The “Debate”

I don’t plan to watch the Democratic candidates’ debate this evening. I’m tired and it will go on long past my bedtime. Tell me how it comes out.

Two hours is 120 minutes. If they were to give each candidate the same amount of time that would be 12 minutes per candidate. If they allow each candidate a two minute opening statement, ask a question of each candidate in turn three times, and allow each candidate a two minute closing statement, that would be the entire two hours including transitions. If they allow audience questions, it will be chaos.

Most of the candidates are long-time professional politicians not radio broadcasters. Two minutes would be barely enough time to let them clear their throats. I anticipate an exercise in futility.

Other formats are possible and I presume that the network would prefer them. “Warren and the 9 Dwarfs” is one possible story. “Gang Up On Warren” is another. Yet another story would be to pit all of the candidates against the person not in the room: “Is Trump an Idiot or a Villain?” or “Tell us why we should vote for you and not for Trump” which is really the question, isn’t it? I presume that the network would prefer drama and it’s darned hard to get drama with so many candidates in such a limited timespan while remaining fair. I doubt it will make for riveting television.

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The Message

Lately I’ve seen any number of op-eds from the rich and the ultra-rich with notionally high-minded pleas to raise their taxes. Take this op-ed from Eli Broad in the New York Times:

Don’t get me wrong: I am not advocating an end to the capitalist system that’s yielded some of the greatest gains in prosperity and innovation in human history. I simply believe it’s time for those of us with great wealth to commit to reducing income inequality, starting with the demand to be taxed at a higher rate than everyone else.

This does not mean I support paying higher taxes without requiring government to be transparent, accountable and equitable about how it spends the revenue, particularly for health care, public education and other programs critical to social and economic mobility. But let’s end this tired argument that we must delay fixing structural inequities until our government is running as efficiently as the most profitable companies. That’s a convenient tactic employed to distract us from the real problems.

The apparent claim is that the only thing preventing his paying higher taxes is the marginal tax rates. That is arrant nonsense.

Let’s take Warren Buffett, for example. He’s already acknowledged that his effective tax rate is in the low double digits. That tells us that he’s taking every deduction and using every strategem at his disposal to reduce his tax burden. Paying more in taxes for him doesn’t require him to volunteer an extra check to the Treasury. All that is necessary is that he not take any deductions and take all of his income in the form of wages and his tax bill will be triple what it is now. The principle of time consistency tells us that if marginal tax rates are increased he’s likely to continue that practice. Additionally, I suspect that most people believe that Mr. Buffett’s ability to influence the tax code is greater than theirs.

So what’s the actual message being communicated? He’s saying “I want somebody else to pay more taxes”. That’s not high-minded at all.


How to Blow It

At Politico Charles Sykes has some handy tips for how the Democrats can blow it. Here they are in summary:

  1. Hold firmly to the idea that Twitter is the beating heart of the real Democratic Party.
  2. Embrace the weird.
  3. Keep promising lots of free stuff and don’t sweat paying for it.
  4. Go ahead and abolish private health insurance.
  5. Spend time talking about reparations.
  6. Trump thinks that immigration and the crisis at the border are winning issues for him. They aren’t. But you can turn that around.
  7. Lots more focus on Alexandria Ocasio-Cortez.
  8. Socialism.
  9. Turn the abortion issue from a winner into a loser.
  10. You can also turn a winner into a loser on the issue of guns.
  11. As you try to get Americans more alarmed about Trump’s attacks on democratic norms, make sure you talk as much as possible about your support for court-packing.

I think I would add three:

  • Assume that everyone hates Trump as much as you do.
  • Make a bunch of extravagant promises during the primary season and then backpedal as quickly as possible during the general election campaign.
  • Embrace open borders.


At present entering the United States without having presented yourself to a duly constituted official is a misdemeanor. Doing do multiple times is a felony. So far among the Democratic candidates Julian Castro and Elizabeth Warren have endorsed “decriminalizing” entering the country without permission.

Here’s my question. Would that encourage more people to enter the country, discourage people from entering the country, or have no effect? I think it would minorly encourage more people to enter the country. Is that actually what we want to do?

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Hurry! Hurry! Get Your Iran Policy Here!

I thought you might be interested in Walter Russell Mead’s take on Trump’s handling of the situation with Iran from his Wall Street Journal column. Here’s its conclusion:

Mr. Trump’s approach to American diplomacy horrifies an establishment that believes restraint, predictability and responsibility are the hallmarks of a global hegemon. Lesser powers can indulge in histrionic grandstanding, clownish antics, outrageous claims and public tantrums. The hegemon exhibits power by rising above such tawdry tricks.

This is not the Trump approach. A street fighter and a brawler, Mr. Trump uses the same tools in foreign policy as he does in politics at home. The jury is very much out on whether these techniques will bring lasting success, but no one should forget that staging riveting public spectacles has been a prime pathway to power since the days of ancient Rome.

If anything, he’s a bit more enthusiastic than I am. I guess I’m satisfied that we’re not a with with Iran as so many pundits seem to be pressing for.

Here’s the whole thing:
[continue reading…]


Good Governance

Yesterday I was rather surprised to find that I agreed with Charles Lane’s assessment in his Washington Post column. The Scandinavian countries do have better governance than we do here in the United states:

Undoubtedly, the Nordic nations, with their high incomes, low inequality, free politics and strong rule of law, represent success stories. What this has to do with socialism, though, is another question.

And the answer, according to a highly clarifying new report from analysts at JPMorgan Chase, is “not much.”

Drawing on data from the World Bank, the Organization of Economic Cooperation and Development and other reputable sources, the report shows that five nations — Sweden, Denmark, Finland, Norway and the Netherlands — protect property rights somewhat more aggressively than the United States, on average; exercise less control over private enterprise; permit greater concentration in the banking sector; and distribute a smaller share of their total income to workers.

“Copy the Nordic model if you like, but understand that it entails a lot of capitalism and pro-business policies, a lot of taxation on middle class spending and wages, minimal reliance on corporate taxation and plenty of co-pays and deductibles in its healthcare system,” the report notes.

Sanders and other left-leaning Democrats promise to pay for tuition-free college and Medicare-for-all with higher taxes on the top 1 percent of earners. Most Nordic countries, by contrast, have zero estate tax. They fund generous programs with the help of value-added taxes that heavily affect middle-class consumers.

In Sweden, for example, consumption, social security and payroll taxes total 27 percent of gross domestic product, as compared with 10.6 percent in the United States, according to the JPMorgan Chase report. The Nordic countries tried direct wealth taxes such as the one that figures prominently in the plans of Sen. Elizabeth Warren (D-Mass.); all but Norway abandoned them because of widespread implementation problems.

He underestimates U. S. taxation somewhat. In the United States in addition to the taxes listed above we have other state and local taxes adding to the tax burden. With all of that our total tax burden is still lower than that of Sweden but not that much lower. Depending on the state it’s probably between 15% and 20%. Our tax system is a bit more progressive than Sweden’s.

The Nordic countries’ use of co-pays and deductibles in health care may be especially eye-opening to anyone considering Sanders’s Medicare-for-all plan, which the presidential candidate pitches as an effort to bring the United States into line with European standards.

His plan offers an all-encompassing, government-funded zero-co-pay, zero-deductible suite of benefits, from dental checkups to major surgery — which no Nordic nation provides.

Let’s dig a little deeper. The last time the U. S. population was the size of Sweden’s today was 1820. A couple of generations ago, when Sweden adopted its cradle-to-grave welfare system not only had it been prosperous and growing for some time but its population was 90% ethnic Swedes. As economic growth has slowed, its welfare system has become less generous.

Sweden’s present population is about the same in number as that of the metro Chicago area. I suspect that Chicago would have better governance, too, if it were 70% ethnic Swedes and cultural Lutherans as Sweden is today. Instead we have different factions vying for larger government outlays for themselves and enormous corruption, something practically unknown in Sweden.

For the U. S. Congress to be as representative as Sweden’s parliament is of Swedes, we’d need to have 10,000 Congressio9nal representatives.

When the Swedes faced a financial crisis a few years back, it nationalized the banks, the banks’ shareholders lost their equity, they liquidated the banks’ remaining assets, reorganized, and moved on. During our financial crisis we preserved the banks and their stockholders and are continuing to prop them up. We’re pretty sure we’ll do it again in the next financial crisis and there will be a next financial crisis.

When the Swedes’ large auto company was in financial problems, they let it go. When our largest auto company was in trouble, we preserved it.

All of the countries with which Sweden has land borders have median incomes within 15% of that of Sweden’s. We have a long land border with a country in which the median household income is a quarter of what it is here.

In Sweden the typical physician earns about $80,000. That’s about double the income of the average Swedish household. It’s also about a third of what American physicians are paid which is about four times the typical American household income.

In short the differences between Sweden and the U. S. are substantial. As I have pointed out before countries are systems not cafeterias. Their cultures, politics, and economics are all interrelated. If your objective is for the United States to become more like Sweden, start by explaining to me your plan for making us 70% cultural Lutherans. That’s part of the system.


Math Question

Here’s a question for all of you financial types out there. How large a tax on trades on the NYSE would it take to kill the stock market? I think it would take a lot less than some people appear to be assuming. A lot of trades these days are very short term trades with extremely small margins.

I haven’t looked lately but I think the daily trading volume is something like $200 billion.



There is a wonderful line in the musical Once Upon a Mattress: “We must think of a test that looks fair and sounds fair and seems fair and isn’t fair”. Think of that as you watch the debates of the Democratic presidential candidates. At RealClearPolitics Bill Scher concurs:

Presidential campaign debates should be fair. Everybody running for president deserves the chance to make their case to the public on a level platform.

And yet, they can’t be completely fair. Right now, there are 178 Democratic presidential candidates who have filed with the Federal Election Commission. They can’t all be on the same broadcast network soundstage. Someone has to draw the line.

Unfortunately, as we will see in the first presidential primary debates this Wednesday and Thursday, the Democratic National Committee has drawn a ridiculous line.

The entire purpose of the entire procedure, debates, primaries, caucuses, and all, is to allow the DNC to coronate the candidate they’ve picked while seeming to be fair and democratic.


Why Has Licensing Increased?

I just love the graph above which I sampled from this post at The Atlantic by Lyman Stone on “how the Boomers ruined everything”. I would submit that it tells us exactly nothing other than, perhaps, the wages of illegal immigrants are pretty low. Why? Because it aggregates things that should not be aggregated. So, for example, why combine PhDs and MDs? I would suggest that if you disaggregated them it would tell a dramatically different story. Most people with PhDs earn less than $60,000 per year while most medical doctors earn more than $150,000 per year (the median wage is over $190,000/year). Similarly with Master’s degrees. The median starting salary for a Harvard MBA is $160,000. The median income for an MFA (Master of Fine Arts) is under $40,000. To put my complaint into statistical terminology the distributions within the categories are themselves not Gaussian but bimodal or polymodal.

About the article itself there are lots of things in it with which I disagree. For example, I don’t think you can blame the huge increase in licensing on the Baby Boomers. Quite to the contrary. Licensing allows people without experience to compete with people who have experience. Those who benefited most from the big bump over the last 20 years have been GenXers.

But this I agree with:

The average American was 32 years old in 2000, and 37 in 2018. The retiree share of the population is booming, while birth rates are plummeting. When a society gets older, its politics change. Older voters have different interests than younger voters: cuts to retiree-focused benefits are scarier, while long-term problems like excessive student debt, climate change, and low birth rates are more easily ignored.

all of which was completely foreseeable and completely ignored over a period of 60 years. Which brings me to the real culprits. The Baby Boomers do not now and never have controlled the United States. That would be the Silent Generation. Just look at the Congressional leadership and you’ll see what I mean.

There are lots of interesting charts and graphs, mostly excellent examples of how to lie with statistics. Just as an example, when the Baby Boomers were born the U. S. immigrant population was 4%. Now it’s 17%, many of them with poor command of English and not much formal education. That is a formula for many of the ills presented in the article. When the immigrant population was 4%, you didn’t need to disaggregate immigrants. Now you do or everything is just an inexplicable mystery.


With Friends Like These

Speaking of axes to grind, you might be amused by this article by Eric Levitz in New York Magazine. It seems that the Federal Reserve has been undermining economic growth:

Our esteemed technocrats produced a cornucopia of creative explanations for each of these phenomena. Overly generous disability benefits had lured able-bodied Americans out of the labor force and into irrevocable dependency. Or else excessively entertaining video games had persuaded a generation of young men to pursue a life of PlayStation and poverty over one of work and prosperity. Regardless, the decline could not be averted through economic stimulus—the labor market was not failing these workers; they were failing the labor market.

As for wages, globalization and automation had placed new limits on American workers’ bargaining power; ask for too much, and the boss will simply replace you with a robot or a less-demanding worker from the developing world. Or else workers simply hadn’t earned raises — productivity growth was too low for firms to increase wages without eating into profits. Or sluggish wage growth merely reflected demographics; as the population aged, senior-level workers were being replaced with entry-level ones with lower salary expectations. Or (more credibly) perhaps the long death of the American labor movement had left workers too atomized and demoralized to ask for what they’re worth.

Regardless, wage growth couldn’t be significantly improved through further fiscal or monetary stimulus. The economy was already nearing full employment. The labor market simply couldn’t get much tighter.

A few lonely voices disputed this consensus. In their view, these two distinct mysteries weren’t actually distinct — or all that mysterious. The reason wage growth wasn’t rising as one would expect with the economy near full employment was that the economy wasn’t near full employment. And the reason the economy wasn’t near full employment was that all those prime-age workers who’d supposedly exited the labor force for reasons totally unrelated to the strength of the economy hadn’t actually exited the labor force for reasons totally unrelated to the strength of the economy.

I don’t really ask much of the Federal Reserve. Only that they regulate banks, their primary charter, something they have steadfastly been unable to do and not stray beyond their mandates, something else they are apparently unable to do.

The Federal Reserve Board of Governors does not hold the responsibility of “running the economy” and they most emphatically do not have the responsibility of ensuring that the Dow-Jones Industrial Average rises, which seems to have become a primary objective.