The Skeptical Optimist

Obama's "non-ideological" team. I like the way that sounds.

I never dreamed Texas would have a big say in either party's nominating process.  (I bet Hillary didn't, either.)  But we will, in four days.  I can hardly wait.

So far, I've seen a lot of commercials, but not much negative campaigning.  Too bad; I like the negative ones, because it's usually good for a few laughs, and I really enjoy a good chuckle.  [Which reminds me: The best negative exchange I've ever heard happened in a Houston congressional race 34 years ago, just after Watergate forced Nixon to resign.  Candidate X told the reporters, "My opponent looks, and talks, and acts exactly like Richard Nixon."  The reporters dutifully relayed that insult to his opponent, candidate Y, who reacted as follows: "Oh my god, he must be drunk again."] 

Anyway, I saw a ray of hope in an article my son alerted me to.  I'm guessing not too many people will read the whole thing, but it's definitely worth it for anyone interested in "fiscal responsibility" the way I define it.  And here's a reminder: To me, "fiscal responsibility" is when emphasis is placed not on the money, but on what we get for the money.  I want the feds to spend effectively on all of the things that are government's duty; I couldn't care less if we choose to finance that spending with a mix of taxes and borrowing.  I prefer spending enough to prevent wars, equalize justice, and beef up infrastructure; I despise creating surpluses by short-changing our war-prevention, justice, or infrastructure systems.  In short, deficits don't matter if we are spending the money on things that enhance growth, security, and justice.  (...just in case you haven't heard me say that before.)

With that out of the way, here are two snippets from the New Republic article giving us a peek under the Obama campaign's tent.  [Emphasis below is mine.]

...a central tenet of the economic thinking favored by Bill Clinton and his Treasury secretary, Robert Rubin, was that cutting the deficit lowers long-term interest rates, which in turn stimulates the economy. The Obamanauts are perfectly willing to accept the relationship between long-term rates and economic growth. But recent evidence suggests that low rates weren't quite as central to the success of the Clinton years as they appeared, and that investments in infrastructure and R&D might be as important as deficit reduction. Not surprisingly, Obama plans to focus less on the deficit than Clinton did.

I like the way that sounds, don't you?  Here's more:

The Obamanauts are decidedly non-ideological. They occasionally reach out to progressive think tanks like the Economic Policy Institute, but they also come from a world—academic economics—whose inhabitants generally lean right. (And economists at the University of Chicago lean righter than most.) As a result, they tend to be just as comfortable with ideological diversity as the candidate they advise.

I like the way that sounds, too.  It's encouraging to me that the private sector consulting buzzwords-of-the-decade, "diversity and inclusion," have now become relevant in the realm of policy ideas—in at least one political campaign anyway: Barack Obama's. 

It's nice to get a glimpse behind the stump-speech facade every now and then, isn't it?  This is a pleasant surprise for me.  I'll be watching with interest to see how the stump speech changes for the general election, after the obligatory nomination-seeking rhetoric has done its duty for Obama. 

My second-favorite nonfiction book

Here's a book you should know about; I've been giving it a real workout for quite a while: A World of Ideas, by Chris Rohmann. 

Ever wonder what "progressivism," "conservatism," "libertarianism," or "empiricism" really mean?  When I do, this is where I begin.  It's in dictionary format, well cross-referenced, full of concise summaries; a great starting point for further research if you're so inclined. 

Here are a few snippets from a few of those concise summaries, selected by me, not quite at random...

...from the Adam Smith entry:

"A country that produces the goods it can grow or manufacture most efficiently, and imports the rest, can give its own consumers a greater freedom of choice, thus increasing the national standard of living."

...from the Karl Marx entry:

"Where previous social reformers had attributed social inequality to the unequal distribution of wealth, Marx rooted it in the exploitative relations of production."

...from the John Maynard Keynes entry:

"Like classical economists and their modern heirs, Keynesians believe that a continuous flow of investment into the economy increases both consumption and production.  However, they do not believe this happens purely through market forces..."

...from the Supply-side economics entry:

"It disputes the demand-side approach of Keynesian economists, who see growth as tied to the aggregate demand for finished goods and services, stimulated when necessary by government incentives.... [Supply-siders argue that,] as tax rates rise, taking an ever-greater proportion of income, people will respond by decreasing their productive effort and thus decreasing the tax base available to the government.... Tax reductions in the United States [in the 1980s], called 'Reaganomics,' stimulated an economic boom, but critics claimed that this reflected not supply-side but demand-side effects: output rose in response to increased consumer spending as the tax cuts generated higher disposable incomes."

And, last but not least, my favorite entry of all...

Skepticism:

"...the word comes from the Greek for 'consideration' or 'doubt.'  Skepticism takes two main forms: the belief that no position is certain (including, as is frequently noted, this position) and the view that truth exists but that certain knowledge of it may be beyond our grasp."

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Almost forgot.  If you're wondering what my favorite nonfiction book is, it can be found here.

FQ.08.08: Favorite Quote for This Week

At any point in time, I always think I understand everything.  Then, ten years later, I have to admit that, ten years ago, I didn’t know a damn thing, and that I’ve learned it all since.
—Robert Lucas  [link]

How to expose the "free election" scam

A country that holds free elections is a democracy, or close to it.  Right? 

It's easy to jump to that conclusion, and many of us (including government officials) do.  But that thought process skips three important questions that must all be answered "yes" before one can conclude that a so-called free election is actually free—as opposed to a skillfully-controlled scam. 

Given what's happening in Cuba these days (and China, and Russia, to name a few others), I thought it would be a good idea to re-listen to an expert on the subject of how politicians achieve and sustain political power.  I was right, it was a very good idea.  Here's the podcast titled "Democracies and Dictatorships," Russ Roberts's interview of NYU's expert, Bruce Bueno de Mesquita.  It's a one-hour fast track to understanding what really motivates politicians, and sustains them in (or removes them from) power.

By the way, here are the three questions.  If any one of them can be answered "no" then the election in question wasn't "free"—it was rigged. 

1. Was the press free to report to the public whatever they wanted?
2. Was the public free to assemble, to protest or support whatever they wanted?
3. Were the ballots counted by a truly independent, disinterested group?

Freedom of the press and freedom of assembly are essential; in their absence, elections are scams.  Food for thought as we think about what should happen in Cuba next. 

Don't miss the podcast.  It's a quick way to add a good BS-detector to one's cognitive tools. 

Two opposing definitions of "the market"

I'll borrow, and twist, Mark Twain's thought about the weather: Everybody talks about the market, but nobody ever defines it. 

Well, it's not quite that bad (a few economists have defined it), but after forty years of thinking about it, I've boiled it down to two possible definitions concise enough for my mental dictionary.  I know which one I favor—and the good news is that a few billion people seem to agree; the bad news is that a few billion don't.  So, I'll throw it out there to get your opinions.   

Which of the following two very different definitions better describes "the market": 

1 - A forum for voluntary cooperation between informed sellers and buyers, in which both parties profit from any given transaction.

2 - A forum in which predatory sellers exploit the ignorant, sheep-like buyers they have successfully hypnotized. 

Feel free to leave a civil comment explaining which one you prefer, and why.

Social Security: a class-warfare bonanza for Democrats

I caught an excerpt of Hillary's speech in Ohio; she was voicing disgust about the middle class's higher tax rates compared with the average rates Wall Street zillionaires pay.  It's a cornerstone of Robert Reich's elevator speech, too, so I assume (but can't confirm) that Obama agrees.  That's not all: it's the same rhetoric John Edwards had been using in his campaign -- and it's closely related to Warren Buffett's puzzling complaint about his own tax rate compared with his secretary's (...puzzling because he is in a position to fix that pseudo-problem quickly).  It's class warfare slick-talk, with everyone adhering to the fundmental principle revealed at the end of this article.

Here's what Hillary said in Ohio on Friday, Feb. 15:

It is OUTRAGEOUS that a teacher, a nurse, an assembly line worker, or a truck driver here in Ohio making fifty thousand a year pays a higher tax rate than some Wall Street investment manager making fifty million a year. 

What is causing this outrageous injustice?  Hillary didn't say, but it's none other than Franklin Delano Roosevelt's famous New Deal program: Social Security.  (My guess: That's probably why Hillary didn't say.)  Would FDR be surprised to learn that his own party has turned his famous program into a class warfare bonanza?  Here's a diagram of how it works:

What would FDR have to say about the assertion that the social security system is unfair?  [I haven't heard of any Republicans complaining about it, but if you know of any, let me know and I'll add them to the list.]

Everybody pays 6.2% of income, up to a limit, where it stops.  That's by design; social security was meant to be a contributory system, not a welfare system.  The maximum contribution of $6,045 is a different percentage of gross income, depending on one's income (big duh).  The nonrich people Hillary mentioned typically pay more social security tax than income tax, so they end up paying a higher overall percentage of their gross income than the rich.  That's the so-called OUTRAGE, and guess what: it's FDR's fault.  (Why didn't Hillary mention that part, I wonder?)   

But let's play along; let's assume for a minute that the mechanics of FDR's social security system is, as Hillary says, an OUTRAGE.  Okay, how could we remedy it?

I could think of the following four ways to end the OUTRAGE, any one of which would start forcing the rich to pay a higher overall percentage than the nonrich:

1. Change social security into a welfare system: the rich pay more taxes into the system, but their retirement benefits do not increase.

2. Change social security into a retirement windfall for the rich (relative to the nonrich): the rich pay a lot more into the system, and collect a lot more in retirement.

3. Eliminate the revenue side of FDR's contributory system altogether, and increase progressive income tax rates accordingly. 

Note that all three of those "solutions" would decimate FDR's purpose for social security: it was to be a system whereby each worker contributed to the retirement safety net; it was NOT to be a welfare system, or a progressive system that benefitted the rich more in retirement.

Here's the fourth possibility, the one I personally favor:

4. Change the income tax system into a dual-rate tax similar to the one described in this article, so that the more you make, the higher overall percentage you pay. 

Which solution do the Democrats prefer?  When will they start getting more specific about solutions to the OUTRAGE? 

Class warfare: the fundamental principle
I've decoded the important underlying principle of class warfare rhetoric and sloganeering:

When you have a choice, always pick the scarier of two numbers, to incite the maximum possible resentment in the voters you are addressing. 

Specifically:

1. To incite resentment about the regressive social security tax, be sure to talk about tax percentages, not tax dollars;

BUT...

2. To incite resentment about income tax cuts, do the opposite: talk about tax dollars, not tax percentages. 

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End note:

The sophistry in political campaigns is a hot button for me, if that isn't apparent yet.  Both sides employ it, but this particular topic seems to be the exclusive domain of the Democrats.

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UPDATE: Was Hillary talking about the social security payroll tax?  Here's a clue: an excerpt from the Democratic debate at Howard University, June 28, 2007 (seven months ago); emphasis mine: [ link ]

SEN. CLINTON: Well, I clearly think that our economy was working a lot better in the 1990s. We had the creation of 22 million new jobs, a balanced budget and a surplus. And certainly when the Bush administration came in, they were determined to tilt the balance back toward the privileged.

We are paying a very big price for this, because middle-class and working families are paying a much higher percentage of their income. That was Warren Buffett’s position, that he pays about 17 percent, because don’t forget, it’s the payroll tax plus the income tax. And when you cut off the contribution at $90,000, $95,000, that’s a lot of money between 95,000 (dollars) and the 46 million (dollars) that Warren Buffett made last year. And he’s honest enough to say, look, tax me, because I’m a patriotic American and I want to make sure our country stays strong and is fair.

So, yes, we have to change the tax system, and we’ve got to get back to having those with the most contribute to this country. (Applause.)

FQ.08.07: Favorite Quote for This Week

The market economy is a man-made mode of acting under the division of labor.  But this does not imply that it is something accidental or artificial and could be replaced by another mode.  The market economy is the product of a long evolutionary process.
—Ludwig von Mises

Deficit Watch thru Jan 2008

Bad news: The falloff in revenue growth now means the trends in revenues and outlays are diverging.  Translation: Don't expect a balanced budget any time soon, let alone in time to make the presidential campaign more interesting.  More bad news: It doesn't look good for my side of the bet I made a year ago (...wait, I take that back; that's good news to a lot of people).  Anyway, here's the disappointing chart; click to enlarge.

Let me be clear: I do NOT think a balanced budget would be good news, because I prefer a unified budget deficit that is just large enough to keep the debt/GDP ratio from increasing or decreasing.  It's the stuttering politicians a balanced budget would induce that would be good news to me.  I love a good laugh, and that would deliver plenty of good ones.  Unfortunately, it looks like it won't be happening.    

I'm thinking about adding a third line to this chart, if I can find the time: the receipts level required to maintain the current ratio of debt to GDP (...it would be lower than the actual receipts shown).  It certainly wouldn't make a dent in any political rhetoric on the right or left, but it might be helpful information for anyone who understands the 3rd grade arithmetic lesson that when the denominator grows faster than the numerator, the ratio shrinks. 

Feedback is welcome.  Again, be prepared to tell me your real name and background, privately, if I ask for it privately.  [And anyone who is clinging to the politically-convenient belief that the general fund deficit—not the unified budget deficit—is the more important number, should expect to be asked.]

The mortgage mess: What about the evil borrowers?

For months, I've been listening to the analyses, by every talking head on the air, regarding real and potential mortgage defaults.  All I hear is sympathy for the borrowers, all of whom were supposedly innocent victims of unscrupulous lenders.  All of the government bureaucrats, officials, and bailout programs are designed to assist the borrowers who got shafted.

Just curious: How come I'm hearing nothing about the lenders who got shafted?  Does everyone really expect me to believe that 100% of the victims were on the borrowing side?  How naive is that?

Many fraudulent borrowers, from the very beginning, never intended to make payment 1 on the house they bought.  They were just in it to flip the property, or to pocket the money they secretly obtained in an illegal side letter that was hidden from the closing process.  The FBI has known about this problem for years. 

Fraud and deception in home mortgages has been a two-way street.  So why is the dialog so one-sided?  Why are all borrowers being lumped together as seeming "innocent victims"?  (Were the fraudulent buyers counting on this kind of reaction?  Sheesh, maybe they were smarter than I'd thought.)

Just curious.

Marxism paradox: Help please

I'm stuck on what seems like a flaw in the the basis for marxist/socialist thought.  I'd be grateful for help in clearing up my understanding. 

According to Marx's labor theory of value, the individual worker does not receive full value for his production, because the greedy, exploitive capitalist pockets a portion for himself.  Whether or not that is true, here's the apparent logical inconsistency...

The paradox
Given the labor theory of value, why does one of the main guiding principles of socialism/marxism/communism say:

"...to each according to his need"

as opposed to:

"...to each according to his production"?

If this apparent logical flaw was truly a mistake by marxism's slogan-crafters (aside from the sexism), then it seems to me the full slogan should have been as follows:

"From each according to his ability, to each according to his production." 

...which, by the way, is too wordy.  Strunk & White would have chopped it down to this:

"From and to each according to his production."

In any case, do you know anyone who can resolve this gap in my understanding?