Hedging the Apocalypse

Posted on May 24, 2012 by John

When some latter-day Aristophanes distills the tragicomic story from the mash of the current Greek econodrama, I’ll wager that it will have much in common with the original story of the Acharnians.  The London Review of Books synopsized the story in a review of a fairly recent translation, which as they note, had come just “in time for George Bush not to read it before he blunders into Iraq”. Aristophanes’ protagonist, an old farmer, visits the Senate to make sure that peace and prosperity are on the agenda in the discussions of the run-up to war. The only one to show up on time, he finds that the Senators are all elsewhere, doing deals to profit from the crisis with Sparta.  He realizes that his only hope of prosperity is to become as rapacious and self-serving as they, and does so with a vengeance.

 To continue the metaphor from Greek myth, the financial market’s recent faith in its own free market dogma and an Icarian disregard for its elder’s wisdom caused its wings to fail and resulting in its 2008 crash to earth. Daedalus’ warning of fatal error if basic operating parameters are disregarded shows that he had conducted a basic potential system-failure analysis (fly too close to the sun,wax melts and feathers detach) when planning his flight with Icarus. Nothing has changed today. The financial sector continues to ignore the hard-won lessons from other complex systems, let alone its own past, leaving our economies exposed to hubris and the Fates.

Consider management, policing and risk in complex systems where really, really bad things happen (even worse than total economic collapse); read Scott D. Sagan’s book, ‘The Limits of Safety: Organizations, Accidents and Nuclear Weapons,’ 1993. It takes previously classified records of failures within the nuclear weapons system and analyzes them against current theories of risk management. He contrasts the ‘high reliability’ school of safety, which believes that …”organizations, properly designed and managed, can compensate for well-known human frailties…” with ‘normal accident theory’ presenting “a much more pessimistic prediction; serious accidents with complex high technology systems are inevitable.”

The book may cause you sleepless nights. Some of the accidents he analyzed avoided nuclear Armageddon only by chance. Vs. the financial system, it shows that  maintaining high reliability in a huge, internationally interconnected, non-transparent banking system with light-speed flash trading, fueled by greed and competition, is not possible. As hundreds of years of banking history shows, failure is inevitable.  Scholarly work like Sagan’s, at Stanford, shows that it should be possible to design a financial structure far less prone to fail and, should it fail, not cause a financial Apocalypse…which hedge fund managers would say is great if you’re on the right side of the deal. Clearly, it’s not the case for the 99% who inhabit Main Street and who depend on stable banking services.

Modern aeronautical engineering provides another example of ways to deal with complex systems with high risk potential. The modern jetliner incurs a weight penalty through redundant systems and load paths, which means higher fuel costs and less payload and thus less potential profit. No sane person would consider riding in an airliner where virtually every critical system and structure represented a potentially catastrophic single point failure, and no Government body would permit such an aircraft to fly commercially, yet Wall Street has resisted all attempts to regulate the financial system that restrict their profits in the slightest. But as recent history shows us, lethal problems occur when pilots believe that the built-in protections of the flight-control computers will protect them in any circumstance, just as Wall Street believed in the ability of its programs to tame and domesticate risk and profit from its sale. Hubris and fate combine, just as dogmatic belief in the ability of markets to self-regulate caused the crash of 2008.

The promise and the problem of sophisticated control systems is described elegantly in William Langeweische’s insightful book, ‘Fly by Wire.’  While it focuses on the safe landing in the Hudson by an Airbus that lost its engines after hitting a flock of geese, at a deeper level it is an eloquent essay on the management of complex systems and the interrelationship between humans and technology. Langewische speculates on the existence of a ‘Titanic Effect’ such that if you believe your ship is unsinkable you will sail at top speed through iceberg-filled oceans. If you believe that markets provide the optimum control system, no external limits are needed, as the market itself will do the job. Bernard Zeigler, the Airbus designer, wanted to build an ‘uncrashable’ airliner but, as with all who ignore the fates, hubris entered, this time in the form of a pilot who had ultimate faith in the system, just as Alan Greenspan had ultimate faith in the power of the free market.

To understand flight as a metaphor for economic performance, consider how the forces in flight are analogous to economic forces, as shown in the following diagram, which shows an aircraft and an economy in a level state, with all forces in equilibrium.

Illustration from Dominican University  Econophysics Working Paper @ John Hulls & Dominican University

 In simplified terms, if you cut spending and thus value generated to meet the demand, then try to maintain velocity, you must lower lift and growth and thus drag and cost of generating value, resulting in a loss of altitude and overall value.   If value generated exceeds the cost of generating it, the economy will climb.  If the velocity is too low, and alpha is increased in an attempt to maintain altitude, the economy will stall, with a catastrophic loss of growth.  Unfortunately, those in the smooth flow at the leading edge, the 1%, will continue to benefit well into the stall though the rest of the population will become increasingly lost in the turbulence as the stall develops. (To visualize a stall, watch?v=6UlsArvbTeo and for a full explanation, see notes below and the link to the Dominican University Working paper)

 Running out of lift and thrust to maintain altitude ends in a landing or an accident as the aircraft stalls.  In 1988, senior Air France pilot Michael Asseline decided to fly low over an airshow at a small, nearby airport to demonstrate the Airbus’ ability to hang in the air at the ragged edge of flight, just as Greenspan and others wished to demonstrate that markets would self-regulate to maximum safe levels of risk. Taking off from Mulhouse, France, the Airbus had 136 passengers aboard what was the aircraft’s introductory flight. Many had never flown before. Greenspan and Wall Street had the entire U.S. population on board their ‘financial flight.’

The Airbus flight-control system, a highly sophisticated computer system, enables even an average pilot, in an emergency, to extract the maximum performance from an airplane in a complex, layered systems of software controls that prevent the pilot from exceeding the aircraft’s structural and aerodynamic limits. The last layer of protection prevents the pilot from pulling the nose so high that the wing stalls, causing catastrophic loss of lift. Similarly, Greenspan and Wall Street believed in the ultimate protection provided by the self-regulating power of markets to price risk in such a way as to prevent economic accident and upset. They were disastrously mistaken.

‘Fly by Wire’ describes in chilling detail how Asseline turned off one layer of protection after another, just as Greenspan and the Congress turned off one layer of financial protection after another. Asseline turned off airspeed and throttle control, and Congress turned off Glass Stegal and disconnected any regulation of any of derivatives. Sinking too close to the ground, the pilot applied power, but the engines take time to spool up to full thrust. Videos of the crash show the Airbus–its nose held high, teetering on the edge of a stall, but with wings level, settled into the trees (there were several clips on YouTube, many of the the commentary and comments  show the incredible ability of the web to support demonstrably false conspiracy theories; links to the actual accident reports are available here.)

The fly-by-wire system would not let Asseline turn off the final layer of safety net which he was depending on for his demonstration, and prevented him from causing a fatal stall, in which case the aircraft would have rolled and plunged near vertically into the forest, killing all aboard. Much like Wall Street and the financial regulatory systems, it did not prevent him from finding a way around the other layers of restrictions, and setting up a circumstance from which he could not recover. Three people out of the 136 aboard died, including a crippled child and a woman who tried to save an eight-year-old girl trapped in her seat.

Likewise, what remained of the financial regulatory systems and safety nets prevented a full stall of the economy along with bailout cash rushing in to keep the needed velocity of financial flow.   As it was, the Obama administration could apply barely enough stimulus to arrest the rate of the descent, but now, almost four years later, we’re only climbing very slowly, at a dangerously slow rate. Any market turbulence might send us hurtling downwards. Once again, the airliner provides an apt analogy. As with the landing on the Hudson, the computer system enabled Captain Sullenberger to expend his resources of altitude and airspeed in the most efficient manner, while his judgement and understanding of the dynamics of flight guided his decisions, and everyone walked away.

However, the true lesson on excessive dependence on complex systems had yet to be learned. A few years later, two younger pilots, with unwavering faith in the control system, distracted by rough weather and a temporary loss of airspeed input,  took an Airbus at 38,000 feet over the South Atlantic, and in just a few minutes, let it fall into the ocean, killing all aboard. Fate allowed the recovery of the black-box recorders from unprecedented ocean depths to provide a chilling tale in the transcript of those final minutes. Langeweische’s book appeared immediately after this crash. Before the black boxes were recovered, he speculated that it would be unbelievable for the pilots simply to misread what the aircraft was actually doing, yet that is what occurred.

This accident would never have happened to Sullenberger, who would have returned to the first principles of flight, trading the assets of altitude to achieve a velocity where maintaining stable flight was possible, yet today we seem reluctant to return to first principals of economics. Austerity believers in Europe’s financial centers proposed budgets that effectively ‘cut the throttle’ and ‘haul back on the stick’ to protect the assets of the financial system. They must now explain how their actions differ from those of the pilots sinking to their doom in the South Atlantic, refusing to understand what their perfectly capable aircraft was trying to tell them. Unbelievably, Romney, grasping Ryan’s dishonest claims of a deficit-cutting budget, refuses to explain how much he will ‘chop the throttle’ of economic demand while ‘hauling back on the stick’ to maintain altitude and thus the asset value of the 1%.

I am sure that our latter day Aristophanes will also point out the hubris of Jamie Dimon and the Wall Street crowd, who dismissed lessons of the Crash of 2008, forgot the bail-out that saved them, then tried to convince everybody that they understood the structure and limits of the economic system better than anybody else, only to watch JP Morgan lose billions in its stock value playing the same game as before. If Greece triggers the next market disaster, our author will point out the fine hand of the Fates at work, since Goldman Sachs and others of their ilk profited from helping Greece cook its books to join the Euro, thus setting the stage for the current tale.  In modern terms, all the complex games with leverage, derivatives and the sale of risk did nothing for Greece or anybody else’s economic performance, other than the financial sector, whose real job is to distribute capital economically.  There is no evidence that all of Wall Street’s innovations of the last couple of decades have done anything to better overall economic performance by, as Greenspan claimed, improving the efficient deployment of capital.

Aeschelus clearly enjoyed writing comedic plays, albeit with a bitter edge. For a modern-day playwright, it will be the tragicomic emergence of the truth that the proper role of government is to protect the 1% from its own excess, and to avoid the repeating rhymes of economic history. More irony? Ignoring the Fates, certain of their management skills and in the ability of their complex, rocket-science systems to protect them, the financial industry poured hundreds of millions of lobbying dollars into Washington in an attempt to insure that We the People and our government did not save them from themselves.

Further Notes (Somewhat geeky)

There are many flight analogies in the financial market, perhaps none more relevant than comments by former Treasury Secretary Larry Summers, who said in an interview at Fortune Magazine’s 2011 Brainstorm Tech conference, “we’ve been flying out of it (the recession) dangerously close to stall speed and doing something about that should be our top priority.”

 I’m a big fan of simulations as opposed to ‘pen and paper’ mathematical models to drive economics towards a more experimental science, as expressed by Julian Reiss of Erasmus University in the Netherlands.  He discusses how they don’t have to be as tightly constrained as pure mathematical models and have been used in a variety of sciences to derive practical solutions to very complex problems.  I’ve been working to develop an easy-to-use ‘flight simulator’ to look for trends in environmental planning in conjunction with the Dominican University ‘Green MBA’ program. The model is also capable of stalling, long and short-term cyclic behavior, and factors income distribution into economic performance. 

 The simulation uses the fluid dynamics of flow over a cambered surface as a physical analog of the economy flying through an atmosphere of potential transactions.  You can see the working paper and learn more about the Cambiant model (from the Latin Cambiare…to bank or trade, and camber, as in the properties of an airfoil) at: https://sites.google.com/a/dominican.edu/econo-physics/working-papers

 Here is a typical output of a simulation run, in this case with conditions set to show effects of degradation of debt stability.

Source: Dominican University Working Paper

 One thing it tells us, as shown in this simulator run, is that the economy, while benefiting the 1%,  is still dangerously unstable, and unlike the crash of ’87, when things subsequently damped down, degrading debt quality and the .com boom set off a series of oscillations ending in the crash of 2008.  The production of value was set as a constant and what is interesting that all the financial innovations that destabilized the markets only produced a very slight growth in total asset value, clearly not worth the loss of stability that they caused. I don’t think we’ve done enough to restore stability and it won’t take much to set the whole thing off again.  Don’t say you weren’t told.

 

 

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Economics: Repeating Rhymes

Posted on February 13, 2012 by John

 Harpers Weekly,  1871

As Mark Twain famously didn’t say: “History may not repeat itself, but it certainly rhymes.”  There is something unfortunately close to doggerel here, when considering the nostrum that tax cuts and bailing out the wealthy improves the economy. Reviewing the Bush tax cuts and the current Republican candidate’s positions, recall Treasury Secretary Andrew Mellon’s policies prior to the Great Depression. Not only did Mellon, then one of America’s riches men, cut the maximum individual tax rate from 77 to 25 percent, but he also cut corporate taxes. He then engaged in an extraordinary program of refunds, rebates and remissions totaling another $6 billion (in 1930 dollars) during his nine years in office. To top it off, he proposed “replacing the lost revenues with a regressive national sales tax on all articles of retail trade”.

As the Depression began, Mellon stated: “Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High cost of living and high living will come down. People will work harder, live a more moral life.” (1)  If this doesn’t rhyme with Bush’s tax cuts and Romney’s position on not bailing out GM and letting the housing market continue to fail, what does? In Mellon’s favor, he believed that earned income should be taxed at a lower rate than capital gains, a far cry from the current carry-tax breaks for private equity. But this is all mere doggerel compared to the epic poem of the successive decline of the three main financial empires that preceded the U.S: Spain, Holland and England, who all repeated essentially the same stanzas of economic rise and fall, none learning from its predecessor.

Each country became, in turn, the world financial center. In the early 1500s, Spain became the world’s leading economic force as New World gold and silver flooded into their economy, creating an empire under Charles V that stretched from Antwerp, in the Lowlands, all the way to Italy. But by  the 1580s the largest segment of Spanish industry, textiles, had peaked. Industry continued to decline as capital fled for investments in the debt instruments of an increasingly profligate monarchy, creating a financial market focused on money at interest, and rents. The financial commentators of the time noticed.  Writing in 1600, Gonzalo de Cellorigo,  observed “an extreme concentration of rich and poor and there is no means of adjusting them one to another. Our condition is one in which we have rich who loll at ease, or poor who beg and we lack people of the middling sort, whom neither wealth or poverty prevents from pursuing the rightful form of business enjoined by natural law.” (2)

The Thirty Years War finally put paid to Spanish ascendancy, along with the expulsion of Protestants from the Spanish Netherlands, with many of the merchants and skilled craftsmen fleeing north to Amsterdam. By 1600, the Dutch soon had the largest merchant fleet and developed a significant technological edge in many industries, especially ship-building, textiles and specialized manufacture, as well as developing the precursor to modern banking. They held an edge from the 1600s to the late 1700s, when once again capital fled industry for the financial sector. Stunningly, much of that capital was invested in the next emerging financial empire, England. At their peak, the wealthy of Holland owned one quarter of England’s public debt, along with one third of the shares of the Bank of England and the British East India Company, while their manufacturing mostly peaked in the 1720s. Earlier, travelers had commented on the wealth of the Dutch middle class, but in 1764, English writer James Boswell noted: ”Most of their principal towns are sadly decayed, and instead of finding every mortal employed, you meet with multitudes of poor creatures who are starving in idleness.” (3)

England followed almost exactly the same path as Spain and Holland, with the rise of trade and the Industrial Revolution, an increasingly wealthy middle class and the celebration of manufacturing by the early Victorians, followed by the rise of the financial sector and investments abroad from the Argentine to Australia and America. As in Holland, capital fled England’s productive economy. Yet, like the Dutch, the British claimed that the substantial income from their global investments would offset the decline in Britain’s internal economy, with its ever-growing wage inequality. By the late Victorian age, lack of investment had rendered much of England’s manufacturing economy obsolescent. Yet the share of wealth of the top one percent continued to increase to 69% while, at the same time, Britain’s share of world manufacturing declined from 32% in 1870 to 15% in 1910. During this period, the U.S. share of manufacturing rose from 23% to 35% as America started the same historical cycle all over again.

Romney, Gingrich and Santorum are beyond intellectual redemption with their pandering and pimping in an attempt to procure the Republican base, and the 4th estate is never going to insist that they answer difficult fundamental questions.   However, for pundits such as David Brooks and those who call for moral rectitude and other nostrums to save us by restoring American exceptionalism, consider the preceding brief economic history. Then, with the current levels of inequality in an America that assigns up to 40% of corporate profits to the financial sector, look at Neil Degrasse Tyson’s excellent video graphic (4) on the decline of U.S. science .   Next, please explain, to borrow the title from Carmen and Rogoff’s excellent book on eight centuries of financial crisis, why ‘This Time is Different.’

 

Notes:   There’s nothing really new in this piece, and even the sources have been used repeatedly in both the academic and popular press.  What is really depressing is that they are so readily available, yet we get so little historical context in the current economic debates.   I’ve just listed the main sources with some comments.

1. Hoover, The Memoirs of Herbert Hoover. Vol.III  (McMillan 1952)  p. 30.  This quote fromHover’s Memoirs can be found on-line in the original McMillan version at: http://www.ecommcode.com/hoover/ebooks/displayPage.cfm?BookID=B1&VolumeID=B1V3&PageID=41 and it is very informative to read it in the context of Hoover’s views at the time, and how they were influenced by Mellon.

2. Elliot, Imperial Spain, 1479-1716. (Penguin, 1970)  p. 310  The full  quote, well worth reading,  is available on-line at:  http://www.amazon.com/Imperial-Spain-1469-1716-J-Elliott/dp/0141007036 if you ‘search inside the book for ‘arbitristas’

3.  Boswell’s comments regarding Holland in his letter of 17 June 1764, to Temple are most instructive. “Utrecht is mostly ruined….” It’s on line with a little scrolling to page 288 at: http://www.archive.org/stream/boswellinholland027081mbp/boswellinholland02

4.  Recorded 2011/05/12 during Tyson’s lecture at the University of Washington entitled “Adventures of an Astrophysicist” http://www.youtube.com/watch?v=NXIR9ve0JU0

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The Tea Party Gets it Right (Well…sort of….)

Posted on September 8, 2011 by John

 

  Photo credit: Reuters/Brian Snyder

 

Much is correct in the Tea Party’s position, but it lacks historical perspective. To clarify, consider the name of Wilkes-Barre, the Pennsylvania town, founded 1769. The name comes not from its founders but rather honors two men who fiercely supported the rights of Americans (who were then Englishmen) in Parliament. Col. Barre was a hero of the French and Indian Wars in which one Lt. Col George Washington also played a significant role leading government intervention to protect the settlers along the frontier from raids by the Indians and French. As a Member of Parliament, Barre delivered a rousing but unsuccessful speech against the Townsend Acts, recorded in a February 11, 1765 letter from a colonial representative in London to Thomas Fitch, former governor of the Connecticut Colony. In his speech, Barre described the colonials as “Sons of Liberty,” a name the colonials readily adopted.

John Wilkes campaigned against the fact that over half of Parliamentary Seats came from ‘rotten boroughs,’ where landed gentry so controlled them that they were often bought, sold or given to family and supporters. Wilkes was elected to Parliament, expelled by the powers that be, and ran again, only to have the government disqualify his votes. People rioted in the streets of London, crying “Wilkes and Liberty,” which became a toast from New England to South Carolina. His dismissal was reversed and he became an even stronger advocate of liberty and personal rights, both in England and America. Usurprisingly, the colonials he had supported against the British ruling classes honored him and Barre by naming their town after them. It also shows us where the current Tea Party has gone badly astray.

History lets us define what would become the roots of American Independence, not as the colonials versus England but as a shared battle for the common man’s rights against a corrupt and, as it turned out, incompetent British ruling class. The aforementioned Townsend Acts were an example, designed primarily to raise revenues and make colonial administrators and judges beholden to the Crown, not the colonists. The Acts attempted to establish the right to tax the colonies, though the law clearly held that British subjects could not be taxed without permission of their Parliamentary representatives. This stupidity led directly to the Boston Massacre of 1770. Townsend, then Chancellor of the Exchequer, needed revenues because Parliament had voted a huge tax cut for the wealthy, reducing their Land Tax—a principal source of income—by 30%. Things were becoming startlingly similar to present-day America.

The American colonists were not the only victims of the resulting deficit caused by tax cuts for the wealthy. England’s common man was also preyed upon. Parliament imposed a cider tax, enacting laws that let revenue agents  enter any establishment where they thought cider might be sold or made. William Pitt, whose House of Lords arguments led to the law’s repeal, thundering against this invasion of liberty with his famous reaffirmation of the law, first established in 1628, that an Englishman’s home is his castle (right: Pittsburgh is named after him). The colonials, subject to invasive measures similar to the cider tax, had—according to Wilkes, Barre, Pitt, and many others in England—the identical rights of representation.

Another direct parallel with the present caused the 1773 Tea Party. England had its own ‘Too-big- to-fail’ financial behemoth, the British East India Company, with its own navy and an army in India, so closely tied to the Government as to be almost indistinguishable. It accounted for a significant percentage of London traders’ and financial firms’ income, not to mention incomes of Members of Parliament and the House of Lords, who held much of its stock.  History repeats. As with all such endeavors, the East India Company had got itself in trouble. To insure that the company could pay its dividend to its wealthy shareholders, it received a massive tax ‘refund’ on the tea it already owned. This should have enabled it to undercut the tea market in Boston and elsewhere for a huge profit, harming many New England merchants.  The British elite bailed out their financial sector while harming main street, just as today.  Dumping the tea into Boston harbor prevented immediate damage, but independence was clearly the only permanent solution.

In the run-up to the American Revolution, the colonists may have been unruly but—vs. the modern Tea Party—acted in their own considered self-interest. Such is not the case today, as the Tea Party supports candidates who deny science, economic reality and a common sense of fairness.  They caused the election of people like Walker in Wisconsin and Kasich in Ohio, who turn around and try to take away the very freedoms that the colonials so cherished, and invoke the great names from American history (not Reagan) as supposed supporters of their cause.  Such behaviour would have sorely puzzled the founding fathers. Leaders like Franklin and Jefferson were active in the Enlightenment, seeing the value of science and logical reasoning, a capability also lacking in much of the modern Tea Party movement. They would also have puzzled at the lack of cogent understanding of trade, taxation and technology, but in all fairness, that weakness is endemic to far too much of our elected ‘leadership’.

I wonder what questions Jefferson and Franklin would have asked the man in the illustration about his cell-phone technology vs. his yearnings for an ahistoric past, not to mention that large bus in the background that apparently spends so much time traveling on the federal interstate highway system, built by the government that they founded.  One can only hope that  the Tea Partiers, riding in their slogan laden busses which were no doubt funded by the Koch brothers and their ilk, hit enough potholes in our decaying infrastructure to jar them into turning down the path that leads to the common good and shared freedoms, as the founding fathers intended.

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Dam the Economists!

Posted on August 17, 2011 by John

 

John Cochrane, meet the Hoover Dam

I wonder if some economists, like some meteorologists, ever look out the window at the real world. Most of the time, there’s a lot of saltwater-vs.-freshwater-school-of-economics sniping going on, especially in the current crisis. Not much practical work is being done and the Chicago/freshwater economist folks are particularly obtuse. One of the most frustrating things is their claims that make no sense to me, especially when they fail to look at concrete examples that prove them wrong. There is no more concrete example (pardon the pun) than the Hoover Dam.

UC Berkeley economist Brad Delong, who looks out his window at Berkeley’s baristas and yoga instructors and also recognizes the value of government investment, wrote in his blog the following quote from John Cochrane, of the University of Chicago.  “Most fiscal stimulus arguments suffer from three basic fallacies. First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about ‘crowding out’…”

Cochrane may have his points if he’s talking about AIG-type Wall Street bailouts, where much of the public’s bail out money never seems to make it out of the financial sector, but economists should specify the difference between government investment vs. financial-sector handouts, rather than lumping everything together under the generic heading of ‘stimulus.’   Clearly, while the TARP bailout saved the financial sector from disastrous collapse, it did little for most of the American economy, though it preserved a large segment of the auto industry. Contrast that with a productive government- stimulus investment. Thanks to a 1933 Fortune article, we have an excellent historical perspective on such a project along with some interesting statistics.

The Hoover Dam and its associated power and irrigation projects cost $165 million in 1933 dollars and created 16,000 jobs at the height of the Depression. Interest charges during construction were $17 million.  Total cost was $1.25 for every man, woman and child in America, which Dr. Cochrane would dismiss as interfering with free enterprise and stealing jobs and capital from the private sector. In reality, the dam cost citizens nothing: the $1.25 actually represents a collective (oops…nasty socialist word) investment by the entire citizenry. In less than 50 years, the dam paid itself off by selling water and power with a 100% profit and continues to generate over $400 million a year from selling electricity.

No doubt Cochrane and cohorts like Congressman Ryan would dismiss this as a mere blip in the GDP, not worth the surrender of ideological positions. But the Hoover Dam’s impacts go far beyond just the project itself and influenced the entire future of the country. It provides irrigation for 3.5 million acres of crops in Arizona, Nevada and California and Mexico, producing >$1.5 billion in crops (providing both nutrition and tax revenues), plus countless thousands of jobs not only in agriculture but all the associated industries like farm machinery.  It supplies a billion gallons of water a day to Los Angeles. Hoover Dam electricity powered the rise of the Southern California aircraft industry that did so much to win WWII.

Countless other government programs have generated huge returns and improved the country, such as the Rural Electrification Administration, the WWII GI bill, and a host of other examples of public investments. Which brings us back to the problem with a lot of economists. As a 1991 American Economics Association study put it, economics programs are producing “too many idiots savants, skilled in technique but innocent of real economic issues.” Far too many have studied economics with the intention of moving to Wall Street, as told amusingly by Michael Lewis in his book Liars Poker, in which he reveals that 40% of Yale’s class of ’86 applied for work at one investment bank, First Boston, which became a major player in the sub-prime mortgage debacle.

No economic philosophy or formula will provide certainty for the future, but one that says that ‘We the people,’ acting together through our government, can’t make a collective investment for the betterment of the country seems not only totally wrong-headed but disastrous for our future.

 

 

 

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Republicans raise taxes, increase spending and create thousands of jobs

Posted on June 13, 2011 by John

I’m going to turn over most of this commentary to President Reagan.    I’d previously suggested that we need a government agency to protect historical integrity, but many members of Congress have gone too far in their obsession with deficits with total disregard for job creation, let alone maintaining national infrastructure.   In the current deficit debates, it is clear that far too many of our representatives just make stuff up.  You wouldn’t think it listening to their leadership, but Republicans have raised taxes, indulged in bipartisan spending on critical issues, and recognized that it takes money to maintain our infrastructure, which also creates jobs.  For example, here’s Reagan on infrastructure. Will someone please tell Paul Ryan?

Remarks on Signing the Surface Transportation Assistance Act of 1982
January 6, 1983

“Today, as this bill becomes law, America ends a period of decline in her vast and world-famous transportation system. Because of the prompt and bipartisan action of Congress, we can now ensure for our children a special part of their heritage—a network of highways and mass transit that has enabled our commerce to thrive, our country to grow, and our people to roam freely and easily to every corner of our land.

This bill was possible because of the contributions of so many Senators and Congressmen, many of whom are standing here today. Without their leadership, cooperation, and determination, this bill would never have become law.

Anyone who’s driven the family car lately knows what it’s like to hit a pothole—a frustration, expense, a danger caused by poor road maintenance. Woeful tales of highway disrepair have become part of the trucking lore. Bridges are crumbling from under us in many of our older cities while growth is being stifled in our newer ones, because the transportation system can’t cope with the expanding population.

Overall, we have 4,000 miles of Interstate Highway that needs resurfacing and 23,000 bridges that need replacement or repair. Our cities need new buses, new or rebuilt railcars, and track improvements that will cost $50 billion during the next 10 years. Common sense tells us that it will cost a lot less to keep the system we have in good repair than to let it disintegrate and have to start over from scratch. Clearly this program is an investment in tomorrow that we must make today. It will allow us to complete the interstate system, make most—the interstate repairs and strengthen and improve our bridges, make all of us safer, and help our cities meet their public transit needs.

When we first built our highways, we paid for them with a gas tax, a highway user fee that charged those of us who benefited most from the system. It was a fair concept then, and it is today. But that levy has not been increased in more than 23 years. And it no longer covers expenses. The money for today’s improvements will come from increasing the gas tax, or the highway user fee, by the equivalent of a nickel a gallon—about $30 a year for most motorists.

The repairs and construction are expected to stimulate about 170,000 jobs, with an additional 150,000 jobs created in related industries. Another provision in this bill adds up to 6 weeks of unemployment benefits for people who have used up all their unemployment insurance. Such badly needed assistance will put more than half a billion dollars into the pockets of family budgets of our long-term unemployed.

While the action we take today will bring some relief to those of us who so want to work and yet cannot find jobs, its principal benefit will be to ensure that our roads and transit systems are safe, efficient, and in good repair. The state of our transportation system affects our commerce, our economy, and our future.

That’s why I’m pleased today to sign House resolution 6211, the Surface Transportation Assistance Act for 1982. It will help America enter a brighter and a more prosperous decade ahead. And so saying, and before the bridges fall down, I’ll get this bill signed. [Laughter]

[At this point, the President began to sign the bill. ]

I don’t know why it takes so much more to do the bill than it does for me to talk about it. [Laughter]
It is law.”

Note: The President spoke at 9:53 a.m. at the signing ceremony in the State Dining Room at the White House.

As enacted, H.R. 6211 is Public Law 97424, approved January 6.

Source: John T. Woolley and Gerhard Peters,The American Presidency Project[online]. Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ws/?pid=40943.

Posted in Finance/Government | Comments Off on Republicans raise taxes, increase spending and create thousands of jobs

The Light in Rand Paul’s Bathroom

Posted on April 16, 2011 by John

At a recent Department of Energy hearing, Rand Paul trashed fluorescent light bulbs and low-flush toilets. This provoked widespread media coverage, mostly ‘cute’ rather than analytical, as in a NY Times op-ed “Rand Paul Blames Energy Department for Faulty Toilets, Amongst Other Things.” Congressman Paul’s comments establish him as a leader among the ill-informed and willfully stupid, those whom the acerbic newspaperman H.L. Mencken, were he alive, would undoubtedly characterize as the neo-booboisie.

Rand’s comments show appalling ignorance of two factors greatly affecting the future of the United States. The first is the unique intersection of science, engineering and markets that has produced so much of America’s economic base; the second is that when you switch on a light or flush a toilet, you use part of the interlinked public structures that enables modern life: all major engineering feats that not only need continued improvement for the country to be competitive, but must be maintained. Annual losses of efficiency from failure to maintain infrastructure can cost billions, documented in the American Society of Civil Engineer’s infrastructure report card, which gives the nation mostly ‘Ds.’

Examining Paul’s claims of government interference over fluorescent light bulbs illustrates his incomprehension as to how science, technology and markets develop. The first major U.S. adopters of compact fluorescent bulbs were the hotel industry and other commercial-lighting users, happy to take advantage of the green credentials, the reduced cost of changing bulbs, and the significant savings from energy efficiency.  Compact fluorescents have downsides, but light emitting diodes—already savings communities thousands of dollars in energy and maintenance costs, in traffic signal applications—are developing rapidly. LED street lighting delivers 80% lower electrical cost. Pacific Gas and Electric and other utilities support switchover.

Other new lighting technologies are improving fast and promise competition. Meanwhile compact fluorescents are saving millions in energy cost worldwide, not to mention reduced C02 emissions. And Paul has it wrong again: the government has not banned incandescents, merely mandated efficiency standards. If the U.S. had pursued efficiency standards during the first energy crisis in the 70s, when engineer Ed Hammer invented the compact fluorescent for G.E., they would not have abandoned the market to the Chinese and Europeans and might even have invested what was then estimated as $25 million to build a plant to manufacture them in the U.S. Hammer’s first fluorescent is in the Smithsonian, but Wal-Mart met its target of selling 100 million compact fluorescent bulbs per year in 2007, made in Asia under the G.E. label.

Water is heavy and increasingly rare and costly to move and treat after use—6.5% of California’s electrical energy is spent to move and treat water. Orange County is already recycling its wastewater for return to the household tap. Reducing household toilet-water requirements, of which flushing constitutes 30%, is a big deal. Paul is attempting to replace columnist Dave Barry as the head of the movement Barry started, but once again, gets it wrong.

Barry recanted his earlier anti-toilet-regulation column, after getting a modern low-flush, 1.6- versus five-gallon toilet: “…I cannot speak highly enough of this toilet. It is an inspiring example of American ingenuity and engineering ‘know-how.’’ It has become like a member of the family; I have affectionately named it ‘Maurice.’’ The bottom line: If there is an act of Congress that Maurice cannot handle in one flush, I have no personal knowledge of it.”

If Congressman Paul, who can surely afford a country home, wishes to live out his principles of avoiding government meddling, he can handle it himself. If planned, sited and dug properly, the old outhouse does not impact any of society (except his guests) and will handle things without the EPA and those expensive sewers, treatment plants and regulatory agencies. Instructions for building a privy are available on the web, and he can even build a two-holer if his family is large. Lighting is harder. Environmentalists have not saved enough whales to provide the whale oil used until kerosene lamps arrived in the late 1800s but that led to Rockefeller and Standard Oil. His is only alternative: tallow candles made from the fat of cattle he will undoubtedly raise himself to avoid the intrusive presence of the USDA and FDA to protect his food safety.

There’s an old saying in technology: the best of the old always beats the first of the new. Government makes space for the first of the new by making markets and setting standards that require technological improvement. Think waste treatment for safe swimming, cell phones, jet aircraft, the Internet etc. and other technological improvements that account for perhaps 50% of our economic growth since WWII. A country either advances or falls back and with its current level of understanding, we would be better off if Paul returned to Kentucky to care for his own outhouse. He can cut out the moon and the stars on its door strictly to please his own tastes.

Posted in Energy, Environment, Finance/Government, Media, Science | 5 Comments

Our half of the deal

Posted on March 4, 2011 by John

The current budget debate is stunning: we, as a nation, are negotiating only one side of the transaction. Everything is to be ‘balanced’ on the backs of individual citizens, while the plutocracy, Wall Street and private equity sit across the table, expecting to buy at foreclosure-sale prices the remaining 20% of the country they don’t already own. There’s a sound anthropological reason for this sorry situation. The French social scientist Pierre Bourdieu, famed for studying tribal culture, documented how tribal elders maintained power by defining and manipulating the ‘doxa’ or common belief, explained in his book “Outline of a Theory of Practice” as that which in the natural and social world appears self-evident, encompassing the limits of what can be thought or said.

So we never put everything on the table, public and private, and see what America really wants. Journalism has drowned itself in a pureed sludge of opinion, factoids, cable-news posturing and baseless bloggadocio such that functional truths are unavailable even to experts in the field under discussion.

Thus, health care is never discussed in the philosophical context of our obligation to care for our fellow citizens, but is fought on a media-defined culture-war battlefield, where only the financial beneficiaries of the pre-Obamacare status quo will escape unwounded. Let’s consider Einstein and do a couple of philosophical thought experiments.

“What would happen if we outsourced our health care to Canada?” The usual initial response: “It could not happen.” But in Einstein’s thought experiments he didn’t ride in trams and elevators at light speeds, but used the concept to make a point. Voila: interesting discussion.  For instance, outsourcing north of the border would provide universal coverage for about half of what we now spend while leaving many uninsured. What would we do with the savings, 7-9% of GDP? A few wealthy ‘health industry’ executives might suffer, but it would boost the economy, from which we all might benefit.

How about “taxing financial transactions and eliminating tax breaks for hedge fund managers?” As Warren Buffett notes, they pay lower tax rates than his secretary. As a broad philosophical concept, shouldn’t profits from non-productive trades be taxed higher, perhaps based on trading frequency? Its an old idea, supported for decades, recently by Paul Krugman and promoted in the UK with a hilarious video by famed British actor Bill Nighy. After all, many of the trades are done at light speed by computers with only a tiny fraction of traders accounting for over 70% of all transactions, often held only for seconds. While some Deficit Commission members might have privately considered the huge shift in tax liability from corporations to individuals since 1970,  and wondered whether a financial industry that grabs 41% of all corporate profits is even sustainable, we saw virtually no public debate of these crucial points.

Philosophically, we should consider the IRS as the checkout counter at the supermarket of government services, where we pay for those that we collectively use. However, many of the large corporations pay an effective tax rate of zero, either butting into the checkout line with handfuls of corporate food stamps in the form of subsidies and tax breaks, or without regulatory enforcement, just plain shoplifting.  For the most part,  the media allows the claims that, at 35%,  the US has the highest corporate tax rates go largely unchallenged. Responsibly,  it should be pointed out that to omit the existence of multiple forms of tax exemptions turns the claim into a lie.  Thus, we never get any widespread public discussion as to what level of tax contribution would be required by corporations and individuals to provide the government programs they enjoy.

Bourdieu saw TV’s role in manipulating public perception.  Speaking of much earlier protests in Paris; “I would have worked up a demonstration in Paris—posters, a parade, we’d march to the Ministry of National Education. Today…barely an exaggeration…I’d need  a savvy media consultant. With a few mediagenic elements to get attention—disguises, masks, whatever—TV can produce an effect close to what you’d have with 50,000 street protesters.”  He asserts that such manipulation of perceptions lets TV make people believe there is a trend in one direction while the truth is the exact opposite.

Current events in Wisconsin show what happens when the power elite’s minions, Governor Walker and RNC Chair Reince Priebus, overstep their bounds and capabilities, behaving pettishly like something out of elementary school (parodied in the South Park episode, Dances with Smurfs, right down to media manipulation)  Regardless of the outcome in Madison, it will not deter the power elites and their ongoing attempt to control the conversation. We must hope that the responsible media, the intellectual community and the unions stand up to the Koch brothers and their ilk.

C’mon U.S. media…. the country needs you, urgently.

Posted in Finance/Government, Science, Uncategorized | 2 Comments

Politicians, perspicacity and paintball

Posted on January 26, 2011 by John

Picking a logical path through the uplifting but unfundable State of the Union speech,  followed by the economic meadow muffins scattered in rebutting Republican Ryan’s Roadmap for America, perhaps more appropriately entitled Roadblock for Americans,  a scientist can only hope that politicians will eventually back themselves into a corner were it becomes possible to perform a simple experiment to immediately reveal their true legislative effectiveness. We can’t do such a test with health care as too many congressmen simply make stuff up and it takes too long.  Does Ryan seriously believe that any insurance company is going to offer coverage for all individuals at $2300 a year under the conditions he sets forth for Universal Access?  Maybe he could get a letter from some of the health and insurance folks who have donated so heavily to him as to what they are willing to provide for less than $200 a month . And how about Ryan’s social safety net that he morphs into a hammock that creates unemployment; right up there with the economists who claim that the Great Depression was really the Great Vacation because workers chose not to get a job.

Maybe the British are running closest to a controlled experiment with the Conservative budget cutting capers. A UK relative of mine described the current economic ethos of both countries as the “unholy love child which resulted from the union between Reagan and Thatcher” and has never forgiven them for abolishing genteel poverty as a viable lifestyle.  Therefore it is perhaps appropriate that the Cameron government is running a little experiment that will give the U.S.  a heads-up on what happens if you ‘stimulate’ matters by cutting huge chunk of middle and working class demand out of a consumer based economy. First tentative results are in with a 25 January report showing that the British GDP is shrinking, with more cuts to come. http://www.guardian.co.uk/business/2011/jan/25/uk-economy-shrunk-point-five-per-cent

Far and away the best experimental opportunity comes about as a result of the ridiculous statements by several congressmen concerning “concealed carry”  as epitomized by Texas Republican Rep. Louie “Terror Baby” Gohmert.   He states that his staff is working on a measure to allow members to carry guns, even on the floor of the House of Representatives.  In a 12 January 2011 CBS interview, he commented that he “felt scared at times during last year’s health care debate…”  I assume he feels that if any flaming liberal came up and threatened an unsuitable amendment, he would feel secure in his manly ability to protect America (and himself) So let’s have a vote on Gohmert’s legislation with the caveat that we have a congress-wide training session at the same time as the vote to add lethal force to their legislative deliberations.

Many police departments and military forces conduct training with paint ball weapons to give cops and soldiers the chance to see the results of pistol fire in real-world situations. The really popular handguns are available in paintball format. It is not necessary to use a Glock, as the Sig Sauer 226 (as used by Navy Seals) is available, and those congressmen who see themselves more as James Bond than action hero can pack a paintball replica of his favorite Walthers PPK.  A session of congress would be set aside to discuss the gun carrying laws, with all members issued with the paintball pistol of their choice.  Paint balls would be color coded depending on political persuasion, ranging from royal blue to deep red, with perhaps pink for those who supported the repeal of  ‘don’t ask-don’t tell’.

All that the members would be told would be that on that day’s session, one, or possibly two “assassins”, using a particularly lurid lizard yellow-belly colored paintball, would appear at random and simulate enforcing their “second amendment remedies” on a member of congress.  It will be recommended that appropriate face protection be worn, but those members who are certain that an armed colleague will drop the yellow bellied shooters with a couple of well placed splats will not be forced to wear it.  Statistics on hits and misses and unintended victims will be carefully compiled, and the group that records the greatest number of misses (based on color) will be required to stay late and clean up Congress’ hallowed hall.

Of course, it doesn’t take a lot of imagination to realize that the results are likely to be far different from the fantasy expressed by several of our congressman of the brave bystander whipping out his weapon and cutting down the assassin before he does his evil deed.  In fact, anybody who takes a teenage relative to a paintball session will get a pretty good idea of the technicolor splatted mayhem that will most likely occur. (This is not recommended if you are of Muslim extraction, as you will be accused of giving the kid terrorist training)  However, we can all wish that Congress would think a bit harder about the logic, statistics and likely outcomes of what they propose before foisting it on an unsuspecting public.  Otherwise; splat…..we’re it.

Notes:  for more information on Congressman Gohmert, you can watch the Daily Show doing some real reporting and covering how he got the Terror Baby nickname.

http://www.thedailyshow.com/watch/tue-august-17-2010/jon-stewart—anderson-cooper-look-at-gaping-holes—security

And, just to make sure that no one, not even Gohmert, tries paintball in as unprotected a manner as the young lady in the picture, here’s a link to advice for parents on paintball safety.

http://www.paintball.org/external.php?link=http%3A%2F%2Fwww.warpig.com%2Fpaintball%2Fnewbie%2Fprimer%2Findex.shtml

Posted in Finance/Government, Uncategorized | Tagged , , , , , , , , | 1 Comment

Wrapping Up the Year

Posted on December 24, 2010 by John

Wrapping up the Year

‘Tis the season for journalists, pundits and TV hosts to serenade us with their solipsistic summary of the year’s events.  These annual wrap-ups have much in common with Charles Dickens’ A Christmas Carol; the opinionator serving the role of Marley’s Ghost, leading the audience through that which has been lost from Christmas Past, the dire warnings of Christmas Yet to Come, and damnably little to be thankful for with Christmas Present.

I was saved from my pundit induced gloom and despondency as to a seasonally hopeful topic by a Thanksgiving dinner suggestion from my daughter, Tessa, who was visiting from Seattle,  where  she is an artist. Proxart Magazine  http://proxart.wordpress.com/2010/11/03/tessa-hulls/ has an interview with her. She thought that rather than annual wrap-ups,  it would be interesting to write about wrapping up gifts.  It turns out to be a rich subject involving everything from technology to tradition.

Gift giving has existed from time immemorial, but elaborate wrapping paper is pretty recent.  It was Charles Dicken’s 1843 tale that was largely responsible for the Victorian era’s resurgence of old British winter solstice customs, both pagan and Christian.  Many of these had been forbidden by Cromwell and the Puritans after the Second English Civil War of 1648.  A Christmas Carol mentions the presents wrapped with brown paper and string, but technology was about to be turned loose on gift wrapping.

In 1857, Joseph Gayety invented toilet tissue, which had little resemblance to the softness of the modern product, but did allow economical manufacture of large, strong sheets of thin paper.  To give you an idea as to the nature of the paper,  Ebenezer Butterick used it for his sewing patterns,  as it was easy to fold and send through the mail, thus revolutionizing home sewing.  The Butterick Pattern Company, founded in 1863 in Sterling, Massachusetts, exists to this day.

Tissue paper, either white or dyed in bright reds and greens, became the standard for wrapping Christmas gifts.  The invention of ‘flexography’ in 1890 allowed colored printing on large sheets of paper.  Joyce Clyde Hall and his brother Rollie introduced modern printed gift wrapping in Kansas City in 1917.  Their store ran out of the traditional tissue paper, and they substituted printed French envelope lining paper.  It sold so well that they started printing their own, under their new Hallmark brand.

It’s hard not to wonder about the short life span of gift wrap and its inevitable journey to the landfill but this is the season for looking forward hopefully, and the Japanese have a great gift wrapping tradition.   Ms. Yuriko Koike, as Japan’s Minister of the Environment,  tells us about it.

“I’ve created what you might call a “mottainai furoshiki”. The Japanese word  “mottainai” means it’s a shame for something to go to waste without having made use of its potential in full. The furoshiki is made of a fiber manufactured from recycled PET bottles, and has a birds-and-flowers motif drawn by Itoh Jakuchu, a painter of the mid-Edo era. The Japanese wrapping cloth known as the furoshiki is said to have been first used in the Muromachi Period (1392-1573), when people spread it out in place of a bath mat or wrapped one’s clothes with it. The furoshiki is so handy that you can wrap almost anything in it regardless of size or shape with a little ingenuity by simply folding it in a right way. It’s much better than plastic bags you receive at supermarkets or wrapping paper, since it’s highly resistant, reusable and multipurpose. In fact, it’s one of the symbols of traditional Japanese culture, and puts an accent on taking care of things and avoiding wastes. It would be wonderful if the furoshiki, as a symbol of traditional Japanese culture, could provide an opportunity for us to reconsider the possibilities of a sound-material cycle society.  As my sincere wish, I would like to disseminate the culture of the furoshiki to the entire world.”

Her web site contains instructions at: http://www.env.go.jp/en/focus/attach/060403-5.html and http://www.recyclenow.com/what_can_i_do_today/furoshiki_japanese_w.html has a great instructional video.  Maybe pundits could consider furoshiki when presenting us with their year end wrap-ups.  I like the thought of people wrapping everything, including ideas,  with something that comes from a well-considered, elegant and sustainable philosophy.

So I’ll try my hand at wrapping things up by noting that here we are again, sitting on a pretty blue planet, warmed as we circle a rather typical type G star, located in a remote spiral arm of a nice, but unexceptional galaxy, and we’ve made it round one more time.  Regardless of your perspective on who if anybody really runs the show,  it’s hard to find fault with Tiny Tim’s last hopeful, redeeming and inclusive line from Dicken’s  A Christmas Carol ;  “God Bless us all.  Everyone.”

Wishing you all Season’s Best and a Somewhat Logical New Year.

(By the way, the upside down Christmas tree in the first picture celebrates an old 12th Century central European tradition, where the triangular shape of upside down tree celebrated the Christian Trinity.)

Posted in Living next to the fault line, Uncategorized | Comments Off on Wrapping Up the Year

An Elementary Federal Budget Planner

Posted on November 11, 2010 by John

There’s been so much talk about deficits and the budget, I’ve decided to come up with a visual Federal Budget Planner, using basic stuff you can find around the house so that children and students can understand what the grownups, especially those people who wear tea bags and tri-cornered hats, are so upset about. It will also be useful for politicians, pundits who are trying to get the politicians to tell them what they are going to do about the budgets and deficits and everyone else who is worried about them, or needs some basis in fact for talking about it.  If we let people in Washington just hack away programs, the mantra for voters at the next election will be,  “That’s not what we meant.”,  so it is important to understand how the Budget Planner game is played. See if you can get your teacher to play the game with your class.

Gather up the tools to get started.  Click on the images for a larger version.

Got all your stuff ready?  Next, print out the following image as large as you can.

Now, we’re ready to start cutting the budget.  Cut out all the solid boxes above the zero line out of the paper, leaving a square window.  Make sure you leave the numbers on the left.  Glue the paper with the hole onto a second sheet of paper so you can glue the boxes back in when you have cut them down to size.  The next step is cut across each box to take off what you think we can save and still keep the country running.  You can use a ruler and figure out how many inches per trillion dollars to tell you how much to cut.  You can start out simply doing one year at a time.  Figure out what will go away if you make the cuts.

If you just make cuts across the board to balance the budget with the revenues, you’ll cut everything by about a third…and things just won’t work and there will be hundreds of thousands more people unemployed. You might ask your grandparents if it is a good idea to cut social security, or ask your teacher about what she thinks about the cuts.  Discretionary spending is what the President decides to put in the budget.  If it is mandatory, then our elected officials have to change the law.  This can cause a lot of fights in Washington.

Before you begin, here are a few things to  consider.   The green box at the bottom shows things that contributed to the deficit. Anything you can cut out of the green stuff ( which is shown year by year) lets you move the revenues upwards. That’s the line at $2.56 trillion on the left side of the budget, which is what we pay in taxes.  For instance, if you cut out the unpaid-for wars and the Bush tax cuts, you could move that line up to nearly $3 trillion.  If you put in any more new tax cuts, which is what a lot of people in Washington want to do, that will move the revenue line down. Way back in the 80’s the Government started cutting taxes on the rich and said we would get more revenues than the tax cuts cost. They called this the “Trickle Down ” theory.  These people will get really mad if you ask them why you can’t raise revenues to help balance the budget, but it’s a good question. (If a grown up tells you the Trickle Down theory works, ask him to prove it. The country has been trying it  for over 30 years with no luck) Fixing the economy would also move the revenues up by about $400 billion this year but this always takes time. If you have a really good way to quickly fix the deficit caused by the bad economy, please  write as soon as possible to President Obama and your Congressman and Senator to let them know how it works.

To help you get started, the graphic has colored boxes that represent what we are spending in the current Federal Budget.  It’s a good place to start. Cut off as many billions as you feel is OK from each box, and then glue them back into the right place on the graphic.  The object of the game is to make sure that whatever is in these boxes after you have cut them down to size and glued in place fits below the revenue line.

You got everything to fit?  The economy hasn’t crashed?  Grandparents not mad at you?

Congratulations!  You’ve balanced the federal budget!  You’ve won!  And God bless America.

P.S.  Once you have played the game, especially if you cut a lot out of programs that your family uses and likes, like Social Security and grandparents,college loans for a brother or sister, or maybe Medicare, or maybe you know people who have lost their jobs and are on food stamps, you will see that it is not easy.  President Clinton was the last president to balance the budget and he did it when the economy was doing well.

This game is very basic, but it’s purpose is to show that you can’t ignore the facts and  just chant slogans and wave your arms around and hope to solve the country’s problems, which is what way too many supposed grownups are doing in Washington and especially on TV.

Posted in Finance/Government, Uncategorized | 4 Comments