Tag Archives: Economics

Guest blog: “If We Were Emperor!” by jan howard “wombat” finder

Jan Howard Finder died February 26, 2013.  He will be remembered and missed by many people around the world.  I’m proud to say jan was a friend and will leave this entry here as a reminder of his character and convictions.

This is a first for my little blog.  A friend of mine, jan howard finder, wanted to post this piece online and I volunteered to host it on my WordPress blog.  Mind you I did offer to set him up with his own WordPress blog, but here we are.  The topic is how to get the US moving again economically.  I’ll have a comment at the end, but for the moment, here’s jan:

If We Were Emperor!

by jan howard “wombat” finder

[“If We were Emperor” is the style I am using in order to frame my opinions.   I do not advocate the overthrow of the current US government or the Constitution.]

There are several things We would do in order to get the country and economy back on track:

Taxes: 

  1. Repeal the two big tax cuts instituted by President Bush, in 2001 and in 2003.
  2. Stimulus plan:  A cheque for $5,000 to everyone who has filed a 1040-based tax return in 2011.  [Assuming 150 million taxpayers, corporations NOT included, this would cost $750 Billion.] This would put the money into the hands of those who would give a boost to the economy, the consumers, by buying durable goods, paying down mortgages, etc. It would do what The President Bush said we should do, just after Sept 11, “go out and spend money”; it was said to individuals, not to corporations.
  3. Boost for Lower and Middle-classes:  Raise the personal deduction to $7,500, indexed to the Cost of Living.
  4. Cap the amount of taxable deduction for interest on home mortgages to $25,000 to $50,000 per year.  The interest cap could be indexed to the Cost of Living Index for that area.
  5. Cap other governmental agencies at current spending levels for 5 years.

Education:

  1. Grants: We would expand grants to students attending accredited institutions of higher education.
  2. Loans: Students would pay off the Federally Funded Student Loans either: (a)    by paying a percentage of  their GROSS income, 1%, 2%, or other suitable percentage. This allows graduates to accept a lower paying job of their choice rather than be forced to accept a job that will not advance their careers.  (b)   or a standard loan agreement over 10 years at the Prime Rate plus 1%, payment to start one year after graduation.
  3. Tuition Rebates: We would set up tuition rebates for students in Mathematics, Sciences, and Engineering at accredited institutions of higher education who achieve a cumulative 3.5 GPA or better by the end of their 3rd academic year.  The rebate would be up to $10,000 or $20,000 in tuition rebates for the 3rd and 4th academic years.  This tuition rebate would also apply to Graduate Students.

Energy:

  1. Energy Production: Accelerated depreciation [5 years on a plant designed to last 40 years.] on the Capital Costs of creating non-fossil fuel energy production assets, e.g., Wind turbines, Photovoltaic cells, Solar Updraft Towers, Hydrothermal plants, etc.
  2. Equipment Installation: 100% deduction, depreciated over 3 years, for equipment and installation of alternate energy producing units by individuals and businesses in the tax year of installation.

Transportation:

  1. Increase Federal gas tax: Add a10 cent a gallon increase in the Federal tax on petroleum products with the money going to maintenance and repair of existing infrastructure. NO NEW CONSTRUCTION! The Federal tax is earmarked for existing roads and bridges. We would add up to 10 cents every year for 5 years.  Each one cent [0.01] increase brings in about $1 billion dollars in revenue.  This is equivalent about 25,000 new jobs.  Each new job will bring in about 2 or 3 additional jobs into the market.  The 10 cent a gallon or equivalent increase in the Federal tax on petroleum products could result in approximately 500, 000 and 1 million new jobs.
  2. State gas tax fund: Require states to put state gasoline taxes into a separate fund, to be spent on roads, bridges, and other transportation infrastructure. Most state gasoline taxes go into the General Fund and never get spent on infrastructure.
  3. State funding: All states would be required to spend, not allocate, a minimum of 90% of the previous year’s road transportation budget or lose ALL Federal DoT funding the following year.
  4. The cost of the increase in the tax is about $48 a year to the motorist who drives 12,000 miles a year and gets 25 mpg.  If one drives less and or has a more fuel efficient vehicle, the cost would be less.  What is the cost of a new tire, wheel alignment, wheel balancing, shock absorber, ball joints, etc.? The US’s poor infrastructure costs motorists $67 Billion a year.  [Taken from an ad by Audi.]

Social Security:

Raise the taxable limit for Federal Insurance Contributions Act (FICA) tax to $250,000.  Increase this to $500,000 24 months after the previous increase.

Currently, someone who earns $102,000 pays 6.2%.  Someone who earns $250,000 pays 6.2% on the first $102,000, and pays 0% on the remaining $148,000.  Someone who makes $500,000 pays 6.2% of the first $102,000, and 0% on the remaining $398,000.

The first change would mean:  Someone who earns $250,000 pays 6.2%.  Someone who makes $500,000 pays 6.2% of the first $250,000, and 0% on the remaining $250,000.

6.2% of that $148,000 is significant. When the limit moves to $500,000:  Someone who earns $500,000 pays 6.2%.  Someone who makes $750,000 pays 6.2% of the first $500,000, and 0% on the remaining $250,000.

If someone currently making $102,000 or less can pay 6.2% of their income to FICA, certainly someone making $250,000 or more can manage.

Health:

  1. Medicare/Medicaid: All Medicare, Medicaid, etc., payments would be frozen at current levels for 5 years.
  2. Health Insurance:  Any US citizen would be allowed to sign up for The Federal Employees Health Benefits [FEHB] plan, the plan that is available to all federal government  employees. (It’s the same one members of Congress use.)  This would be a “Public Option.”  The Federal Government would pay approximate 75% of the premium and the individual-family would pay the other 25%.  The insured would be free to choose any of the several private insurance plans in the insured’s area: Blue Cross/Blue Shield, Kaiser Permanente, or in my case for example, the Capital District Physician’s Health Plan [CDPHP].  I get to choose my doctors [I easily switched urologists recently]. 

Department of Defense

  1. A 5% across the board increase in pay and benefits for all Military Service personnel.  They don’t get anywhere near what they deserve.
  2. The DoD budget would be frozen for 5 years.  While research would be encouraged, development would be limited to proof of concept prototypes.
  3. DARPA would be encouraged to expand  its challenge programs: Set standards and let private inventors meet the challenge.  Sort of small X-Prize offer.
  4. Decrease the DoD budget, potentially 5% a year or more, for 5 years:
    1. by evaluating the necessity of building expensive equipment simply because it’s “new”, when existing equipment is more than adequate for current and near-future projections of enemy capabilities (we’re not fighting the Soviets any more);
    2. by evaluating the necessity of building more of the expensive equipment that no longer meets the operational needs against current and near-future enemies (how many aircraft carriers do we need to fight, or support fights, in small towns in the Middle East?);
    3. and by bringing our service personnel and materiel back home. The ability to mobilize quickly, to transport personnel and materiel needed for quick strike missions, no longer requires the tremendous expenditures of overseas bases.

X-Prizes:

We would set up a series of Federally funded X-Prizes in areas of  need, i.e., energy, space exploration, engineering challenges.  The money would go to the winning teams, not to the institutions for whom they may work.  X-prize funds are not paid out until the established goals are met!

[This is my opinion.  I encourage you to write your own screed.]

—————————

This is Mary again. It’s an interesting proposal. I think an open debate would probably not decrease the DoD budget, most of which goes to pensions, as I understand it. And if we want to encourage R&D, in my humble opinion we need to invest in it, not offer prizes to be awarded when the work is done, since it may never be economically possible to provide a proof of concept.  Still, lots of these things are good ideas.  Your thoughts?

While I’m on the topic, if you do a Google Images search for “jan howard finder” you will find lots of photos from Science Fiction conventions and other places which are the natural habitat for wombats. The lower case spelling is traditional for jan, although they have it wrong on Wikipedia. But then they didn’t mention jan as fan guest of honor at a Sci-Fi convention in Metz, France, either… when Robert Bloch was the guest of honor… or lots of other things, so maybe he’ll write a memoir!

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So tell me more about this economic recovery thing

Forbes magazine, both in paper and on-line, has always struck me as one of the good places for intelligent people to explore economics and investing ideas.  John Mauldin, shown below, has a nice blog piece entitled:  Impossible Things And Our Economic Recovery. This is well worth reading and is presumably the first of a group of pieces he will write on the topic.  I encourage you to read it/them.

I responded with the following comment which may have a delay in being posted or may not appear at all.  Who knows?  I just write these things.  Forbes controls the “publication,” at least on their site.  So here’s the comment:

Well done, John. It’s all true, unfortunately. That so few people understand basic economics and continue to vote for the status quo is sad.

As you say, an increase in GDP depends upon an increase in (working age) population and/or workforce productivity. Back in 1999 Harry Dent’s book The Roaring 2000s Investor described the international demographic and technology trends we could expect to see play out in the 2000s. Country by country, I’d say he did pretty well with it. Dent’s book is now too old to be on the World Future Society’s current book list. Those folks who never read Dent’s book aren’t reading the rest of the WFS’s book list, either. (Here’s where we mumble something about those who do not study history, or the future in this case, are condemned to relive it, or play it out, or mumble mumble mumble…) Dent’s arguments, much like yours, rely on inescapable economic concepts.

The US has “outsourced” most of our manufacturing jobs. Big mistake. The US has created a pink puffy cloud of financial nonsense to spur personal consumption. Big mistake. The political structure of the US has enabled powerful, wealthy individuals to become ever more so. Big mistake. Increasing disparity in wealth translates into increasing political partisanship. Big mistake. The founding fathers are spinning in their graves.

Don’t you wonder what happens when somebody brings a war to our soil? Whoops, they already did that. I meant to pose the question: what happens when we can no longer manufacture anything of value? What happens when we don’t or can’t produce steel or silicon or the basic components of our modern lives? Maybe vertical integration isn’t always the best path for a corporation, but it has a lot of strategic safety for a country. It isn’t likely the US government will try to reverse our decreasing ability to manufacture. We are far along on our way to becoming a farming and service economy. That will not permit us, ultimately, to pay off our consumption debts. And if the rest of the world becomes angry because they believe the US is responsible for economic problems faced everywhere today, what leverage do these other countries have against us? A lot. Financially and production-wise.

The US has the benefit of observing economic laboratories around the world. Some have worked better than others. But the results of those lab experiments are not readily visible to the average American. Our media would rather produce cheap junk reality shows. One thing the world laboratory has proven is that universal healthcare is a good economic foundation for a country. But that doesn’t play out well with the power and wealth entrenched in the USA. The US used to have a small wealthy class, a small poor class, and a large middle class.  The middle has been crushed over the last 10 to 20 years. Now .1% of the US population controls some 20% of the country’s wealth. Big mistake.

I love the French. Their food, their wine, their art, their language, their French Revolution. Watching the Enron, Adelphia, Countrywide, etc. stories unfold, who wouldn’t want to see a guillotine factored into the proceedings?

Let’s just say it establishes a threshold beyond which tyranny is unacceptable to a rising middle class. Whoops, the US middle class is not rising and it lacks leadership to establish significant changes. So it goes. The US government reflects the best interests of the wealthiest citizens. Capitalism and democracy have lead to politicians being hired by the wealthy and their corporations in return for the campaign funds that get them elected. Long term big mistake. Looking forward to see if you have any ideas how we can dig ourselves out of this hole!

Thoughts on how Economics is like Biology

I’ve been doing a lot of reading and rereading of economics books as I follow the course of  the current US recession.   Like everyone else,  I’m thinking about how we got here and how the rest of the world got where they are today.   The more I learn,  the less sure I feel about anything.   Having said that,  the one branch of science that gives me comfort is psychology… what we know about how the human mind works,  alone and in groups.

Rather than continuing to work out that train of thought any further at the moment,  a timely article appeared in last Sunday’s Boston Globe: http://tinyurl.com/qsmke9

Interesting article titled “Why Capitalism Fails” and interesting comments.    I’ve been reading the John C. Bogle (founder of Vanguard) 2009 book ENOUGH this weekend.    (Highly recommended)    Bogle also mentions Hyman Minsky,  so this was a very timely article for me.   Communism,  socialism,  and capitalism are all interesting ideas,  each founded on flawed views of human nature as I see it.    For the most part people are good and well-meaning.    But there’s always going to be a Madoff,  a Ponzi,  a management team like Enron or AIG,  profiteers like Merrill Lynch or Putnam Funds,  and so on.

Government is not an economic system,  it is a cooperative means of achieving safety and stability for people who have banded together in a common geography.    As such, ours in the US hasn’t been working all that well lately.    It would appear that some sort of capitalistic system is,  overall,  better suited to achieve human advances,  given human nature.    (For example:  Humans are competitive.  Humans enjoy advancing their own interests and those of their friends and family. )  But that capitalistic system needs a lot of regulation and oversight.    There is an unholy alliance between capitalism and democracy revolving around money and elections.    The US founding fathers recognized that more than we do today,  because they actually discussed and understood the economy and politics of their day.   Our current citizens clearly do not.  Life is very complex today and that complexity is not taught in schools nor is it “covered” in the media.  The media are complicit in the problem.

Economics is a lot like biology in that everywhere you look, an economic niche is filled.    At any given snapshot in time,  the economic system is what it is.    When the system is threatened,  those who are doing well will fight like crazy to keep it as is.    Without enough enforced regulation some people will crowd out more than their share of the economy.   That is what has happened.

As a country we need to rethink the nature of our economy, our industry, our commerce, and our financial system.    If a system costs more than it contributes in benefits to the society it needs serious modification or at least regulation.    Part of me fears there’s a fat chance that’ll happen with the “right wing” having captured the market on fear and mistrust to keep a stranglehold on the USA.    Part of me hopes that our government can develop a bipartisan regulation of our financial system.  I want my country back.

If you read this, please share your thoughts.  Thanks.

(New title in response to Lin Dolin!)

The Next Nobel Prize in Economics

I give the New York Times and its contributors credit for getting my blood flowing in the morning.  http://tinyurl.com/munmbt is a blog entry by Casey B.  Mulligan, an economics professor at U of Chicago, entitled:  Forget a ‘Second’ Stimulus.  Stop the First One!  Having been concerned myself that the stimulus money may or may not be being spent in an optimal fashion, I have no doubt that government stimulus is required.  When nobody is spending or investing, the federal government is the wallet of last resort.  The wheels of the economy must be lubricated somehow. (Yes, I mix my metaphors while I’m having only my second cup of coffee.)

For an “economics professor”, the author does not appear to have been a student of history. Economic disasters like the current situation have always resulted in fear, caution, and reduced proactive economic activity. Does the author think FDR was misguided also?

The role of the federal government is to provide a structure in which individuals and the states can operate safely. The unholy alliance between capitalism and democracy during the Bush administration undid some of the legislation developed after earlier economic explosions. The Glass-Steagall Act doesn’t look so bad in hindsight, does it? The lack of prudent oversight of the country’s financial institutions, the same ones that contributed to that administration’s election, has resulted in worldwide disaster.

The economic system is a complex engine and the current problems must be addressed on several levels. The recovery will not be quick. Recovery depends upon creating jobs and moving income to middle and lower level Americans who have lost jobs to offshore locations or because of the fiscal crisis; encouraging education and research that will build the next big set of economic opportunities over time; and removing Bush’s war from eating away at the nation’s wealth.

The next Nobel prize in economics is likely to be awarded for thinking which is the opposite of Milton Freidman’s trickle-down economics. It will focus not on a waterfall from the wealthy enriching the earth below (which never did work), but on a fiscal osmosis providing a more even distribution of wealth throughout the nation and the world. Greed and leverage have always been the problems. We can’t eliminate the one, but we can legislate against the other.

Barney Frank and Paul Krugman are the guiding economic lights for this country at the moment.  Speaking of which, if you want to read a real economics professor, take a look at Krugman’s blog  http://tinyurl.com/23qv5r