Saturday, May 7, 2016

Jobs - Misleading the Masses...and the Pundits

Data without meaningful context are useless if not misleading. Here are three examples from reports on the current jobs situation in the US.

The New York Times reports that the jobs machine has been "racing ahead for many months" and that we have just enjoyed "the best two-year stretch for the job market since...the late 1990's."

The Wall Street Journal is less exuberant and closer to the truth but still focuses only on the last two years and ignores our longer term history of job creation relative to population. Their chart focuses only on the weak recovery and offers no evidence of just how weak it really has been.

All the monthly jobs data come from the US Department of Labor Bureau of Labor Statistics. I asked for data from 1960 and got this table, changes in number of jobs, for each month from January 1960 to the recently reported plus 160,000 jobs in April 2016. That is the last number you will see at the bottom of the chart with the (P) indicating that the number is preliminary and subject to change. 

Recognizing the size and sluggishness (long time constant) of our economy, the way month to month and even year to year noise tends to hide the long term trends, and the importance of jobs relative to population, I calculated the totals for the twelve months of each year and then plotted a ten year moving average of job changes as a percent of population. Here is the result:

And that ugly trend is the fundamental reason so many people are so frustrated and unhappy that they are willing to turn to Donald Trump as a viable candidate for the highest office in the land. The establishment politicians of both parties have failed in their primary responsibilities to develop globally competitive infrastructure, economic climate, tax structure, and national defense that will preserve, protect, and defend our constitutional  rights to life, liberty, and the pursuit of happiness. 

Instead, in pursuit of votes and campaign contributions, they have focused on wealth-transferring social benefits that now consume 75% of total federal tax revenues and, through continued deficit spending, have built our national federal debt to essentially equal to GDP.

And the ugly job growth data above are completely consistent with our long range record low GDP growth and labor force participation rates.

Monday, February 22, 2016

Christian Walls and Bridges

"The attractive nuisance doctrine applies to the law of torts in the United States. It states that a landowner may be held liable for injuries to children trespassing on the land if the injury is caused by an object on the land that is likely to attract children."

Pope Francis made some comments this week about walls and bridges and Christianity and on Donald Trump's position on immigration, which was probably explained to Pope Francis as poorly as the pope's comments were translated and reported to us by the media. I'm not going to try to defend Mr. Trump since he is unsurpassed in self-defense and needs no help. But I do understand and generally agree with Pope Francis that, from a Christian viewpoint, bridges are better than walls. I believe that was the gist of his comments.

It is clear that the United States of America bears full responsibility for the problems that have resulted from our intentionally insecure southern border and the attractive nuisance it created. We have looked the other way or winked at illegal crossings for decades and have enjoyed the economic benefits of having millions of low cost workers harvesting our crops, working our ranches, cleaning our homes and hotel rooms, keeping our restaurants going, and building our houses. We have allowed establishment of "sanctuary cities" and have issued drivers licenses and provided education and food stamps and other benefits even while continuing to force immigrants to live in the shadows, always fearing deportation. And we have tempted and challenged the "bad" people, the drug pushers and rapists and terrorists Mr. Trump keeps warning us about to join those "good" immigrants in exploiting our porous border. That has been our policy, and it seems to me to be inconsistent with Christianity. A wall would have been far better.

And, a combination of walls and bridges, a secure border with controlled crossing points and processes for welcoming and allowing those who want to come to work to be properly identified and vetted and admitted legally, on special work permits, with the possibility of citizenship if certain criteria were met, might have been a Christian approach. The hiding and fear could have been eliminated and those welcomed could have worked openly and in compliance with US law. And the criminals could have been deterred from entry. We could have done much better...and collected more tax revenue in the process.

I know the attractive nuisance doctrine only applies to children. Of course not all the immigrants who have crossed illegally are children, but many are, and the motivation for illegal adult crossings has often been the hope of better lives for their children. Who can blame the ambitious loving parent for being willing to risk life and limb in a dangerous crossing for the benefit of his or her children.

So, what now? I prefer Senator Sanders's proposal for an electronic wall over Mr. Trumps proposed traditional brick and mortar project (paid for by Mexico), but I do agree that securing the border is of prime and immediate importance. We need to eliminate the attractive nuisance temptation and start building bridges.

As for those we have already admitted and exploited with winks and nods, forget the ridiculous idea of rounding up and deporting families. Bush, Rubio, and Kasich are right, and Trump and Cruz are wrong. That approach would never work, would never be allowed by the courts, would be clearly "unChristian," and would just compound the errors of the past. We might even end up deporting the guys who laid the bricks on the new home we built in Blythewood sixteen years ago. And that would be a shame. They were excellent masons and had an incredible work ethic. I didn't even bother to ask if they were legal. I was just glad they were there.

Sunday, January 24, 2016

A Thinking Person's Candidate

Mr. Trump is coming to town Wednesday evening and will have a rally at a Christmas Tree Farm about 20 miles west of my house. Though not a supporter, I am fascinated by him, by his candidacy, by his rock star status, and by the constituency awarding that status.  But I am not going to show up and help boost his ego.

It bothers me to see any presidential candidate, whether ego-driven Donald Trump or socialist ideologue Bernie Sanders, enjoying rock star status. When they look out at the crowds facing them, they should see frowns rather than raised arms and hear tough questions rather than cheers. They are not running for the position of savior or king and are in no way qualified for either position. And their egos do not need building up. If we had either a faux king or a faux savior, it would destroy our representative democracy, and we have no business looking for or considering such a person. (Hugo Chavez and Hitler were both seen as such persons.)

It also bothers me to see voters locked in on a candidate for some particular meaningless reason or based on some single issue. The candidate is a woman, or is not a woman, or the candidate is an evangelical, or the candidate is either pro-abortion or is waging war on women. The candidate is a war-monger or a pacifist. The candidate is for equality or is in the pockets of the rich. Most issues are not so simple, and we really don't know how a particular person, if elected, will react to situations that may arise over the next four or eight years.

What I would like to see is critically thinking voters searching for a thinking candidate, a person with broad managerial experience interested in leading a team of like people and even senators and representatives in solving the major problems we face.

1. To avoid fiscal disaster down the road we have to find a balance of revenue, spending, and GDP growth that will bring our debt as a percent of GDP back down to no more than 20% or so. That is going to require a deep understanding of business and competition and global economics and will have to include more competitive tax penalties on corporate profits.

2. We need to recognize diversity among the states and quit trying to pound all fifty into the same Washington, DC fabricated mold. Competition among the states is a very good thing, and the winners will be rewarded with increasing business and growing populations. The losers will have to figure out how to shape up and be competitive and will learn from watching the winners.

3. We need to recognize diversity among the citizens and allow all to freely express and practice their cultures and faiths within the broad bounds of the Constitution and the Bill of Rights. That includes business owners who must be free to discriminate, not on the basis of who people are, but on the basis of the choices they make and the behaviors they exhibit.

4. We need to recognize our leadership responsibility among the nations of the world and remain the "land of the free and the home of the brave," welcoming "the tired, the poor, the huddled masses," etc., but taking names, fingerprints, and DNA samples and enrolling them in English and citizenship classes upon entry. We must remain a "melting pot." And we have lots of room.

5. We need to get the money out of politics and simplify the tax code and regulatory environment to prevent the buying of favoritism and special treatment. We need term limits and citizen servant senators and representatives dedicated to much higher goals than re-election.

Is there a thinking candidate on the scene? Jeb Bush and Rand Paul seemed to be, but both have been pretty well eviscerated, in the minds of voters, by Donald Trump. Still, there is some hope for a third. A three way race between Sanders, Trump, and former NY Mayor Bloomberg would really bring out the voters. If only Mr. Bloomberg were 63 instead of 73. Read this article from today's The State Newspaper and you will get some hint of a thinking person's approach.

And, if Bloomberg does run and happens to show up in South Carolina for a "rally," I don't plan to be there. I will read and study his proposals.

Tuesday, November 10, 2015

"Universal" Health Care and Medicare

Above is a little inspirational chart seen on Facebook this morning from "US Uncut," a champion of higher tax revenues and no cuts in any government programs. They claim to be the instigators of "Occupy Wall Street." I point this out just to give appropriate credit for the chart.  You can see their Facebook page here. Inspirational? Well it inspired this blog post.

"Universal Health Care" is a term that needs careful definition and its application in this little chart almost certainly obscures considerable variability in actual quality and availability of medical care among these countries. And I believe that, while all probably  have some system available on some basis to all who need it, most also have some parallel system which operates on free market principles and is available to those who can afford it, even working folks.

The USA, missing from the list, has done little to improve medical care or make it more available except for seniors. All the effort outside of Medicare, primarily the Affordable Care Act, has been focused on insurance which is not necessarily linked to actual medical care. And many of the changes have made medical care less available, even for the poor, by reducing compensation for doctors and increasing demands for non medical care activities on doctors and nurses, all tending to make their lives more difficult, reduce their time with patients, and make the medical professions less attractive to the best and the brightest students.

At the same time, the established system of fixed compensation per service provided, with no price competition, has driven unnecessary capital investment and increases in certain expensive activities as hospitals and doctors strive to increase their revenues. How many MRI's do we really need anyway?

Medicare is different, at least for the consumers. We seniors are enjoying a very good medical care situation at the expense of our children and in return for our votes, but it is unsustainable as our ranks continue to grow, our life expectancy increases, and economic growth per capita lags. For example, I had cataract surgery and a heart catheterization in the past twelve months all completely paid for by Medicare or my Medigap policy. I would have been very happy to pay out-of-pocket, in advance, what Medicare paid for those procedures ($4,496) but not the ridiculously inflated initial charges ($38,379) presented by the providers, more then eight times as much as Medicare actually paid. Medicare benefits should apply only to those who need the help, not to everybody who happens to be over 65, and those who can afford to pay should not have to pay anymore than Medicare pays. And of course we all need to be able to buy catastrophic major medical insurance to cover those extreme costs of long term illnesses and major surgeries.

Pro ACA anecdotes about individuals who now have insurance but didn't have it before are nothing more than smoke screens obscuring the larger truth that we are enriching the insurance companies and hospitals and drug companies and their hundreds of thousands of non-medical employees while making life more difficult for those who have the necessary education and experience to solve or at least treat our medical problems. Well, our health care system can be considered at least a "Jobs" program if not a medical care program.
And, besides, we do have some system of "universal health care" in that anyone going to a hospital emergency room must be treated. The widely touted high expense of emergency room visits is a straw man, or diversionary tactic, established by the strategies and cost allocation systems of hospitals and designed to force all into the various insurance programs. It would be quite simple and easy for hospitals to establish a section of the "emergency room" for non-emergency cases and have much lower levels of costs allocated to that. Check out the CVS Minute Clinics for an example of how it could work. Or just go to the Minute Clinic and skip the emergency room. The nurse there will send you on to the real emergency room if you need to go.

(Revised slightly November 11, 2015)

Saturday, September 12, 2015

Just Looking for Absurdities - It's Not About Me

A recent comment on Facebook seemed to say that my ("conservative") position can apparently be simply stated as something along the line of, "Cut my tax rates and all will be well." Nothing could be further from the truth, and such a comment brings home to me how difficult it is to express opinions and make cases for change in ways that are understandable, even in a blog post. It is impossible, of course, on social media such as Facebook.

Let me say up front that I have never been unhappy with my federal tax bills and have always considered the amounts paid reasonable for the privilege of living in this great country. Given the ridiculous debt we have incurred, I would be quite happy to pay even more if it were part of a comprehensive plan to strengthen our economy and eliminate the debt. (So long as we keep building up the national debt, I may prefer to pay less and retain more simply as a self defense measure.)

I have, however, found some ridiculous absurdities (redundant I know) in the processes required to determine the sizes of the tax bills, in the fairness of the tax bills, and in the management by our government of the money so collected. But none of my posts are about me (or about reducing federal tax revenues) except to the extent that personal experiences have revealed and illuminated those absurdities.

And it is not just taxes. Beginning in August, 2009, I have done 556 posts on this blog. Looking back over those posts, I find a common theme running through them is identification of, complaints about, and recommendations for removal of absurdities in the processes imposed on us, processes that are unnecessarily complicated, wasteful, unfair, or destructive, processes that often have gotten that way through some random walk of congressional tinkering, by leaders of both parties, always making things more complicated and expensive.

So, the key word is "absurdities," and here is a summary of some of the worst with links to one or two of the blog posts in which they were discussed.

1. A welfare system that provides just-get-by support for single moms living alone but little or nothing for married low-income couples. The system has certainly contributed to destruction of the family. This opinion is supported by but is not based on anything I have read but rather on personal interviews with a few hundred people living in the patronizing system we have created. It is not a partisan issue. Paying for Marriage - A Welfare Idea

2. A congressional system that thrives on a lobbying industry designed to entice our elected leaders to pick individual corporate and personal winners and losers and thereby gain campaign contributions, endorsements, and votes in order to win the next election. It is not a partisan issue. Congressional Reform Through Constitutional Amendment and Saving Congress...and Ourselves

3. A congressional apportionment system, gerrymandering, that encourages carving out of safe districts for extremes of both parties and results in elimination of thoughtful negotiation and compromise in Washington DC. It is not a partisan issue. Gerrymandering by Cropping

4. A budgeting and spending process that has resulted in the most prosperous nation on earth building up a ridiculous debt equivalent to about a year of GDP. This debt advance has proceeded since the mid 1970's through good times and bad, and through leadership of both major parties. It is not a partisan issue. History of Federal Debt in the USA

5. A health care industry based on secret and fictitious pricing structures, putting individuals who just want to pay their bills based on fair prices at a huge disadvantage, and locking the insurers and health care providers, government included, in an unholy alliance just as destructive as the military-industrial complex President Eisenhower warned about. This is not a partisan issue. Getting Serious About Health Care Reform and Repeal and Replace But With What

6. A tax code that announces, for both individuals and corporations, fictitious marginal rates seldom paid, because that same code also provides numerous ways to avoid those rates, and has created a huge industry of tax preparation and avoidance experts, all, along with the IRS, doing non-productive work, perfect examples of bad GDP. It supports item 2 above because every instance of tinkering with the tax code by Congress, or promises to tinker by politicians running for office, is done with careful calculation of the effects on popularity and/or re-electability of the politicians. This is inherently unfair and is not a partisan issue. Complexities of the Tax Code and Why Congress Loves It and Tax Corruption...Even in the Beer Business

7. National strategies of pumping money into education and health care with huge benefits to the education and health care industries and little or no benefit to students and patients. Higher Education Higher and Higher

Getting back to the Facebook issue, I have found it to be a fun and interesting place to keep up with friends and acquaintances from decades ago as well as with current friends and family members. I despise and try to ignore the silly little political, economic, and religious memes in boxes and don't really need anybody to provide links to news stories and partisan articles. I see the headlines myself. And I get very weary of the partisan wrangling of the I say, you say variety.

There is some practical value. I have Facebook pages for both of my blogs and am an administrator for Facebook pages for non-profits at which I volunteer and have found it can increase awareness of those blogs and organizations.

I wish there were more thoughtful, serious, commentary without immediate descent into partisan haggling, but the trend, like that of our national debt, is in the wrong direction. And many of the smartest people I know, whose opinions I would like to see explained in thoughtful prose, will have nothing to do with Facebook and other social media. Facebook Reflections and Facebook Debates and Discussions (Yes, I know I often fail to follow my own suggestions.)

(Revised slightly on my 73rd birthday, 9/13/2015)

Sunday, September 6, 2015

Good News, Bad News, or No News

I didn't know whether to laugh or cry over the enthusiastic announcements and slants on same of the "sharply upward" revision of second quarter 2015 GDP growth from 2.3% to 3.7%. Of course the 2.3% was simply an estimate of an unknowable number, and we might as well admit that the 3.7% is also. But 3.7% is almost 50% higher than 2.3%. Isn't that worth a little excitement and positive spin?

Well, no, it isn't. Since the crisis of 2008-09, we have had six quarters with higher real GDP growth than the most recent 3.7%. You can see them on the chart below of seasonally and inflation adjusted data from the BEA NIPA tables. (It is important to note that the numbers are not adjusted for population which has been increasing about 1% per year.) The last point on the graph is the recently reported 3.7%.

The most important line on the graph is the eight quarter moving average which clearly shows the nine recessions we have experienced since 1950. (You can read a list here.) It doesn't take a PhD statistician to tell that the normal quarter to quarter variability in the combination of GDP and in measurement of same have a range of around 4 percentage points which means a standard deviation of around 0.65 percentage points. (It is worth noting that the variability is much lower since 1982 or so than it was in the previous thirty years, most likely because of improved measurement.)

My unsophisticated but reasonable, I believe, interpretation of the data on the chart includes these statements:

1. The most recent 3.7% is no news at all and signals nothing either good or bad but allows one to say that GDP is continuing to grow at about 2.5% since the disastrous 2007 to 2009 period which set a record post WWII low.

2. GDP growth ran in the 4% to 5% range in the fifties and sixties and now seems to have settled in at the 2% to 3% range (or 1% to 2% on a per capita basis.) And, in the fifties and sixties we were continuously decreasing debt as a percent of GDP while, since then, we have continuously increased debt as a percent of GDP (chart below). That may lead one to conclude that we are even worse off than the GDP figures show since the more recent numbers are, in a sense, based on a house of cards (deficit spending.)

Of course the result of weak GDP growth, in spite of productivity improvements through automation and information technology, is stagnant wages and fewer people working even as earnings and stock prices climb. And those trends drive increasing inequality. And that is causing a great deal of discontent.

The appropriate response to these issues is lower and flatter marginal tax rates, for corporations and individuals, with no exclusions, exemptions, deductions, or credits. Such a change would result in most large companies and high income individuals paying much more in taxes than they now pay but lower taxes on each additional dollar earned. And it would be much fairer than the current convoluted system. Such a change would be a significant stimulus for both domestic and foreign companies to increase their operations in the United States. And things would get better, and the eight quarter moving average would begin an upward march, and our debt as a percent of GDP would begin decreasing.

Let's try it! (You have to click on the chart to get a high resolution view.)

Sunday, August 30, 2015

Where is the Money Going?

I read Paul Krugman's columns looking for something substantial with which I can agree but with little or no success. Several days ago he wrote (August 21 - Debt is Good) advocating that we increase the national debt to fund some infrastructure projects.

I like well conceived, well designed, and efficiently executed infrastructure projects targeted at improving productivity and fully understand the use of debt to finance such income generating projects, the income from which is then used to pay off the debt. Of course good infrastructure projects should always reduce costs and cycle times for the economy and improve business and increase tax revenues. Moving dirt from one place to another and building bridges to nowhere don't count.

(I also can even buy the idea that accumulating some small debt during economic slumps by deficit spending to stimulate the economy and level out the ups and downs has some value, but only if the increased tax revenues from the resulting recovery are used to pay off the accumulated debt.)

But, the simple sad fact is that this prosperous country has, since the mid 1970's, without justification, through good times and bad, through conservative and liberal leadership, consistently ratcheted up the national debt as a percent of GDP. It just makes a person wonder where all the money is going and what the problem is. You can read about our national debt history HERE.

In 2014, the last full year for which data are available, the US Federal Government spent $3,897B, $631B more than it took in. Here is where the money went, in broad categories:

Social Spending       49% (SS and Medicare are biggest items.)
Defense                  15% (40% is for employee compensation.)
Transfers to States  13%  (With strings attached, of course.)
Interest on Debt      11% (At current low interest rates.)
Non Defense            10% (Infrastructure would go here.)
Other                        2%

Below is a chart to give the details some visual perspective.  You have to click on it to read the details.

Maybe there are issues here to be considered as the next election approaches. I find it disturbing that interest on the debt, even at these low interest rates is not that much less than total spending on national defense and that only 10% of total federal spending was available for non-defense discretionary items such as infrastructure improvements. Time trend charts show that the upward pressure on Social Security and Medicare spending is relentless (See second chart from a previous blog post.). We have to stop that or raise taxes considerably to cover the cost. And, if interest rates go back to levels of just a few years ago, the interest payments will jump to second place, above everything but social spending.

So, maybe Krugman is right. We should just borrow another trillion dollars or so and build a bunch of bridges around the country. Put some people to work! Ha!

So, why doesn't our leadership come to grips with and solve this problem? I explained that HERE. Too much focus on fund raising, vote buying, and getting re-elected with little or no effort on working together, "across the aisle," on problem solving and permanent fixes.

All the data come from the BEA NIPA Tables.

Friday, July 31, 2015

Designated Giving, Loss Leaders, and Planned Parenthood

Encouragement of designated giving can be an effective fundraising tool but, except in the case of major capital campaigns for specific projects, has little or no effect on programs of non-profits using the method to raise money. I am reminded of the confession of a police department that, although their fund raising campaign was focused on bullet proof vests for officers, they were going to buy the same number of bullet proof vests regardless of the fund raising result. It was just that bullet proof vests support an effective emotional appeal for money. 

As a young adult, I was a member of a Southern Baptist Church that taught tithing and essentially forbade designated giving, unless pre-approved by the Board of Deacons, because it was seen as a way for church members to vote with their money and personally impact church priorities, a clear responsibility of the Board of Deacons. It was also a nuisance for the church treasurer to keep up with the various designated funds and make sure they went to the right place.

About that same time, the local Community Chest was raising a million dollars or so each year to fund locally popular non-profits serving the community. Over the next couple of decades, the Community Chest gave way to United Way, and some of the agencies being funded under the new regime were extremely unpopular with some of the donors pressured to give to the annual drive. To assuage their concerns, donors were allowed to designate their gifts to one or more agencies and leave the others out. It made no difference of course in the distribution of the funds except in the very rare case that designations to a particular agency exceeded the budgeted amount for that agency. I doubt that ever happened. And money of course is fungible, making it impossible for a designator to track his or her hundred dollars and make sure it went to the Boy Scouts or whatever other agency he or she might have designated and not to some organization with goals perceived by him or her as suspicious.

Loss leaders of course are those products sold in groceries and other retail outlets at a "loss," less than their fully allocated cost of acquisition, selling, and distribution, because they are known to increase store traffic and total sales revenue and thus result in greater profits even if showing losses as individual items. It has been a long standing tradition, for example, for groceries to feature Coca Cola products one week as loss leaders and Pepsi Cola the next. (Both soft drink companies were rumored to require the stores to feature their products at least fifty percent of the time if they were to have the privilege of selling them at all, and that was judged by smaller soft drink companies as a grossly unfair trade practice.) The point is that revenue is revenue and always contributes to the bottom line profits whether the particular product generating the revenue, based on the accounting system in place, shows a profit or not.

What are the points of this rambling? There are two: 

  1. Whether the $500M in federal funding going to Planned Parenthood is designated for services other than abortions is absolutely immaterial because money is fungible and enables the organization to grow and increase impact on society while directing whatever other income it has to expansion of abortion services. So long as the books show spending on services other than abortion is equal to or greater than the federal funding, the organization can claim that none of the federal $500M went to abortion services. Accounting is a wonderful art.
  2. Whether the collection of revenue from transfer of fetal tissue, in the form of body parts, shows a profit based on the accounting system in place is absolutely immaterial. The claims of Planned Parenthood that they are only offsetting cost with the revenue collected would be like Publix Supermarkets claiming that it is not profitable for them to sell soft drinks as loss leaders. It obviously is profitable or they would not do it.

So, here is my recommendation for Planned Parenthood. Spin off whichever is the smaller of the two major parts of the organization, Abortion Services or Women's Health, and then let the Federal Government contract with the Women's Health part to provide Women's Health Services on a cost plus basis just as they pay through Medicare for elderly health services. If funds were to be transferred from the Women’s Health entity to the Abortion Services entity, that would be very difficult to hide with accounting manipulations. Then the Abortion Services part of the organization could look elsewhere than the US Congress for funding. I suspect there will be plenty of it, probably largely from organizations much more interested in preventing births than in Women's Health. PP Abortion Services might even become the larger of the two (if it isn't already).

And, to Congress, until Planned Parenthood engineers that divorce, there should be no federal funding of it.

Monday, June 29, 2015

Congratulations to President Obama

Regular readers know that I have been a frequent critic of our president's managerial and leadership skills and his apparent lack of interest in fiscal and economic issues, but, reflecting on last week, I have to say that heartfelt congratulations are in order.

The incredible confluence of four major events including two SCOTUS decisions in line with the feelings of a majority of the population and in support of the president, the gracious, loving, forgiving responses of Black Charlestonians followed by the coming together of Black and White in response to the tragic church murders, and the resulting unification of SC politicians over quickly resolving the confederate flag issue resulted in a week that will certainly be the high point of the president's two terms. And on Friday, responding to an opportunity presented with perfect timing, he stepped up to the podium in Charleston and claimed his victory with class as he warmly eulogized Senator Pinckney (with some politics and music thrown in.) 

Had the response to the same sex marriage question been negative or had the Affordable Care Act subsidies been terminated or had there been riots and destruction in Charleston, or had Governor Haley defended the Battle Flag of Northern Virginia, it would have been a much unhappier week. 

The simple truth is that all these events delivered results aligned with clear majorities of the American people. Less than a majority strongly favor same sex marriage, but a majority willingly accepts it. Far less than a majority have been digging into the details of the health care legislation and are happy it is in place, but very few wanted to see subsidies put in place by the government a couple of years ago suddenly yanked away by that same government. And less than a majority strongly favored removal of the flag, but more than a majority is quite willing and happy to see it go to a different display space. And I suspect only a tiny minority, mostly out of staters, as apparently was the case in Baltimore and Ferguson, had any interest in rioting and demonstrations in response to the murders.

My hope and prayer are that peace will increase and discontent will decrease now that these issues have been resolved. That will require respect be shown to those who still believe, based either on their religious faith or on human physiology, or on both, that marriage is between one man and one woman, that continuous effort be spent by Congress on improving the Affordable Care Act, and that South Carolina legislators follow through on promises to deal NOW with the flag issue.

If all that comes to pass, freedom, peace, and joy will increase, the Affordable Care Act of 2030 will bear as little resemblance to the legislation passed in 2009 as the Social Security and Medicare of today bear to the original laws passed in 1935 and 1965 respectively. And docents at the South Carolina State Museum will enjoy telling visitors of the different flags flown by the Confederacy and the meaning and significance of each.

So, can we now turn full attention to the crisis of mayhem, torture, expulsion, and murder emanating from the Middle East and infecting the world, to meaningful tax reform at the state and national levels, and to paying down our federal debt? (Greece may have some excuse for spending so much more than they have. This rich country has no excuse.)

Friday, June 19, 2015

Some Thoughts About George F. Babbitt

My memory is not what it used to be and never was that good, so, when a FB friend asked if I have read Babbitt by Sinclair Lewis, I didn’t have a quick answer. On his recommendation, I downloaded it to Kindle and plowed through.

My first impression was that this is a great read for anyone going through the examination of conscience process in preparation for confession. The common though sometimes unrecognized sins committed by George Babbitt as he progresses from self-centered, self-righteous, successful businessman with questionable ethics through a period of wavering reflection, drunkenness, adultery, and rejection by the establishment, and back to where he began provides a good checklist for comparison with our own behaviors. I quickly lost count of the number of sin-remorse-resolve-relapse cycles experienced by rationalization champion Babbitt.

At the South Carolina Book Festival a few weekends ago, one writer/speaker on a discussion panel mentioned the importance of having at least one likable character in any work of fiction. In Babbitt, I found neither the protagonist nor anybody else in that category and was tempted to lay it aside about a third of the way through. I did, however, find myself curious about how the writer was going to resolve the mess created, and it was only that curiosity that kept me going.

Unfortunately, there was no redemption for Mr. Babbitt, his only hope being that his son would chart a different path. On the last page of the book, Babbitt offers his son the honest confession that he has “never done a single thing I’ve wanted to do in my whole life! I don’t know’s (sic) I’ve accomplished anything except just get along.” Then he warns his son of the pressures and bullying he will face and tells him to do his own thing. And the book mercifully ends before Babbitt has a chance for his next fall.

“Bullying,” by the way, is a theme of the book. A quick search on the Kindle revealed 17 instances of use of various forms of the verb. It is interesting that it is such a hot topic now, almost a hundred years later.

The most dislike-able thing about Mr. Babbitt is his insistence on categorizing, labeling, and demonizing anybody different, not in his own group or category, that insistence exceeded only by author Lewis’s insistence on categorizing and labeling and demonizing the business establishment in general. The book seems to be an incentive to class warfare, designed to stir up hate and resentment.

We can be discouraged because we know that, in the real world, every Babbitt launching demonizing attacks on the poor or minorities or immigrants is balanced by somebody demonizing the more successful. And the class war is on. Our only encouragement comes from knowing that the categories are unfair and that there are both saints and sinners in all such groups. It is individuals and not groups or categories who bear responsibility for sins.

The book seems timeless because the categorizing, labeling, and demonizing continues today with a vengeance, greatly accelerated by the 24 hour news cycle and social media. The current popularity of categorizations such as “red state” or “blue state,” frequent misuse of the suffix phobic, organized resistance to silence speakers on college campuses, boycott of businesses that don’t toe some currently popular line, and widespread use of the labels “haters” and "deniers" are some of the most obvious examples. It is often easier to create enemies than to make friends.

LORD have mercy, and help us love our created enemies as well as the real ones.

By the way, I am now certain I had not read the book earlier, nor will I read it again. It is too disturbing, with not a likable character in sight.

Saturday, May 30, 2015

Historical Perspective and Context for US GDP

Click on the chart for a high resolution view.

GDP, the total value of goods and services produced within the country in a given time interval and the key measure of national economic health, is of course unknowable, but there are a couple of methods of estimating it. 

The Expenditure Method assumes that GDP must be equal to total spending by government (G) and consumers (C) plus private investment (I) including investment in residential housing, plus Exports (Ex) minus Imports (Im).  (It is worth noting that government spending on transfer payments to citizens does not count.)  The formula using this method is GDP = G+C+I+Ex-Im. All the data I am plotting are from the BEA NIPA Tables and are based on this method.

The other method of estimating GDP, the Income Method, is based on an assumption that GDP must be roughly equal to the total income of all the providers of goods and services and uses total salaries and wages, profits, rent and interest received by individuals, with some adjustments, to estimate GDP. None of the data in this post are based on that method.

Given the complexity of the method of estimation, it is not difficult to see why GDP estimates are noisey and late and often must be revised. Just yesterday I read that the earlier estimate of +0.2% real growth for the first quarter of this year has been revised to -0.7%. That is a big shift in the wrong direction, but both numbers are depressingly low. You can read the full report here. (Don't get unnecessarily distracted. Such short term estimates of GDP are not the point of this post.)

One way to get around the difficulties, errors, and noise in measurement of GDP is to focus on long term running averages. In the chart above, I did that, plotting ten year running averages of "real" GDP growth (inflation removed) all the way back to the end of The Great Depression. These averages of ten years are good solid numbers that nobody is going to be revising.

I can think of only one reader of my blog who would remember The Great Depression and few who would remember the WWII years, but there are many who remember the post war boom years when people were getting good jobs with good incomes right out of high school and enjoying good raises and regular promotions as they watched their mortgage payments shrink to insignificance. And we are all acutely aware of the rising flood of complaints about lack of opportunity and low pay since the turn of the century.

I'm not going to write paragraphs explaining what should be obvious from careful examination of the chart, but I do want to call attention to the facts in the two red blocks, that average real GDP growth for the depression years of 1930 to 1939 was 1.3% per year and that today the average for the past ten years is 1.6%. And we wonder why jobs and raises are scarce! Click on the chart for a high resolution view.

Later: To see this chart with a debt as a percent of GDP chart on the same time scale, go HERE.

Friday, May 15, 2015

KRM's (Key Result Measures) and an Improvement Plan for the US

We are heavily entangled with, both supporting and depending on, two very large entities that we hope and pray are too large to fail. Unfortunately, those two large entities are also entangled with, supporting and depending on, each other, and the inevitable conflicts of interest combined with short term thinking and selfish behaviors have weakened both. The two entities are the United States Federal Government and the United States Economy.

Anyone responsible for an important enterprise must understand how the enterprise works and how well it is doing. An important first step in managing and driving improvement is establishment of KRM's, Key Result Measures, for the enterprise. Such measures must be carefully selected and based on accurate data designed to identify important trends and statistically significant changes. Such tools greatly facilitate diagnosis of problems and planning, implementation, and documentation of improvement projects.

In the charts below, you will see the results of an effort to identify high level measures for these two major entities. For all these variables, I plotted data from 1960 through 2014, the last full year for which government supplied data are available. I used ten year running averages because such averages eliminate noise and make each point very accurate, containing a lot of data, and because I didn't want to be accused of trying to correlate ups and downs with presidential terms. We attribute far too much of the good and bad news about our government and our economy to whoever happens to be in office. The actions a current administration or congress might take are far more likely to take effect a few years down the road rather than immediately. Our economic ship and our government ship are big and bulky and slow to turn. 

The most important measures are the size and growth rate of our economy. After that, the issues are how much of that economy is consumed by the federal government, how the money to fund the government is pulled from the economy, and how that money is spent by the federal government. Some of these measures are controllable factors, independent variables, and some are lagging results or dependent variables.

Variables that can be controlled over time
  • Spending as a percent of GDP
  • Percent of spending available for transfer payments
  • Percent of revenue coming from income tax, payroll tax, and corporate tax

Variables that are lagging and dependent
  • Total federal debt as a percent of GDP
  • GDP growth rate

The charts below indicate that we have opportunities with all three independent variables, one of them in serious trouble, and major problems with both dependent variables: 
  • A rapidly diminishing portion of our federal spending going to infrastructure and other key economic support items and a rapidly increasing portion going to transfer payments.
  • Unwillingness to match spending and taxing and resulting accumulation of unsustainable debt.
  • A corporate tax structure that advertises ridiculously high rates and motivates game playing to reduce the tax bills with the result that high rates are delivering low tax revenues even while complicating and discouraging business.
  • The federal debt continues to climb and is now at or above annual GDP.
  • GDP growth is in a long term consistent downward trend.
Click on the charts to read the paragraphs of explanation. The suggested "targets" are mine.

Chart 1 - This is probably not increasing as fast as many people suspect and has actually been relatively constant over the decades. Let's just agree that 20% of GDP is a reasonable target for federal spending. Of course we don't know what the GDP is until the year is over but adjustments for misses can be made in the following year so that the long term average homes in on 20%.

Chart 2 - This disastrous trend, so-called entitlement spending, is starving the federal government of funds needed for investment in infrastructure and other business and investment stimulating projects. Taking money from one pocket and putting it in another solves no long term problems, not even poverty.

Chart 3 - Income tax coverage is much narrower than in past decades with about half having little or no liability. We need lower rates with broader participation and no special treatment. A flat 15% on all earned income above poverty level would just about do it. And it would eliminate the need for tax returns on earned income and almost put the IRS out of business. Read more here.

Chart 4 - This apparently regressive tax is excessive and falling short of the poorly conceived promises made to those paying it. (I say apparently because, while the taxes hit lower income folks harder, the benefits also strongly favor them, thus making the overall system less regressive. Very little contribution is required to get benefits, and benefits are capped.) Some argue to raise the tax. It would be far wiser to reduce the benefits based on means testing and run less rather than more money through Washington DC. Read more here.

Chart 5 - The unholy trinity of business, lobbyists, and congress has resulted in an incomprehensible corporate tax system that is difficult for all, fair to none, and expensive to maintain. A flat rate of 15% to 20% on publicly reported earnings before taxes would stimulate business and investment, put thousands of lobbyists out of business, let executives focus on their businesses rather than on pursuit of special tax treatment, and give congress time to worry about important issues rather than where their next campaign funds are coming from. Read more here.

Chart 6 - This just summarizes the last three, showing that the total contributed by the three big taxes is fairly constant over the decades except for the convolution caused by the inflating and bursting of the two bubbles of the last fifteen years, and real estate. (Added Later: That instability beginning in the late 1990's is a danger signal.)

(Note: This chart added later during a June 2016 update. Free Trade effect I suppose.)

Chart 7 - And this is a ridiculous picture of administrations and congresses from both parties over six decades consistently running deficits that pile on debt. The only exception was at the turn of the century when tax revenues from the bubble boosted revenues even as the associated false prosperity enabled some spending cuts.

Chart 8 - Read more here on the history of our national debt. The last good years were when we all worked very hard to pay off the burdensome debt incurred during WWII. That favorable trend ended in the 1970's with the first oil crunch and the end of $3 per barrel oil.

Chart 9 - This GDP trend is a pretty sorry and discouraging picture but does not present a situation without hope. Read more here about it.

Here are the actions we need to take to right the ship and change the trends on GDP growth and Federal Debt.
  • Reform corporate taxes to establish a new low competitive rate that every corporation pays, no favors allowed. Something in the range of 15 to 20% on all publicly reported profits, wherever earned, should do it.
  • Reform our social welfare programs, Social Security and Medicare, to stop paying bills for and sending checks to people who can afford to pay their own bills with their own income.
  • Limit Federal Government spending to 20% of GDP and fund 15% of it from corporate income taxes, 35% from personal income taxes, 30% from the payroll tax, and the remainder from excise and customs taxes.
It will take a while to kick in, but we would know this strategy has been successful if the GDP moving average and the federal debt curves change direction. Of course there would be earlier indicators such as more positive attitudes, more investment, better individual quarter measurements, etc., but, if we celebrate those, declare victory, and stop the improvement efforts, all will be lost. Solving these problems will require an extended attention span.

Below are links to sources used for the data in the above charts:
Who Pays Income Tax:

GDP and Government Revenue and Spending:

On Payroll Tax Regressiveness:

National Debt History:

Corporate Profits Info: