Category Archives: Money

The Kevlar Bubble

 “Deficits don’t matter,” we were told in the 1980s, as the Reagan Administration started running what seemed at the time to be huge budget deficits ($200 billion!) to defeat the Russians.  We had seen much smaller deficits associated with price inflation in the 1970s (‘too much money chasing the same goods’), but were told not to worry.

Remarkably, it seemed to work.  The Russians were defeated (although, in fairness, the Reagan defense buildup had relatively little to do with it), the economy generally prospered, and prices for consumer goods remained stable.  The Federal deficit moderated, and even came close to running a surplus in the late 1990s.

But since the turn of the century, the government has been running larger and larger deficits.  Under the Bush (43) administration, deficits ran around a half-trillion dollars per year, and the Obama administration introduced the trillion-dollar deficit.  President Trump campaigned that he would not only eliminate the deficit, but would retire the entire debt in eight years.  (In fairness, that was one campaign promise I didn’t take very seriously.)  In fact, deficits under Trump have gone back into trillion-dollar territory.

And yet price inflation has been moderate.  Yes, the government figures understate the case.  But while today’s Federal deficits, as a percentage of GDP, are at least twice what they were in the 1970s, real price inflation has been less severe.  What happened?

One of the most basic equations of economics is:



  • M is the quantity of money in the system
  • V is the velocity with which money changes hands
  • P is a price index
  • Q is the value of goods and services transacted (in some unit of measure unaffected by transient price changes)

So, since about 2000, M has gone way, way up; Q has stagnated, rising very slowly; P has gone up moderately.  V, in consequence, has dropped like a rock.  Money doesn’t change hands like it used to.  It disappears out of the economy almost as fast as it’s created.  How does that happen?

For starters, every year, there are roughly $700 billion in imports that have no corresponding export.  Once one of those dollars leaves the country, it isn’t coming back.  That, in itself, will make a big dent in the effects of a trillion-dollar Federal budget deficit.

Perhaps a bigger factor is the inequality that has overtaken the American economy since 2000.  Another place the money can go to have no further effect for ordinary people is into the pockets of the very, very rich. The rich have relatively little need for consumer goods (how many Lamborghinis can one drive at once?) but will seek to invest their new-found gains to at least preserve their value.  So the stock market rises, independent of the productive values of the corporations on it, and real estate goes up, which causes some incidental problems for ordinary people who want to live in places like New York and San Francisco, but nothing major.

Yes, it’s a bubble.  Bubbles usually pop when people realize that the object of the bubble isn’t returning value and they want their money back.  But the essential difference this time is that the money won’t stop.  As long as there are huge new debts, the money has to go somewhere.  This bubble is made of Kevlar, and so far, is puncture-proof.

About 30 years ago, I read The Great Depression of 1990 by Ravi Batra.  At the time, its essential premise seemed ludicrous: that the very rich would suck all the money out of the economy and impoverish the rest of us.  Yet that’s exactly what’s happening now.  The vast Federal deficits, nominally intended to help the people, are in fact helping the very rich become even richer.

Yet it works, for now.  The Federal government borrows money that doesn’t exist; the money passes through ordinary people, but doesn’t really circulate very much before it ends up in the hands of a big bank and its owners, who effectively sequester it so it can’t do any further damage in terms of price inflation, or the money simply leaves the country, never to return.

It’s a delicate balance.  If you cut budget deficits, suddenly banks and big corporations would have to work for a living, and the stock market would plummet.  If people became more prosperous and traded among themselves, rather than buying imports, money wouldn’t be flushed out, and prices would rise.  And if, as some of the Democratic candidates for President imagine, you mobilize millions of people and pay them union wages to go out and fix climate change, they will find that their new paychecks won’t actually buy very much.

A while back, I entertained in these pages the notion that the economy we experienced was a simulation of sorts that had become divorced from the economy of the stock market and the Federal government.  No, it’s not quite a simulation, but it’s pretty close.


When my wife and I moved into our current apartment in 2003, there were three nearby supermarkets.

The Key Food on Court Street closed a few weeks after we moved there.  It was replaced by a drugstore.  At the time, we didn’t think much about it.

A couple of years ago, the Met Food on Smith Street closed.  It wasn’t the nearest supermarket, but it was close enough, and near a subway station, so it was convenient, and they had good meat.  It now appears that the building will be demolished and replaced with overpriced apartments.

That left the Pathmark, a bigger, almost suburban supermarket in an industrial space by the Gowanus Canal, with a parking lot out front.  But Pathmark is an A&P brand: A&P went bust last year, and the store closed just before Thanksgiving.  (‘A&P,’ short for ‘The Great Atlantic and Pacific Tea Company,’ was one of my earliest childhood memories.  Oh, well….)

One used to be able to take for granted that living in the city meant being no more than 10 minutes’ walk, at the absolute limit, from a functional supermarket.  But not anymore.

Now, there are still plenty of places to buy food:

  • There are a couple of gourmet grocery stores on Court Street, with good produce and really expensive meat.
  • There is a Trader Joe’s on Atlantic Avenue, in a former temple-of-capitalism bank building. Trader Joe’s turns on the notion that if one carefully selects the merchandise, one can have a functional grocery store in a relatively small space.  And it works: about 90% of the foodstuffs we buy come from there.  But the place is maniacally crowded on Sundays and the day before a holiday (or snowstorm).
  • There is a Fairway in Red Hook, about 15 minutes away on the bus. They include a full selection of packaged goods, as well as a full gourmet grocery selection.  But they’re expensive and a bit awkward to get to.
  • And there is the nearest old-school supermarket, the Key Food on Atlantic Avenue. I was in high school when the place opened in the 1970s.  It’s cramped and a bit decrepit.  While it’s a serviceable supermarket, it’s a hike from our apartment.

While we’re not at risk of going hungry, there is no longer one place that we can readily visit that has meats and vegetables and pasta sauce and diet Coke and dish soap and toilet paper, all under one roof, at reasonable prices

While Trader Joe’s has most of the foodstuffs covered, they’re wanting in the packaged goods department.  Some of the drugstores sell detergent and other household items, and cases of soda, but it’s a bit hit-or-miss.

I found that Amazon, of all places, has many of the packaged goods, in larger sizes than the grocery stores (e.g. 27-roll packages of toilet paper), but at competitive prices with free (postal service/UPS) delivery.  It boggles the mind that, someone in a far-off warehouse can box six cans of pasta sauce, and post them to my house, for about the same price (actually a little cheaper!) that I would pay in a supermarket.

The only non-perishables that Amazon doesn’t do well are beverages: bottled water and soda.  I could pay for Prime Fresh, but the extra $200/year over Amazon Prime isn’t worth it.  (Prime Fresh also has groceries—including perishables—for overnight or later-the-same-day delivery.  But having tried them before they raised the price, they’re only so-so at meats and produce.)  But I’ve found other sources for those items, as well.

It used to be so simple, and now it’s gotten so weird.

The Question I Can’t Ask

As a conscientious employer, mindful of the law, I know that I’m not to ask a female candidate for employment if she plans to have children.  (Indeed, I’m not to even recognize whether the candidate is male or female!)  I also am not to ask a candidate, of whatever gender, what his or her plans are five years hence, for various reasons, one of which is that it may be construed as a roundabout way of asking the forbidden question about children.

That’s the law, and I accept it.

But it has consequences, some of them unpleasant.

For some jobs, the employee already has 90% of the skills necessary to do the work when hired.  After some briefing, the employee can be immediately productive, and then can learn the other 10% through a few days’ experience.  For a job like that, the question of whether the employee plans to have children is thoroughly irrelevant.

But some jobs turn on skills and knowledge that aren’t common in the population. A company could hire someone out of college, and invest the time and money to develop his or her talent, including the cost of occasional do-overs occasioned by rookie mistakes.  But it’s senseless to make such an investment without having some sense that the employee is going to stay around long enough for the effort to pay off.

Which brings us back to the forbidden question about having children.  We’re not allowed to say this, but there are some inconvenient truths:

  • Women have babies, and men don’t.
  • As a consequence of having babies, women often leave the labor force, at least for a time.
  • It isn’t fair to hold a new mother to a commitment she made before she experienced the emergency of parenthood.

If employers were able to consider these factors openly, some women would likely not get hired for jobs they were qualified to do, because their potential employers would assess that they might not stay around long enough to make the effort worthwhile.

Since that’s an unacceptable outcome, the law forbids employers from considering whether female candidates might have children.  But the rules, more broadly, prevent employers from assessing the likelihood of a candidate remaining on the job for, say, two years (or whatever duration is relevant to the employer).

This represents a new risk foisted onto employers.  But the employers will not simply accept the risk.  They will adapt their procedures and processes to compensate.  And that’s where the consequences come in.

A big company can invest in ‘process:’ your job is not defined as whatever it takes to accomplish the mission, but what is contained in the four corners of the job specification.  And if you’re qualified under the specification, you’re qualified to do the job.  And anything you know that isn’t in the specification isn’t part of the job, even if you know that it’s been part of the job for eons.  The effect is to devalue experience over a very low minimum, and make employees replaceable.

But that can backfire: in too much of my work, I find myself dealing with the same people I dealt with 20-25 years ago, and we’re both doing the same things we did back then.  The older hands from another time end up doing the bits and pieces not contained in the four corners of the specification, but still needed to accomplish the mission.

A small company can foreswear the general employment market, and hire only people the owner knows, or perhaps a ‘friend of a friend.’  That addresses the owner’s immediate problem, but doesn’t do very much for the employment situation overall.  Or maybe the owner doesn’t hire anyone new at all, makes do with what staff he has, and toughs it out through the busy parts.

Do I mean, from all of this, that the woes in the job market are solely due to an inability of employers to ask a question that, in most cases, shouldn’t be asked?  Hardly.  But it’s one among a thousand rules that, while possibly well-intentioned, end up making life and the job market difficult for everyone.

Riddle me this…

Some observations over the last few weeks:

  • El Paso, on Houston Street, was one of our favorite restaurants for many years.  It was where my wife and I had discussed various ideas that led to me going into business for myself, and of course, we really liked the food.  Last spring, we went there on a Friday afternoon to find the place closed up.  I imagined that perhaps the owner had died or something.  But then, earlier this month, my wife and I were eating in the Village, and one of the waiters at that restaurant had worked at El Paso.  He told us that the landlord had substantially raised the rent, and the restaurant closed.  After lunch, out of curiosity, we went back to the site.  It looked exactly the same as when it had suddenly closed.  There was no trace of a new tenant, and not even a ‘For Rent’ sign.
  • Figaro was a sports bar near my office.  It was a pleasant spot for a business lunch without going too far afield.  At the end of 2013, on New Year’s Eve, I went there for the last time for lunch.  “This is our last day,” the waiter told us.  Their lease was not being renewed.  There was a ‘For Rent’ sign in the window for a couple of months, and then, a while later, an announcement of a sushi restaurant opening last fall.  But fall came and went, with no new place (even though I’d have preferred a sports bar).  Last week, the door was left opened.  The place was a wreck.  The next day, new signs covered the plate glass windows, with the name of the building that the storefront belongs to.  But no ‘for rent,’ no telephone number, nothing.
  • Not far from my office, on Fifth Avenue, is a building that went up fairly recently.  The storefront on the corner is a Chase bank, and the space next to it has been mostly empty for several years.  It has held temporary stores for Halloween costumes and Christmas decorations, and was used for a week for some kind of new product event, but there has been no permanent tenant since the space was built.

I’ve come to the conclusion that the owners of commercial real estate seem to be sitting on their properties, holding out for top dollar.  It seems counterproductive: an empty space not only gathers no revenue, it’s inherently an eyesore.  Get enough of them in one place, and the area–even if it’s midtown Manhattan–starts to look as if it’s going down the tubes.

And then there’s the Radio Shack.  It was a stone’s throw from my office; it saved my ass more times than I care to count as a spot to pick up a cable or a toggle switch or a soldering iron.  It closed at the end of February.  In fairness, it’s too soon to moan about yet another empty space.  But even if the store doesn’t stay empty for very long, I’m sure that whatever replaces the Radio Shack will be nowhere near as useful.

The Creature from Jekyll Island

For the last two weeks, I’ve been reading The Creature from Jekyll Island, G. Edward Griffin’s book about the Federal Reserve System.  I knew, before I read the book, that the Federal Reserve is the US’s central bank, that its origins and operations were shrouded in mystery, and that people rail against it because the US dollar has lost 95% of its purchasing power in the century since the Federal Reserve Act was passed.  And I considered that, if we were as strong and prosperous a country now as we were a century ago, having a currency that rots by 3% per year as the price of that strength and prosperity wouldn’t really be such a bad deal after all.

Some of my other reading suggested that the Federal Reserve, in its original plan, was actually a good idea: since previous busts and panics had their origin in banks getting caught short: a lender of last resort that the banks could turn to would be useful.  Today, the Federal Reserve has taken on the task of pumping up asset bubbles to maintain the illusion of prosperity.  So somewhere along the line, perhaps it lost its way.

No, that wasn’t it at all.

Griffin asserts and documents that the many of the turning points of American history were organized and engineered by what we now call ‘the banksters.’  They had a hand in the Civil War, which in its origins wasn’t really about slavery at all.  (My mother used to tell me, as if reciting from her lessons years before, that the Civil War was primarily about economics, and secondarily about secession and slavery.)  They led us into both World Wars and the Great Depression,  And well before the events of 2008, they had scored multi-billion-dollar government bailouts of failed businesses.

And then I have to wonder:

  • I’ve been led all these years to believe that there was an America past in which free enterprise reigned and a man could succeed or fail on his own wits.  Was that ever really true, or was it all an illusion?
  • I’ve railed against our current President for what I believe are wrongheaded decisions.  And the Republicans rail against him, too.  But I don’t see that the Republicans are actually doing anything to try and stop him, although they have the ability.  And so I wonder: does it really matter who the President is?

Obama’s Right

It was a pathetic bit of a pathetic State of the Union address: a call to American business to raise wages so that Americans would have more disposable income.  But for once, President Obama was actually right.

When I entered the working world, my first jobs paid a little more than the minimum wage when I started.  But after a few months’ experience, the pay went up.  At least in the New York metropolitan area, even basic jobs paid more than the minimum wage.  The notion that minimum-wage jobs were for teenagers just starting out in the work world was really true.

And if you earned twice the minimum wage, you could find a modest apartment that you wouldn’t have to share with roommates.  With a little more than that, company-paid health insurance, and a like-minded spouse, you could even start a family.  (OK, now you’re back to having a roommate,  but it really isn’t the same thing.)

All of this was accessible to pretty much everyone, or at least it seemed that way at the time.

In the past weeks, the Daily News has reported on people working for large employers, receiving the minimum wage (or very close) and no benefits.  One woman had worked for McDonald’s for 10 years and was still earning $8.25/hour.  She must be a rotten employee, I thought at first: how do you work for the same place for 10 years without a raise or a promotion?

But she was hardly alone.

There are many other workers, hardly teenagers, toiling year after year for the minimum wage.  Some of them work for contractors to the Port Authority at the airports, cleaning toilets or hauling baggage.  Once upon a time, these jobs might have been unionized, with benefits and a living wage.  But not anymore.

And the employers can do this because there are hordes of unemployed who’ll be happy to clean toilets if you won’t.

Beyond that, employees who aren’t paid a living wage are often eligible for food stamps.  So part of an employee’s food bill is a cost that the business can now externalize onto the government.

If businesses paid their employees more, such that the employees would be able to pay their own food bills, it would indeed help the economy and break the cycle of government dependence.  In this respect, the President, for once, is right.

Unfortunately, the business that does that will find that its competitors–who didn’t raise the wages they pay–are eating its lunch.

This is not…

Magritte-Treachery of Images

My wife and I were visiting the Museum of Modern Art a few weeks ago, and we encountered The Treachery of Images at the Magritte exhibit.  The words in French read, ‘This is not a pipe.’

The painting is an iconic image; I had seen it before.  I had thought of it as somewhat of a joke.  But Magritte’s reason for painting a beautiful illustration of a pipe with the legend ‘This is not a pipe’ was to remind us that it is a picture of a pipe, and not a pipe itself.  You can’t fill it or smoke it.  It is a simple yet profound truth.

The thought came back to me yesterday when I heard on the news that the Dow Jones Industrials closed at 16,479.88, a new record.  We like to believe that a surging stock market is a sign of prosperity.

But it isn’t.  The economy is still doing rotten for most of us; the official unemployment level has dropped to around 7% only because people are giving up on working in droves.

And price inflation is still very much with us: one of my little pleasures is Chewy Chips Ahoy cookies.  A year ago, there were 28 cookies in a package; the most recent package I opened, a couple of days ago, had 23.  The price, of course, has remained unchanged.

If I eat five cookies for an evening snack (belated dessert?) instead of six, it’s probably better for my waistline.  But does that count as a hedonic adjustment?  In other words, it’s still an evening snack, even though it’s smaller, so the effective price of the cookies hasn’t changed: I still get about 4.5 evening snacks out of a package.

But then again, if I had six kids, the difference between 23 and 28 cookies would be glaringly obvious.

The Dow at 16,479 is a datum of prosperity.  A picture, perhaps.

But it isn’t the real thing.

Just like the pipe….

How I Learned to Stop Worrying…

No, that isn’t true.

I’m still worried, just as much as I ever was, if not more.

What made last week’s default debacle particularly scary was that, unlike August 2011, we now know that President Obama will handle the situation like a petulant child.  Rather than encouraging the people to be calm and face the problems together, he would happily incite nationwide riots because, after all, a good crisis should never go to waste.

I was hoping that the Republicans would be able to do something about Obamacare, the worst public policy decision since Prohibition.  But other than one little nibble (that we would explore the possibility of verifying one’s income before granting a subsidy), Obamacare stands.

And what is this business of ‘raising the debt ceiling until February’?  The debt ceiling is a number.  You raise it by a trillion dollars, or a billion dollars, or 75 cents.  But thus time it’s different: Congress has abdicated its authority under the Constitution and enabled the Treasury to borrow however much it needs for the next four months.

The movement to defund Obamacare was led by the Tea Party Republicans, who believe in a constitutional republic with a limited government.  (How quaint!)  The Republicans in general got hosed, even though most Republicans, from what I can tell, are as much big-government statists as the Democrats.  (Indeed, in last year’s Presidential election, it was hard to tell the difference between Romney and Obama, except that Romney would work to undo Obamacare… maybe.)

In the end, it worked out spectacularly well for the President: no substantial changes to Obamacare, no restrictions on spending, debt ceiling increases by time rather than money, the Tea Party excoriated as lunatics, the Republicans weakened, and the chance to repeat the lesson three months from now if anyone should dare to challenge these issues again.

Maybe it’s time to give up.

Maybe deficits don’t matter after all.  Maybe debt is a badge of honor.  It’s contrary to what I was brought up with, but maybe the world has changed, and what I was brought up with is now wrong.

I can’t imagine how this would work out, other than a totalitarian socialist utopia in which everyone is equally shabby, or else chaos, destruction, and death.  But the problem may be my lack of vision.

It may be time to learn to stop worrying and love the debt.

But I’m not ready to admit that.

Default, Again

For my part, there appears to be an eminently reasonable approach to the stalemate that has resulted in the Federal government shutdown: postpone the Obamacare penalty for not carrying insurance for one year.  People would still have the option to buy the insurance, and receive subsidies (perhaps reducing them a few ticks to balance the penalties that won’t be collected).  It would balance the Administration’s unilaterally postponing the Obamacare employer obligation for one year.  In fact, I believe that House Republicans proposed such an approach, but Harry Reid, the Senate Majority Leader, rejected it out of hand.

Meanwhile, on top of the government shutdown (which has in fact left about two-thirds of the government up and spending), we now face a deadlock over the debt ceiling.  We went through this a couple of years ago, and if we had adults in charge, I wouldn’t be particularly worried.  If the government cannot borrow money, the 14th Amendment means that its debts are sacrosanct.  The government must pay its debts, which includes paying interest and principal on its bonds, and paying contractors and employees for services rendered.

Everything else is fair game.

If adults were in charge, they would follow the 14th Amendment, pay the debts, then prioritize the other expenses (aid for states and localities, ongoing procurements and government services that can be shut down, foreign aid, and–the elephant in the room–entitlements) and pay what they can from the remaining funds.  It’s what the rest of us do when we have a case of the shorts.  In fairness, the immediate effects would not be good for the economy.  But we would be facing reality, which is the first step to actually fixing things.

Alas, we don’t have adults in the room anymore.  One of the disconcerting parts of the Syria debacle a month ago is that the only person who seemed to have his head on straight was Vladimir Putin.  Our President and Secretary of State came across as damned fools.

That’s the real scary part.


I burst out laughing when I saw today’s Daily News headline:

House of Turds

But I’m not sure that House Speaker Boehner deserves the honor he is accorded here.  As far as I can tell, he’s an establishment politician who is somewhat embarrassed by his colleagues who are standing up for their principles and exercising their authority to actually change something.  (After all, it wouldn’t be good for angry Democrats to stand up for their constituencies and work to undo bad Republican policy.)

In any case, the House, driven by Republicans, and the Senate failed to come to agreement last night, and as a result, the Federal government is now ‘shut down.’  Well, not really: the mail will still be delivered, the politicians will still get paid, and essential services are still running.  But the national parks are closed across the country, and some 800,000 Federal employees are temporarily unemployed.

Whom do you blame for the government shutdown?

The direct answer is obvious: the House Republicans, of course.  They could have gotten with the program and kicked the can down the road, as has been done a hundred times before.  But the pollster’s question is loaded: it implies that the Federal government shutdown is a something to be blamed for.

To be sure, it’s not ideal, and not a desirable outcome.  But it’s the first break in our time from the pattern of yowling and wailing about some problem or another and then resolving to change nothing.  At least they’re trying.

Meanwhile, my mailbox is stuffed with missives from the Obamoids about the rotten Republicans who ‘want to prevent 40 million people from gaining affordable, accessible health care.’

No, that isn’t it at all.  It’s that Obamacare insurance is not ‘affordable;’ it’s unclear, given shortages of doctors and the rotten medical care in this country (unless you’re in the 1%, going to a hospital is only marginally nicer than going to jail), how ‘accessible’ care will be; and maybe a third of ’40 million’ will benefit, while the rest of us are bankrupted in the process.  Meanwhile, as a weekend bonus, employers all over the country are cutting their staffs and their hours so as not to have to pay for it.

And for those who say that Obamacare is ‘the law of the land,’ settled and beyond debate, I have three words:

So was Prohibition.

Obamacare: For Real?

Next week, the Obamacare health care exchanges will open up, enabling Americans to buy health insurance at allegedly reduced premiums.  An op-ed piece in the Daily News urged people to look up how much health insurance would cost before complaining.

OK, I’m game.

For comparison, the health insurance I buy for my company has a premium of $575/month for a single person.

Under Obamacare, there are four grades of coverage: ‘platinum,’ ‘gold,’ ‘silver,’ and ‘bronze.’  The grades are defined in terms of what fraction of the aggregate medical costs of the covered population they will pay: ‘bronze’ pays 60%, up to ‘platinum,’ which pays 90%.  I don’t have any information about how this resolves into practical details like co-payments, or how much one will have to pay for a hospital visit, and I don’t have a real basis for comparison with my current insurance.  (I asked my insurance agent  for a figure for comparison, but didn’t get an answer.  I suspect, though, that my current insurance is somewhere between ‘gold’ and ‘platinum.’)  There’s also a ‘catastrophic’ level, which is only available to people under 30.

There are nine insurance providers offering Obamacare policies in Brooklyn; for the purposes of this table I took the median premium as a middle-of-the-road value.

Level Full Premium/month (median) Net cost after subsidy/month
$40k/year income $25k/year income
Platinum 577 529 356
Gold 486 438 265
Silver 419 371 198
Bronze 340 291 118
Catastrophic 218 218 218

In fairness, many of the provisions of Obamacare that will drive up premiums in other places (no exclusion for pre-existing conditions, equal premiums for men and women) were already law in New York State.  So I wasn’t expecting much change from the status quo, and I was right.

What about not carrying insurance?  In 2014, the penalty will be $95 or 1% of income, whichever is greater.  For an individual with an income of $40,000/year, that works out to $33/month, well below even the ‘catastrophic’ plan.  In 2016, the penalty will be $695 or 2.5% of income, or $83/month for a $40,000/year income: still cheaper than real insurance.

The one good thing that I can see, for where I live, is that an individual can buy comprehensive health insurance for a premium that is comparable to an employer’s group plan.  (A while back, when I was between policies, I asked about the premium for an individual health insurance plan for myself and my wife.  The agent was ashamed to tell me.  “Be brave,” I told her.  Her shame was justified: the premium was $2500/month.)

But even with subsidies, it’s still God-awful expensive.  And I still don’t understand how making everyone pay for it–mobilizing more dollars to pay for the same finite resource–will not raise costs through simple supply and demand.

Getting Gigged

Yesterday, I came across…

It’s a marketplace where people offer services for a base price of $5.  Of the $5 the client pays, the Web site keeps a buck, and the seller gets $4.   At first, I thought it was rather cool: it’s a way for someone to go into business and tap a worldwide market without upfront costs.

The site included a link to an article from a Wired blog about ‘the Gig Economy’ and how it is the wave of the future:

Slowly but surely, a revolution is taking shape –– an entirely different kind of economy. The labor force of new entrepreneurs, which we call the Gig Economy, is growing rapidly around the world and could soon represent as much as 50 percent of the U.S. workforce.

It almost sounds like fun.  But what sort of work can one get done for $5?  Flipping through the site, some samples…

  • I will make your PDF into a flash flipbook for $5
  • I will do a book cover or a movie poster for you for $5
  • I will record your voice over message in the awesome voice of Sean Connery for $5 [presumably a close approximation….]
  • I will write a high quality, 300 word article in 24hours for $5
  • I will type up to 2000 words/6 to 7 pages or audio transcript any video max 10 mins for $5
  • I will translate 1000 words from English to Spanish for $5

Ouch.  At the Federal minimum wage of $7.25/hour, $5 buys a little over 40 minutes of effort.  The $1.60 Federal minimum wage of the 1960s, adjusted for inflation, is about $10 in today’s dollars: $5 would buy a half-hour.  But Fiverr keeps a dollar for itself, so one would get less time: a little over a half-hour at $7.25/hour, or 24 minutes at $10/hour.

Most of the services described on Fiverr would seem to require between 15-30 minutes to complete, given someone with the expertise and the necessary tools.  So $4 for a task works out to an hourly rate of $8-16 hour… if one has a steady stream of tasks.

But then again, there are some parts of the world where $8-16/hour is actually pretty good.  And global labor arbitrage is clearly at work: while a plurality of the sellers on Fiverr identify themselves as being in the US, there are many sellers from elsewhere.

So this is what the Gig Economy means: the chance to compete with hungry people from all around the world, doing dreary tasks that barely pay enough to keep the lights on.  (And any task becomes dreary if you have to do it over and over again to survive.)  Unlike normal employment, where your boss is responsible for assigning you tasks, and accepting that you might still be on the clock even if you don’t have a task (and even if you have to go to the bathroom!), in the Gig Economy, if you don’t have a task, the meter stops immediately.

Heaven help us….

CareCredit is Hazardous to Your Health….and WALLET!!! Avoid them at ALL COSTS!!!

3 years ago, I was having dinner and the fork happened to contact my front teeth.

In such a way that the contact my tooth made with the metal sheered off a good slice from one of my front crowns.

The crowns are years old and my dentist and I were talking about replacing them.

I went back to the dentist at my earliest opportunity to see what he could do for me…

WHAT a mistake, going back to him.

The tab for the crowns was 4 grand. He told me he also needed to replace the two lateral incisors being there would not be a “match” fot those teeth with “just the crowns replaced.”

I’d never heard of such a thing.

I told him I’d pay him on a payment plan if I chose to go through with the work.

Here is where the road gets funky:

He told me “We don’t do that anymore because people skip out without paying. You can’t trust people anymore.”

I have been a regular client of his since 2007 — He knows I have staying power and I am never late with paying. yet he is insisting more or less I’d be guilty by association.

Then they tell me how easy it is to pay for the work via CareCredit — they call CareCredit the poor man’s Visa card. I was pressured into the work and was more or less told that this was the only way to pay for the work.


pay for it all UP FRONT…and suppose you don’t like the work or something happens during the course of the work — the crowns are not to you liking, you develop some sort of infection, have some type of extreme discomfort after the work is done, etc — how do you get a refund? You’d have to chase CC to get it, and provide a papertrail — a big headache for you.

Do you pay for a home repair in total before the work begins? DO you pay for an important piece of apparel before the item arrives and is in your hands? Do you pay in full for a car before its delivery date?

This is how CareCredit gets you — when you have an animal that’s critically ill, a fairly large medical cost to pay for or some other fee that’s a good chunk of change — they more or less take advantage of your heartstrings or whatever it is you want to call it and more or less give you the idea that this is the ONLY way to pay for the service otherwise you are out of luck.

I never should have done it.

The total for the work was about 4 grand. That was 3 years and 3 months ago. I paid CC about $150 a month….multiply that times 39….

And there a balance of 3 grand on my card now.

So how much did I pay for the work??? And how much will I pay for the work when all is said and done???

He got his 4 grand…and CC makes a tidy sum from you paying the minimum.

(I signed up for CC in anticipation of getting a full time job soon and then I’d pay off the whole card when I had a chance. Hahaha. fat chance and hard cheese for me, eh?)

Bro signed up for CareCredit when his dog took a turn for the worse. This was late last summer; the total for the vet’s was somewhere in the 4 thousand dollar range. Bro will be paying that card off forever. He will be able to pay for the critical care in that vet clinic for everybody from there to Albuquerque by the time “he finishes paying for the card.”

He is in debt up to his eyeballs and has had his pay garnished. So you can see CareCredit will take anybody who is a warm body.

CareCredit needs to be burned at the stake, as I said.

You are pressured into signing on with them when you are in some sort of crunch or heart wrenching situation.  They don’t care how they get you, they’ll get you any way they can.

IF you encounter a situation where your doc, a dentist or a vet, etc. tells you to pay via CareCredit, tell them you will put the whole amount on your own credit card….

And if the vet, etc REFUSES to let you pay via your own card and tells you CC is the only way to go?

Get your ass out of there as soon as possible. Don’t give that person one red cent.

I also would not doubt that the dentist, vet or whoever it is who signs up for CareCredit gets some sort of a bounty or bonus for every body and scalp that they drag in for the card company. WHy else would they be utilizing CareCredit’s services? Most of us have our own credit cards.

CBS? What’s That?

For the last three weeks, CBS (Channel 2) has been unavailable on Time Warner, the local cable TV provider for much of New York City.  Not a problem, I said to myself: if I actually want to watch a CBS program, I’ll dig up the antenna that I last used when Sandy hit and the cable went out.

It’s been three weeks now, and I still haven’t hooked up the antenna.  I also haven’t felt the need to try to watch CBS over the Internet, although I understand that CBS has blocked access to its television programming on its Web site for Time Warner customers.

Yup, they’re really that useless.

In fact, there are only two programs that I watch on the broadcast networks anymore: NBC Nightly News, because I feel I have a duty as a citizen to see the mainstream media take on the world (not that I necessarily believe it anymore), and America’s Funniest Home Videos, on ABC, because, well, it’s funny.  There are a couple of favorites on the cable networks, but the only show that I make it a point to watch is Ice Road Truckers: when that finishes in a few weeks, I could probably give up on television entirely.

My wife mostly watches the half-dozen Korean channels available on cable.  Much of the programming has English subtitles.  (I’m ashamed that, after being married twelve and a half years, I can still only say about ten things in Korean.)

The other night, we watched a documentary about a railroad line.  The video takes us from town to town, interviewing people along the way: the athletic young couple traveling cross-country on bicycles; the old ladies who live by the station that recently closed, who watch the trains go by; the local market that’s not as busy as it used to be because the young people prefer to shop at the supermarket.

It’s sweet, and it’s human, and nothing like it is on American television.

I’m sure that Time Warner and CBS will make up at some point, and Channel 2 will be back on cable.  After all, in the fall, it isn’t a proper Sunday without NFL on CBS.

Or maybe they won’t.

I don’t care.

End of an Era

I read in the paper this morning that my alma mater, the Cooper Union, will start charging tuition starting with the class entering in 2014.   The full-scholarship policy, under which I paid $300/year when I was a student, had lasted for more than a century, but not anymore.

The official tuition is $38,500/year, but students will still receive a half scholarship, and have to pay about $20,000/year.  (Books and dorm space, of course, are extra.)  It’s half of what NYU charges, but it’s still a lot, and if you have to borrow to finance your education, you could end up with a debt well in excess of what you might expect to earn in your first year after graduation… in a normal economy.  You could buy a modest house for that, in many parts of the country.

I used to think that Cooper Union was special, and that I was lucky to be able to go there.  But now, they’ve become just another college.

Not that different from NYU up the street.

OK, maybe cheaper, and with a different curriculum.

But just another college.

Two to Tango

My conservative ex-boss sent me this item:


In fairness, the first statement is not entirely true.  Before the Sixteenth Amendment brought us the Federal income tax, there were state income taxes, and certainly other Federal taxes.

But, indeed, we did have all of those things with fewer taxes and less onerous government than we do now.  What happened?

Some of the items on the list–schools, roads, streets, and subways–were the province of local governments, doing what is a good local government’s first job: provide an environment in which commerce can flourish.  New York City financed the first subways (which were built and run by private firms) not to provide transportation to the poor, or for a ‘greener planet,’ but because the city was becoming overwhelmed with traffic congestion, which was getting in the way of business.

Other items on the list were in the domain of the private sector.  The railroads and the power grid were built with private investment.  (Yes, there was also some government help, and the railroads were overbuilt as a consequence, but the successful railroads turned a profit and thrived… until later in the century.)

A century ago, in general, the private sector knew that it had to work for a living.  They hired millions of workers and literally lit up our world.

Today, the private sector has gotten lazy.  They have learned that it’s easier to seek favors from the government than to actually do something.  Banks used to earn their living by taking calculated risks and lending to businesses and individuals.  Today, it’s easier to sit on the money, or park it at the Federal Reserve.

So while it’s appropriate to rail at government policy for not getting us out of our stalled economy, it takes two to tango, and the private sector has become as much of a problem as the government.

And what do we do about the lazy private sector?  Alas, I have no idea.

Preparing… for What?

I have the feeling that there is something terribly wrong in the world.  I don’t believe I’m alone.

I could start with the Federal deficit: every day the government spends about $10 billion, of which maybe $6.5 billion is funded by taxes.  The government must then borrow approximately $1 trillion every year to fund the rest.  There is no sign that tax revenues will increase  substantially (perhaps a few ticks, but not enough to make a dent) or that spending will drop (everyone loves to talk about it, but no politician actually wants to cut spending) to make a difference.

Debt serves a useful and necessary purpose an a productive economy: it enables people to do things today on the premise that they will be paid for by future productive activity.  And as long as the new debt does not outstrip the rate of growth of productive activity, the whole system floats skyward and everyone is happy.  Bad things happen, as they do now, when debt grows and productive activity is stagnant.

The debt problem is causing trouble all over the world.  The Cypriot parliament was considering a measure this week to tax people’s bank deposits (not just the interest, but the actual amounts on deposit) to help fund a bailout.  As of now, the thought is to tax only large deposits.  Alternately, Cyprus could end up being the first country to be tossed out of the Euro zone.

Meanwhile, back in the US, the government is becoming increasingly authoritarian.  If the powers that be wanted it, I could get locked up at any time and the key thrown away, on suspicion of being a ‘terrorist.’  And who exactly is a terrorist?  A terrorist is anyone deemed as such by our leadership.

So what can I do about it?

It’s beyond my power to change politicians or public policy: I can write to my elected representatives, but I’m better off saving my breath to cool my porridge.  I can vote for the other guy, but even if he wins, nothing changes.

OK: what can I do to save myself?

I know the conventional prepper wisdom: move out to the boonies; arm yourself; stockpile food, water, and ammunition; don’t tell anyone your plans, unless you’re positive that you’re in the company of like-minded individuals.

But I bristle at some of these suggestions: I’m a city boy, always have been, and was bored to tears–literally–living in the suburbs of Pittsburgh, Pennsylvania; I don’t know how to shoot and don’t have time to learn; I live in a relatively small apartment without very much storage space.

And then I ask, what am I preparing for?

The prepper answer is some kind of extended public emergency, with no electricity, no banks, no supermarkets, no police, no ATMs, for a period of weeks or months, if not longer.  It is typically accompanied by widespread destruction, either as a cause or a consequence of the emergency.

But is that a realistic assumption?

I look back through history for an event in which civilization in a region simply shut itself off in a period of days or weeks and didn’t try to restart itself.  I’ll exclude events resulting from an attack by a foreign military, and I’ll consider events in the last 200 years.

I was coming up empty until just before I wrote this, but there is an example: the Khmer Rouge regime in Cambodia, which emptied the cities and forced everyone to work in the fields.

As much as I wonder what our government may be up to, I don’t see that as a realistic alternative.

Kicked Again

In the first hours of the New Year, Our Leadership enacted a plan to address what had been looming over our heads as the ‘fiscal cliff.’  Yeah, right.

The essential problem of our government is that it spends far more than it takes in, to the point where the stability of the economy is now in question.  To address this, the government must tax more and spend less.  No, it’s not one or the other: we’re in a deep hole and need to do both.  And faced with circumstances that would lead to precisely that outcome, out leadership punted.  Yes, there will be some tax increases, and the ‘payroll tax holiday’ is over.  But there will be no real spending cuts, at least for now.

Worse, the stage has been set for an ongoing soap opera, with the debt ceiling, the deferred spending cuts, and God knows what else rising periodically out of the ooze and requiring urgent negotiations to forestall disaster.

Can someone tell me how this will create real jobs?

God Bless Us Every One….

Last night, I found myself watching an episode of Sliders on the tube.  This time, Our Heroes found themselves in a world where the commercial aspects of Christmas had taken over, and people were enticed by subliminal advertising into a lifetime of literal debt peonage.

The episode aired for the first time in 1996: not that long ago, but the world has changed so much since then!  We don’t have literal debt peonage, but we’ve come awfully close.  The desperate characters that stood out in the 1990s seem to reflect all of our lives now.  And while subliminal advertising is still illegal (at least I think it is), that’s hardly a problem as we have so much overt advertising coming at us nonstop.  In 1996, the Internet was still mostly a curiosity, something that you experienced while sitting at a designated machine, typically over a telephone line.  (Remember them?)  Today, we have Web sites and blogs and e-mail, all laden with the message to buy! buy! buy!!!!

I had missed the first part of the episode and wanted to watch it again.  It’s available, on Hulu Plus, for the low low price of $8/month, along with piles of other videos.  I know the racket: yes, you can cancel any time, but somehow you never get around to it.  And I have little enough time to watch videos in any case.

I mostly missed Christmas this year, trying to meet deadlines in the face of constant interruptions.  The decorations are up in my office building and in the lobby of my apartment building, but I didn’t have time to clear out the junk and set up a Christmas tree.  The weather hasn’t helped: with lows in the 40s for most of December, it hasn’t felt like Christmas.  And last week I had a nasty head cold.

Still, I should count my blessings: I’m employed, able to keep the lights on and a roof over our heads, and fix a nice Christmas dinner.   My wife keeps me company and puts up with my bad moods.  Tonight, she insisted that we go out for a walk: it felt good to get the blood moving.

Is this what I thought my life would be like in 1996?

Alas, no.

In any case, Merry Christmas to all, and to all a good night….

End This Depression… How?

A while back, prompted by a comment on this blog, I read the Paul Krugman book, End This Depression Now!  He argues that a large Federal stimulus is needed to push the economy out of the doldrums and get people working again.

Well, maybe.

I agree with some of his premises:

  • The economy is in a liquidity trap: even after driving interest rates to zero, there is insufficient demand to support full employment.
  • One of the immediate causes of this liquidity trap is that everyone is trying to save and get out of debt at once.  Production, in and of itself, is pointless without consumption.
  • The Federal government has room for more deficit spending before the danger of inflation sets in.
  • A small amount of inflation might actually be a good thing, as it means that debts would be repaid with cheaper dollars.

So let’s borrow (it’s OK, it’s from the Federal Reserve, who will never ask to be repaid) and spend a couple of trillion dollars to boost the economy!  Right?

Alas, I don’t think so.

  • Between existing government programs and the Federal Reserve’s ongoing quantitative easing, we’re already loosing trillions of dollars into the system, with nothing useful to show for it.
  • A Keynesian government stimulus is supposed to vary with the overall state of the economy, to fill in for ‘missing’ consumer and industrial demand.  But we’ve had the spigots stuck on ‘wide open’ for years, blunting the effect of additional stimulus.
  • Historically, before we tried to regulate the economy, we had cycles of boom and bust.  The busts, although painful, served a necessary purpose, as they forced people to reallocate resources from useless endeavors into useful ones.  But our economy has gotten to the point where it runs on useless endeavors.  Republicans rail at pointless government regulation, and to some extent they’re right.  But millions of jobs and billions of dollars are invested in such pointlessness.  (Not that all government regulations are pointless: one of the further difficulties is recognizing the pointless ones.)  Reallocating away from such efforts will require an agonizing re-appraisal, which will get worse the longer we put it off.
  • One of the main causes of our employment problems is that employers, in the name of cost-cutting, have turned away from actually employing people, as far as possible.  If you can get a machine to do the work, so much the better.  Failing that, outsource it, leaving the dirty work of actually hiring people to others.  (And if those people are outside the US, it doesn’t matter.)  I can’t see how a renewed government stimulus will change this trend.
  • One of the practical purposes of deficit spending is to tide people over until the economy begins to grow again.  It’s not clear when, or if, that will actually happen.  There is no job fairy waiting for us to change policies.

Alas, I’m back where I started.  I don’t believe the government can ‘fix’ the economy.  The best it can do is to invest in infrastructure, but this will not magically get the rest of the economy buzzing.  Under these circumstances, the best thing for the government to do is to try to moderate its deficits by raising taxes and cutting spending, to prepare for a future eventuality more dire than our current circumstances.

Over the Cliff

Our leadership in Washington is now contemplating how to ‘avoid’ the ‘fiscal cliff’ at the end of the year, when, if nothing is done, taxes will rise some $2000 on the average American household, and the Federal government will face actual budget cuts.

Awwww… poor babies.

It’s true that nobody likes paying taxes, and even fewer enjoy a tax increase.  And the tax increase that will bite most Americans is the end of the ‘temporary’ cut in the Social Security payroll tax, which will itself cost the median American household about$1000.

But the intent of that tax cut was to stimulate the economy through consumer spending.  It didn’t work.  When I try to do something, and it doesn’t work, I stop doing it.  But I guess that the ‘temporarily’ lowered Social Security tax rate has become yet another entitlement.

The other part of the ‘fiscal cliff’ is a reduction of some 10% of discretionary spending.  Other than an adjustment to Medicare reimbursements, entitlements aren’t touched.  Again, nobody likes budget cuts, but I can’t believe that the Federal government will roll over and die because of a 10% cut.

Yes, we need to raise taxes on the rich.  The economy, as it has functioned for at least the last ten years, has worked to transfer money from everyone else to the very richest.  If we continue at this rate, we will have regressed to a feudal state in another generation.  It’s reasonable, in this context, for the government to redistribute to maintain balance.  But do not believe, for a moment, that raising taxes on the rich will solve all our problems, or provide license for yet more government spending.  We’re still very badly out of balance.

President Obama, for his part, is doubling down on the crisis, asking Congress to delegate to him the power to raise the debt ceiling, and allocate more stimulus spending.   No, that won’t work either.  We still have a Constitutional government of checks and balances.  We worried about an overreaching executive under President Bush, and are now learning that Democrats can do it too.

Will doing nothing and ‘going over the fiscal cliff’ be pleasant?  No.  But I can’t see how it will be any worse than the power grabs and kick-the-can-down-the-road schemes in play now.  The job fairies are will not shower their employment pixie dust on us if we extend the Bush tax cuts for two more years.  This is because there are no job fairies.

Until our leadership comes up with a real plan to bring revenues and spending back into balance, the fiscal cliff seems the least painful alternative in the long run, as it at least represents an effort to balance revenues and spending.

Tax Breaks for Offshoring?

One of the topics of the Presidential debates, and of discussions on this blog, was tax breaks that companies get for moving their operations overseas.  Are there really such things, such as would encourage businesses to offshore themselves and ditch their US work force?

As far as I can tell, as far as an obvious tax break, no.  There is no US program that will give a business a tax credit for, say, building a factory in Bangladesh.  But there are benefits that come out of the normal functioning of the tax law:

  • US taxes on businesses are based on profits after expenses.  The law generally gives wide discretion to businesses on what is considered an appropriate business expense.  Under current law, the expenses incurred in moving one’s operations overseas fall into that category.  They’re legitimate businesses expenses and may be deducted from revenue when calculating taxable profit.
  • When a US business earns revenue overseas, the resulting profit should be taxable in the US, with an offset for whatever foreign taxes were paid.  What actually happens is that, as long as the revenue and profits remain outside the US, the Federal government has no cognizance of them, and they remain exempt from US tax.  Apple, for example, has billions of dollars overseas that it will not bring back to the US because it would be immediately taxed.

This latter opens up its own cans of worms:

  • When a multinational business operates in the US, it may be able to rearrange its finances to that the profits from its US operations appear to have been earned elsewhere.
  • If the money is ‘out there in the world’ and not subject to US tax, there are a galaxy of international tax-avoidance schemes by which it can be further hidden away.

I’m not sure what can be done to address these items.  You could say that the expenses of moving one’s business abroad are not deductible.  Indeed, President Obama proposed such a law, but it was defeated in the Senate.  But how does the government distinguish between moving one’s business and expanding it?  Alternately, rather than relocating its operations abroad, it could simply close its operations in the US and contract out to a foreign firm.  (There are no Apple factories in China: Apple products are made by Chinese firms like Foxconn.)

I have even less clue as to what to do about the second issue.  No politician could survive the wrath of Big Business for trying to collect taxes from US firms on foreign operations.  And again, the businesses could rearrange themselves to maintain the exemption.

The only thing the US could do is to reduce taxes and hope that business stops playing tax games, figuring that it’s cheaper to simply pay up.

Yeah, right.  It’s hard to be cheaper than zero.

All the Hidden Taxes

As we head into the last laps of the Presidential election,  it seem appropriate to consider how our tax system is structured.  The people who argue that the tax system is too complex are correct, but not for the reason that they think.  The marginal tax on income is higher than we think because of the large number of other taxes that we pay.  Pigouvian taxes, like the taxes on cigarettes and liquor, raise a surprisingly small amount of revenue, yet they are the ones that people feel most strongly (and feel most strongly about ) because they are rapidly passed through to the customer.  I like to joke that the truest market basket that we can use for the cost of living is ten gallons of gas, a carton of Marlboros, and a case of Bud or bottle of Jack Daniels. 

One tax that I dislike is tax on unemployment compensation. I’ve never qualified for unemployment compensation, but taxing it seems to be mean-spirited at best, and it doesn’t raise that much money. If I buy insurance against nearly any loss, I am not taxed when the insurance company pays me for my car being totalled or my house being damaged.  At the same time, I also believe that the amount that is charged for unemployment insurance should be much higher, and that people should be able to opt out.  It should be self-funding, not something that is largely dependent on federal funding.  Unfortunately, this means that unemployment insurance rates would either have to go up or people would need to work longer to qualify for it, and the amount of time that they would receive benefits would be reduced.

Another hidden tax is the increasing reliance that towns have on various fees, like the $150 ticket for that red-light camera.  What most people don’t know is that the revenue is split between the camera operator and the town, and that’s a lot of the reason that the ticket is so expensive.  If you have a good volume of traffic, as Washington DC does, the ticket is fairly cheap because most people won’t fight it and a lot of people will run the light or speed.

Another interesting tax is the ability to buy a deferred verdict for your first misdemeanor or traffic violation conviction in some jurisdictions.  One pleads guilty, pays the fees and fine, and if you keep a clean record for six months, the guilty verdict is not entered and it is effectively suspended until then, unless you get picked up on another charge.  The people who would benefit most from this are the least able to pay the fines, and if you need a payment plan, it costs you $35 extra.  There are opportunities to work off one’s fines at $10 an hour, but that doesn’t do you any good unless you have a day or days off during the week.  Work crews do not go out on weekends.  If you are booked into the county jail, it costs you $30 to be booked, though that fee is refunded if you are found not guilty on the charge.  A lot of arrests in my town are actually just the issuance of a summons. The county jail has about three times the number of inmates that it was built to accommodate. 

I don’t expect the reduction in FICA taxes from 6.2% of income up to $106,500 to 4.2% will survive into 2013, and we’ve already seen a reduction in the maximum contribution to health savings accounts from $5000 to $2500 to health savings accounts effective in 2013.  I believe that 2010 saw the removal of over-the-counter drugs from the list of items that you could use the account to reimburse your costs.

I liked the “Making Work Pay” tax credit that was available in 2009 and 2010 more than the FICA tax holiday because it was a lot cheaper and the greatest amount of the tax cut went to people who made $60K or less if you were single.  It phased out above that level. You needed to make something like half-time minimum wage to get the maximum amount, which I think was $800, and everyone would get $800 ($1600 for married filing jointly) until they hit the phase-out amount for their filing status.  I had the pleasant surprise of the IRS telling me that I qualified for a couple of hundred dollars for the “Making Work Pay” tax credit with my 2009 return.  I had figured that I wouldn’t be eligible for it, so I didn’t bother to research it.

One thing that people often don’t understand is that tax deductions aren’t worth what they think that they are.  Suppose that I have $10K in itemized deductions. I’d get $5950 for the standard deduction in any case, so I save only about a thousand dollars on my federal taxes compared to not having the deductions.

The coming thing will be to broaden the tax base.  Rates won’t change, but taxes will increase.  

Bad Medicine

Last Thursday, the Federal Reserve announced that it would embark on a program to buy $40 billion of mortgage-backed securities every month until the economy improves, and hold interest rates near zero through mid-2015.

And how will that help the economy in general, and stagnating unemployment?  As near as I can tell, it won’t.

The point of buying ‘$40 billion of mortgaged-backed securities,’ of course, is that nobody knows how much they’re really worth, other than that it’s far less than $40 billion.  The intent is to make the banks whole from their bad investments of a few years back.

In a normal time, the banks might turn around and lend the money to consumers and businesses, encouraging demand, employment, and economic growth.  But they haven’t done that: they’ve found it preferable to simply sit on the money, and perhaps lend it to the government.

The other entities that might hold mortgage-backed securities probably have even less interest in lending to ordinary people and businesses.  In other words, the rich get richer, and all the rest of us get screwed.

If the money from the Fed’s quantitative easing efforts made it out into the general economy, the result would be massive inflation: the classic result of more money chasing the same goods.  But the reason we haven’t had runaway inflation so far is that the money has been kept out of the ordinary people’s economy.

So a fat lot of good it does us.

The beatings will continue until morale improves.

‘You Didn’t Build That’

A few weeks ago, President Obama made a speech in which he remarked:

     If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business — you didn’t build that.  Somebody else made that happen.  The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

Well, I’ve got a business, and I most definitely did build that.  I’ll freely admit that I stand on the shoulders of giants: I did not build the Internet, or the power grid, or the roads or bridges myself.  But many other people grew up with those same things.  Most of them haven’t built a business.  So yes: my business, my little piece of the world, yes, I did build that.  (Also, many of the things that Obama cites did not come from the government.  That great teacher you knew as a child may have been in the public school, but it was his characteristics as an individual–and not as a member of the school system–that made him great.  And the Internet was originally developed by the government as a communication system for the military, and not as an engine of private profit.  It was private enterprise that built it out into the Internet we all know and love.)

All of this would be water under the bridge, except that yesterday, I went with my wife to participate in the Labor Day Parade.  She’s a member of the Screen Actors Guild, which merged earlier this year with the union representing television and radio performers to become SAG-AFTRA.  We had to report on 44th Street, in an area with other theatrical unions: Actors’ Equity, the Musicians, the Stagehands.  The Steamfitters’ motorcycle club roared up the street to take their positions in the parade.

Many of the unions in this country were founded about a century ago, in the 1890s and 1900s.  And it’s useful to remember how they came to be.  It was time of vast productive energy: many of the things that we take for granted were built during that time.  And many of the company owners and bosses were, well, rotten.

And so the workers banded together to say, in effect, ‘you didn’t build that.’  And, unlike the bluster from our President, it was actually true: while finance and management are necessary ingredients for a successful enterprise, at the time, things didn’t get built unless you had the manpower to build them.

It was a rainy morning, and shortly after we stepped onto Fifth Avenue, the clouds let loose with a drenching downpour.  My wife and I had brought umbrellas, and a sixtyish woman latched onto my arm to get a little dry space.

“This seems like some kind of a punishment,” she remarked.

“No,” I answered.  “We’re standing with the union.  There was a time in our history when standing with the union was a little bit dangerous.  We need to remember that.”

We need to remember that, because it may happen again.

We Have Less Privacy than We Think

There is a system called P2C (Police to Citizen) that is in use in a variety of towns across the country.  You look up your local police department’s website and see whether or not they offer it or a similar system.  I was wondering whether there was a police report on an event that I had been told had occurred, and I didn’t believe the person who told me.  P2C offers an interesting service to people: you can search their database to see whether people have gotten certain kinds of traffic tickets, like DUI, or are under investigation for a crime. There wasn’t a police report on the incident that I was told had occurred, but I learned that the person who told me about the alleged incident was under investigation for fraud.  I also learned that someone who I was considering hiring to trim the trees in my yard had been convicted of domestic violence.

There are over 3800 entries on the “wanted” list in my town, and the vast majority are for people who failed to appear in court or failed to pay their fines.  Suppose that half of the entries belong to people with more than one nonpayment or failure to appear for traffic tickets, loitering, theft, or other misdemeanors. There’s still about 2000 people who have issues wth the police.  This is about 2% of the population, and probably about 4% of the adult population.

I have mixed feelings about this system.  In some ways, it is just an electronic verson of the police blotter, but if you have a common name, it’s easy to make a mistake and think that someone is in trouble with the law who isn’t. One thing that helps is that the entries have the person’s age and other descriptors, so you can tell John Jones who is white and 25 from John Jones who is black and 50 years old.

Tax Hikes for Job Creators

From a report in today’s New York Post:

What Dems’ Tax Hikes Really Mean

…But who are those “wealthiest Americans”? Illinois businessman Wilson F. Hunt Jr. recently passed on to me the details of how his small business, which he owns with his wife, will be ensnared in this scheme to soak the rich.

Because his company elects to pay taxes as a Sub-chapter S Corporation, all the company’s profits are reported on the couple’s individual income tax returns as the sole shareholders in the company. They paid almost $1.1 million in taxes in 2010, yet the couple paid themselves only a combined salary of $189,000.

The rest of the income was put into retained earnings, which the company could then use to expand its business the following year.

We can’t raise taxes on them!  Otherwise, they’ll go out of business and not create any new jobs!  Well, maybe….

Let’s do the math:

  • The report doesn’t say whether the $1.1M in taxes is just in Federal income taxes or for all of their income taxes.  If the $1.1M refers to Federal taxes, it means that the business earned profits somewhere around $3.5M.  I don’t know the Illinois state tax rules, nor whether they had to pay local taxes that got included in the $1.1M figure.  As a worst case approximation, if their business were in New York City, their business would have to earn about $2.2M to pay $1.1M in taxes.  (Yes, taxes in NYC are that high.)  To keep the example simple, and be true to the author’s purported intent, I’ll assume that the Hunts paid $1.1M in Federal income taxes.
  • While the business earned, say, $3.5M, the taxes paid don’t give us a clue as to how much revenue it took in.  It could have been $5M or $500M.
  • The business could have spent that $3.5M on plant and equipment, or hiring additional employees, and paid less tax.  But the Hunts elected not to do that.
  • If the business had been a Subchapter C corporation, which pays taxes for itself, it would have similarly had to pay a little over $1M in Federal corporate taxes.
  • If the ‘Bush tax cuts’ expire through Congressional inaction, the Hunts will have to pay about $1.22M in taxes instead of $1.1M.  Yes, it’s $120,000 more, which is not a trivial sum, but their business can demonstrably afford it.

I’ll agree that the tax code really bites when it comes to retained earnings.  A business that saves its surplus to use in future years gets whomped.  It’s not how business is supposed to work: you’re supposed to borrow to expand your business, so that you can write off the interest.  (I find this particularly painful: the bank won’t lend my business 25 cents, so I have to finance everything out of the till.)

My point is that I find it very hard to believe the Republicans’ assertion that tweaking tax rates up–or down–will have a significant impact on employment.  There are no vast piles of jobs waiting in the wings to be deployed when tax rates drop 10 percent.

Just Another Tax Loophole

I’ve written in these pages about what I consider the horror of ‘health care reform.’  We have a serious problem with health care in this country: it costs too much.  And nothing in the Patient Protection and Affordable Care Act will do anything useful to make care affordable.

I empathized with my conservative friends who considered it unconstitutional.  I wanted to believe myself that the requirement to purchase insurance went beyond the Federal government’s constitutional power to regulate commerce.  But I couldn’t quite believe that the Supreme Court could strike it down, although I couldn’t say way.

But the Supremes upheld Obamacare for the reason I couldn’t quite put my finger on.  The penalty for not having health insurance is a tax, Obama’s minions’ protests to the contrary notwithstanding.  Consider:

  • The penalty will be administered by the IRS;
  • You’ll pay it as part of your income taxes;
  • You won’t suffer any other consequences for failing to carry health insurance and paying the ‘penalty.’  You won’t get locked up, or lose your right to vote, or your professional licenses, or even get points on you driver’s license.  Hell, you won’t even lose your right to get medical care as an uninsured person.
  • If you don’t carry health insurance, and fail to pay the penalty, the government will come after you for… failing to pay your taxes.

If it looks like a tax, and quacks like a tax, well, it’s a tax.  It’s a selective tax, meant to encourage you to do something, and in that sense it’s hardly unique.  The tax code is filled with thousands of provisions to ‘adjust’ one’s tax liability in response to this or that.

It’s also telling that the Supreme Court didn’t touch any of the administrative apparatus of Obamacare.  They had no problem with the government defining what an acceptable health insurance plan consists of.  But then again, government has been regulating for over a century: what’s new about that?

Well, that settles one thing: I’m off the fence, and voting for Romney.  I don’t like either of the candidates, and for the most part I can’t see any meaningful difference between them.  But Romney acknowledges that health care reform is trouble, and at least pretends that he will do something about it.   (And yes, I know that as governor of Massachusetts, Romney pushed a similar health insurance plan to become law there.  But he’s allowed to acknowledge that it was better in concept than execution.)

Alas, I don’t expect the effort to repeal Obamacare to get much traction.  Not because of backlash from the other side, nor for the useful bits of the law that nobody wants to lose.   The big money will realize that Obamacare will marshal trillions of dollars to pay for health care, and they’ll want their share.  The result will be a big burst of investment in health care: new hospitals, pharmaceutical plants, and thousands and thousands of jobs.  (I can hear Senator Schumer now: ‘A vote to kill Obamacare is a vote to kill jobs.’)  It will pull the economy out of the doldrums–happy days are here again!–and last for two or three years, maybe four.

And then they’ll realize that nobody can afford to pay for health insurance, and the government is broke, and it will all implode.

No Room for Rookies

Most of what I know as an engineer, I did not learn from a book.

Yes, I went to college, and studied the math and physics and stuff, and that’s a necessary starting point.  But when I started working as an engineer, I was initially given the simplest tasks.  Then relatively simple projects.  And as time went along, I learned my craft from more experienced staffers, and moved on to bigger and better things.

Now I have broader responsibilities on my projects.  In another time, I would have expected to have two or three junior engineers as part of the team.  They could do simpler tasks under my direction, and learn, and move on to bigger and better things themselves.  As far as I can tell, that’s the way things have been in my craft since the beginning.

But business doesn’t work that way anymore.  Carrying rookies and training them on the job is an extraneous cost that can be squeezed.  The work that used to be done by drafters and junior engineers is reflected back upward.  And in the short term, it makes sense: very often, it is quicker for me to simply do something than to explain it to a subordinate, wait for him to do it, and then inspect the results (and possibly have him do parts of it over) before sending it onward.

But in the long term, where does the next generation of engineers come from?

Worse Than a Student Loan?

I went to college at Cooper Union in New York City.  One of the long-standing policies of the school is that everyone who is admitted for a bachelor’s or master’s degree has a full-tuition scholarship.  I paid $300/year as a ‘student fee,’ bought my books, and that was it.  As an alumnus, I’m encouraged to (and do) contribute to the school, but there is no requirement to do so.

But in recent years, expenses have gone up while revenues (Cooper owns the land the Chrysler Building sits on, as well as other properties and investments) have not, and they’re having problems.  That’s understandable: times are tough for everyone.

But one of the solutions they’re contemplating leaves me cold:

The social responsibility of students, alumni, and parents who have benefited from the full-tuition scholarship policy needs to be addressed.

  • For current students, a modified version of the plan being explored by the University of California, Riverside, should be considered.  For example, graduates would agree to a lifetime pledge of 2% of after tax adjusted gross income.
  • For alumni, a reciprocal pledge should be requested, as well as a catch-up and bequest program to include Cooper in their estate planning.
  • For parents of current students and of alumni, the same reciprocal pledge should be requested, as well as a catch-up and bequest program to include Cooper in their estate planning.

Until now, the theory was that, in contributing to Cooper, one was not paying for one’s own education, but for making that education available for future students.  There was never a sense of having to donate as much as one’s tuition might have been.  It was not a ‘social responsibility,’ it was a free decision to ‘pay it forward’ for future generations.

If I had had to pay tuition, I’m sure I would have paid it off by now.  At that point, any ‘social responsibility’ I might have had would be over.

For my part, now, I resent having a social responsibility dropped on me, 29 years after graduation.  And if I were going to school now, I would resent the idea of the school holding a mortgage on my achievements for the rest of my life.  It’s worse than a student loan: the loan is finite, and when it’s paid off, that’s the end.

At least my parents are dead, so the school can’t hit them up for money.

Why Is This Time Different?

In 1979, when I was finishing high school and starting college, I read Howard Ruff’s How to Prosper During the Coming Bad Years.  I was aware of inflation, was starting to understand what it meant, and I remember a few perilous months in early 1980 when the price of gold shot up, and it seemed at one point that the economy might go off the rails.

Now we face the same problems as back in 1979, only worse.  Howard Ruff has updated How to Prosper.  But we got through the last thirty years in mostly decent shape.  There was no hyperinflationary collapse.

Why is this time different?

More specifically, the bad things that we feared at the end of the 1970s never materialized.  Why should I worry this time?

Two thoughts:

  • In 1979, we were still a productive country.  The Chinese were not in the business of manufacturing anything and everything for export.  There were still many businesses that were run in the interest of providing whatever goods or services they purported to provide, rather than making this quarter’s numbers.
  • In 1980, Ronald Reagan was elected President.  Much has been written about how he turned the country around and made us prosperous again.  But he didn’t balance the budget, and indeed, first brought us into the era of huge deficits.  Reagan was every bit as inflationary as his predecessors, if not more.  But there’s one difference:
    • Under previous Presidents, inflationary spending went everywhere in the economy, and consumer prices went up along with everything else.  When the price of bread and gasoline go up, people get angry.
    • Under Reagan and subsequent Presidents, inflationary spending got directed into the investment markets.  Consumer prices still went up, but nowhere near as quickly as before.  But the stock market and the real estate market shot up.  When the prices of houses and stocks go up, people are happy, as they think they’re getting richer.

In 1979, we had margin for error.  That margin has been relentlessly squeezed out over the last 30 years.

Yes, it’s different this time.

Social Security

Many years ago, before I entered the workforce, I understood that Social Security is not a retirement program.  It is a tax, whose proceeds are used to pay retirement and other benefits.  The difference is subtle but important.

In a real retirement plan, the money collected from you and/or your employer is invested over time.  In a defined-benefit plan, there is a commitment to pay you in the future at a specified rate.  In a defined-contribution retirement plan, the money is held in your name and invested.  But in either case, the money is invested in a productive enterprise, so that it will grow, and the amount paid in at the beginning is driven by the amount to be collected at the end.

Under Social Security, the money that you and your employer pay is lent to the rest of the government and spent.  The money that you ultimately receive in benefits is paid by current workers.  The vaunted ‘trust fund’ is an accounting fiction.  And the politicians who vote for new goodies can just as easily vote to take them away.

I didn’t know about defined-benefit and defined-contribution plans in 1979, when I was finishing high school.  But the rest of it, I knew back then.

And it wasn’t a deep dark secret: I read about it in books from the library and bookstores.

The government wants us to believe that Social Security is a pension plan.  They even send out statements every year with the benefits that we might receive, if the politicians don’t change their minds.  But it isn’t so.

Now, I’m roughly halfway through my working life.  With the recent discussions over the Social Security tax, it’s really clear that it’s fake.  (The employee share of Social Security tax was cut by a third a couple of years ago, as a temporary measure.  The cut was continued after raucous debate, as it was the only tax cut that reached the majority of ordinary Americans.  A real pension plan, driven by the need to pay people in the future, would never do that.)

Yet people still believe that Social Security represents a commitment for their retirement.

Now that I’m halfway through my working life, I would have liked to believe that Social Security would be there for me.

But now I’m sure that I will ultimately retire in a coffin.

We Didn’t Get the Briefing

When Barack Obama was running for President, he had the entirely reasonable idea of letting the Bush tax cuts expire for those making over $200k/year.  In December 2010, he caved and signed on to an extension of the tax cuts for two more years, even though the government was (and still is) running huge deficits.

What happened?

Allow me a somewhat fanciful explanation:

Sometime after he was elected but before he was inaugurated, President-elect Obama was briefed on the realities of our world and the Presidency.  He was told the truth about terrorists and UFOs, the proper way to order an ICBM launch, and the location of the secret White House Coke machine.

I’ll speculate further that he was also given a briefing rather like the ‘primal forces of nature’ speech from the movie Network about how the US was doomed, and how he couldn’t raise taxes on the rich, or tweak entitlements, or do any of the practical things that one might think of to actually address the problems we face.  He was also informed in grisly detail of the consequences for proposing such heresies, or telling the American public the truth about what we are facing.

And so Barack Obama, apostle of Hope and Change, became yet another politician.

But we didn’t get that briefing.  We’re outside the corridors of power, watching our country crumble around us, wondering, if not about our next meal, where our meals will come from two years from now.

If we set aside, for a moment, our notions of what is politically correct or feasible, how could we restore productivity and prosperity?  Or is it really a lost cause?

Played for Fools

A limited audit of the Federal Reserve Bank, conducted as part of recent ‘bank reform’ legislation, revealed that the Fed had lent some $16 trillion to US and foreign banks between 2007 and 2010.

This shouldn’t really be a surprise: bits and pieces about how the Federal Reserve was throwing money around in an effort to restart the economy appeared from time to time.  But since it’s a story that requires more than eight seconds to explain, the media didn’t really say very much about it.

OK: the Fed did what it’s supposedly intended to: maintain the money supply as the cornerstone of a functioning economy.  But in September 2008, when we were told that the would would come to an end if the government didn’t allocate $700 billion right this instant to bail out banks and insurance companies, we were being played for fools.

If the government hadn’t allocated the funds, the Fed would have.  It would make their $16 trillion pot a little more risky, which would have tweaked interest rates up a bit.  But life, and the economy, would have gone on.

We won’t get fooled again… I hope.

But beyond that, the actions of the Fed reveal that it doesn’t really matter what the government does: the Fed, and the banks, will do what they want anyway.

Tax Cuts for Me, but Not for Thee

The Republicans, who consider the entire concept of taxation to be evil, have found a tax increase that they actually like.

Last December, in an effort to stimulate the economy, Congress passed a one-year reduction in the payroll tax.  The actual rules are a bit complicated, but basically, the roughly 8% Social Security/Medicare tax that every working American pays (including the nearly half that don’t earn enough to pay Federal income tax) was reduced to about 6%, a little more than a 25% reduction.

Now we’re looking for ways to cut spending, and the Republicans are proposing not to extend this tax break for another year.  If this were a package deal, together with ditching the Bush tax cuts, I’d be OK with it.

To be fair, the Republicans have a point: putting a few hundred extra dollars into the pockets of ordinary Americans (who don’t create jobs) won’t do much to pull the economy out of its slump.  On the other hand, putting thousands of extra dollars into the pockets of the richest Americans hasn’t helped much, either.

For my part, I’m not sure that tax cuts do that much to stimulate the economy, and I get annoyed with politicians of either stripe who push for tax cuts just to score votes.  But the underlying argument of the Republicans is mean-spirited: rich people’s money is valuable to the economy and not to be taxed, while poor people’s money ‘doesn’t create jobs,’ and therefore fair game.

A Few Days Later

I’m sitting in the park on the Manhattan side of the Williamsburg Bridge.  It’s a pleasant summer afternoon, I’ve been riding my bike, and the endorphins are flowing: it’s all good.

When I was a kid, I lived near here, and my parents and I would go out on our bikes on Sunday morning.  It’s good to see that the park is, if anything, a little nicer than I remember it.

It’s been a crazy week with the alleged resolution of the debt brouhaha:

  • Each side is now yowling that it was taken advantage of by the other.  Obama sold out to the Tea Party, while the Tea Partiers wimped out.
  • On Wednesday, the government borrowed nearly a quarter of a trillion dollars, apparently making up for lost time.
  • Some Republican (mainstream, not Tea Party) noted that the GOP was more than willing to let the deadline pass, until they considered that the Treasury, having to prioritize spending, would short the things that would make the public the angriest (like Social Security) so that they could blame the Republicans.  I find it hard to believe that the Obama administration would do that, but I suspect that a Republican administration would.
  • After a 500-point drop on Thursday, the stock market had a barf-bag day on Friday.
  • On Friday afternoon, after the markets closed, Standard and Poor’s downgraded US government debt from AAA to AA+.

But where does that leave us as far as the rest of the economy?  Sadly, not too well.  But that’s not really new.

The national government is a one-trick pony: there is only one thing it can do to address a sluggish economy: deficit spending.  Whether this takes the form of tax cuts or new spending programs, the goal is the same: provide loose money to encourage commerce and tide people over until new growth takes hold.

But in fact, the government spigot has been stuck on ‘loose’ for many years now.  Between the bailouts, the stimulus, tax cuts, and the Federal Reserve’s quantitative easing, we’ve delivered enough stimulation to launch the Empire State Building into orbit.  It hasn’t worked.

Now is the time to re-examine our premises and seek a new way forward.  It won’t be easy, and some of it will certainly be painful, but it’s still better than the alternative of yet more debt.

The Circus Is Over

Yesterday, the Senate passed and the President signed into law a measure increasing the debt ceiling, and making present and future cuts in Federal spending–but no new taxes–averting the immediate crisis of a government unable to satisfy its $4 billion daily borrowing fix.  Everybody hates it, but then a good compromise leaves everybody mad.

Except that the plan doesn’t actually cut spending by a meaningful amount in the near term, and anything further in the future can be undone by the next Congress.

Moreover, it sets a dangerous precedent in that the next stage of spending cuts will be determined by a joint committee of Congress, with input from the President, and then be voted up or down with no debate or possibility of amendment.  On one level, since politicians don’t seem to have the intestinal fortitude to vote for serious spending cuts, this seems a practical necessity.

But the committee–called ‘super Congress’ by some–has no constraints on what it can include in its ‘spending cut’ package.  If they wanted to require all of us to wear lime-green underwear, they could.  For now, we can only hope that they’ll limit their concerns to things that will help the government’s finances.

OK, now that the circus is over, how about going back to the economy and creating jobs?

The economy is languishing, with growth in the first quarter restated at a 0.4% annual rate and the second quarter  at a 1.3% annual rate.  If you exclude banking/finance, and perhaps the oil companies, the rest of us are in a recession.

The government has one thing, and one thing only, it can do to stimulate the economy: it can make money looser.  It can do this by tax cuts (the Republican method) or new spending (the Democratic method), but either way, the intent is the same: to provide new money to encourage the private sector to invest and hire, or at least to tide people over.

But in spite of partisan bickering, the spigot has been stuck on ‘loose’ for a long time now.  Most Federal spending is preset before the budget process starts: Social Security, Medicare, and interest payments.  And the new plan is supposed to tighten things up, even if only incrementally.

So what can the government actually do to create jobs?

For my part, I have no idea.

Still No Plan

Yesterday,  the Republican-controlled House of Representatives passed a bill to raise the debt ceiling, begin to cut spending, and attempt to address the nation’s fiscal problems.  It was voted down in the Senate in less than two hours, with no serious debate.

Meanwhile, Our Fearless Leader, true to form, has left the details of the Democratic plan to Congress.  Senate Majority Leader Harry Reid is working on such a plan, but the details aren’t there yet, and the House Republicans have already resolved to vote it down.

The headline on today’s Daily News reads ‘Bam: Call Your Reps.’  I would call my reps if I thought it would do any good.  Alas, they’re all solid Democrats, and won’t care.  Or my position will be swamped by many of my fellow constituents.

We’re in trouble now because our government made promises in the past that it now cannot keep.  This happened because the productive capacity of the country was left to rot.  We’ve been working around it for a couple of decades now, telling ourselves lies about ‘the service economy’ and blowing bubbles, but we’ve burned through our savings and our credit and now find ourselves no better off.

A limited government like ours cannot simply will productive capacity into being.  It can’t construct productive enterprises for itself, and it can’t force the private sector to create jobs.  Under the circumstances, the only alternative is to cut spending and find a way to back away from its promises while causing the least damage.

The Republican plan is an effort to do that.  I disagree with the Republican orthodoxy in that I believe that new, higher taxes will be necessary.  The Republicans will say that higher taxes merely encourage higher spending, but one of the lessons of the Reagan administration is that politicians will spend anyway.

If we can’t expect some adult leadership from our government, then we’re really done for.

Moreover, if you want to ask where our productive capacity went, part of it got crystallized into the wealth of the very. very rich.  If the government can return some of that through taxation into the circulating economy, that can only help the rest of us.

So while I don’t completely agree with the Republicans, at least they’re trying.

Opportunity and Responsibility

Before 2000, when politics were less polarized, I used to observe that given two candidates, one Republican and one Democrat, who were about evenly matched on the issues, I would vote for the Democrat.  I noted that while the Republican was a little closer to my views on the principles, the Democrat seemed more like the person I’d prefer to see in office: a little more humble, a little more trustworthy.

Some time after 2001 I read the thought somewhere that Republicans view power primarily as an opportunity, while Democrats see it more as a responsibility.

In our current debt-ceiling brouhaha, the Republicans like to point out that now-President Obama voted against a debt-ceiling increase while a Senator during the Bush administration.  But the Democrats relented then, at least partially because they saw maintaining a functioning government as part of their responsibility, even if a President they didn’t agree with was spending too much.

Since I last wrote, not much has changed in the current debt-ceiling drama, except that both sides have hardened their positions, and our President has gone out on a limb and suggested raising the retirement age for Social Security and making other entitlement tweaks.  But he isn’t supported by Democratic Congressional leadership, while the Republicans absolutely insist that there be no new taxes, because that kills jobs.

(There is a cogent rebuttal to that: the economy has become fractured, which portions doing really well, and most of us having trouble.  In that case, it is reasonable for the government to seek to fund itself by taxing the part doing really well more heavily.  Note that we’re not doing this to set up new programs, but to keep the promises we’ve already made.)

Some radicals on the right have suggested that we should ‘starve the beast’ and relentlessly cut taxes until government can no longer function.  The Republicans have the opportunity to do that now.  They can remake government in their own image, if they can just tough it out for…

16 days.


This afternoon, overtaken with a task that required relatively little actual thought, I turned on Rush Limbaugh.  It was instructive.

He played of a clip of some remarks by Republican Senator Marco Rubio of Florida:

… I want to know which one of these taxes they’re proposing will create jobs. I want to know how many jobs are going to be created by the plane tax. How many jobs are going to be created by the oil company tax I heard so much about. How many jobs are created by going after the millionaires and billionaires the president talks about? I want to know: How many jobs do they create?

The short answer is that taxes don’t create jobs, except maybe for tax accountants.  The longer answer is that the primary responsibility of government is to maintain an environment in which jobs are created, chiefly by the private sector.  And, as much as we would wish it otherwise, governments don’t–can’t–work for free.

Later, Rush discussed the difference between the ‘deficit’ and the ‘debt.’   His description was accurate: the ‘deficit’ is the amount in a specific timeframe that the government spends that it didn’t receive in taxes, while the ‘debt’ is the accumulated borrowings.  He further noted, accurately, that the government, even given the limits of the debt ceiling, is not in danger of defaulting on its debt.  Instead, hitting the debt ceiling would force the government to stop deficit spending.

But what he didn’t say was that if the government had to stop deficit spending, it  would necessarily have to shut itself down, and would probably have to cut entitlements.

I’m not sure the dittoheads on Social Security would be happy with that.

Over the Cliff

I was watching Fox News this evening.  Yes, they’re a mouthpiece for the Republicans, but that can be helpful sometimes.  Tonight, they were rebutting Obama’s assertion that the Republicans have no ideas about how to address the deficit.

The Republicans, according to the report, are not against increasing government revenue.  The government can raise revenues by selling assets, or increasing user fees.  But tax increases of any kind, including getting rid of loopholes, regardless of how useless or stupid they may be, are absolutely off the table.

Usually, I disregard this as mere brinksmanship: they’re just playing chicken.  In New York, things like this happen with some regularity, and earlier this year, a Federal government shutdown was avoided with last-minute negotiations.

But we’re in a deep, deep hole: the Federal government is broke.  Getting out will be difficult and painful: it will take both tax increases and spending cuts, and we’re all going to get taken down a couple of notches.  We’re also going to learn the hard way that ‘entitlements’ are not ‘debts,’ and can be changed at the stroke of a pen.  In 2008, I had voted for Obama hoping that he would help us face our problems.  But he turned out to be just another politician.

We’re broke now: it’s just that we can juggle the books for another few weeks, until 2 August, before the country is officially in default.

What’s so difficult? I hear you cry.  Just raise the debt ceiling, like the last dozen times, and everything will be fine.  But the usual rationale is that after one raises the debt ceiling, the economy recovers, and the resulting growth cuts unemployment and covers the debt.  Unfortunately, that hasn’t been working for the last few years.  Our economy has lost the productive capacity that it would need to properly recover from our current situation.

So the alternatives are to negotiate some spending cuts, and possibly tax increases, and kick the can down the road for a few months, or to let a default happen.

If the default is inevitable, maybe it’s better for it to happen now:

  • We’re all (except the very, very rich) stretched now, but it will be worse next year;
  • If it happens now, we have a chance to stabilize the situation by next year’s elections.

And, perhaps, that is what is underneath the Republicans’ position.  They may want the default to take place, not out of malice, but because it is the least painful of the available alternatives.

I tend to doubt that this will be the usual game of chicken.

14th Amendment

Right now, the Federal government is running against the debt ceiling: on 2 August, it will no longer be able to borrow money, and be officially broke.  Timothy Geithner, Secretary of the Treasury, has cited Section 4 of the 14th Amendment as a reason that the government should keep borrowing anyway.  Let’s read it together, shall we?

*          *          *

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

*          *          *

The Amendment was enacted after the Civil War, and the former Confederate states were required to ratify it as a condition of readmission.  In that context, the meaning is clear: what the Union spent to fight the Civil War was a valid debt that could not be repudiated, but as for the debts of the Confederacy, or the value of slaves as assets, well, tough noogies.

OK: what does that mean now?

Debts of the United States that have been previously authorized cannot be repudiated.   So we have to continue paying interest on our outstanding debts.

But what if we’re in such bad shape that we need to take out new debt to service our existing debt?

In that case, perhaps, we could use the authority to coin money, if we hadn’t delegated it to the Federal Reserve.  But we’re not quite there, yet.

More practically, what the 14th Amendment tells us is that we do not have the option of failing to service our debts.  If we can’t create new debt, we have to take money that would be spent on other activities in order to pay the interest we owe.

So this means that everything else–defense, civilian administration, and even Social Security and Medicare–must be cut in order to pay our debts.

Even Social Security? I hear you cry.  You mean like poor little old ladies?

Alas, the little old ladies don’t have a Constitutional amendment.  Sorry.


  • This week, the New York Post raised the price of the daily paper to 75 cents from 50.  I’m sure its chief competition, the Daily News, will follow suit before the end of the summer.
  • The back of my MetroCard features the word ‘optimism:’
    A line at the bottom of the card gives credit to Reed Seifer, under the MTA’s Arts for Transit program.  I’m compelled to ask:

    • Is this really art?
    • Did Reed Seifer actually get paid for suggesting the word ‘optimism’ on the back of a MetroCard?
    • If so, did the person responsible for that at the MTA lose his/her job as a result?  (Last I checked, they were crying broke!)
    • Are you now filled with optimism after reading this?
  • For the last year or so, New York City has been giving restaurants and other food establishments ratings of ‘A,’ ‘B,’ or ‘C,’ based on their sanitary inspection results.  A restaurant in my neighborhood got written up in the newspaper for hiding their ‘C’ rating.  The next week, the sign was back up, but the orange ‘C’ had faded into invisibility.  It looked as if the sign had simply faded in the sun, but still I have to wonder….

Unemployed Again

No, not me.

A few weeks ago, after months of trying, my son finally found a job in a media office of some sort.  He was working as an office assistant, doing scanning and other tasks, and hoping that they would take him as a permanent employee (not there is actually any such thing in our era of employment at will).

The other day, he learned that the company would not take him as a permanent employee, and he was back in the street again.

I’ve been contemplating buying a new tablet computer, but on learning this, I shelved those plans.  He’s my son, and I don’t feel right enjoying a shiny new toy right now.   Instead, I’ll buy him driving lessons: he’s 25 and does not have his license.

Things are very different for him than for me.  Both of us grew up in the city, without cars in the household.  But I took driving lessons when I was 20, with my own money.  When I was 25, he was already one year old.

I wish I knew what to tell him, beyond the obvious, as he embarks on another job hunt that seems almost pointless.

A Seductive Truth

In my recent readings, I’ve come across something that seems extraordinary in our time, but really wasn’t.

For most of our history, we didn’t worry about Federal budget deficits.  The government went into debt at its inception, for the Civil War, and for World War I.  In between those events, the government ran a surplus, and paid down its debt.  It was only when we started trying to use deficit spending to get us out of the Depression that we got into trouble.

The Founding Fathers regarded public debt as dangerous, and for about 150 years, we believed them.  To be sure, it wasn’t always smooth sailing.  There was boom and bust, but generally we recovered more quickly from the busts than the present situation.  And taxes went up and down, depending on the vision of the party in power.  But the idea that the national debt was something to ultimately pay off was accepted by just about everyone.

In 2000, when we had been running a surplus for a couple of years, Bush, the candidate, said that the surplus belonged to the American people, and he would give it back through tax cuts.  And, indeed, once elected, he did just that.  The surplus was not meant for us to rebuild, and prepare for the next crisis: it was a big fat cookie jar waiting to be raided.  So much for the dangers of public debt.

So why can’t we return to our roots?

Because trying to pay back our debts would mean both higher taxes and lower spending, and both of these are politically unacceptable.

It was a charming thought, though….

Do the Math

I was listening to Sean Hannity again this afternoon, and he was pressing the case that cutting taxes spurs economic growth.  He noted, as he has in the past, that government revenues doubled in the 1980s in spite of the Reagan tax cuts: hence, tax cuts actually increase government revenues.

Well, maybe.  A look at the official figures (, pages 30-31) yields the following:

For 198o, the US government took in $517.1 billion.  For 1990, it was $1,032 billion.  So yes, in that time, government revenues almost doubled.

But government revenues doubled–or more–in every decade from 1940 to 2000.  So that really isn’t saying very much.

The government also presents figures where the revenues are adjusted to constant 2005 dollars.  By that measure, government revenues increased at a rate of 2.34% per year, on average, through the 1980s.

OK, what happened during the 1970s, the decade that brought us the energy crisis and stagflation?

Revenues went up, on average, in constant dollars, at a rate of…

…wait for it…

2.15% per year.

Also, government revenues as a percentage of GDP were 19% in 1980 and 18% in 1990.

All of this suggests that the vaunted Reagan tax cuts were, in the long run, tweakage.  Something changed during that time to make us all believe we were more prosperous.  But the tax cuts themselves had very little to do with it.

But what’s more disturbing is what has happened since 2000.  Government revenue went up a tick over the decade, but dropped in terms of constant 2005 dollars.  Meanwhile, expenditures went galloping ahead, more than doubling over the decade, or increasing at a rate of 4.97% per year in constant 2005 dollars.

So in the 1980s, taxes were cut–a little–and government revenues held steady, considering inflation and general economic growth.  In the 2000s, taxes were cut, and revenues dropped.

So cutting taxes does not increase revenues.

Sorry, Sean.

Yes, but….

One of my guilty pleasures is listening to conservative talk radio.  If I have a day, as I did yesterday, where I’m not actually writing as part of my work, I enjoy listening to the Rush Limbaugh and Sean Hannity programs.  Rush and Sean are in fact on vacation this week, but their stand-ins do a credible job.

Anyhow, the guy filling in for Sean Hannity acknowledged that, in our time, the rich are indeed getting richer and the poor are getting poorer.  He then suggested that, instead of taxing the rich and making them poorer, we should somehow ‘build up’ the poor to make them richer.

OK, it’s an admirable thought, but how are we supposed to do that?

Once upon a time, the rich got that way through productive investment.  For their enterprises to thrive, they needed to hire, collectively, millions of people.  And it worked: the rich go their profits, and the rest of us were able to prosper, as well.

Today, the rich invest don’t invest for production: that’s too risky and messy.  If there’s any manufacturing to do, better to do it outside the US where it’s cheaper and there aren’t so many pesky regulations.

And if you want to start a business in the US, those same regulations make it genuinely difficult.

Once, the poor were ‘built up’ because doing so brought profits to the rich.

How are we to do it now?


About 20 years ago, my parents gave me a bailout.

I had gotten divorced and was broke, and had moved back to New York City.  My job here paid better, but I still had a pile of installment debt from when I was married.  So one day, my parents sent me a check for $5,000.  It didn’t totally wipe out my debts, but it put a big dent in them, and I was able to better balance my books going forward.

I ultimately got completely out of debt, and then… I fell in love again, and got married.  And one hates to say ‘no’ to one’s beloved.    My new wife is more reasonable about money, so it wasn’t the crisis it was the first time, and things stayed under control.  But I got further into debt when I went into business for myself.  Today, I still am in debt, but I’m working to pay it back.

What can we learn from this?

  1. Bailouts work if the bailout has actual value behind it.   My parents bailed me out with actual money they had in their checking account.   (OK, it’s fiat money, but it represents the savings of my parents, who didn’t have to borrow to send it to me.) When the Feds bail out banks and insurance companies with money they don’t have, it merely kicks the can down the road… and turns it into a bigger can.  And ultimately someone who has real value (i.e. the rich) will have to really bail us out.
  2. Bailouts don’t change behavior.  You may be chastened by having received a bailout, but the feeling will wear off, and given the same circumstances as before, you’ll be back to your old tricks.

Where are the Grownups?

Yesterday, President Obama signed into law an extension of the Bush tax cuts for two years, after insisting in his campaign that he wanted to let the cuts expire for those earning over $250,000/year.  The liberals who supported him are disappointed that he turned his back on his principles; more moderate commentators commend him for pivoting to the center like Bill Clinton.

For my part, I’m disgusted.

The bonanza for the rich (relief from what would have been a maximum 13% tax increase) was accompanied by a one-third cut in the employees’ portion of the Social Security tax for next year.  So we’ve all got a share of the goodies.
In this battle between Republicans and Democrats, the only thing that both sides can agree on is spending money they don’t have.

Meanwhile, the toxic borrowing goes on, and nobody seems to want to do anything about it.

Not Fast Enough

Debt Clock

The Debt Clock near my office (and perhaps not coincidentally adjacent to the local IRS office) is supposedly counting up our ever-increasing national debt.  It was originally installed a little south of its present location.  It was mothballed briefly in the late 1990s when the Federal government was supposedly running a surplus, and then a shiny new office building was built at the original site.  The clock reappeared in its present location not long after the yo9unger Bush became President.

But I’m not sure the Debt Clock is running fast enough.  It ticks off $9,958 every second.  There are about 31.5 million seconds in a year, so that comes out to $314 billion per year.  That’s an awful lot, to be sure, but we’re told that the Federal government borrows about $1 trillion per year.  The clock should be running about three times as fast.

Or am I missing something?