#375 Leadership in a Crisis: Chaos or Confidence?

21 Saturday Mar 2020

Posted by Jordan Abel in Causes of the Revolution, Economics, Federal Budget, Gov't Policy, Stupid Is as Stupid Does, Uncategorized

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US. Most recent sense check, Entry #365.

Some of the entries are part of a series. Several series are available as easy-to-read booklets for download:

Working with Lee Iacocca after he left Chrysler, 2019Q3 Iacocca Personal Observations.
GM EV1 — behind-the-scenes events affecting development and introduction of the GM EV1, the first modern electric vehicle. 2020Q1 GM EV-1 Story Behind the Story Booklet
Coming technology tsunami and the implications for the US, Tech Tsunami Booklet with Supplement
Trump Supporters Brainwashed? A series discussing why Republics have abandoned basic principals, Are Trump Republicans Brainwashed 2020Q1
Who took out the Donald? Who/what groups are most likely to “take out” Trump? Who Took Out the Donald Entries with Update
Revenge Revolution — description of what form the revolution might take, 20 01 07 Start of Revolution

Prelude: there is an endless number of inconsistencies in information from the Trump administration about the spread of the coronavirus and/or actions to mitigate the spread. Rather than beat a dead horse, I’ve chosen a few that are representative but not necessarily the most egregious.

ENTRY #375 BEGINS: During the Great Depression FDR understood that instilling hope in people would help bring the country together and help reduce the likelihood of societal chaos. FDR started his first term by stating, “The only thing we have to fear is fear itself.”

FDR followed his inaugural address with a series of “fireside chats,” during which he outlined problems and proposed solutions. (If you’ve never heard any of the “fireside chats,” they’re available on the internet.) The fireside chats helped build confidence in the capabilities of the Roosevelt administration and a foundation of hope in a time of great uncertainty.

The umbrella for recovery from the Great Depression was called the “New Deal.” The New Deal included a series of programs to provide work and income (and self-respect) for all types of unemployed workers. The New Deal work programs – WPA, CCC, and many others – included significantly expanding infrastructure in the United States, which laid the groundwork for economic growth for many decades to come.

The lesson of FDR’s understanding of creating hope and maintaining self-respect seems to have been lost on the Trump Administration. Whereas the cause of society’s uncertainty today is different than during the 1930’s, the importance of instilling hope in society and avoiding instilling fear remains the same.

Unfortunately, since day #1 in office, Trump has promoted chaos and fear. Even cabinet members who were selected because of a relationship with Trump, have been cast aside for daring to disagree with Trump. As noted in several previous entries (#374 is an example), the result of Trump‘s management style has been a cabinet that is filled with incompetents.

Trump has also consistently displayed incompetence on substantive issues. The combination has reduced people’s confidence in the ability of government to manage crises. What about the public’s confidence in the competence of the White House in dealing with the coronavirus? Did Trump take the approach of FDR and layout problems and proposed solutions?

In a press conference March 20, 2020, a reporter asked Trump and Mike Pompeo, Secretary of State, when the administration first learned of the extent of the coronavirus problem in China. Pompeo asked the Homeland Security director to answer – the reply was “January 3.”

Did the Trump administration convey such information to the public? Did the administration take any action to ensure critical medical supplies would be on hand should the virus spread to the US? No, not even outside the public purview. As recently as March 3^rd – two months after learning about the major problems in China – Trump declared publicly the coronavirus was a hoax.

When cases started appearing in the US, Trump claimed there were only 15 cases (there were at least 60). And of the 15 cases, Trump claimed only one or two were serious. A few days thereafter, Trump declared the virus would magically disappear, like some miracle. According to Trump, the US, unlike other countries, had the coronavirus under control.

On March 19 information became available that the Senate Committee on Intelligence had been briefed on the severity of the problem in February. The chairman of the committee, Richard Burr (R-NC), used the information to sell stock in industries that might be affected and to warn a small group of high-dollar donors about the growing problem. Did Burr inform the public? No. (Gee, I wonder what the outcry would be from Fox News, Lindsey Graham and other Trump lapdogs if Burr were a Democrat?)

Despite declarations from King Trump, the number of people infected in the US kept increasing exponentially. Then after several governors and mayors had implemented severe restrictions on travel and gatherings, King Trump declared, “I always knew this would lead to a pandemic.” Right Donald – liar, liar, pants on fire.”

Aside from the bonehead declarations by the president, the performance of the Trump administration this past week or so has been better, but remains mixed. Public confidence in the Center for Disease Control (CDC) seems to have improved as doctors have begun telling the truth about the intensity of the coronavirus and how citizens should behave. Comments from CDC personnel often have directly conflicted with claims made by Trump, even when Trump is standing next to the CDC spokesperson.

In addition, state and local officials have continued to provide guidance. Examples include governors of Michigan and Washington as well as governors/mayors in the New York tristate area. There are still some bumps in these declarations and differences of opinion but action is being taken.

As far as calming fear, Trump might have convinced the hardcore supporters he’s competent, but no one else seems convinced that he or key White House staff/cabinet officials knows what to do. Once the public began to understand more about they could be affected by the virus and then began to understand proposed government programs to respond, mild panic set in.

People rushed to buy food and staples. Stocks of toilet paper were depleted because people were concerned the material used to make facemasks would stop production of toilet paper. A simple explanation of manufacturing capacity for TP, and lead times from factory to food stores would have mitigated most concerns. A similar explanation for many food products would have helped. But as of this date, nary a word from the White House about supply chains.

The uncertainty also spooked investors, who hate uncertainty. The result has been a frenzy with huge daily swings in the market, mostly down. The major indexes, Trump’s personal barometer of job performance, have declined to a point where all the gains realized since inauguration have been wiped out. In less than two months the major indexes have fallen 25-30%.

The near freefall of the stock market has affected consumer confidence as has the projection of a double-digit drop in GDP in 2020:Q2, and double-digit unemployment. The trifecta hit on confidence will exaggerate the virus-related slowdown in purchases of durable goods as well as home sales and construction.

The run-up in the stock market proceeding the recent crash also left the public with another headache – an additional $1,000,000,000,000 Federal debt. The 2017 tax cut was essentially a wealth transfer program to the rich, making them even richer. Think of it as socialism for the rich. Little, if any of the tax cut actually filtered down to the middle and lower-income categories.

The end result was the rich got considerably richer and everyone else got stuck with the bill — $2,700+ for every man, woman and child in the US. For a family of four, they should think of the tax cut as their gift of more than $10,000 to the very wealthy. (For more about the fallacy of trickle-down economics, which was used to justify the wealth transfer, see blog entry xxx.)

While an economic stimulus will help some people pay bills in the short-term, the real issue is mitigating the effects of the virus. Because currently there is no vaccine (forget Trump’s claim) and no known cause, there is no way to stop infections. The government’s plan is to “flatten the curve” of the rate of infection so the number of people needing hospitalization stays within the capacity of the hospital system.

Actions to “flatten the curve of infection” include restricting the number of people who can gather together. In some areas, the restriction is 100 people, some areas it is 50 people and some areas 10 people. Surprisingly, as of 03/18, about 10 states had no restrictions, including Texas.

The flip side of restrictions on crowd control is the negative impact on commerce. Restaurants, bars, hotels, gyms, movie theaters, theme parks and even religious institutions have been ordered to close. Sporting events have been canceled or delayed. Airlines have cut back flights by 50% or more.

Even such mundane tasks as garbage pickup have been affected. In our neighborhood, the sanitation department also picks up twigs, leaves and other yard waste. This week the yard-waste truck was about an hour late because, according to a man on the truck, they could not take off because of the 50-person restriction and had to wait for the sanitation workers to leave the building. (Yard waste pickup has now been suspended.)

The effect of these restrictions will be a significant increase in unemployment and decline in GDP. Although some believe the jump in unemployment will be temporary, my belief is that any rebound in employment will leave many unemployed as organizations realize how to operate with fewer employees by implementing more technology. The depressing effect on employment could last for a number of years. (For more information about the effects of technology on potential unemployment, see ”Tech Tsunami Booklet with Supplement” )

While both economic and medical programs are needed, most proposed actions by the White House seem more focused on the economy and less on ensuring medical care is available for those affected. An example is the proposed payment of $1,000-$2,000 per family for some period. The intent seems worthwhile, helping to address income shortfalls for many service workers.

The effect of such programs on confidence is more problematic. The proposed program would link the amount of payment to family size and family income. Thus, the more income one earned (there’s a cap), the bigger the check from the government. Does anyone in the Trump administration or the Republican Senate understand basic economics? People with lower incomes who get laid off have no savings. At least give everyone the same amount.

Doubtless the irony of the proposed economic program has been lost on the White House and the Republican Senators. Isn’t giving away money directly to families socialism? Only a couple of weeks ago Republicans were characterizing as socialism any Democratic proposal for income support or student-loan forgiveness. Or, as often stated by Trumpsters, maybe such programs were really like communism. Well, aren’t socialism and communism the same?

Okay, the idea of supplementing income in the short-term makes economic sense. But there’s no need for a tax cut for corporations. In case Trump and Republicans don’t understand, taxes first require revenue and then a profit. If the public is not working there’s no demand and no revenue – and duh, no profit or tax due.

The proposed programs also have a flip side. #1, the proposed program would increase the federal debt in FY2020 at least another $1,000,000,000,000 and closer to $2,000,000,000,000. Thus, by the time Trump completes four years in office, the Federal debt will have increased more than $3,000,000,000,000…and likely more. The increase is remarkably high given that unlike Obama, Trump inherited a very strong economy that should have resulted in a smaller annual deficit and possibly annual surplus. Like I asked earlier, does anyone in the White House, Trump’s cabinet or the Republican Senate understand basic economics?

So where have all the Republican fiscal conservatives been while Trump ran up the federal debt? Apparently in hiding and waiting for a Democratic president so they can begin screaming about the level of federal debt. The scream will be the Federal debt needs to be reduced with cuts to payments for Social Security and Medicare.

Another area that can contribute to the thinking-public’s lack of confidence is the Trump administration’s effort to eliminate Obamacare. During the 2016 presidential campaign and then during three years in office, Trump has made every effort to kill Obamacare. Any Obamacare-like program was bad — oops until the coronavirus. Now many programs being proposed by the Trump administration are absolutely consistent with the purpose of Obamacare and suggest that the US would be better off with a national healthcare system. Such change in policy will only increase frustration among the populace as well as increase the lack of confidence in government.

Adding fuel to the “no-confidence” fire was Trump’s claim at a oppress conference Friday, 03/20/2020 that his administration inherited a broken healthcare system from the Obama administration but that he (Trump) had fixed it. Obviously, not everyone agreed. The lead doctor at CDC put his head in his hand as Trump spoke.

Where does all the inconsistency and uncertainty lead? Uncertainty, as discussed in a number of previous blog entries, is often a precursor to a revolution. The US might get lucky and avoid a 5^th revolution by voting out Trump and most of the Senate in the November 2020 election.

As of today, even though the coronavirus crisis is still in the early stages, the public seems more than willing to accept Depression-era types of programs to help stimulate the economy and begin to help reduce the income inequities that currently exist. Such programs are more consistent with the Democratic Party and would seem to bode well for the election of Joe Biden.

However, if for whatever reason Trump is re-elected, then the level of chaos and uncertainty experienced during the first term is likely to intensify. While the hard-core Trumpsters might be satisfied, the majority of the population will not be. The extreme discord between the hard-core Trumpster and rational people will increase the probability of a 5^th US revolution.

As described throughout the blog, the revolution will be some type of revenge against the elite that Trump continues to support. The revolution – the Revenge Revolution – also will include many of the hard-core who finally wake up to the reality of how much Trump has screwed them.

#238 Primer Cha 3: Is the Federal Debt Too High? Well, Not Really.

12 Sunday Feb 2017

Posted by Jordan Abel in Common Sense Policies, Economics, Federal Budget

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First-time readers, the dialogue in this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about Revenge Revolution and author, Entry #1. List and general description of entries to date. Annual assessment if Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations. Profile of characters. You’ll catch on quickly. Thanks for your time and interest…and comments.

Scene: Gelly, Jordan’s assistant, has been editing and updating a primer Jordan wrote about 2011. Section starts Entry #235. (Primer will be available as PDF in more traditional format after the first few entries. The download will be updated regularly.)

Gelly: “Jordan, can you clarify something for me, please? Is the Federal debt too high?”

Jordan: “Interesting question. Why do you ask?”

Gelly: “Some people I know and some of the talk-radio bloviators keep saying…or at least they used to say when Obama was president…that the Federal government’s debt is too high.”

Jordan: “Then let me guess. The follow-on comment, ‘The country needs to return to the fiscal-conservative days of the Reagan Administration.'”

Gelly: “Exactly right.”

Jordan: “I find it interesting the claim about Reagan as a fiscal conservative…but what are the facts? Here’s the question: ‘Since the 1960’s, under which president has the Federal debt as a percent of GDP (gross domestic product) increased the most? (Note: In the early decades following WWII, Federal debt as a percent of GDP declined sharply.)

Gelly: “First, just what is the Federal debt?”

Jordan: “Grab a cup of coffee and I’ll walk you through some of the basics.”

Gelly: “Good. That should help me understand the rest of the primer.”

Jordan: “For non-economists, the Federal debt is essentially what you think it is…the amount of money the US government owes creditors. The Federal debt is similar in many ways to the debt you owe – mortgage on the house, outstanding car loan, student loan and credit cards.

One major difference. The US government can print money to pay-off its debt; you cannot print money…at least legally.

Is the Federal debt too high? Depends.

To help answer whether Federal debt is too high, first let’s start by roughly adding up all your debt – mortgage on the house, loan on the car(s), outstanding balance on credit cards, etc. Let’s say your debt totals $250,000. If your income is $50,000 per year, your debt of $250,000 is too high. If you make $100,000 per year, your debt is reasonable. If you make $250,000 or more per year, you’re probably in very good shape.

So how do the examples of personal debt compare to the debt of the Federal government? Surprisingly, personal debt is generally higher, often 2-3 times more than household annual income. When you bought your first house, for example, how much higher was your mortgage (with interest) than your annual income?

If you were comfortable getting that big a loan for your house, then relax about the Federal debt. The Federal debt is much lower proportionately than your personal debt.

Was Reagan a Fiscal Conservative?

The chart indicates debt as a percent of GDP from the 1960’s through early 2017. Most people who view the chart are surprised to learn that debt did not decline under Reagan/Bush. In fact, under Reagan/Bush 41 debt as a percent of GDP just about doubled — from about 30% of GDP to almost 60% of GDP. Based on the metrics used by many Republican to claim debt under the Obama Administration was “out of control,” Reagan should have been branded as a president leading the country toward bankruptcy.

Republicans who brand Democrats as “tax-and-spend” need to be reminded that under the Clinton Administration that followed Reagan/Bush 41, the Federal government ran a surplus and total debt as a percent of GDP declined. Yes, I understand the sarcasm in what’s supposed to be an apolitical primer. However, without some prodding and poking, the “alternative facts” crowd will continue to make erroneous claims that Reagan was a fiscal conservative.

Federal debt as a percent of GDP climbed sharply under Bush 43 (2001-2009) Administration from about 55% of GDP to about 80% of GDP. The primary causes were implementing a major tax cut, which decreased Federal revenues at the same time increasing spending for wars in Iraq and Afghanistan.

Under Obama, Federal debt as a percent of GDP increased sharply at the beginning. The cause was primarily efforts to overcome a severe recession. During the recession, which started toward the end of Bush 43, Federal government tax revenues fell sharply and Federal government spending increased sharply to help stimulate the economy. In the latter years of the Obama Administration, annual Federal deficit declined as did the rate of increase Federal debt as a percent of GDP.

(For those thinking the government should cut back on spending in recessions, there will be a separate entry to explain why, in a recession, fiscal actions for the Federal government and individual households should be exactly the opposite.)

Under the Trump Administration, debt as a percent of GDP is likely to increase. Trump and Republicans are pushing for a major tax cut, similar in many respects to the “trickle-down” tax cuts by Reagan and Bush 43. “Trickle-down” economics is what Bush 41 famously labeled as “voodoo economics” in the campaign against Reagan.

In addition, Trump Administration has proposed a major infrastructure rebuilding program. An equally ambitious infrastructure rebuilding program proposed under the Obama Administration was deemed “too expensive” by Republicans. Apparently, the cost of such a program and the dramatic increase to the Federal deficit are no longer issues. Mmm, wonder what changed the Republicans thinking?

Trump claims the additional expenses associated with government spending will be offset by additional revenues from accelerated economic growth. Annual growth in GDP will somehow magically increase to an average 4.0%. While 4.0% growth in GDP has been achieved periodically since WWII, such a high rate has not been sustained. Further, the rate is often the result of the stimulus associated with large fiscal deficits.

Given all the “don’t worry about the deficit because it will magically disappear” rhetoric now that Trump is in the White House, the next time a Republican claims policies of Democrats have crippled the country with debt, note that Reagan and Bush 43 administrations increased debt far more than any other administration since WWII…and Trump is likely to set another record for increasing the debt. So much for being a “fiscal conservative.”

OK, What Really Caused the Debt to Increase?

Republican-led tax cuts that did not translate into sustained economic growth, thereby creating more debt.
Allowing taxes for Social Security and Medicare to be counted as “general revenues” and effectively used for other purposes. Such “baloney” accounting has allowed both parties in Congress to justify not raising taxes to pay for other programs.
Belief by most Republicans that tax cuts for the wealthy will “trickle down” to middle and lower incomes. There is no credible evidence to support such claims.
Allowing, and even encouraging companies to relocate manufacturing outside the US, thereby reducing wealth creation and ability to collect tax on payroll and income.

Proposed Simple Changes to Policy. Following are some simple changes to government policy that would have an immediate and positive impact on US economic growth. Some of these have been proposed previously and some are under consideration by the Trump Administration. Serious consideration should be given to:

Stop counting tax revenues for Social Security and Medicare as “general revenue.” It is OK to run a Federal deficit. Just make certain the amount of the deficit is understood and not understated by phony-baloney accounting.
Recognizing that people who are unemployed do not need lower taxes. Unemployed people likely pay no income taxes. Unemployed people need cash.
Recognizing that people who are unemployed/under-employed spend a higher percentage of income than those employed, especially those with higher incomes
Recognizing that people who work have more self-esteem than those who take handouts. Put the unemployed to work, even if the task is ”beneath their skill level.” There are many worthwhile projects that need to be completed. If you don’t like this idea, then read some accounts of how government programs during the 1930’s New Deal programs positively affected lives of all income strata. And check your own family history to see who benefitted.”

Gelly: “Thanks for the summary Jordan. Seems to me for the president and Congressional leaders, maybe the most important guide about proposing changes to government economic policy is use some common sense. Think before you act…or react to an idea. Thinking before you act was good advice from our parents when we were teenagers. Still relevant today.”

#231 Lessons from Revenge Revolution: Trump’s ‘Incompetents Club’ Cabinet (Part 7 of 7)

18 Sunday Dec 2016

Posted by Jordan Abel in Federal Budget, Gov't Policy, Lessons of Revolution

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Gelly: “Drone Man, nice to see you again. I thought you were headed back to your granddaughter’s tour group.”

Drone Man: “Just as I got off the elevator in your lobby she called and said there’d been a delay of an hour or so. So, Gelly, if it’s OK, I’ll take that cup of coffee you offered a few minutes ago.”

Gelly: “Of course. Come on in. Jordan and I were just taking a short break.”

Jordan: “Welcome back, Drone Man. So we have you for another hour or so, eh?”

Drone Man: “If you can put up with me.”

Jordan: “It’s tough but we’ll try.”

(Gelly brings Drone Man coffee.)

Drone Man: “Thanks for the coffee Gelly. And since I interrupted you guys, I have another favor.”

Jordan: “Which is…?”

Drone Man: “In discussing lessons learned from the Revenge Revolution, I’ve not heard much about the Trump Administration…other than some lessons about what not to do for economic and tax policies.”

Jordan: “You have a specific topic in mind?”

Drone Man: “What about the lessons learned from Trump’s selection of various cabinet positions and heads of agencies?”

Jordan: “You mean Trump’s appointments to the ‘Incompetents Club?’”

Drone Man: “C’mon. You really don’t mean the appointees were incompetent, do you? Lots of smart people.”

Gelly: “Jordan, Drone Man makes an interesting point. These were smart people. What do you mean?”

Jordan: “Would either of you hire me to manage your brain surgery?”

Drone Man: “Of course not. That would be stupid. What do you know about brain surgery?”

Jordan: “Then stupid is as stupid does.. Why nominate a brain surgeon to be head of HUD (Housing and Urban Development). Just because he lived in public housing as a kid, doesn’t mean he knows how to manage the agency. The same applies to any number of Trump’s appointments – EPA, DOE, Interior…and the list goes on. Zero knowledge of the agency they were to manage.”

Drone Man: “Look, Trump was trying to ‘drain the swamp.’ He needed to appoint people who were not connected to the agency.”

Jordan: “If you’re going to drain the swamp, don’t you think you should put someone who knows something about swamps?”

Gelly: “But didn’t Trump claim that people who knew the swamp were the problem? Therefore, why appoint them?”

Drone Man: “Keep poking him, Gelly.”

Jordan: “My view is Trump was focused on the wrong target.”

Gelly: “Well, then who’s to blame for the swamp if it’s not the bureaucrats at the agencies?”

Jordan: “A group that few people really think about as a core problem – Congress. Oh, yes, people think some members of Congress are too self-centered and non-responsive.”

Gelly: “What about voters? People keep electing the same congressional rep. There’s very little turnover.”

Jordan: “I agree voters share part of the blame. But, unlike legislators in Congress, voters can’t make laws. Voters cannot determine what money the Federal government will spend. And that fact seems to be where Trump completely missed the boat. The Federal agencies do not authorize their budget. All spending bills are initiated in the House, not by the agency.”

Gelly: “So you’re saying the agencies really manage the money that Congress authorizes, right?”

Jordan: “Exactly. If you listened to Trump, who apparently had never read the Constitution and sleep-walked through his 8^th-grade civics class, you’d think EPA, Defense, Education, Interior, Transportation and all the other agencies just ran around printing money willy-nilly. Someone forgot to tell the Donald, if you want to change what goes on in Washington, you better start with the place that approves the spending…Congress.”

Gelly: “I must missing something. If the heads of agencies are really just managers, why were the Trump appointments so bad? I mean most of his appointments were business people and former military generals. Don’t these guys know how to manage?”

Drone Man: “She’s spot on, Jordan. What’s the issue with my man’s appointments…I mean Trump’s appointments?”

Jordan: “Like I said earlier, if you’re going to manage a complex task…like brain surgery…you should know something about the subject matter.”

Gelly: “This discussion all seems abstract to me. You have a specific example?”

Jordan: “Yes, Trump put ideologues in management positions. Few of the appointees had real-world experience in the field they were supposed to manage…and some had no management experience whatsoever. That same approach…ideologues managing areas where they had little experience…is what ruined one of the world’s best companies.”

Drone Man: “Based on you past, you must be talking about another general…General Motors?”

Jordan: “In the early 1980’s when Roger B. Smith took over as chairman, he too claimed he wanted to ‘drain the swamp,’ although he used different words. Like Trump he focused on cost, cost, and cost. He chose to pursue seemingly easy, high-profile targets, including shafting some long-time vendors.”

Gelly: “But isn’t that just the way good businesses operate?”

Jordan: “Not really. Trump’s record as a businessman is not very good. Why GM was so remarkably successful for so many decades was not because it focused primarily on cost.”

Drone Man: “What did Smith do that was so wrong? I still don’t understand.”

Jordan: “His approach to generating profits was wrong. Smith put a bunch of bean counters in staff positions that had nothing to do with finance. Their job was to generate more profits, primarily by cutting cost and then cutting more cost.”

Gelly: “That sounds like the approach Trump and heads of agencies took. Keep cutting cost.”

Drone Man: “What’s wrong with cutting cost? All large organizations have fat, especially the government. You sound like some screaming liberal…or even worse some academic.”

Jordan: “And you sound like Trump with his immature tweets.”

Gelly: “Now children, let’s behave.”

Jordan: “Yes, mother. Anyway, in Smith’s obsession with profits, he forgot one thing…sustained profits are not generated from cutting costs. Sustained profits, and not just for GM but for any company, are generated from selling more product, whether cars and trucks or computers or shirts and sweaters. No organization can sustain itself without generating revenue.”

Gelly: “So what really happened at General Motors when Roger Smith was chairman? Is that the person who people called ‘Squeaky’?”

Jordan: “During Squeaky’s reign…I mean Smith’s reign in the 1980’s, GM lost 10 points of market share. Let put that in perspective. If annual car and truck sales are say 15 million units, then GM no longer produced and sold 1,500,000 sales units every single year.”

Drone Man: “Each year? That seems like a huge number…and lots of money down the drain.”

Jordan: “At the time it was the equivalent of about six (6) large assembly plants with thousands and thousands of people and suppliers. 1.5 million is more cars and truck than sold in the US by Chrysler, Honda, Toyota at the time and bunch of other manufacturers.”

Gelly: “Well, if GM lost those sales in the 1980’s, did the slide continue in the 1990’s?”

Jordan: “That’s the problem, once a slide like that starts, it’s very hard to stop. GM eventually declared bankruptcy. Before it started to rebound in about 2014, GM share was only about 1/3 of what it was just before Smith took over.”

Drone Man: “That’s amazing. They lost 2/3 of their market share?”

Jordan: “Just about 2/3, yes.”

Drone Man: “So, if sales and revenue decline, all those cuts in expenses mean nothing. If the revenue falls, then profit also falls and the organization does not come out ahead…and in the end can be worse off.”

Jordan: “Interesting dilemma, huh? I’m not saying you shouldn’t look for ways to cut cost, but people need to understand what generates revenue…and it’s not from cutting cost.”

Gelly: “For the government, revenue is from taxes. So, if the economy continues to stall or even sink, or people are not as productive and make less money, then the long-term effects are like what happened to GM. That doesn’t seem very appealing.”

Drone Man: “I’d never really connected the dots between the skills of the cabinet members and the possible effect on the country. It’s really important to have the right people in the right job.”

Jordan: “As I asked earlier, would you hire me to manage your brain surgery?”

Drone Man: “When I think about Trump’s picks for cabinet posts, most of them were ideologues opposed to the fundamental purpose of the agency. No wonder there were so many problems.”

Jordan: “No different from Roger Smith chosing people in GM who were focused on cutting cost and not generating revenue. As most of Trump’s cabinet didn’t understand government, most of Smith’s picks didn’t really understand the car business.”

Gelly: “And Trump selected people who were focused on destroying the very agency they were supposed to lead. Rather than making the agency better, they wanted to destroy it.”

Drone Man: “Unfortunately, the result for the country was about the same as GM…except rather than going bankrupt the US had the Revenge Revolution.”

Jordan: “Now you see why I called Trump’s cabinet the ‘Incompetent’s Club.’ They might have been smart in one field but they were like Larry, Moe and Curly in their government jobs.”

Drone Man: “And with that bit of wisdom, I need to disappear…this time for good. Gelly, Jordan, it’s been swell.”

#229 Post Revenge Revolution: Lessons Learned – Economic Policy Fundamentals: Taxes (Part 5)

04 Sunday Dec 2016

Posted by Jordan Abel in Economics, Federal Budget, Gov't Policy, Lessons of Revolution

≈ 2 Comments

Scene: Jordan’s office, Washington, DC, start of work day. (Conversation starts Entry #225)

Jordan: “Gelly, whenever you’re ready let’s continue the discussions about lessons learned from the Revenge Revolution. We’re supposed to talk about economic policy.”

Gelly: “We can start as soon as a friend of yours arrives.”

Jordan: “What? Friend visiting? There are no meetings scheduled now.”

Gelly: “Drone Man just called and asked if he could stop by. He should be by shortly. Is that OK?”

Jordan: “Of course. Besides, he and I have periodic conversations about economic policy. Interested to see if he’s changed his position since the Revenge Revolution.”

Gelly: “Speaking of Mr. Drone Man.”

Drone Man: “Gelly, Jordan, nice to see you.”

Jordan: “Nice to see you Drone Man. What brings you to the DC, or the Swamp as the Trumpsters called it?”

Drone Man: “Probably still a swamp, even after Trump. I’m here because my granddaughter had a field trip to Washington and she wanted me to be a chaperone. I’ve got a couple of free hours and thought it might be fun to stop by and chat.”

Jordan: “Your timing is perfect. Gelly and I have been discussing lessons learned from the Revenge Revolution. Next on the list is economic policy — taxes.”

Drone Man: “May I participate? I’ll try to be polite.”

Gelly: “So, Jordan, you were going to explain some of the fundamentals of good economic policy, starting with taxes.”

Drone Man: “Gelly, all you need to know about economic policy is two words. You don’t need to know anything else. The two words are ‘tax cuts.’”

Jordan: “Forever the Trumpster, despite all that went wrong under that administration. Let’s take Drone Man’s two-word policy and see if it works.”

Drone Man: “Of course tax cuts work. Tax cuts always work. Talking to you liberals is so frustrating. Why don’t you admit we’re right!”

Gelly: “Oh boys, I thought this was supposed to be a civilized conversation.”

Jordan: “You’re right Gelly. Here’s the premise for why tax cuts supposedly work. The tax rate on the wealthiest in the US is too high. By lowering the tax rate, the wealthiest will invest more money and create jobs for those with middle and lower incomes.”

Gelly: “You mean like the benefits of tax cuts for the rich somehow trickle down to the rest of us?”

Jordan: “Yes, that’s the theory. It’s also what Bush 41 called voodoo economics.”

Drone Man: “Cut the editorializing and keep to the theory, please.”

Jordan: “The added investment associated with the tax cuts would create more jobs, which in turn would create more taxes and the added taxes from the middle and lower-income families would more than offset tax cuts for the wealthier. Did I explain the theory about right Drone Man?”

Drone Man: “Close enough.”

Gelly: “I have what’s probably a really dumb question.”

Jordan: “I’m sure the question is not dumb. Fire away.”

Gelly: “Once taxes are cut, then the wealthy people are supposed to invest the extra money. But where do they invest it?”

Drone Man: “More factories to make more goods. They hire more people. That’s where all the extra jobs come from…and then the extra tax revenue flows back to the government. It’s so easy to understand.”

Gelly: “Here’s what I don’t understand. If middle and lower-income people only have a little bit more money to spend…or maybe no more money to spend after the tax cuts…then who’s going to buy all the extra products the new factories make?”

Jordan: “Good question. How ‘bout that Drone Man?”

Drone Man: “What’s not to understand?”

Gelly: “Let me ask the question this way. Drone Man, if you owned a business, under what conditions would you invest and expand the business?”

Drone Man: “I’d expand when I thought demand for the company’s products was going to exceed production capacity.”

Gelly: “Would you expand if customers could not afford to buy more of your products?”

Drone Man: “Of course not. That would be stupid. The idea of ‘build it and they will come’ only happens in the movies. What was the name of that movie about some baseball diamond in a cornfield?”

Gelly: “You mean ‘Field of Dreams’?”

Drone Man: “That’s the one. ‘Field of Dreams.’ No business can operate like that.”

Gelly: “Jordon also mentioned ‘Field of Dreams’ to me.”

Drone Man: “At least we agree on something.”

Gelly: “If I understand both of you correctly, business owners, even if they have more personal income…say through a tax cut…aren’t going to expand their business unless…”

Drone Man: “…unless demand is going to increase and outstrip capacity. Why can’t you guys understand this?”

Gelly: “Then why would a tax cut that disproportionately favors the wealthy cause these owners to make more…what do the accountants call it, capital investments? Why wouldn’t the business owners just put the money in the bank or the stock market? Tell me what I’m missing?”

Jordan: “Now Drone Man, tell Gelly what’s wrong with her logic?”

Drone Man: “OK, so the wealthy probably won’t increase capital spending and instead purchase bonds or stocks.”

Gelly: “Here’s another dumb question. Why wouldn’t putting more money in the pockets of middle and lower-income families create more demand than giving more money to the wealthy? It seems logical the lower and middle-income people would spend most of the extra money. Then the additional spending would create extra demand and allow the wealthy business owners to build more factories…and make even more money?”

Jordan: “Gelly, how much someone spends of an extra dollar received is called the marginal propensity to consume, or MPC.”

Gelly: “You said to remember the letters MPC. So I assume this MPC, or marginal propensity to consume, is higher for lower and middle-income families? If someone who doesn’t have much money gets $1,000, they’ll spend most of it. To someone who’s rich, $1,000 is probably a rounding error and they won’t spend it, right?”

Jordan: “You got it. Now Drone Man, what about Gelly’s analysis? Wouldn’t the economy be better off if the tax cuts or government spending were directed at people who would spend the money and help the economy grow rather than people who will put the money in stocks or bonds?”

Drone Man: “OK Gelly, you’re right…I mean you might be right. I mean, no you’re not right. Tax cuts for the wealthy have proved to be a way to sustain growth in the economy.”

Jordan: “Really? You have some hard evidence?”

Drone Man: “Look at what Reagan did. He cut taxes and the economy grew.”

Jordan: “What if I said Clinton raised taxes and the economy grew even more? Plus there was a budget surplus under Clinton and a huge deficit under Reagan. In fact under Reagan…and Bush 41/43… growth in the deficit as a percent of GDP was proportionately much higher than under Obama. In fact, under the so-called fiscally conservative Reagan-like Republicans, the debt as a percent of GDP increased more than 150%. The increase would have been much higher if Clinton hadn’t had a budget surplus and lowered debt as a percent of GDP. Here, let me dig out a chart and show you.”

Drone Man: “I don’t need to see your phony chart based on made-up data. You have your facts, I have mine.”

Jordan: “Excuse me, Drone Man? You’re claiming data about the deficit and GDP are fabricated? You think the there are multiple sets of economic data?”

Drone Man: “What I know is what I know…and I know I’m right. I don’t need some liberals so-called economic data. It’s always biased. Why did I stop by here?”

(To be continued)

#187 Protecting National Security with Domestic Oil (Part #11)

02 Wednesday Mar 2016

Posted by Jordan Abel in Economics, Federal Budget, Societal Issues

≈ Leave a comment

First-time readers, this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about Revenge Revolution and author, Entry #1. List and general description of entries to date. Annual assessment whether Revolution plausible.

Scene: Jordan still in Charlotte while recovering from prostate surgery. Earlier Jordan and POTUS began conversation about rebuilding US manufacturing and the middle class. Series starts #177; conversation with POTUS, #179.

Jordan: (Phone rings) “Jordan Abel.”

POTUS: “Jordan, POTUS. Sorry to bother you. Gotta couple of minutes?”

Jordan: “Absolutely, Mr. President.”

POTUS: “Good. I read your email on reconfiguring US manufacturing. Like the positioning – to make US smarter and more competitive. Forwarded the email to the staff for review and comments.”

Jordan: “What else may I help with?”

POTUS: “Oil and gas production.”

Jordan: “In what way?”

POTUS: “The US has spent many years and billions of dollars trying to increase domestic oil production and free ourselves from OPEC. Now, OPEC continues to pump oil and deflate prices. As a result a bunch of US oil companies are ready to declare bankruptcy. They’re upside down on the cost of production for many oil and gas fields and running out of cash.”

Jordan: “So, the concern is if these companies go BK and US production declines, then the country will again become more dependent on OPEC.”

POTUS: “Exactly. Long-term we can solve the problem with other energy sources but long-term is 25-30 years. I’m looking for ideas how to balance national security and ensure domestic oil and gas production continues, even if oil is $30-35/bbl.”

Jordan: “One approach – and I know this will create angst with certain Republicans – is a national oil tax.”

POTUS: “How much and used for what?”

Jordan: “Tax would be enough to bring oil up to at least $60/bbl immediately and $100/bbl longer term.”

POTUS: “That’s a big tax.”

Jordan: “Yes, but recall oil was $140 sometime in what CY2014 and then near $100 for a number of months after. And what happened to the economy? It continued to grow.”

POTUS: “OK, so let’s say we target $100 as the long-term price. Now what do we use the tax revenues for?”

Jordan: “Two primary uses. #1 is the email your staff is reviewing — reconfiguring US manufacturing and infrastructure to become more competitive and spur economic growth. The country has lots of highways, railroads, airports and waterways to fix…plus we need to expand high-speed internet. And #2 is…”

POTUS: “…don’t tell me, subsidize the cost of oil and gas production?”

Jordan: “You got it.”

POTUS: “Subsidizing oil companies is such bad PR. No one likes oil companies other than people in Texas and Oklahoma…and some conservative groups. You feeling OK?”

Jordan: “I feel fine and yes, I know all the crap that’s going to fly. But the cost of funding of drilling and operating a new well can easily exceed $50/bbl. People forget the land owner gets 20-25% right off the top. States are not shy about taxing oil and gas production. Plus, you have to transport the stuff to a refinery.”

POTUS: “Point well taken. I’m not shedding tears for the oil companies but we’ve got to keep the US free from OPEC.”

Jordan: “There’s a bunch of oil available in the US. I’ll bet the amount of oil available on shore – not off shore – is 5x what’s been produced so far.”

POTUS: “That’s encouraging to hear. I know the drilling cost can be high but somehow we need to control the subsidies. We don’t want to oil companies thinking they’re at an ‘all-you-can-eat’ feeding trough.”

Jordan: “If we cap the market price at $100/bbl and limit imports, then the oil companies will have an incentive to continue to find new oil. We also need to encourage the companies to use newer technology for exploration and production.”

POTUS: “Like what?”

Jordan: “First step would be more integration of software, updated drilling techniques and electronic sensors. Based on my thimbleful of knowledge of the oil and gas industry, they need to think more about how to incorporate newer technologies.”

POTUS: “So the companies that incorporate more technology to find oil…and to minimize environmental damage…would become the winners.”

Jordan: “Call it a ‘modified’ free market. But a market that encourages responsible production and reaps the benefits of lower cost.”

POTUS: “What about developing alternative energy – wind and solar?”

Jordan: “Both of those sources are free and independent of any foreign source. Some of the incentive dollars – oil-tax dollars – should be directed at solar and wind.”

POTUS: “I can hear the Republican protests now. ‘More government subsidies.'”

Jordan: “Maybe it’s time you had a heart-to-heart talk with the American people about who’s really getting subsidies. You know, an updated version of FDR’s fireside chat.”

POTUS: “Like explaining subsidies to defense contractors, followed closely by farmers. You mean like that?”

Jordan: “I’m not suggesting we stop such subsidies. What people need to understand is why such subsidies exist and how much the subsidies really cost.”

POTUS: “Defense contractors and farmers are needed for national security.”

Jordan: “And so is energy production needed for national security. To make the idea of subsidies more palatable, why not create an institute of technology…but one that’s focused on energy production.”

POTUS: “An institute of technology. (Laughing) Just don’t name the institute of technology for Texas or Sam Houston. People in Washington would have a field day with those acronyms.”

Jordan: “Those names would be funny. I’m certain your staff guys can come up with a good name.”

POTUS: “Let me think about your idea. I’ve got yet another meeting I’m off to. By the way, Jordan, are you back in town soon? We need to sit down away from the maddening crowd and have coffee.”

Jordan: “Should be back in a couple of weeks.”

POTUS: “Good. Let me know when and we can meet. Thanks for your time.”

Jordan: “You’re welcome Mr. President.”

#151 The Real Tax Burden – Not What You Think (Part 1)

12 Wednesday Aug 2015

Posted by Jordan Abel in Economics, Federal Budget, Gov't Policy

≈ 2 Comments

For first-time readers, this blog is set in the future (sometime after 2020). This entry assumes the Revenge Revolution has occurred. For more information about the anticipated 5th revolution in the US — the Revenge Revolution — and more background about the author, Entry #1. One another note: almost all characters appear in a number of entries, with many entries building on previous conversations. You’ll catch on quickly. Thanks for your time and interest…and comments.

Scene: Jordan having coffee with Greenie, a friend who attended the same grammar school.

Greenie: “Jordan, it’s been a while. I think the last time we had coffee was with JC.”

Jordan: “That was months ago. How ya’ doing?”

Greenie: “Getting back into circulation. Had some tough times. You know, family issues. By the way, thanks for the note.”

Jordan: “You’re welcome. Glad life is getting better.”

Greenie: “Moving on, I need some advice.”

Jordan: “From me?”

Greenie: “I need to understand some economic issues. Nothing personal.”

Jordan: “I’m not good at personal advice. And some people in Washington don’t like my professional advice.”

Greenie: “Well, I do. So there. What I really need to understand is taxes. What is the real tax burden?”

Jordan: “In total or by income group?”

Greenie: “By income group. There’s a lot of babble inside the beltway about a flat income tax. Mostly among Republicans, but even some Democrats seem to support the idea.”

Jordan: “And what’s your concern? Flat tax seems fair, doesn’t it? Everyone pays the same percentage of income. What could be more fair?”

Greenie: “You sound like one of the talking heads on Fox News. The argument assumes that income tax is the only tax.”

Jordan: “You and I know it’s not the only tax…but focusing on income tax makes a great sound bite.”

Greenie: “Coming in on the train I made a list of different kinds of taxes…and I probably missed some.”

Jordan: “What’s on your list?”

Greenie: “Income tax – federal, state and for some people, local income tax. Then there are taxes for Social Security and Medicare.”

Jordan: “Just to clarify, Social Security and Medicare are technically insurance programs but for this discussion, leave them as taxes.”

Greenie: “Don’t start confusing me. To me Social Security and Medicare are taxes. I also had on the list sales taxes, excise taxes – you know, your phone bill, property taxes, plus all those fees you have to pay for different things. Those seem like taxes to me.”

Jordan: “You mean like the fees you pay when you rent a car?”

Greenie: “Yes. I rented a car in Houston and taxes and fees were 30-35% of the total bill. That seems outrageous. Have I missed any taxes?”

Jordan: “Business taxes. Every year my consulting business has to pay a licensing fee to the state and then pay another fee to file an annual report. That’s on top of the income taxes.”

Greenie: “Speaking of licenses, what about the fee for license-plate renewal and what about the fee for renewing your driver’s license?”

Jordan: “Your list is a great start. We probably have the taxes that affect most people.”

Greenie: “Has anyone ever calculated how much of someone’s income all these taxes and fees account for? If you think about it, many of these taxes and fees might be more of a burden to lower-income groups. I wonder if taxes in the US are more regressive than progressive.”

Jordan: “Hold on. If I sound like a talking head on Fox News, then you sound like a screaming liberal.”

Greenie: “I’ll take that as a compliment.”

Jordan: “Yes, there are some estimates of tax burden by income quintile. Wanna take a guess at the percentages?

Greenie: “If I’m close will you buy me another coffee?”

Jordan: “Have as many refills as you want.”

Greenie: “You want my guesses or what the Republicans would say?”

Jordan: “First, pretend you are a Republican. I know it’s hard, but just pretend.”

Greenie: “Republicans would claim the top two quintiles pay most of the taxes. That’s why the system is unfair to higher-income earners and there should be a flat tax.”

Jordan: “The top two quintiles pay most of the taxes because…duh…they earn the most money. What about payment as a percent of income?”

Greenie: “I’ll bet for lower-income people, taxes as a percent of income are a lot higher than most people realize.”

Jordan: “Why? Give me an example.”

Greenie: “Property tax. The flat-tax crowd focuses on income tax. But if you rent, you still pay property taxes. Your rent is a bit higher every month…plus there is no deduction on your income tax.”

Jordan: “Alright, give me your guess – all taxes as a percent of income. Guess by income quartile…I mean quintile.”

Greenie: “Here goes. Lowest quintile, probably 15-20% of total income in taxes. The top dogs, maybe 25-30%. The rest of them someplace between. How’d I do?”

(To be continued)

#130 Do They Really Understand? Flat Tax Fallacy. (Part 10)

22 Friday May 2015

Posted by Jordan Abel in Economics, Federal Budget, Societal Issues

≈ Leave a comment

Scene: Jordan and Sandy, a former business colleague, are having coffee. The discussion begins Entry #121,. This is the final segment of a series that includes Jordan’s description of a conversation with the Speaker of the House and the Senate Majority Leader, which begins Entry #123

Sandy: “That conversation with the Speaker of the House and the Senate Majority Leader sounds fascinating. How often do you get private time with those guys?”

Jordan: “First time in my career.”

Sandy: “Maybe the three of you should play golf more often.”

Jordan: “Not sure they need to be around me very often but your point is well taken. They need to be around some people who can really help them understand the issues.”

Sandy: “From what my parents tell me, Washington used to be more like what you guys did. Sort of informal where people actually talked to one another.”

Jordan: “Your parents are right. Guys from both parties…it was mostly men then…used to play golf, play poker and whatever. The families used to socialize and the kids knew one another.”

Sandy: “You mean they acted like real people?”

Jordan: “Good way to put it. Yes, they acted like real people. And, frankly, a lot more got done in Washington then, too.”

Sandy: “You think the Revenge Revolution will bring back the old Washington? How can we make that happen?”

Jordan: “Shorter political campaigns and public funding of campaigns would be a good start.”

Sandy: “You mean no more PAC’s (Political Action Committees)?”

Jordan: “No more PAC’s. Every candidate gets so many dollars for his or her campaign…and that’s it. No transferring money to other candidates. No money for personal expenses.”

Sandy: “How would that really work?”

Jordan: “Sandy, let’s save that conversation for another day. Before the break you said you had a couple of questions. What were they?”

Sandy: “One big question really. Why doesn’t Congress implement a flat income tax?”

Jordan: “What’s the appeal of the flat tax?”

Sandy: “Two reasons. One, a flat tax would be much easier to calculate. Two, and more important, everyone would then pay taxes.”

Jordan: “I agree a flat tax would be much easier to calculate. But when you say everyone would pay taxes, exactly what do you mean?”

Sandy: “A lot of people pay no tax. And that’s not fair. They’re free-loaders.”

Jordan: “You mean some people don’t pay any income tax or not pay any kind of tax?”

Sandy: “Never really thought about taxes other than income. I guess I mean pay no income taxes.”

Jordan: “And you think it’s not fair that some people don’t pay income taxes. Right?”

Sandy: “It’s not fair. Those of us who work hard pay all the taxes.”

Jordan: “You mean, pay all the income taxes.”

Sandy: “What’s the difference? If someone doesn’t pay income tax, that’s not fair. Period.”

Jordan: “First, let’s talk about different type of taxes. Name a few taxes.”

Sandy: “Income tax, sales tax, property tax.”

Jordan: “What about FICA?”

Sandy: “You mean Social Security…and Medicare?”

Jordan: “Yes, Social Security and Medicare. While not a big amount, another one is excise tax? Check your phone bill every month and see what you pay.”

Sandy: “OK, there are lots of different taxes. What’s your point?”

Jordan: “If I showed you credible data that people who do not pay income tax still pay 15-20% of their income in taxes, would you stop calling these people free-loaders?”

Sandy: “Yes…but I don’t believe you.”

Sandy: “I never knew this. Why don’t people look at the tax burden this way?

Jordan: “The same reason people don’t look at debt as a percent of GDP. They either do not understand percentages…or more likely, the data destroys their argument.”

Sandy: “The data makes the case for a flat tax almost moot. While the tax burden is not flat across the board, it’s a lot flatter than I thought. But what about the argument that higher income people pay all the taxes…and lower income people don’t? That still seems like a fair argument.”

Jordan: “I agree higher income people pay a lot more tax. But, Sandy, higher income people also make a whole lot more money.”

Sandy: “That seems so obvious when you say it like that.”

Jordan: “OK, here’s a chart that shows the percentage of income by group and the percentage of taxes paid by group. See much difference?”

Sandy: “Not really. The lowest 20% income group pays a little less tax than their share of income and the highest income group pays a little more tax. But, overall income and taxes look pretty balanced to me.”

Jordan: “So I ask you. Would you rather be in the highest income group and pay a little more tax or the lowest income group and pay a little less tax?

Sandy: “Another one of those trick questions? Put me in the highest income group any day. I’ll gladly pay a little more tax.”

Jordan: “Feel better that the tax burden is spread evenly among all groups? Think we need a flat tax?”

Sandy: “No we don’t need a flat tax. We have one already. We need a simpler tax code but we don’t need a flat tax. Just baffled why no one really talks about the tax burden this way.”

Jordan: “Welcome to Washington, the land where objective and fair arguments have been gobbled up by self-interest and greed.”

Sandy: “Let’s hope the revenge Revolution changes that. Jordan, you’ve converted me. I’ll help tell the story.”

Jordan: “Great. Really enjoyed seeing you again.”

#129 Do They Really Understand? Federal Debt con’t (Part 9)

16 Saturday May 2015

Posted by Jordan Abel in Economics, Federal Budget

≈ 1 Comment

Scene: Jordan and Sandy, a former business colleague, are having coffee. The discussion begins Entry #121,. This segment is a continuation of Jordan’s description to Sandy of a conversation with the Speaker of the House and the Senate Majority Leader, which begins Entry #123

Mackey: “Alright, I agree that the Federal debt as a percent of GDP (Gross Domestic Product) was up less under Obama than Bush 43 but…”

Jordan: “We’re making real progress.”

Mackey: “Jordan, please, let me finish. The debt percentage was less under Obama because Republicans forced him to cut back on his ridiculous expenditures.”

John Boy: “That’s right. And Republicans deserve all the credit for the economic recovery.”

Jordan: “I must say, you guys have real chutzpah.”

Mackey: “Jordan, just what is chutzpah?”

Jordan: “For the average Joe, I would say, having a set of you know what…kahunas. But ‘chutzpah’ is Yiddish and is best described with a story.”

John Boy: “This should be interesting, but just don’t take too long.”

Jordan: “The short version is this. A hoodlum kills his mother and father, then begs for forgiveness from the court because he is an orphan. That’s chutzpah.”

Mackey: “The kid was disingenuous to say the least.”

Jordan: “That’s why I said you guys had chutzpah.”

John Boy: “You think we’re being disingenuous?”

Jordan: “Look, Republicans tried to block nearly every program Obama proposed to stimulate the economy. The Republicans mantra was ‘we need to save our way into prosperity.’ And, by the way, John Boy, how many times did the House vote to overturn the Affordable Care Act, aka Obamacare?”

Jordan: “I quit counting after 50.”

Mackey: “But Obama’s stimulus programs would have raised the debt?”

Jordan: “True, but raised it only temporarily. Mackey, if you’ve learned nothing else from this little session in the club house, I hope you’ve learned that one cannot save their way into prosperity.”

John Boy: “Are you saying if I don’t spend money – or if someone doesn’t spend money – then demand will not increase?”

Jordan: “Yes…and?”

John Boy: “And without consumer demand there will be no additional jobs and no additional income…maybe no income for me, or most anyone.”

Jordan: “And no income means no tax revenue from those unemployed.”

Mackey: “But why doesn’t business spend more?”

Jordan: “If you owned a business and demand for your product was flat to down, would you hire more people?

Mackey: “No, of course not.”

Jordan: “Which leaves government to get the economy started again.”

Mackey: “If I hear you correctly, in a recession since business is not spending, government needs to spend more money. If government cuts back also, it makes the economy worse. Kinda creates a spiral downward.”

Jordan: “You’re on a roll, Mackey.”

Mackey: “But what about paying back the debt?”

Jordan: “Pay it down when the economy is stronger. Then you can raise taxes.”

John Boy: “You’re giving me apoplexy. Raise taxes? That’ll kill everything!”

Jordan: “OK, Mr. No-Tax-Increase-Ever, what was the maximum marginal tax rate at the end of the Reagan Administration?”

John Boy: “25%…and that was still too high.”

Jordan: “Mackey, want to guess?”

Mackey: “25% seems low but I’ll stick with it.”

Jordan: “How ‘bout the maximum tax rate under Clinton?”

John Boy: “Clinton got lucky. Reagan and Bush created the environment and he benefitted. Clinton probably raised it to 35%. I really don’t remember.”

Mackey: “Agreed.”

Jordan: “Good guesses. Reagan was 28% and Clinton was 35%. But the 28% was short-lived. The max rate was raised to 31% under Bush 41.”

John Boy: “That’s why the economy went in the tank and he didn’t get reelected. Taxes went up. Proves my point.”

Jordan: “Just what is your point?”

John Boy: “Like I said earlier, Reagan deserves all the credit for the economic recovery.”

Jordan: “And what about all the deficits under Reagan and the voodoo economics? And, oh yes, when was the last time there was a budget surplus? C’mon, John Boy, take a guess.”

John Boy: “OK, you made your point. There was a budget surplus under Clinton, not Reagan. We went through that a few minutes ago.”

Jordan: “At least one of the lessons stuck. John Boy…and you, too Mackey…if someone offered you $1.00 but said that you had to pay $0.35 tax, you would turn down the $1.00 and have nothing or pay the tax and have $0.65 left?”

John Boy: “No, I’d take the $1.00 and pay my $0.35 tax.”

Jordan: “What if the deal was you could keep $0.61. Would you still take it?”

Mackey: “Of course, take the $1.00.”

John Boy: “Mackey, be careful. Jordan is setting up another one of those intellectual traps.”

Jordan: “Look, I agree there is some point at which you would not take the $1.00. You might reject it because of the risk involved, the amount of money you already make, the time involved…whatever. But for most everyone except the very wealthy, would take the $1.00. Taxes would need to be higher than 35% before they stopped seeking the extra $1.00.”

Mackey: “Are you saying we should raise taxes?”

Jordan: “I’m saying it is OK to raise taxes when the economy is strong, maybe even raise them a bit while the economy is starting to recover. Then use the extra taxes to pay down the debt. But people need to have income in order to generate tax revenue.”

John Boy: “Jordan, why do you keep making such logical statements?”

Jordan: “Comes with the territory. I just wish we…collective we…would spend more time thinking through and talking through issues rather than throwing ideologue bombs at one another.”

Mackey: “Listen, we need to get out of here. But I want to make one final comment. You know I can never admit to this publicly, but I very much appreciate the lessons in economics.”

John Boy: “Hear, hear. A toast to our host, Jordan Abel.”

Jordan: “Thanks. Glad I could be of help.”

Waiter: “Mr. Abel, the check.”

(Back to the conversation with Sandy.)

Sandy: “Wow, Jordan that was quite a story. Have you got a few more minutes? Have a couple of questions.”

Jordan: “Yes, Sandy, but let’s take a break first.”

(To be continued.)

#128 Do They Really Understand? Federal Debt con’t (Part 8)

10 Sunday May 2015

Posted by Jordan Abel in Economics, Federal Budget

≈ 1 Comment

John Boy: “Let me repeat the questions. ‘What was wrong with tax cuts under Bush 43?”

Mackey: “Yes, Jordan, what was wrong with them?”

Jordan: “Two fold. First, Bush 43’s economic policy created huge deficits. Remember CBO (Congressional Budget Office) had predicted budget surpluses for a number of years into the future. Rather than reducing Federal debt…as many Republicans are wont to do…the tax cuts make the debt much worse.”

Mackey: “And what was the second reason?”

Jordan: “Let me add to the first. Remember guys the US was at war with Iraq so military expenditures are starting to soar…and we’re cutting taxes. Doesn’t seem very Republican-like to me.”

John Boy: “OK, Jordan, what was the second reason?”

Jordan: “You guys always interrupt someone when they are speaking?”

John Boy: “Yes, just finish and quit evading the question.”

Jordan: “The tax cuts were weighted heavily toward upper income.”

John Boy: “Everyone…well most everyone…got a tax cut. So the middle class benefitted. Why are you always so worried about the middle class? The wealthy pay way more than their fair share of taxes.”

Mackey: “Right. What’s your problem?”

Jordan: “Just how short is your collective memory? We just talked people needing money to buy things. No money, no purchases, no demand and no new jobs. And, therefore less income for the wealthy. Remember?”

Mackey: “You keep trying to convince us the Republicans economic theory…”

Jordan: “…Trickle-Down theory. And pardon me for interrupting.”

Mackey: “Trying to convince us the Trickle Down theory doesn’t work. You know, like a waterfall, those at the bottom benefit from the work done at the top. You know, workers at the top of the income scale and moochers at the bottom.”

Jordan: “I’ll ignore your last comment. You guys are old enough to remember the 1980 presidential campaign.”

John Boy: “Unfortunately, we are old enough. And so are you.”

Jordan: “George Herbert Walker Bush, eventually #41, was running against Ronald Reagan to be the Republican presidential nominee. And what label did Bush put on his fellow Republican’s economic policy? The Trickle Down theory.”

Mackey: “He called it ‘voodoo economics’ or something like that.”

Jordan: “Voodoo economics…and truer words were never spoken.”

John Boy: “The voodoo economics label was campaign talk.’

Jordan: “Spoken during the campaign, yes. But merely ‘campaign talk’ as you claim, no. The label was spot on.”

Mackey: “But the economy expanded under Reagan. Proves he was right.”

Jordan: “One more time, let’s look at the Federal debt as a percent of GDP. Under Reagan what happened?”

John Boy: “I know, I know. Under Mr. Conservative, Ronald Reagan, the Federal debt nearly doubled as a percent of GDP. That’s still hard for me to believe.”

Mackey: “Seems as if someone is cooking the books.”

Jordan: “Forget the conspiracy theories about distorting the data. Remember the data were gathered when Reagan was president.”

Mackey: “But all those liberal bureaucrats in Washington hated Reagan and they fudged the data to make him look bad.”

Jordan: Guys, whether you like it or not, economic growth under Reagan was a case of Keynesian economics at its best. Reagan, the great communicator, roped you in to believing it was Trickle-Down economics.”

Mackey: “Why doesn’t Trickle-Down work. Seems as if it should.”

Jordan: “Let’s go back to basics. Add $1,000 to the income of someone making say $20,000-$30,000 per year. What will they do with the money?”

John Boy: “Spend it all.”

Jordan: “What about $1,000 to people who make say $100,000 per year?”

Mackey: “Might spend some of it. Same with people making more than $100k. But most over $100k won’t even notice.”

John Boy: “Mackey, we keep falling into Jordan’s traps.”

Jordan: “John Boy, these aren’t traps. Just facts.”

John Boy: “I know but your approach is frustrating.”

Jordan: “Truth is sometimes frustrating.”

John Boy: “You know it is, especially since we’ve been preaching the opposite for so long.”

Mackey: “Preaching what?”

John Boy: “That Keynesian economics does not work and the most effective way for economic growth in a recession is to cut back on Federal spending, not increase it.”

Jordan: “Maybe it’s time to put away the ideologue rhetoric and start focusing on solutions. The US had a Revenge Revolution and then threw out many sitting members of Congress. The public said it was time to rethink policies like tax cut that benefit the wealthy and don’t create good jobs.”

John Boy: “Alright, we can make some policy changes. But…and I emphasize but…we don’t want another Obama Administration fiasco.”

Jordan: “What was the alleged fiasco?”

Mackey: “Alleged? The fiasco was huge deficits. Wild spending on health care. The Administration was absolutely out of control. Obama ruined the country. He caused the Revenge Revolution.”

John Boy: “Mackey, raise your right hand and repeat after me. ‘Beginning now and henceforth I will think before making what are really outrageous political statements.”

Mackey: “OK, no more statements without thinking first. What’s the issue in telling the truth about Obama? His fiscal deficits made Bush look like a piker.”

John Boy: “Mackey, Mackey. Look at Jordan’s charts. Then get ready to eat some crow.”

(To be continued. Included on the dinner menu, crow.)

#127 Do They Really Understand? Federal Deficit con’t (Part 7)

05 Tuesday May 2015

Posted by Jordan Abel in Economics, Federal Budget, Possible Solutions, Societal Issues

≈ 1 Comment

John Boy: “Your point about companies replacing debt with stock…equity…is something I never really thought about.”

Mackey: “Me either. Wonder what would happen if the US Government issued stock instead of debt?”

Jordan: “Interesting questions but obviously lots of barriers to make it happen.”

John Boy: “And highly unlikely…no impossible…given the attitude of many Republicans.

Mackey: “John Boy, I agree the chance of passage is slim to none. But we should bring it up for discussion. Doing so would at least make people think.”

Jordan: “Think? Ideologues actually think? Surely you jest.”

John Boy: “Alright you guys let’s get back to the issue at hand – debt as a percent of GDP. How ‘bout looking at the 230^th Century?”

Jordan: “OK. Debt jumps in the Civil War…”

Mackey: “Excuse me, the War of Northern Aggression.”

John Boy: “Mackey, put that idea to rest. The war was more than 150 years ago. And which side wanted to secede?”

Jordan: “Children, no bickering. Debt as percent of GDP (gross domestic product) jumps during the Civil War, then declines, jumps again in WWI, then declines until the Great Depression.”

Mackey: “Yes, and the crazy public elects that socialist, Mr. ‘spend-at-all-costs’ himself, Franklin Delano Roosevelt.”

John Boy: “Right. Just look at how much debt jumped under FDR. Mackey’s right. What a socialist!”

Jordan: “And just what happened to the economy?”

Mackey: “The economy recovered…sort of.”

Jordan: “Sort of?”

Mackey: “Sort of. The country didn’t need all those socialist program. The country could have saved its way out of the Depression.”

John Boy: “You’re right again, Mackey.”

Jordan: “And just what do you think drives the economy?”

John Boy: “Tax cuts. Incentives to invest.”

Jordan: “Here’s a simple question. For someone out of work…through no fault of their own…what good is a tax cut?”

Mackey: “An incentive to work. Go find a job.”

Jordan: “And just who is going to hire that unemployed worker?”

John Boy: “Create your own job.”

Jordan: “Let’s put politics aside and think this through.”

(John Boy and Mackey both sigh.)

Jordan: “You own a business. Why would you hire someone? Just because the person needs a job?”

Mackey: “Of course not. Jordan, where do you come up with these stupid questions?”

John Boy: “Mackey, I think we’re about ready to have another ‘ah ha’ moment.”

Mackey: “Whadda mean?”

John Boy: “As much as I hate to admit it, Jordan’s right. Why would you hire someone?”

Mackey: “Because you were busy and needed more help.”

John Boy: “You got the right answer – because you need more help.”

Mackey: “Simple isn’t it. People want to buy your product, eat at your restaurant, whatever. You need help. What’s wrong with you guys?”

John Boy: “And where did the tax breaks fit into that decision?”

Mackey: “The tax breaks didn’t. Oops. What made the difference was demand.”

Jordan: “Waiter, may we have some more snacks and another round? Time to celebrate.”

Mackey: “What are we celebrating?”

John Boy: “Our enlightenment…at least enlightenment according to Jordan. OK Mr. Know-It-All, what’s next?”

Jordan: “Look, all I’m trying to do is present some basic economic principles. Not left, not right, just basic economics.”

Mackey: “So you’re claiming…”

Jordan: “I’m not claiming anything. I’m just stating.”

Mackey: “OK, since you’re buying…you’re stating. And you’re stating the only real way out of a recession is to stimulate demand.”

Jordan: “Yes, that’s exactly what I am stating. Talk about all the other theories you want. When you do, you have to go back to one basic question? Is a company going to hire another employee…or even retain existing employees…if enough people are not buying the company’s products?”

John Boy: “Why do you make economics so simple?”

Jordan: “The fundamentals of economics are simple…but not always intuitive.”

John Boy: “Next you are going to tell Mackey and me that if the private sector is not hiring people…or laying off people…then the government needs to stimulate the economy.”

Jordan: “You’re on a roll. I told you most of economics was simple.”

Mackey: “Wait, you’re saying the government should do the exact opposite of what a household should do? I mean, rather than cut back on spending when times are tough like real people do, the government should spend more?”

Jordan: “See how easy this lesson is?”

John Boy: “I don’t believe it. If it’s bad for business it’s bad for government.”

Jordan: “I’m going to show you why business benefits and makes more money by supporting a Federal deficit when in a recession.”

(To be continued)

usrevolution5

~ USA Headed for a 5th Revolution! Why?

Category Archives: Federal Budget

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#229 Post Revenge Revolution: Lessons Learned – Economic Policy Fundamentals: Taxes (Part 5)

#187 Protecting National Security with Domestic Oil (Part #11)

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#130 Do They Really Understand? Flat Tax Fallacy. (Part 10)

#129 Do They Really Understand? Federal Debt con’t (Part 9)

#128 Do They Really Understand? Federal Debt con’t (Part 8)

#127 Do They Really Understand? Federal Deficit con’t (Part 7)