoral rolls because they were felons. The truth was that most of those
60,000 merely had names similar to felons in other states. But nonetheless
they were removed from the rolls.
Later we will see how state legislatures interfere in the politics of a
political party other than their own.
Political Parties
In most democracies there are a number of different parties and theynormally span the ideological spectrum from maybe Communist on the left to
maybe an extreme right wing Nationalist group on the right. By knowing a
party's place on the ideological spectrum, it's often possible to predict
their position on various issues. Political parties in the US are different.
They aren't based on ideology, but rather they act more like "gangs". This
is not to say the parties don't have ideologies; they do, but they aren't
what define the party. A party tends to drift to an ideology for convenience
rather than from conviction. For example, the Republican Party fought the
Civil War and freed the slaves. But today's Republican Party can't find a
single minority it likes. The Civil War was fought to keep the Union
together, but today's Republican Party advocates strongly for States'
rights. Or rather it does when it suits it. Similarly, the Democratic Party
today is the champion of the under privileged, but at one time they were the
Party of Jim Crow. Look at the southern Unites States - most southern states
are now Republican whereas 50 years ago they were Democratic. But the
politics of the inhabitants haven't changed at all - the parties swapped
ends.
This functioning of the parties as gangs rather than being driven by
ideology has consequences. For example, a more normal scenario would have
been for the Tea Party to have formed a separate party just to the right of
the Republicans. This may seem like a distinction without a difference but
later we will see the negative effects of this. It also means that the two
parties function as a duopoly. The overriding objective of both parties is
to ensure that no third party can form. They do this by exploiting the fact
there are just the two of them working in cahoots. As discussed above; there
is no independent electoral commission. This manifests itself particularly
in the functioning of electoral debates. The League of Women voters used to
organize debates between the candidates. The casual observer thinks, and
indeed is intended by the parties to think, that the debates are arranged by
an independent agency so as to make them fair. The reality is that the
organizing entity had very little say in the format of the debate. The
candidates themselves would lay down very strict rules about the format,
questions, etc. The duopoly that controls the US political process, i.e. the
Republican and Democratic parties, go to great lengths to ensure no third
party candidates can take part. Further, since the challenger has more to
gain from the debate than the incumbent, the incumbent can use this to bend
the rules of the debate in his or her favor.
This desire by the duopoly to retain control means that it is very hard to
start new parties. This means that new movements get coopted by one or other
of the parties. The Tea Party recently has become part of the Republican
Party. This is done specifically to deny the voter a choice. If the voter
were allowed to choose, the new party might gain traction and thus take away
from one of the duopoly. We will discuss this more later.
Primaries
Primary elections are not mentioned at all in the Constitution. Ironicallythough, the 24th Amendment to the Constitution, guarantees everyone the
right to vote in these elections that are not mentioned anywhere in the
document. Primary elections are an attempt to make democratic a system
whereby party elites picked candidates for election in secret in the
legendary smoke filled rooms. Like most poorly thought out schemes, they are
subject to abuse. Primaries would work quite well if there were an
independent electoral commission. They also work quite well if the
participants behave like ladies or gentlemen. This is why they no longer
work fairly, but instead are actually used to make the process more unfair.
The principle behind a primary election is that "democrats" should be
involved in the selection of Democratic candidates and "republicans" should
be involved in the selection of Republican candidates. I place "democrats"
and "republicans" in quotes to indicate that they are mythical entities. If
one wanted to ensure that only members of a political party were allowed to
vote in the primary election for that party that goal would be very simple
to arrange. But instead, government has effectively said that anyone who
identifies himself or herself as a member may participate. This is open to
all kinds of abuse. Two immediate cases come to mind. In the 2008 Primaries,
Rush Limbaugh urged Texas Republicans to register as Democrats and vote for
Hillary Clinton in the primary; presumably because he thought she would be
easier for McCain to defeat. Although it was unsuccessful, people did it.
Another example is more recent. In Wisconsin some Republican Senators are up
for recall. In order to delay the election, some Republicans entered the
Primary Contest for the Democrats. This forced Democrats to have a primary
election even though there was only one Democratic candidate and a "Fake
Democrat". Both of these examples show that the primary system is inherently
undemocratic. There is no way one party should be able to influence the
other party's choice of candidate.
Another serious problem with primaries is that they are organized by the
state legislature. This means that a Democratic legislature controls the
timing of the Republican primary and vice versa. This can lead, as it did in
2008 to the Democratic primaries being scheduled before the dates set by the
Democratic Party rules allowed.
Redistricting
The Constitution mandates that a census be taken every 10 years in order todetermine how many people there are in each state. Seats are then assigned
in Congress so that each state gets an appropriate number of seats. As the
population migrates, the number of seats in a state may change. When this
happens the legislature of the state has to draw new boundaries for each
district. This is known as redistricting. While this process should arguably
be done by an independent commission it isn't and as such it becomes very
partisan. The party that controls the state legislature controls the
redistricting process. Instead of drawing rational or fair lines they tend
to draw strange shaped districts so as to make their party more successful
at the polls. Typically this is achieved by making some districts that are
overwhelmingly for the opposite party, but then creating a lot of districts
in which your party has a minority large enough to win even in bad years.
The hope is to guarantee your party a majority in the congressional
delegation in excess of that justified by the votes. Not only is this unfair
on its face, it has terrible side effects. Since the general elections are
never competitive, because each seat is a safe Democratic seat or a safe
Republican seat, then the actual election takes place in the primary. Not
only is this inherently unfair, because not everyone can vote in the
primary, but it has the effect of encouraging extremism. For example, let's
take a safe Republican seat. Since the general election is never in doubt,
there is no incentive for someone to move to the center to get Democratic
votes, so someone like a Tea Partier can launch a primary challenge. The end
result of this is that members of each party are driven, by the primary
voters to their respective extremes. And given that, for extremists,
compromise is a dirty word, the members in Washington are terrified to
compromise because they can get a primary challenge. The result is the
absurdly partisan bickering we seen happening now over the raising of the
debt ceiling.
Conclusion
In order to solve the political crisis in the US, what is needed first is anhonest commitment to free and fair elections. Elections shouldn't be
considered a game to be manipulated. Instead the free exchange of ideas
between political candidates and the population is essential to democracy.
The goal shouldn't be the attainment of power by any means, but rather the
attainment of power by convincing a free electorate to vote. To this end, we
should strive towards a real universal franchise, the creation of an
electoral commission to administer elections and a fair redistricting
procedure.
This may need a Constitutional Amendment to create an independent board with
the authority to regulate elections because without this, the US Supreme
Court will continue its current process of allowing elections to be
purchased.
Friday, May 27, 2011
Taxing Corporations
Republicans are always complaining corporate taxes are too high even though many of the most profitable corporations in the US don't pay any taxes, in fact many receive money from the government. At the same time, the Supreme Court, presumably in some kind of rare alcohol induced stupor, ruled a long time ago that corporations are persons, with all the attendant rights of persons. As persons, surely they should pay the same taxes as regular citizens. So do the Republicans want corporations taxed as people, or do they want them to get a break?
I propose a novel solution. While I am unabashedly a bleeding heart liberal, I can see an argument against taxing corporations on the grounds that they are ultimately owned by persons as shareholders and tax is already due on dividend income or on capital gains when shares are sold and on salaries paid by corporations to individuals. So I propose a swap. Congress ends the fiction of corporations as persons, and at the same time exempts corporations from paying taxes on their profits.
As usual, the devil is always in the details, so I explain some of the proposal in detail. Since corporations will no longer be persons, they will no longer have the rights of persons. Thus they will have no right to make political contributions of any kind. Nor will they have the right to petition Congress. Obviously, shareholders may make political donations, and lobby Congress but that must come out of their personal finances. The corporation may not reimburse them. All lobbying and contributions must be paid for out of income that has been taxed. Additionally extremely strict rules will have to be put in place to ensure that NO corporation money is spent on any executive. For example, any use of a corporate asset, such as a company airplane for personal use must be paid for by the employee from after tax salary. I would prefer for the rules to be simple, but the corruption inherent in all corporations means that anything not explicitly excluded will be used as a loophole. If corporations are to be conducted solely as corporations then no one can really complain at these restrictions. To argue against these restriction is really a tacit admission that corporations really want to buy government, a feat they are well on their way to accomplishing at the present time. Corporations would also not have any freedom of speech. They can advertise their products; they can report on their financial statements, but they are prevented from making political statements. Note that the owners, or stockholders, still have all of their rights - they are not infringed at all. But if stockholders are to be free from paying taxes, then it is reasonable that they must lobby Congress as individuals to allow for a favorable climate.
This seems to me like a very fair swap and might well return corporations to their original purpose. In case we forget, the basic purpose of a corporation is to allow people to invest in an idea but without putting all their personal wealth at risk if the corporation fails or misbehaves.
Obviously a lot of meticulous drafting would need to be done to ensure the idea is practical, but this should be possible if there is a serious desire to do so.
I propose a novel solution. While I am unabashedly a bleeding heart liberal, I can see an argument against taxing corporations on the grounds that they are ultimately owned by persons as shareholders and tax is already due on dividend income or on capital gains when shares are sold and on salaries paid by corporations to individuals. So I propose a swap. Congress ends the fiction of corporations as persons, and at the same time exempts corporations from paying taxes on their profits.
As usual, the devil is always in the details, so I explain some of the proposal in detail. Since corporations will no longer be persons, they will no longer have the rights of persons. Thus they will have no right to make political contributions of any kind. Nor will they have the right to petition Congress. Obviously, shareholders may make political donations, and lobby Congress but that must come out of their personal finances. The corporation may not reimburse them. All lobbying and contributions must be paid for out of income that has been taxed. Additionally extremely strict rules will have to be put in place to ensure that NO corporation money is spent on any executive. For example, any use of a corporate asset, such as a company airplane for personal use must be paid for by the employee from after tax salary. I would prefer for the rules to be simple, but the corruption inherent in all corporations means that anything not explicitly excluded will be used as a loophole. If corporations are to be conducted solely as corporations then no one can really complain at these restrictions. To argue against these restriction is really a tacit admission that corporations really want to buy government, a feat they are well on their way to accomplishing at the present time. Corporations would also not have any freedom of speech. They can advertise their products; they can report on their financial statements, but they are prevented from making political statements. Note that the owners, or stockholders, still have all of their rights - they are not infringed at all. But if stockholders are to be free from paying taxes, then it is reasonable that they must lobby Congress as individuals to allow for a favorable climate.
This seems to me like a very fair swap and might well return corporations to their original purpose. In case we forget, the basic purpose of a corporation is to allow people to invest in an idea but without putting all their personal wealth at risk if the corporation fails or misbehaves.
Obviously a lot of meticulous drafting would need to be done to ensure the idea is practical, but this should be possible if there is a serious desire to do so.
Tuesday, May 17, 2011
On Social Security
We keep hearing about how much trouble Social Security is in how the system will go bankrupt and how the only solution is dire cuts or privatization or various other unpopular solutions. I believe this is because no one takes the time to look at the root cause of the problem. When Social Security was enacted there were two factors which were significantly different to the present day. The average age of the population was much lower than it is today and people's life spans were significantly shorter. This meant that the ratio of people paying in to the number of recipients was much higher and also that people collected benefits for a much shorter period. The fundamental problem with Social Security is that benefits are paid out of current revenue and as people live longer, this is unsustainable, particularly in an economy where almost 10% are unemployed.
So what is the solution? In a traditional retirement account an individual contributes into a fund while they work, and that fund is invested and yields a return, such that, by the time the individual is ready to retire, they can start to draw down from that fund enough to support them during retirement. I played with an Excel spreadsheet today and if a person started to contribute to SS at 20 and continued till age 65 by the time they reached 65 they would have an amount 16 and 25 times their annual income saved. This is based on contributions of 15% (currently the employer pays 7.5% and the individual pays 7.5%) and assuming interest on the principal saved of 3% to 5% (hence the rage of 16 times to 25 times). This is more than enough to pay for a good retirement.
Conservatives might jump with glee and say "this is what we have been saying" but I am not advocating that the individual have control over each personal account. The reasons are several. Social Security is properly called Social Security Insurance. That implies that a large pool contribute to the risk and a smaller group withdraws from it. Not only would it be very expensive to track each account individually but it would also lead to risk of poor investment strategies, thus destroying the entire point of SS that it has to be available at all costs. Secondly, Wall Street wouldn't be able to keep its hands of the individual funds and all that would happen is that most of the profits would be transferred from being available for beneficiaries to the bank accounts of a few wealthy fund managers. So I am not really advocating anything essentially different for SS, simply that the beneficiaries not be paid out of current donations, but by their accumulated savings.
The solution is inherently simple, but the transition isn't. Obviously a simplistic solution would be to say everyone starting work now contributes to the new fund, while all current contributors or beneficiaries continue as at present. Unfortunately this would mean that the current system would have to remain until the last person currently contributing dies. This could be a very long time. So I suggest a hybrid system is needed. What we do is pick an age for current workers and all workers older than that stay in the current system and all persons younger go into the new system. This would cut down the transition time by 30 to 40 years depending on the age chosen for the transition. Additionally, in the new fund, the amount of the fund required would have to be calculated from the amounts contributed by those transferred to the new system. This would involve a one time accounting of funds to be placed into the new system. This could be funded in many ways. There could be a special "transitional" tax imposed which would bring the new accounts up to current, or it could even be financed by borrowing. After all, that is what debt is supposed to be for, to ease the transition for expensive one off items.
After the transition, Social Security would be safe forever. In fact, I suspect it would be in outstanding shape and accountants might conclude that FICA tax needn't be 15% but some lower figure would suffice. In fact, this could be one way to fund the one time cost, by keeping payroll tax at 15% until the shortfall was made up and then reduce to the lower percentage. This is not really complicated and is an approach I have been advocating for almost 20 years. But it would require a desire to fix the problems with Social Security. Sadly, I am far from convinced that today's Republicans want a solution. I think they want the program to fail so they can destroy it. But if they did negotiate in good faith to do this, I think it could ultimately be a win win situation, where we could end up with lower taxes and yet have secure retirement for all citizens.
I think the goal of destroying Social Security is fundamentally impossible. If conservatives did succeed in destroying it, what would happen to the seniors who would be broke? Would the world's richest nation actually be happy building huge "debtor prisons" where broke seniors were sent to subsist until death. Is this the view the US would like to present to the world? I think not. So that ultimately what everyone should be interested in is how can we ensure a reasonable quality of life for all our seniors without bankrupting the citizens still working. On the other side, I think Democrats have to be more flexible. As people live longer, I see no reason why the retirement age can't be slowly increased. This could save a lot of money. Contributors could even be offered a choice of plans - pay at one rate for a retirement at 65 and at another lower rate for retirement at 70. Of course, like so much else in our economy, this is dependent on the cost and adequacy of our health care. If we are sensible, and cut health care costs by investing in wellness programs, we would greatly increase the possibility of people being able to work past 65. Health care is another topic, but let's realize we spend 16% of GDP on healthcare compared to around 8% for most other industrial nations and they are healthier than we are. paying more for less doesn't seem like a good bargain to me.
So what is the solution? In a traditional retirement account an individual contributes into a fund while they work, and that fund is invested and yields a return, such that, by the time the individual is ready to retire, they can start to draw down from that fund enough to support them during retirement. I played with an Excel spreadsheet today and if a person started to contribute to SS at 20 and continued till age 65 by the time they reached 65 they would have an amount 16 and 25 times their annual income saved. This is based on contributions of 15% (currently the employer pays 7.5% and the individual pays 7.5%) and assuming interest on the principal saved of 3% to 5% (hence the rage of 16 times to 25 times). This is more than enough to pay for a good retirement.
Conservatives might jump with glee and say "this is what we have been saying" but I am not advocating that the individual have control over each personal account. The reasons are several. Social Security is properly called Social Security Insurance. That implies that a large pool contribute to the risk and a smaller group withdraws from it. Not only would it be very expensive to track each account individually but it would also lead to risk of poor investment strategies, thus destroying the entire point of SS that it has to be available at all costs. Secondly, Wall Street wouldn't be able to keep its hands of the individual funds and all that would happen is that most of the profits would be transferred from being available for beneficiaries to the bank accounts of a few wealthy fund managers. So I am not really advocating anything essentially different for SS, simply that the beneficiaries not be paid out of current donations, but by their accumulated savings.
The solution is inherently simple, but the transition isn't. Obviously a simplistic solution would be to say everyone starting work now contributes to the new fund, while all current contributors or beneficiaries continue as at present. Unfortunately this would mean that the current system would have to remain until the last person currently contributing dies. This could be a very long time. So I suggest a hybrid system is needed. What we do is pick an age for current workers and all workers older than that stay in the current system and all persons younger go into the new system. This would cut down the transition time by 30 to 40 years depending on the age chosen for the transition. Additionally, in the new fund, the amount of the fund required would have to be calculated from the amounts contributed by those transferred to the new system. This would involve a one time accounting of funds to be placed into the new system. This could be funded in many ways. There could be a special "transitional" tax imposed which would bring the new accounts up to current, or it could even be financed by borrowing. After all, that is what debt is supposed to be for, to ease the transition for expensive one off items.
After the transition, Social Security would be safe forever. In fact, I suspect it would be in outstanding shape and accountants might conclude that FICA tax needn't be 15% but some lower figure would suffice. In fact, this could be one way to fund the one time cost, by keeping payroll tax at 15% until the shortfall was made up and then reduce to the lower percentage. This is not really complicated and is an approach I have been advocating for almost 20 years. But it would require a desire to fix the problems with Social Security. Sadly, I am far from convinced that today's Republicans want a solution. I think they want the program to fail so they can destroy it. But if they did negotiate in good faith to do this, I think it could ultimately be a win win situation, where we could end up with lower taxes and yet have secure retirement for all citizens.
I think the goal of destroying Social Security is fundamentally impossible. If conservatives did succeed in destroying it, what would happen to the seniors who would be broke? Would the world's richest nation actually be happy building huge "debtor prisons" where broke seniors were sent to subsist until death. Is this the view the US would like to present to the world? I think not. So that ultimately what everyone should be interested in is how can we ensure a reasonable quality of life for all our seniors without bankrupting the citizens still working. On the other side, I think Democrats have to be more flexible. As people live longer, I see no reason why the retirement age can't be slowly increased. This could save a lot of money. Contributors could even be offered a choice of plans - pay at one rate for a retirement at 65 and at another lower rate for retirement at 70. Of course, like so much else in our economy, this is dependent on the cost and adequacy of our health care. If we are sensible, and cut health care costs by investing in wellness programs, we would greatly increase the possibility of people being able to work past 65. Health care is another topic, but let's realize we spend 16% of GDP on healthcare compared to around 8% for most other industrial nations and they are healthier than we are. paying more for less doesn't seem like a good bargain to me.
Monday, May 2, 2011
On Burying bin Laden at sea
When I first heard that Osama bin Laden had been buried at sea my reaction was that this will lead to a plethora of conspiracy theories. But on reflection, I think it was a stroke of genius.
Those susceptible to conspiracy theories will not believe in any case. But by burying him immediately, in accordance with Muslim tradition, removes any reason for moderate Muslims to be upset and adds credence to the oft repeated line that the "War on Terror" isn't a war against Islam.
Further, burying him at sea removes the opportunity for his grave site to become a shrine.
Those susceptible to conspiracy theories will not believe in any case. But by burying him immediately, in accordance with Muslim tradition, removes any reason for moderate Muslims to be upset and adds credence to the oft repeated line that the "War on Terror" isn't a war against Islam.
Further, burying him at sea removes the opportunity for his grave site to become a shrine.
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