Friday, January 27, 2012

The Jobs are GONE. Forever. Deal with it.

President Obama and many others keep saying we need to bring manufacturing jobs and even ag jobs "back to America." Apparently, President Obama and others don't realize the U.S. now manufactures more goods and harvests more crops than at any time in our history. The jobs were not all outsourced. They were robo-sourced, along with your bank teller, grocery clerk, bookkeeper, file clerk, and hundreds of other jobs that are not coming back because they were not shipped overseas. They are gone. And gone for good.

The Kia plant in Georgia is a prime example of automation. The plant manufactures as many cars as the busiest 1950s GM plant. But, unlike the old auto plants, modern plants are "manned" by robots. Watch the video and ask yourself how many men and women were replaced by the automation. This plant is in Georgia not South Korea. They can run the line with as few as 1000 workers according to one report I read.



In the 1970s, GM's "Buick City" plant employed 77,000 workers on over 200 acres. They assembled 21,500 cars a year, using parts from throughout GM's distribution chain, employing more than 150,000 people directly or indirectly for this one massive plant. One GM plant made 54,000 Chevy vehicles in the 1979-80 model year. Those are impressive numbers. Overall, the GM production rate in the 1970s was roughly 6,000 direct employees per 200,000 vehicles manufactured. Not bad... but 1:33 is nothing today.

The Kia plant? It manages a 1:120 production ratio. According to the Kia Motors website they can produce 360,000 vehicles with 3,000 on-site jobs and 7,500 "indirect" jobs.

The manufacturing jobs are gone. Sure, some remain, but a fraction of the old number produces more cars in the U.S. than ever before.

And don't imagine this is merely manufacturing. It is farming, too, which has led productivity gains via technology since farming began. The metal plow replace wood sticks. The tractor replaced the oxen or mule. The massive harvester replaced hundreds of laborers. You get the idea.

One man (or woman) can easily harvest a small cherry orchard today. The plight of the farmworker? Solved.



Where I am from, it is common to have walnut orchards that cover 400 or more acres of land. You'd imagine this employs thousands of men and women for the harvest. You'd be wrong. Here is how they deal with the modern walnut orchard.



And once you shake the walnuts to the ground, you "sweep" them.



Automation. Not every job left the United States. In fact, most did not. Study after study shows we make more now with fewer people.

The jobs of tomorrow? Creating, programming, and maintaining all this automation. Sensors, servos, meters, and parts I can't even imagine are used to build the modern assembly line. Yes, some factories did move overseas, but eventually China will automate, too. The quality, to be blunt, is simply better when a robot assembles a car. The measurements are precise. The harvest? No one is injured by the repetitive tasks. It is far safer overall to farm mechanically.

If you only have basic skills, your job can be and will be automated. Even some college jobs will be automated. That's the future. As a nation, we need to deal with that new reality.

Wednesday, January 25, 2012

Mobility Stupidity

If everyone earned no less than $30,000 and no more than $50,000 a year, we'd have far greater "mobility" between classes. So argues the chattering class, most of whom occupy the evil top one percent. No, that's not what they are saying and writing, but they are complaining that the United States has less social mobility than other nations.

The problem? Those nations have less mobility because they have artificial floors and social limits on how far people can climb.

To which nation was the U.S. compared by the New York Times? Denmark.
American men born in the bottom quintile are more likely to stay there than the Danish, according to a study of earnings across generations. — http://www.nytimes.com/interactive/2012/01/04/us/comparing-economic-mobility.html?ref=us

Denmark? Compare education attainment. Compare the makeup of the society, including such factors as immigration and emigration. This is a strange comparison. Denmark, unlike the United States, is incredibly homogenous. Even today, 92 percent of residents are of Danish descent, according to Denmark's official website. By comparison, 16.8 million Americans were born outside of the U.S. and nearly a third of American children are first-generation citizens. You cannot compare a nation of immigrants, many of whom are non-native English speakers, to European nations with minuscule immigration.
Meanwhile, just 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.
When the distance from top to bottom is as vast as in the U.S., it is a challenge to move from the bottom to the top. How wide is the gap between the U.S. and Europe? Even the New York Times admits:
G.D.P. per capita (an insufficient indicator, but one most economists use) in the U.S. is nearly 50 percent higher than it is in Europe. Even Europe's best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis (and both countries have roughly 15 percent of their populations living below the poverty line). 
While Norway and Sweden are richer than the U.S., on average, they are more comparable to wealthy American microeconomies like Washington, D.C., or parts of Connecticut — both of which are actually considerably wealthier. A reporter in Greece once complained after I compared her country to Mississippi, America's poorest state. She's right: the comparison isn't fair. The average Mississippian is richer than the average Greek.
http://www.nytimes.com/2012/01/08/magazine/the-other-reason-europe-is-going-broke.html
But, but, but… America isn't fair! Ignore our relative wealth, and focus on the gaps!

The Brookings Institution reports that "there is growing evidence of less intergenerational economic mobility in the United States than in many other rich industrialized countries."

How to make it fair? Taxes, supposedly.

The New York Times and a host of great minds tell us the relative mobility of Americans is now less than that of most Europeans. A study, I am assured by a column in the Minneapolis Star-tribune, finds that we need a top tax rate of 83 percent and everyone will benefit.
An examination of 18 countries in the Organization for Economic Cooperation and Development found "little empirical support for the claim that reducing the progressivity of the tax code has spurred economic growth, business formation or job growth."
Indeed, the rigorous analysis by Piketty, Saez and Stantcheva came to the opposite conclusion. Our economy may be growing more slowly because we are taxing the rich too little, not too much.
Yes, let's turn to economists from Paris (Piketty), Berkeley (Saez), and a grad student (Stantcheva). Piketty is an active member of the French Socialist Party and argues for increased deficits. I suppose France is a great model of equity — just ask the French Muslim immigrant population. Piketty mixes theory with selective data, which is pretty standard in modern university economics departments.

Emmanuel Saez is the E. Morris Cox Professor of Economics and Director of the Center for Equitable Growth at the University of California at Berkeley. He is not merely an economist, he is a political creature. Again, that's the norm on left and right, sadly.

So, two well-off professors in the social elite suggest we need higher taxes. How high? Very high:
They estimated that the optimal top tax rate -- that is, the tax rate that would maximize revenue without slowing economic growth -- could be as high as 83 percent.
What utterly simplistic stupidity. I know, these professors have dozens, if not more than 100 publications. I'd rather they try running a business, though. They'll learn more and be more credible. But, you can show a lot about how "unfair" life is if you define unfair with a set of statistics.

Also, it must be wonderful to be a rich socialist or an academic in the Bay Area, a place my wife and I could never afford. From their ivory towers, these economists care a lot about inequality. (The truth? They know they would remain in a special privileged class in their envisioned utopia.)

You increase taxes to a certain level, you either end up with countless loopholes and a lower effective rate (see my post on the 90% Tax Rate Myth
http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth.html ) or systemic tax avoidance as in Greece, where avoiding taxes is a national sport.

I'm not opposed to taxes: we have to fix our roads, bridges, and general infrastructure. Government has a role to play, but I don't see a role that requires anywhere near the taxes the left suggests. Higher taxes aren't going to solve problems, anyway.

I do support tax reform. I want to end all deductions, for example. I want to reform our tax code so large corporations don't have unfair advantages. I want to end the need to hire accountants every year just to file tax returns.

But, the wealthy and the high-income earners are not evil. People are people, and most of the wealthy people I know work hard, long hours (the New York Times found the top one percent work, on average, 20% more hours than others). They are not keeping anyone else from doing the same. They are not keeping others out of school.

To imply the lack of mobility is the result of some people earning a lot? The implication is that the rich are intentionally, and diabolically, oppressing the lower classes. Is that really the cause of declining mobility? And is this mythical equality so wondrous?

If we were oppressing the poor, would we be spending more on education per student than other nations? It turns out education is key to mobility. Other nations with greater "equity" (which we could debate as a "good" for several reasons) have higher average academic achievement.

Children of school dropouts are more likely to be dropouts. Children of single parents are more likely to be single parents. Guess which two variables correspond to poverty?

How are the one percent or even the top 20% responsible for ridiculously high failure rates among our urban and rural schools? Washington, D.C., schools spend more per student than 99 percent of school districts. The D.C. schools are also a notoriously disfunctional failure. The rich aren't oppressing these students. Their local schools and political leaders are.

A Pew Trust study published in September 2011 found:
If men and women raised in a middle-class home obtain education after high school, they are less likely to be downwardly mobile. — http://www.pewtrusts.org/news_room_detail.aspx?id=85899363670
I'd rather see everyone given real opportunity to rise or fall. I fear we could tax at any rate, give any amount of money to our current schools, and we wouldn't change the mobility gap.

Again, it goes back to education, education… and education. In the right fields, of course, too. Science, technology, math, and engineering. Sadly, I don't know how to get every student to finish high school and at least two years of vocation training or higher education.

Mobility is not the result of tax rates. Mobility is the result of opportunities. We aren't giving our youth enough opportunities — and that might mean challenging them in ways they don't appreciate at the moment. I've never had a student tell me, "Wow, I love how hard this assignment is." But, I've had them tell me the assignment mattered a year or two later.

Our system has serious problems, and we must admit to those challenges to overcome them. Until then, only those taught to expect the most of themselves will rise. Those taught to expect failure, will continue to fail.

The economists and chattering class? They are telling people that success isn't the result of hard work and effort. The elites are telling the lower-class that life is simply fate, random luck and nothing more. It's a very dark, defeatist view of existence.

In this bleak worldview, the only way to make things fair is to be oddly unfair.

Thankfully, many of us know that personal choices do matter. Even President Obama, while complaining about the lack of mobility, embodies that very possibility. You won't find that same mobility represented to the same extent in most European governments.

Let's stop the mobility stupidity of whining about unfairness and start searching for better solutions.

Monday, January 23, 2012

Those With Education Credentials In A Soft Field Can Breed Disaster - Investors.com

This column by Thomas Sowell  (http://www.tsowell.com/) has some points that need to be clarified, but the general concepts are important. 

Those With Education Credentials In A Soft Field Can Breed Disaster - Investors.com

First, Sowell is not suggesting you should not be able to study whatever you want, as long as you and your family are paying for the degree. If the federal government (read: "taxpayers") are paying for an education, however, we need to consider promoting specific fields. 
When institutions of higher learning turn out highly qualified doctors, scientists, engineers and others with skills that can raise the standard of living of a whole society and make possible a better and longer life, the benefits are obvious.

What is not so obvious, but is painfully true nonetheless, is that colleges and universities can also turn out vast numbers of people with credentials, but with no marketable skills with which to fulfill their expectations. There is nothing magic about simply being in ivy-covered buildings for four years.
Statistics are often thrown around in the media, showing that people with college degrees earn higher average salaries than people without them. But such statistics lump together apples and oranges — and lemons. 
See my blog post I am not a winner (or loser) for a comparison of different degrees. If you major in drama, studio arts, visual and performing arts, et cetera, expect to earn about $40,000 a year for several years — if you find a job, and likely that job would be in teaching. But, major in engineering? You'll be looking at $80,000 to as much as $120,000 right out of a bachelor's degree program. Add a master's in some fields, such as petroleum or chemical engineering, and $150,000 to $175,000 is the average salary.

As Sowell writes:
A decade after graduation, people whose degrees were in a hard field like engineering earned twice as much as people whose degrees were in the ultimate soft field, education. Nor is a degree from a prestigious institution a guarantee of a big payoff, especially not for those who failed to specialize in subjects that would give them skills valued in the real world.
While Sowell is insulting education majors, there is ample evidence that they are not the best students. The GRE scores of education majors? Not even in the top twenty for verbal skills — and that includes future English teachers. An interesting side note for recent scores on the verbal (language) skills, not quantitative (math): students majoring in physics/astronomy (7th with a 534), political science (11th), economics (12), mathematics (12th at 502) and, yes, engineering (15th at 490) all scored better than secondary education students (21st) and much, much better than elementary education students (40th). At least early childhood education scored above 400 on the 800-point scale… with a 418 average over the last five years. 

The GRE scores on the verbal and written skills closely correspond to earnings later in life. The exception is, ironically, the top scoring field which is philosophy (589 verbal average and a stunning 636 quantitative average over the last five years). Maybe philosophers are under-valued after all, but that's a different issue. (I am biased since I also edit a philosophy website.)

Again, the problem I have with Sowell's argument is that I don't want any federal interference in education. I'd rather students (and parents) make their own choices. But, I suppose if we are going to spend tax money on subsidized loans, grants, and scholarships, it makes sense that those should be in the science, technology, engineering, and math (STEM) fields that correlate to technical innovation and also social improvement.

Science is necessary to study pollution, healthcare, climate change, alternative energy, and every other cause the left champions. So, we can all agree that STEM students are needed. Why give tax money to theatrical departments when engineering majors are declining in numbers? We need engineers. 

This statement by Sowell bothers me:
The semi-literate sloganizing of our own Occupy Wall Street mobs recalls the distinction that Milton Friedman often made between those who are educated and those who have simply been in schools. Generating more such people, in the name of expanding education, may serve the interests of the Obama administration but hardly the interests of America.
The Occupy movement is no less literate than the Tea Party. They are also no more literate or educated, with or without college degrees. I would agree that a college degree does not correspond inherently with common sense or even critical thinking skills. However, the OWS protesters do tend to be overwhelmingly white, middle-class, and educated. They are not a "mob"(generally) but a group of students that have mistaken what it means to be prepared for the future.

Having "a degree" is not the same as having the "right degree" in our economy. That's what the Occupy protesters don't seem to recognize and something our media are glassing over when they mention unemployed people with college degrees. I've mentioned before that a protester in Pittsburgh mentioned his degree was in puppetry. Seriously? Of course you aren't employed.

I wrote in my previous post that the key to a better future is education, education, and more education. And I have long pushed for a classical liberal arts degree for all undergraduates. None of these students should be allowed to say, "Math is too hard!" or to enroll in "Rocks for Jocks" to avoid exposure to serious, university-level science courses. In my ideal university, everyone in the first four years takes difficult, challenging courses in science, math, history, art, and language. No exceptions.

Right now, the abilities of graduates suggest there is a problem with the educational achievements of students in the humanities. Sowell is correct about that. But, that's not the fault of the students. We, the adults in charge — especially educators — have allowed programs to atrophy, losing any rigor.

Improve education, improve the future. And improve the lives of students so they don't graduate with degrees in puppetry at taxpayer expense… only to wonder why they cannot find jobs.  

Friday, January 20, 2012

Rich America, Poor America - Niall Ferguson

There are some tidbits in this column worth exploring when I have a bit more time.

Rich America, Poor America - The Daily Beast

Niall Ferguson uses the publication of Charles Murray's Coming Apart as a starting point for an analysis of the left-right divide on the causes and cures for income disparity in the United States.

Ferguson begins with a clear summary of the problem. There is no question families are drifting further apart at the extremes of the income scale. This is not a 1 percent versus the 99 percent issue, it is most extreme at the top 0.01% and the bottom 10% according to most economists. The bottom is falling, skewing averages, and the top is… well, read for yourself:
Adjusted for inflation, the income of the average American male has essentially flatlined since the 1970s, according to figures from the Census Bureau. The income of the bottom quarter of U.S. families has actually fallen. It’s been a different story for the rich. 
According to recent work by Berkeley economist Emmanuel Saez, the share of total income going to the top 1 percent of families has more than doubled since 1979, from below 10 percent to a peak of nearly 24 percent in 2007. (It has since fallen, but not by much.) The share going to the super-rich—the top 0.01 percent—has risen by a factor of seven.
The question is, how do you nurture a better culture to help people rise? I'd rather see everyone earn more than solve the disparity by redistribution. As Ferguson summarizes the left-leaning position, which I believe has failed and will continue to fail:

Left-of-center economists like Paul Krugman and Jeffrey Sachs explain this phenomenon with the following story. Financial deregulation by Ronald Reagan ushered in an era of rampant greed in finance; meanwhile, Republicans ruthlessly hacked back New Deal and Great Society social programs to finance tax cuts for their Wall Street cronies. 
To make their point, liberals point to European countries like Denmark, Sweden, and the Netherlands, where the rich have not been getting richer and social mobility remains high. Conclusion? America needs European-style policies like the ones listed by Krugman in a recent column: “more nutritional aid for low-income mothers-to-be and young children…[improved]?public schools…aid to low-income college students…[and] a universal health care system.” And how would that all be paid for? You guessed right: higher taxes on the rich.
Murray would not be my primary source for an argument on income and intelligence, because I believe he mistakenly confuses cultural effects for genetic effects. At least Murray (and most libertarians) recognize culture is a major factor in class mobility. I've written many, many times that marriage and wise choices predict financial standing and mobility.

Here's the problem, simplistically I admit:

The upper-middle and upper-class in the U.S. (and in Europe, by the way) tend to come from more stable homes. They are more likely to have married parents. Their parents are more likely to have completed high school and some college. The parents are likely to be "traditional" regardless of left/right divisions.

My own parents? Married 46 years this year. My wife's parents? Also married for more than 45 years. My wife's father has some college (an associate's degree) as does my father (also an associate's degree). Our parents were "traditional" though neither of our families attends church or belongs to the old-line service organizations (Lions, Rotary, et cetera). Our families ate dinner together and parents asked children about school work. There were chores and there were consequences for mistakes.

According to Murray and other scholars, this background represents a statistically significant advantage over others. Yes, there are always exceptions. Single-parents can and do raise successful children — that isn't the argument. The argument is that you are more likely to rise socially and financially if your family provided certain supports and demonstrated the value of an education.

While our parents didn't have bachelor's degrees, our fathers both demonstrated that education does correspond to advancement. Therefore, my wife and I were more likely to attend college. We not only attended college, but we attained a "higher level" of education than our parents. That's one potential marker of social mobility.

Of course, people meet in school and tend to marry within the same educational background. That's not snobbery or anything: people meet where they live and congregate. People with college degrees meet in college or at work or among other college-educated friends. The advancement of my wife and I means we are now surrounded by "better educated" individuals.

Being surrounded by yet more educated people reminds us that yet more education might be beneficial. The result? My wife has a master's degree and I have a doctorate. Among our friends and colleagues, we are typical. One of the couples we know includes a wife with a doctorate and husband with an applied master's. We are not outliers in our social circle. To us, education has become "the norm" even though only 2% of American's have doctorate or terminal degree.

As Ferguson then writes:


Not content with being educated together and then marrying each other, members of the cognitive elite then proceed to work together and to live in the same neighborhoods, which Murray calls the “SuperZips” (the 882 richest zip codes in America). The resulting class of “Overeducated Elitist Snobs”—especially the ones living in Beverly Hills, Santa Monica, Malibu, Manhattan, and Boston—tend to be markedly more liberal than the national average. But this is mainly because, thanks to a new segregation along class lines, they “have little direct experience with the lives of ordinary Americans.”

Sure enough, my wife and I have lived in "enclaves" of the educated. We lived in a neighborhood of Minneapolis with an emerging "educated elite" of 30 and 40-something couples. Trust me, Minneapolis is as blue as blue gets, while Minnesota is more divided. The educated class, the "cognitive class" as Murray suggests, tends to be idealistic and left-leaning. Of course, what happens when people of any viewpoint congregate? They start to reinforce their beliefs, so the left/right sorting of America leads to more extreme left and more extreme right in some communities. (We see this in the U.S. House of Representatives, since districts are slowly "sorting" into left/right divisions.)

If my wife and I had children, they would likely attend college and sort themselves in a similar or even more pronounced manner.

Ferguson asks:


So what is to be done to heal the rift between Rich America and Poor America? There are two obvious problems with the standard liberal prescription of increased welfare spending, financed by higher taxes on the rich. The first, as Murray points out, is that the welfare programs of the Great Society era were in many ways the cause of the breakdown of social order in working-class America. 
The second is that this is a very strange time to want to import the European welfare state, with its aspiration to provide everyone with comfort and security from the cradle to the grave. In case you hadn’t noticed, that system is currently on the brink of fiscal collapse in its continent of origin.
My personal view is simple: education, education, education. When you can automate most manual tasks, and when even some simple "intellectual" tasks can be computerized, the only path from one class to another — and the only hope of remaining in the middle or rising — is education. The only way to avoid losing ground, economically and socially, is to be heading into the cognitive elite.

Our schools are failing the middle- and lower-class students. We might want to claim otherwise and swear that "our schools" are fine (it is always the "other schools" that are failing, but the truth is clear: our students are not performing well in science, math, history, or the language arts. Our solutions, testing and focusing narrowly on math and reading, are also failing.

If we want to change things, our schools need to change. Not only do our K–12 schools need to change, but our universities need to be mindful that we are losing science, technology, math, and engineering students. I'll be blunt: my English degree is not what this nation really needs. While I believe in a liberal arts undergraduate degree with no major (I'd love to scrap the entire "Choose your major!" nonsense from undergraduate programs), at the graduate level we need to be leaders in the STEM fields.

Our public schools are not fostering scientists, engineers, and the next generation of inventors.

I'm a computer "geek" and my wife is an engineer. I developed my love for computers from my father, a subscriber to Popular Science, Popular Mechanics, and every DIY catalog (Heathkit-Zenith) of the 1970s. My father is a tinkerer, a let's build it and test it person. I grew up with model rockets, Erector sets, and other gadgets. My wife's father restored tractors and loves a mechanical challenge.

Both of our mothers are readers. My mother insisted on trips to the library. My wife's mother owns a used bookstore. Reading is essential to success.

Our parents were our role models.

You want to close the income divide? Educate and inspire the next generation. That won't be easy, but we must do it.

Monday, January 16, 2012

Mobility… and Presidents

I've been reading a lot about the end of the American Dream. Class mobility? A myth. The idea that hard work and good choices lead to success? A lie meant to placate the masses.

Yet, as I've written before, there is ample evidence that hard work, a stable family, and some relatively simple choices do lead people in the middle class. See:
http://almostclassical.blogspot.com/2011/03/wealth-disparity-myths-and-realistic.html

As I wrote in that post:

  • 86% of the wealthiest households are married couples.
  • 20% of the poorest households feature a married couple.
  • $56,000 is the median income for a person with a bachelor's degree.
  • $19,000 is the median income for someone without a high school diploma.
  • $36,000 is the median income for someone with a two-year college degree or technical certification.

The basic formula for reaching the upper-middle class (or better): get a degree, get married (and stay married), exercise, and avoid "bad" habits (smoking, drugs, heavy drinking).

If the American dream is a myth, why have all but two presidents (both with the surname "Bush") elected during my lifetime come from the middle class or even the lower class? Consider the presidents:

Obama: We could argue middle vs. lower-middle, but his family lived in apartments and small houses. His family was not in the top five percent. He did have different experiences than most middle-class Americans, but living in a mansion and inheriting a fortune wasn't his childhood, either.

Clinton: Another tumultuous childhood. No one is going to claim Bill Clinton was from the elite class and destined for success.

Reagan: Dixon, Illinois? Not known for its mansions and wealth. Reagan was an actor, eventually, but he was born and raised in the middle class.

Carter: I'll grant that his father was a businessman and his mother a nurse, but Carter should probably be considered a middle-class success story. He earned his degree from the Naval Academy. Yes, he was wealthy by the time he ran for office, but Carter is credited for expanding and building a family farm into a huge business. I suppose we could argue if he was "given" the farm or not, but Carter definitely built the business.

Ford: His parents lived with his grandparents in Omaha, Nebraska. Again, not a wealthy beginning. Depending on the biographer you trust, it is possible that Ford's childhood was as messy as Clinton's formative years.

Nixon: Extremely poor. Born at home to parents who were in the midst of bankruptcy. The Nixon family lost their house. It doesn't get much worse than that.

Yet, the men listed above rose in business and politics to the highest office in this nation. Yes, we also had the two Bush presidencies, but overall, my lifetime has seen middle-class men and women rise to great heights. The presidents of the past were often from elite families and wealthy backgrounds, but six of the last eight were from humble, middle-class roots.

The American Dream proved to be true for the current (and now wealthy) president. That's the message every candidate for office should be proclaiming: the dream still exists. It's not a perfect system, and you have to be prepared for some random opportunities, but making preparations for success is something you have to do on a personal level.

Friday, January 13, 2012

Time for Recess Appointments to Go

Republicans are shouting that President Obama has acted "unconstitutionally." The Democrats respond that the GOP merely dedicated to obstruction. And the truth is… (in my opinion) they are all schmucks.
President Obama's recess appointments to the National Labor Relations Board and the Consumer Financial Protection Board are legally questionable, but the real problem is that the appointments continue an already lousy practice that is outdated.

This week the President is claiming that he can make recess appointments because the Senate session is currently a "sham" procedural move by Republicans. The Senate, we all know, is really on vacation. But, only weeks earlier, the non-present Senate conducted serious business and he was more than willing to accept arcane Senate parliamentary tricks.

In December of 2011, the U.S. Senate and House approved a two month extension to current payroll deduction rates. Only a handful of legislators, not even a third, were in Washington at the time, but a "unanimous consent motion" approved the legislation and President Obama signed the extension.

So, the congress was "in session" when Obama wanted them to be, and not in session when he wanted to make recess appointments. Perfectly logical in the world of politics.

No President in our technology-laden society needs to make recess appointments. The Founders included recess appointments in the Constitution because it was difficult, nearly impossible, to quickly gather members of the U.S. Senate when they were out of session. The eighteenth century was a long time ago, though, and today we can gather instantly. All Senators should have to do in an "emergency" is turn on a computer and fire up a webcam. The original intent of the recess appointment simply doesn't apply in most instances.

The disagreement between the Republican House and Democratic Senate which led to President Obama making recess appointments can be traced to Article I of the Constitution. Congress makes its own rules, but the houses (House and Senate) must seek approval from each other for some actions. One of the actions requiring consensus is adjournment.

Article I, Section 5 states:
Neither House, during the Session of Congress, shall, without the Consent of the other, adjourn for more than three days, nor to any other Place than that in which the two Houses shall be sitting.
The House, controlled by the GOP, is refusing, technically, to allow the Senate to recess. Without that consent to adjourn, the Senate is in session — present or not. That's how the Constitution reads.

Now, if the House and Senate do adjourn, any President can do what President Obama did. The law is clear.

Article II, Section 2 reads:
The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.
But, what if the President decides he wants Congress to adjourn simply so he can make appointments? This is a conundrum caused by another section of Article II. It turns out, President Obama could have declared Congress adjourned. Just imagine the outcry had he followed this perfectly legal path.

Part of Article II, Section 3 states:
[The President] may, on extraordinary Occasions, convene both Houses, or either of them, and in Case of Disagreement between them, with Respect to the Time of Adjournment, he may adjourn them to such Time as he shall think proper;
So, to be "legal" the White House only has to say, "Hey, these guys can't agree. So, they are now adjourned!" Problem solved.

Yet, the problem isn't solved. I could envision a power-hungry leader making appointments on weekends. The President has the Vice-President on hand. The V.P. is the President of the Senate. Together, they could, quite legally, adjourn Congress and then the President could make appointments and basically govern via executive branch offices.

I hate to suggest this, but maybe it is time to change the Constitution. I propose the following:
An Amendment to Article II, Section 2: The President, within sixty days of approval of this Amendment, may not make recess appointments. The Senate shall vote to confirm or reject any Presidential nominee to Executive office or Judicial court within thirty days of receiving the formal nomination for appointment. The nomination vote shall require a simple majority for appointment and will not be subject to any other Senate rules.
There. Problem solved. And it solves the backlog of court appointments, too.

Wednesday, January 11, 2012

The Lost Majority by Sean Trende

I hesitate to suggest a book I haven't yet read, but I read Sean Trende loyally. The book, available today, is The Lost Majority. A link to the introduction can be found at: The Lost Majority.

The introduction states:
This book makes three interrelated claims. First, that the 2010 midterm elections were a result of Barack Obama and the Democrats misreading both their mandate and how they had been brought to power, imagining a realignment in 2008 when, in fact, none had occurred. Second, that the emerging partisan majorities described by theorists from both parties are mirages. Third, that the entire concept of realignments/permanent alignments, which underlay much of the misbegotten analysis of the 2008 elections, is bankrupt and should be abandoned.
I wholeheartedly agree with these statements. The "swings" mentioned in the media, by historians, and by some political scientists are illusions. The swings are of a few percentages, generally in the middle. President Obama didn't receive a mandate; he was elected by a narrow margin using voters from narrow, but enthusiastic nich├ęs.

Our nation is center-right, with some "progressive" tendencies. As voters, we struggle to balance a traditional of personal responsibility against the desire to help our fellow citizens. We want to be fiscally responsible, but we hate to cut programs. We are in the middle, as a nation, conflicted as individuals and as a group. That's okay, because that's how we also live our lives on a personal level. We struggle for balance.

As Trende suggests, election trends cannot be measured in perfect cycles. I make the same argument about economic cycles: you cannot time them. We slowly drift, from impulse to impulse, trying to maintain stability. The "Big Events" are usually at the end of a cycle, not the middle or the beginning, but those moments are what define the cycle. Even scholars miss this because the "Big Events" seem to mark the start of something.
When discussing Obama’s win in 2008, analysts frequently threw about the terms “Reagan majority” or “New Deal coalition” in ways that evinced a very shallow understanding of how those coalitions came about, and how they ended. In order to give a proper context for the politics of the last decade, this book therefore begins by urging us to unlearn much of our understanding of the politics of the last hundred years. Part I begins by exploring the early seeds of the New Deal coalition, which were sown in 1920. In that year, Republicans brought together an incredibly broad winning coalition. But as we’ll see again and again in this book these “coalitions of everyone” that form from time to time are unstable, and tend to break down quickly.
Even the Reagan Revolution was at the end of a trend, not the beginning, according to Trende's analysis:
The Reagan coalition did arise from the ashes of the New Deal coalition, but it formed much earlier than most realize. It was the election of Dwight Eisenhower in 1952 that helped stabilize the unsettled politics that arose in the wake of the New Deal’s demise, creating a coalition that was probably the most successful in American history. From 1952 through 1988, the Eisenhower coalition lost only three presidential elections, two by the narrowest of margins. While Democrats held Congress for most of this time, Republicans effectively controlled that body through a coalition with Southern Democrats. As the Democrats continued their leftward shift, and as the country chafed under a prolonged existential threat from the Soviet Union, the Eisenhower coalition enjoyed an extended lifespan unequalled in American history.

In other words, the “Reagan coalition” is better understood as the “Eisenhower coalition,” and Reagan’s presidency marked the end of a period of Republican dominance, not the beginning.
So what was the Obama victory? Well, I'd argue it was more "Anti-Bush" than "Pro-Obama" at the point of victory. But, it was also the voters anticipating that Obama would be like the last Democrat in the White House. Trende explains:
In part II we explore the swift breakdown of this coalition, and the onset of our increasingly unstable politics. Clinton’s efforts to rebrand the party set the stage for the Democratic takeover of Congress in 2006, as well as the election of Barack Obama. This point is critical: Barack Obama’s coalition was not novel. It wasn’t even that broad. It was a narrower version of Clinton’s. Obama’s election saw the final collapse of Democratic voting strength among Democrats in Appalachia and in those states settled by Appalachian Scots-Irish, areas that had been voting Democratic since Andrew Jackson. He was the first Democrat since Lewis Cass in 1848 not to carry Floyd County, Kentucky, and the first ever to lose Knott County. For perspective, in 1996 Clinton carried Floyd County by 45 points and Knott County by 55 points. Even George McGovern carried these counties by double digits.

Of course, there was a positive side to the 2008 ledger as well. Obama ran stronger among liberals, the young, minorities, and suburbanites than did Clinton, and he brought more of these individuals out to vote. As a result, while Obama lost ground by building a coalition that was narrower than Clinton’s, he made up for this narrowing by creating a coalition that went much deeper among certain demographics.
Obama is not the moderate voters expected. The problem is, no candidate will be the moderate voters want. Our primaries are now ideological filters, removing the moderation. Maybe the GOP will embrace a moderate candidate this cycle, but will that be sufficient? I have no idea.

Some Democratic strategists argue that demographics alone will propel their party forward. Trende also challenges this assumption. While black voters remain fiercely loyal to the current incarnation of the Democratic Party, other ethnic groups are starting to show more diversity of affiliation. As the children and grandchildren of immigrants move to the suburbs (and they are moving), they shift to voting more like their new neighbors. Trend's works have explored this several times.
In fact, Latinos have gradually trended toward the Republicans over the past several decades, and there is substantial evidence that as these voters move out of heavily Hispanic areas and become more integrated into Anglo culture, they vote more like non-Hispanic whites.
There are no permanent or demographically guaranteed majorities for either party.

There is a middle. A moderate middle that appears to swing from party to party, when what is actually happening is that the parties themselves and their core activists move from one extreme to another. As the Democrats shift too far left, voters appear to "swing" to the right. As Republicans embrace conservative social issues, voters "swing back" to the Democrats in some regions.

Again, I've added The Lost Majority to my reading list. I suggest you do the same.

Saturday, January 7, 2012

Debt Matters… but When?

As I've written before, Paul Krugman exemplifies a problem with modern economics: his views swing with the politics of his choosing. For research supporting my assertion, see the post:
http://almostclassical.blogspot.com/2010/06/do-economists-change-their-tune-on.html

The New Year's Day column by Krugman is that frustrating mix of absolutely right and definitely wrong that come from economists. Again, I've posted on the astounding lack of accuracy among economists of all political persuasions, so this isn't a left/right debate: I'm opposed to the "scientism" behind dominant economic thought.

Krugman's column left me with a dozen issues I want to address, so forgive the length of this post.

I have beliefs (and they are beliefs) about economics that run counter to Krugman in several ways. At the same time, the differences between most (roughly) free-market economists and thinkers isn't as great as the media or the scholars might have the public believe. It has been said that academics argue details vociferously because their arguments are inconsequential to everyone else. With that in mind, allow me to argue some points of disagreement...
January 1, 2012
Nobody Understands Debt
By PAUL KRUGMAN
In 2011, and in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.
Rhetorically, I'm sure this is a good move by Krugman, but I'm not convinced the conversation was all about the debt. Not much was actually done to address the debt, which is still expanding. The debt conversation is more often simply a way for each side to call for cuts and/or taxes that one political party favors. The conversation Krugman mentions isn't a serious debate — at least not yet. It's a sideshow.

Democrats "concerned" about the debt can call for taxes and cuts to defense spending. Republicans "concerned" about profligate spending can target programs they'd rather see ended. That we need both tax reform (lower rates + no deduction = more revenue) and broad cuts throughout government is a reality no one wants to address. As you will see by this closing statements, Krugman only mentions tax increases in this column. Reality is, we cannot tax our way out of debt. We must grow our way out of debt, something Krugman does mention.

If you want a good alternative to Krugman, I suggest Robert Samuelson.
http://www.realclearpolitics.com/articles/2011/12/19/bye-bye_keynes__112448.htmlDecember 19, 2011
Keynesian economics isn't looking good
Huge debt can be sustained only as long as lenders say
A follow-up to:
June 28, 2010
Economics Unhinged
http://www.realclearpolitics.com/articles/2010/06/28/economics_unhinged_106112.html
I mention Samuelson as a voice of reason because he recognizes the folly of both political parties and their loyalists. By comparison, Krugman is a warrior for the left and unabashedly so. He'd rather subtly insult others, reflected in his choice it put "experts" in quotations when he disagrees with a group.
Perhaps most obviously, the economic "experts" on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!
And while they've been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn't know anything about our postmodern, fact-free politics.
"Right-leaning" think tanks are right to warn about debt. I wish they had been as outspoken for the last half century, especially the last quarter century. But, interest rates alone are not the be-all/end-all of debt debates.

I happen to be one of those convinced that interest rates will rise if our government fails to demonstrate some fiscal responsibility. However, I'm not foolish enough to claim to know when the debt-to-GDP ratio and other factors will cause a bond market revolt. Bond markets, like all markets, are emotional. If people feel that America is the safest open market, then traders will invest in our bonds. Being the best of the bad risks is where we are right now. Would you rather invest money in U.S. bonds or Southern Europe?

It is possible that rates won't rise above five percent for another three or four years. The 30-year bond is near 3% and the ten-year is flat, around 2%. I'd consider anything above 5% a problem because it will substantially increase the cost to refinance current debt. The annual deficit will be the result of financing previously assumed debt. Paying that extra money takes funds away from other government functions; it also, inevitably takes money out of the private sector.

So why isn't there a bond spike today? One of the many reasons is that the U.S. bond market is not an open market. As with most leading economies, our central bankers have been gaming the system to control interest rates. Call it "quantitative easing" or "printing money" — the results are the same. Low interest rates. There are several other factors than can keep interest rates low with rising debt. Japan, for example, has a monstrous debt and low (even negative) interest rates. Japan is also stagnant, but some have argued that stagnation beats decline.

Will interest rates and/or inflation spike? I believe so. When? Not a clue. My own guess, and I hesitate to call it more than a guess, is that the U.S. could continue on its current path for most of another decade before something snaps in the market. There are just too many variables and too many unforeseeable events to proclaim, "Interest rates will spike in 2017!"

Krugman caricatures those warning about debt. But, the truth is that both political parties and pundits on both sides have reduced themselves to caricatures. They want it that way, it seems.
Deficit-worriers portray a future in which we're impoverished by the need to pay back money we've been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments don't — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
Krugman is partially right about analogies to families, but he is also guilty of simplification and omission.

Most of us carry debt. A large percentage of us, my wife and I am included, have more debt than our annual income. How is this possible? We have a home mortgage, student loans, and one car payment. Our debt-to-income is definitely weighted to the debt side of things. And that isn't uncommon or unreasonable if you assess the risks and returns.

As we earn more, we tend to carry more debt, both short-term and long-term. Families and individuals, consciously or not, establish a debt-ratio with which they can live.

Paying the debt down, not to zero, but down, is what most families do. It is also what states and nations should attempt to do.

Consider student loans for a doctor (or professor). When we start working in our chosen fields, the debt payments are a substantial part of our paychecks. Yet, in a decade or two the percentage of our paychecks going to the loans declines. The dollar amount of the monthly payments remains constant… but we earn more each month. The debt was worth the risk, ideally.

Cities, states, and nations do the same thing. Governments borrow money via bonds to pay for investments that might return far more than the overall debt. Fixing Main Street might improve business, which increases revenues, which leads to more tax revenues. For governments, it is a matter of investing wisely, just as it is for individuals.

So, I don't see how the analogy fails. Governments do pay off bonds, just as families pay off their loan debts. Then, new debts are assumed. Very few of us avoid taking out new loans once a debt is settled. We tend to use our "available credit" for a variety of reasons, some wise and some not.

The second point is also overly simplified.

Yes, Americans own much of the U.S. debt, but only a select group are actively trading bonds. Bond traders are mercenaries. If American traders want bonds now, that's no promise of the future.

I've written before that only a fraction of U.S. debt is held by sovereign funds or non-Americans. But, it is a global market. Here's a comparison: most people don't realize most "foreign oil" refined in America is from Mexico and Canada. Yet the price of refined gasoline spikes on foreign events. That's the global market: money and products move. The bond markets and foreign exchange markets are the same… forex and bond traders can shop around the globe for returns.

The question is how much foreign traders can affect the U.S. bond market. Bond auctions range from 5% to 15% foreign bids, and that doesn't include multinational funds with mixed investment origins. I could envision a situation when a 5% "boycott" of bonds causes a spike in rates and drop in bond prices. It happens in commodities and can happen to bonds.

My point is that debt matters and the bond market will be one, and only one, of many variables that decides when the debt matters.

As I mentioned early in this post, Krugman does recognize debt has to be controlled. The problem is that his only proposal is… well, read for yourself:
And that's why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today's conventional wisdom would lead you to believe.
Whoa, that's not the full answer. There are plenty of websites with the data on why taxes alone won't address the structural problems of the U.S. debt. Medicare, Social Security, and interest on the debt (yes, debt matters) are going to blow a massive hole in the federal budget. If you believe taxes solve the problem, read this old post:
http://almostclassical.blogspot.com/2011/04/eat-rich.html
Taxes? No, we need tax revenue increases (not tax rate increases) and real cuts to programs.
Krugman ends his column with the admission debt matters. Again, free-market economists and scholars generally agree on the big points, it's the details that matter. The problem is, he ends up suggesting a non-solution to the current slow growth. And, as Krugman wrote, we need growth.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
Krugman must be more optimistic about government wisdom than anyone I know.

I don't see government spending leading to growth. I've also written several times why: government doesn't seem to know how to invest wisely. Fixing Main Street? Great idea. Instead, we fund a football stadium. What happens locally, big fancy projects getting money instead of real needs, will happen on the federal level.

On the federal level, those fancy projects that don't really return any value? Green jobs and high-speed rail come to mind right now. Just ask California. And California's debt? A good example of what to avoid at the federal level.

(I'm hoping California comes to its senses and kills some projects like high-speed rail to restore funding to education and existing infrastructure. But, I know that's just a dream.)