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Congress is a criminal enterprise.

Friday, November 18th, 2011

Mark Twain once said, ” There is no true criminal class in America with the possible exception of Congress.” It’s time to withdraw the qualifier. It is now apparent that, with a few rare exceptions, Congress is a criminal enterprise and the Obama Administration is, as well. Here is the story of part of it.
“To entrench Fannie’s privileged position, Morgenson and Rosner write, Johnson and Raines channeled some of the profits to members of Congress — contributing to campaigns and handing out patronage positions to relatives and former staff members. Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self-­protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. A few years later, according to Morgenson and Rosner, Fannie hired Kenneth Starr, the former solicitor general and Whitewater investigator, who intimidated a member of Congress who had the temerity to ask how much the company was paying its top executives.”The latter item is just to show that the corruption was bi-partisan. The quoted text above was written by Robert Reich, the left wing former Clinton Labor Secretary.

Johnson was the man chosen by Obama to vet his possible VP choices. When his history came to the public’s attention, he quickly withdrew. He had no financial background at the time he became the chief of Fannie Mae. He was a pure political animal.

The most telling recent blow is the bankruptcy of MF Global, a commodity trading firm run by Job Corzine, former governor of New Jersey. It appears that he stole $600 million of investor’s money. Another commodity trader has now closed her fund and returned her customer’s money. Here’s why: “The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

I do not agree with some of her theories, she appears to be a “birther,” for example, but that doesn’t matter. If Obama is a legal citizen, his corruption is just as bad.

“A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.”

The bankruptcy petition may have been responsible for freezing the accounts but criminal law should deal with this. Corzine should spend years in prison. Here is a depressing comment: “If Obama doesn’t win next year, watch for a January 19, 2013 pardon.”

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Posted in corruption, financial, politics | 3 Comments »

Why socialized medicine is a bad idea.

Tuesday, November 1st, 2011

For many years the term “Socialized Medicine” has been a watchword for reactionary and out of date doctors who think we still live in an era of self-reliance. Everybody knows that health care should be a communitarian responsibility because no one can afford their own healthcare. I can’t afford a car crash, either, but I have car insurance for that.

Now, we have evidence that we can’t afford, as individuals, community health care either. The federal government now has a powerful agency named “United States Preventive Services Task Force (USPSTF), which by its name one would think is in charge of making sure we get our preventive medicine testing as advocated by Nancy Pelosi. Except Nancy has changed her mind.

The Obamacare legislation has transformed the USPSTF from its former status as a mere (one might say milquetoasty) advisory board, which made recommendations on preventive health that doctors and patients could take or leave alone, into an extraordinarily powerful GOD panel (Government Operatives Deliberating) that determines, definitively, which preventive services are to be covered and not covered by private insurers, Medicare, and Medicaid.

If USPFTF determines that something will not be paid for, God help you in getting it done. I first noticed this when I was at Dartmouth. It was found that many men with positive PSA tests, which suggested the presence of prostate cancer, did not die of prostate cancer, at least for many years. These tended to be older men and men with lower levels of PSA. The result was a drive to educate men to NOT have PSA tests. Too many men were having the test and undergoing radical prostatectomy.

I was in some sympathy with this view. I had seen examples of overtreatment. Still, it seemed more fair to allow the patient to choose. I see no similar movement to deny mammography to women although the recent dustup about youngest age at which Medicare will pay from mammography does seem similar

just yesterday, the New York Times published a “news analysis” which aggressively begins selling the public on that very notion – that medical screening tests are, by and large, a bad thing to do.

Even DrRich thought the Progressives would be somewhat circumspect about breaking such remarkable and counter-intuitive news to us in the great unwashed – especially considering that they have just spent the last three decades teaching us just the opposite. But then he recalled their smooth, unapologetic and entirely unremarked transition, around twenty years ago, from sounding the alarm about global cooling to catarwauling about global warming.

And he reminded himself that when you are a Progressive, history always began 10 minutes ago. And this turns out to be a great convenience.

In this case it is particularly convenient, when you consider the passionate declarations by Ms. Pelosi and others in 2009 that the watchword of Obamacare – indeed, the very key to the dramatically lower costs we would realize with this new legislation – would be “prevention, prevention, prevention.”

Expect to hear about this. Here’s another way of

The British medical journal Lancet reported last month that 32% of elderly American patients undergo surgery in the year before they die, a statistic culled from Medicare data. In an accompanying editorial, Dr. Amy Kelley of Mount Sinai School of Medicine labeled the 32% figure a “call to action”—to reduce costly surgeries, intensive-care stays and other high-intensity care for the elderly. Her call was parroted in hundreds of media outlets nationwide. But advocates for limiting health-care spending on the elderly are distorting science to make their argument.

Don’t be bamboozled: The Lancet investigators looked only at patients who died, making surgery appear unsuccessful. That’s like saying Babe Ruth struck out 1,333 times so he must have been a poor ball player—even though he had a .342 lifetime batting average and 714 home runs. Investigators should have considered how all surgery patients fared, including those who recovered, returned home from the hospital and resumed active lives.

The day is coming when divided loyalties will be the most serious problem in medicine. Who has YOUR best interest at heart ?

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Posted in economics, medicine, politics | 4 Comments »

Permanent deficits are not Keynesian

Wednesday, September 7th, 2011

John Maynard Keynes, in addition to being the brother of the author of the first book on blood transfusion, was a famous economist whose policy recommendations have been widely abused by politicians for 50 years. His first widely known book was on “The Economic Consequences of the Peace.” It predicted that the harsh peace treaty would ruin Europe, a prediction that came true in 1929.

Reparations were set at a level that Keynes perceived would ruin Europe, Woodrow Wilson refused to countenance forgiveness of war debts and would not even let the US Treasury officials discuss the credit program. While Keynes’ proposals were far sighted, few others at the Versailles Conference understood their importance and Keynes’ proposals would have been controversial in nations such as France, Britain and the US.

Another critical insight was his prediction of the consequences of inflation.

Keynes outlined the causes of high inflation and economic stagnation in post-WWI Europe in The Economic Consequences of the Peace.

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Keynes explicitly pointed out the relationship between governments printing money and inflation.

“The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.”

It is significant that the US has debased its currency the past 40 years far more than the average citizen realizes. The present dollar is worth about 40 cents in 1970 dollars. Using the methodology at this site, which uses US Department of Labor data, a $100. item in 1970 would cost $582.60 in 2011 dollars. That uses a cumulative inflation rate of 482.6%. Using that calculation, the present dollar is worth 20 cents in 1970 currency.

The most common attribution to Keynes is the “pump priming” role of running budget deficits. However, his theory was the “countercyclical” principle of government budgets. That supposes that the government runs surpluses in good economic times, then deficits in bad economic times. Keynes assumed that these two phases of government action would cancel each other out. His work was based on his theories of how the Great Depression occurred. His apologists have used the Second World War as an example of Keynesian economics. They do not mention that the high deficits that were run during WWII were funded by US citizens who bought war bonds. Inflation was limited by price controls and consumption was limited by rationing. The excess income that was generated in war industries was invested in the national debt. We were not borrowing from another country and, after the war, the budget rapidly paid off the war debt.

What we have today is very different. Here is a useful explanation. There is more explanation here.

If Keynes were alive today, what would he think of President Obama’s fiscal policies?

He would roll over in his grave if he could see the things being done in his name. Keynes was opposed to large structural deficits. He thought that they chilled rather than stimulated the economy. It’s true that we’re stuck with large deficits now. The goal should be to reduce them, not to take on new spending that makes them worse.

Today, deficits are getting bigger and bigger with no plan to significantly lower them. Keynes understood what the current administration doesn’t understand that the proper policy in a democracy recognizes that today’s increase in debt must be paid in the future.

Read the rest.

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Posted in economics, financial, History, politics | 1 Comment »

I thought I recognized that name

Saturday, September 3rd, 2011

Obama has announced his new appointment for economic adviser. It is a Princeton economist named Alan Kreuger. I am not an economist or an expert on economists but that name rang a faint bell. Then I saw that someone else had remembered him, too.

In a 1994 paper published in the American Economic Review, economists David Card and Alan Krueger (appointed today to chair Obama’s Council of Economic Advisers) made an amazing economic discovery: Demand curves for unskilled workers actually slope upward! Here’s a summary of their findings (emphasis added):

“On April 1, 1992 New Jersey’s minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent.”

This was tremendous news, especially for Democrats. Raising the minimum wage did not increase unemployment as classical economics had said since the issue first arose.

Unfortunately, their study was ripped apart by other economists who used more objective methodology.

It was only a short time before the fantastic Card-Krueger findings were challenged and debunked by several subsequent studies:

1. In 1995 (and updated in 1996) The Employment Policies Institute released “The Crippling Flaws in the New Jersey Fast Food Study”and concluded that “The database used in the New Jersey fast food study is so bad that no credible conclusions can be drawn from the report.”

2. Also in 1995, economists David Neumark and David Wascher used actual payroll records (instead of survey data used by Card and Krueger) and published their results in an NBER paper with an amazing finding: Demand curves for unskilled labor really do slope downward, confirming 200 years of economic theory and mountains of empirical evidence (emphasis below added):

I would suggest reading the entire post which demolishes the study by Kreuger and Card. This is the new Chairman of the Council of Economic Advisers. More academics with no real world experience and this one is incompetent even as an academic. Spengler has a few words on the matter, as well.

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Posted in economics, politics | Comments Closed

Would Creating Hyperinflation be Treasonous ?

Sunday, August 21st, 2011

Last week Rick Perry made a comment that got wide attention in mainstream media.

Mr. Perry brought the Fed directly into the campaign debate Monday night by saying it would be “almost … treasonous” for the central bank to play politics by expanding the money supply.

“If this guy prints more money between now and the election,” Mr. Perry said in Cedar Rapids Monday night, without naming Mr. Bernanke, “I don’t know what y’all would do to him in Iowa, but we—we would treat him pretty ugly down in Texas.”

Today, on Meet the Press, Peggy Noonan showed that she is completely clueless on this subject by going off on a riff about how a president has to appear “nice.” She never did address the subject.

Others, who appear to know more about monetary policy had a different take.

Thomas Gallagher, a principal and economic policy analyst at the Scowcroft Group in Washington who advises Wall Street firms, said Mr. Perry’s comments will be the first thing many investors learn about his candidacy. And the comments are “drawing a fair bit of attention.”

“Voters may not care as much, but investors, like the chattering class, expect a candidate to know what he’s talking about when he talks about the Fed,” he said. “It’s one thing to oppose what the Fed is doing, but it’s another to call it almost treasonous.”

I don’t know that treason was the right word to use but the point is that the Fed is feeding inflation which is far more apparent to those of us who buy our own groceries than most politicians. Ron Paul has been railing at the Fed for years and he is gaining allies.

Libertarian Rep. Ron Paul, who fell 152 votes short of winning the Iowa GOP’s straw poll on Saturday, has been railing against the Fed for years, and former House Speaker Newt Gingrich has joined in with an “Audit the Fed” petition. Other conservatives complain that the Fed’s policy of using monetary policy to stimulate the economy, which it indicated last week it might renew, could be sowing the seeds of inflation.

I would say we are past the “seeds” stage.

The US Treasury has been the largest buyer of new Treasury bonds. How can this be ? The Federal Reserve is printing more money that is then used to buy the debt. Is this an example of the elusive perpetual motion machine ?

• Turning government bonds into circulating money is called monetizing the national debt.

• Quantitative easing is a euphemism for creating money out of thin air. In the vernacular, we call it “printing money,” even though it really has nothing to do with the U.S. Bureau of Engraving and Printing.

• The way it’s supposed to work is that the Fed buys securities in the open market, paying with a government “check.” (That’s how the money is created.) The sellers deposit those checks into their banks. The banks redeploy those deposits as loans to consumers and business. The money supply expands and, in turn, so does the economy.

What effect will this have on the dollar ? The economy hasn’t exactly expanded while this has been going on.

One factor may be saving us the worst of the effects of this reckless policy. Troubles in Europe and elsewhere in the middle east have caused many investors to engage in a “flight to quality,” although I wouldn’t call the dollar “quality” right now. The Euro, however, seems to be in even worse trouble.

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How the Left Lies to Itself

Saturday, August 6th, 2011

Here is the latest post on Political Animal, a leftist blog sponsored by Washington Monthly, a leftist magazine.

Political Animal
Blog

August 06, 2011 11:05 AM
A timeline of events
By Steve Benen

Let’s take a stroll down memory lane, shall we?

1980: Ronald Reagan runs for president, promising a balanced budget

1981 – 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.

Reagan did not have a Republican Congress during his two terms. He did have a Republican Senate for his first six years. Bob Dole was Majority Leader, which was no help in cutting spending.

Lie #1

1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.

Bill Clinton passed a tax increase which Republican predicted would slow economic growth. Bush had also raised taxes at the insistence of Democrats and a recession cost him re-election.

1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.

The fact is that Republicans took over both houses of Congress in 1995, the House for the first time since the post-war era. The stock market took off and revenues poured in from a good economy and the internet bubble which burst in 2000.

2000: George W. Bush runs for president, promising to maintain a balanced budget.

2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.

In fact, the national debt kept climbing and the “surplus” was on paper only. Bush inherited the recession that followed the bursting of the internet bubble in 2000.

2001 – 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.

The Bush deficits were declining the last two years of his term and the Democrats took over Congress in 2007. The Bush deficit in his last year was 10% of the present deficit. Notice Steve Benin doesn’t provide numbers.

That shows the deficits Obama inherited. Notice the increase after the Democrats took Congress in 2007.

2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.

This is a matter of policy choices. I am no fan of Bush in the spending department. He should have vetoed some spending bills that Hastert told him to sign. It was no fluke that Hastert’s district, after he retired from Congress, was won by a DEmocrat.

2009: Barack Obama inherits $1.3 trillion deficit from Bush; Republicans immediately condemn Obama’s fiscal irresponsibility.

The condemnation was of his plans to spend wildly.

2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.

No one with any economic knowledge would believe that Obamacare and Cap and Trade would lower the deficit. The most serious effect Obama has had thus far is the avalanche of regulation that has descended on business making anyone with money unwilling to invest. That is where jobs come from and the economy is stalled.

September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.

The economy may have begun to recover on its own, which is what usually happens in the absence of an activist government. Then came the impact of Obama’s and Pelosi’s spending.

October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

An exaggeration.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

The left does not understand that government does not create wealth. Raising taxes in a recession is what Hoover did. I wouldn’t think they would want to copy him but they learn nothing.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

This is another lie. Obama and Boehner were close to an agreement and then Obama insisted on tax increases after agreeing not to do so. He responded to complaints from the left which is fixated on tax increases.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility.

Another lie. The S&P report said the debt levels are too high and the agreement did not do enough to cut spending.

The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

There have been several instances since the mid 1990s in which I genuinely believed Republican politics couldn’t possibly get more blisteringly ridiculous. I was wrong; they just keep getting worse.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

There was a time when Democrats understood economics. Those days are over. They have convinced themselves that money grows on trees. They are destroying this nation’s finances, with help from many Republican professional politicians. The only hope is the tea party and turning Obama out in 2013.

The following essay expresses my feelings better than I can.

(more…)

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An explanation for Obama’s actions

Saturday, July 23rd, 2011

The debt ceiling debate has dragged on creating frustration and some anxiety about the economic consequences of default. President Obama has even threatened to withhold Social Security checks, claiming there would be no money for payment. Through most of this he has seemed to me to be unserious about the matter and using it chiefly to try to improve his chances for re-election. Fred Barnes has now come up with what I consider a good explanation for his behavior, including the last moment maneuvers yesterday.

First, the trade treaties:

The path to ratification by Congress was greased after President Obama renegotiated trade treaties with South Korea, Colombia, and Panama. Obama would supply Democratic votes. Republicans were already on board, President Bush having put together the treaties in the first place. It had the look of a done deal.

It wasn’t. In May, the White House suddenly insisted the treaties be accompanied by roughly $1 billion in Trade Adjustment Assistance, or TAA as it’s known in Washington. Organized labor was demanding TAA funds be set aside for workers whose jobs might be lost as a result of the treaties. Obama took up the cause.

Then there was the oil pipeline from Canada:

The Keystone XL pipeline from the oil sands in Canada to refineries on the Gulf Coast is another win-win issue for Obama, if only he’d embrace it. Canada is America’s leading foreign supplier of oil. The more Canada exports to the United States, the less we’re forced to rely on unfriendly folks in the Middle East and on Latin American countries (Mexico, Venezuela) whose oil production is declining. With the new pipeline, Canada would increase its exports by as much as 700,000 barrels a day. (The United States consumes 10-11 million barrels daily.)

A permit to build the pipeline was requested nearly three years ago by TransCanada. Because it would cross an international border, approval must be granted by the State Department. This was expected to be a snap, particularly after gasoline prices reached $4 a gallon. White House aides thought so, and Secretary of State Hillary Clinton indicated she was ready to approve it.

Then the environmental lobby, led by the Natural Resources Defense Council, began a campaign against approval, and the Environmental Protection Agency joined in. It criticized the State Department’s first environmental impact statement, which found the pipeline would have little effect on the environment. Clinton buckled, and a second impact statement was ordered. Last month, EPA said the new study was “inadequate.”

Both of these initiatives promised thousands of new jobs and would seem to be helpful to Obama in his quest for a second term. In both cases, a left wing member of his base intervened and his support collapsed.

Now, the debt ceiling:

The Speaker and the President had nearly agreed on a plan that included $800 billion in “revenue enhancements” but did not raise rates. What happened ?

House Speaker John Boehner’s (R., Ohio) office is pushing back against White House claims that the new revenue in the “framework” being discussed in the now defunct negotiations would have been generated by letting current tax rates expire. “That is simply false,” writes Boehner spokesman Michael Steel.

In reality, Steel writes, the White House offered a “ceiling” of $800 billion in new revenue over 10 years that would be achieved through comprehensive tax reform (e.g., eliminating loopholes, credits and deductions) in a way that would stimulate economic growth. This would not constitute a tax increase.

Following the release of the Gang of Six proposal, however, the White House then insisted on an additional $400 billion in actual tax increases, for a total of $1.2 trillion in revenue that would become the new “floor” for revenues. Additionally, the administration backed away from several aspects of the tax reform package they had already agreed to, including a protection against tax hikes on small businesses and a guarantee that they would only be three tiers of tax rates, the highest of which would be below 35 percent.

In regard to Social Security, the two sides had agreed on a change in the way the government calculates inflation (the so-called “chain CPI”) that would extend the program’s solvency. However, the White House reneged on a previously agreed-upon solvency target and offered a weaker target that would yield 25 percent less in savings.

If true, clearly the two teams were playing in two separate stadiums.

What had happened was that the “Gang of Six” report was released and the revenue increases looked better to Obama so he reneged. There was also considerable discussion that Democrats were furious with him because he had not insisted on tax increases.

No. I think what happened is Congressional Democrats got a whiff of a possible deal where you get entitlement cuts and tax reform, say, next year — which might increase revenue or might not — and they panicked because a) they have a religious belief in raising the taxes. If you don’t have that, you can’t have a deal, so it created a kind of a theological panic.

Obama, it seems, cannot stand up to the rest of his party. He will negotiate but once some interest group objects, he is gone. No deal.

It’s a good thing the Soviet Union is gone.

UPDATE: More on the Democrats’ insistence that any deal has to raise taxes. This is probably tactical as they hope this will alienate the tea party.

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Posted in economics, politics | 2 Comments »

Statistics and Poverty

Monday, July 18th, 2011

I am repairing a gap in my education by reading Thomas Sowell’s classic, Vision of the Anointed, which was written in 1992 but is still, unfortunately, as valid a critique of leftist thought as it was then. As an example of his methods, he constructs an experiment in statistics. This concerns poverty and inequality and, in particular, the poverty of leftist thinking.

He imagines an artificial population that has absolute equality in income. Each individual begins his (or her) working career at age 20 with an income of $10,000 per year. For simplicity’s sake, we must imagine that each of these workers remains equal in income and at age 30, receives a $10,000 raise. They remain exactly equal through the subsequent decades until age 60 with each receiving a $10,000 raise each decade. He (or she) then retires at age 70 with income returning to zero.

All these individuals have identical savings patterns. They each spend $5,000 per year on subsistence needs and save 10% of earnings above subsistence. The rest they use to improve their current standard of living. What statistical measures of income and wealth would emerge from such a perfectly equal pattern of income, savings and wealth ?

Age Annual Income Subsistence Annual Savings Lifetime Savings
20     $10,000                 $5,000          $500                               $0
30    $20,000                  $5,000       $1,500                      $5,000
40    $30,000                  $5,000       $2,500                    $20,000
50    $40,000                  $5,000       $3,500                    $45,000
60    $50,000                  $5,000       $4,500                    $80,000
70              $0                   $5,000               $0                   $125,000

Unfortunately, even with an Excel spreadsheet, I cannot get these numbers to line up properly.

Now, let us look at the inequities creates by this perfectly equal income distribution. The top 17% of income earners have five times the income of the bottom 17% and the top 17% of savers have 25 times the savings of the bottom 17%. That is ignoring those with zero in each category. If the data were aggregated and considered in “class” terms, we find that 17% of the people have 45% of the all the accumulated savings for the whole society. Taxes are, of course, ignored.

What about a real world example ? Stanford California, in the 1990 census, had one of the highest poverty rates in the Bay Area, the largely wealthy region surrounding San Francisco Bay. Stanford, as a community, has a higher poverty rate than East Palo Alto, a low income minority community nearby. Why ? While undergraduate students living in dormitories are not counted as residents in census data, graduate students living in campus housing are counted. During the time I was a medical student, and even during part of my internship and residency training, my family was eligible for food stamps. The census data describing the Stanford area does not include all the amenities provided for students and their families, making the comparison even less accurate.

Statistics on poverty and income equality are fraught with anomalies like those described by Professor Sowell. That does not prevent their use in furthering the ambitions of the “anointed.”

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Debt, interest rates and gotterdammerung

Thursday, July 7th, 2011

The debt limit talks seem to go on forever. Obama and the Democrats seem oblivious to the danger. All they think of is re-election. All is politics. Our present day ruling class seems even worse than those who saw the Civil War come and the Panic of 1893 and 1903. The last presidential administrations that seemed to understand economics were those of Harding and Coolidge and Eisenhower. Both preceded the “Great Society” of Lyndon Johnson that began the race to the bottom.

What we have had since Reagan is a Congress, and often a president, who ignored all rules of economics and saw government spending as the key to re-election. We are about to pay the price.

Here is an analysis of the effect of interest rates on our debt.

We have seen very low interest rates as a result of the fact that the Federal Reserve has been buying Treasury debt. What would happen if that debt had to be sold to others at a price determined by a market in interest rates ? Note the 1981-1990 scenario. It adds $5 trillion in debt by 2021, only ten years from now.

Instead, let’s look at an “alternative scenario” with the books uncooked by CBO.

You could look at the pdf file. Or you could look at some simple projections.

CBO estimated that 1 percent higher interest rates each year could increase deficits by $1.3 trillion over ten years. CBO also estimated a few other “rules of thumb” to show how changes in inflation and economic growth have significant impacts on budget forecasts. The projections show that lower economic growth of just 0.1 percentage point each year could increase deficits by $310 billion over ten years, while 1 percentage point higher inflation each year could add almost $900 billion to deficits.

The alternate scenario chart shows the debt going to 250% of GDP, about where Japan is now. Japan has had a “lost decade” that has lasted 20 years.

We will have a Greece style collapse before then, probably led by public employee unions.

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Neville Shute Norway

Friday, July 1st, 2011

One of my favorite novelists is Neville Shute. He was an engineer, and so was I, plus he writes about people with an ability to show their humanity and their deeper motivations without a lot of explanation. He is the engineer’s novelist, the businessman’s novelist and should be on every list of conservative novelists. I have read all his post-war novels, most of his wartime novels and a selection of his pre-war novels. He died in 1960 and all his books are still in print.

I was a college student when “On the Beach,” possibly his most famous novel, came out. It scared me so badly that I have not been able to enjoy rereading it, as I have his other books. I was a college sophomore and familiar with his other work at the time. I had read his aviation novel, “No Highway,” and was aware that the plot device in that book, of metal fatigue causing a new airplane to crash without explanation, had been prophetic. Shortly after “No Highway” had come out, the British Comet jet airliners had begun to crash and, when finally identified, the cause was metal fatigue.

Shute had written another prophetic novel in the late 1930s, called “Ordeal,” which predicted the effects of the Blitz on London. Both of these books, with their predictions borne out by history, caused me to be very shaken by “On the Beach.” A rather successful movie was later made from this novel, which Shute hated because it had suggested that the two principle characters, played by Gregory Peck and Ava Gardner, had slept together while he believed it important to establish their morality, even when doomed.

I very nearly dropped out of school after that book and spent a year or two getting over the idea that I would soon be fried in a nuclear war. My reaction was based as much on my regard for his novels as for the topic, itself. A quite good movie was made from “No Highway” with James Stewart, Glynnis Johns, and Marlena Dietrich.

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