Showing posts with label economic future. Show all posts
Showing posts with label economic future. Show all posts

Thursday, May 04, 2023

Oh, no, not again

 Once again America's financial credibility is on borrowed time. On January nineteenth, 2023, US Treasury Secretary, Janet L. Yellen notified Kevin McCarthy, House Speaker, and other leaders of both houses, of the steps she was taking to prevent the United States defaulting on its debt. She would cease investing in the retirement funds of civil and postal workers, stop new borrowing, and cash in some retirement fund investments. By law, she has to pay it all back once the debt ceiling is raised or suspended. However, Kevin McCarthy and fellow Republicans intend to put conditions on raising the debt limit, while President Biden has said he won't negotiate over money that's already been spoken for. Biden has the Constitution's Fourteenth Amendment on his side for what that's worth. Section 4. of the amendment basically says if the US owes money, it must pay it back. Quibbling about the debt is not okay.

Yet quibbling over repayment of the debt has occurred on multiple occasions. Some of this quibbling has caused partial government shutdowns which force affected workers to scrimp and borrow until their paychecks are restored. The 2011 stand-off over the debt ceiling caused a downgrade in the country's credit rating costing the US an extra billion dollars in debt interest. This time around, President Bidden has made it clear that he has no intention of bargaining.

While the Obama administration considered invoking the 14th Amendment, it quickly dismissed the idea. Instead, Obama agreed to spending cuts. This time, the House Republican majority has passed a bill to raise the debt ceiling that would reverse much of the Inflation Reduction Act intended to tackle climate change. Another of it's provisions would de-fund the IRS, a move that the non-partisan Congressional Budget Office said would reduce future revenue. A third provision would place additional work requirements on those already burdened by poverty and poor health.

President Biden released his 2024 budget proposal in early March. If implemented, it would raise taxes on those earning over $400,000 and roll-back tax benefits granted to the wealthy in 2017. During the final week of April the House Republicans passed a bill that would raise the debt ceiling at the expense of Democratic gains. It stands no chance of passing since the Senate won't take it up and the President will veto it. On May first, the Treasury Secretary warned that the US could reach the debt ceiling by as early as June first. Talks between the president and Congressional members are scheduled for May 9. Those talks could be rocky since there is little consensus among Republicans and Biden's firm stance leaves little room for negotiation.

Legal experts disagree about what would result if the Section 4 of the 14th Amendment were invoked. One fundamental question comes down to who besides the House has authority  to force the House to do it's job of repaying debt. Some say the President could order the Treasury to continue borrowing, but others argue that the President lacks this authority.

Sadly, we budget and spend before sitting down to discuss how much we're willing to borrow. The debt ceiling carries legal weight, but so too does Section 4's requirement that we pay our debts. The legal conundrum that results when the 14th Amendment bumps up against debt ceiling legislation, provides an underhanded opportunity to whichever party wants to bludgeon an already approved budget.

The 14th Amendment has a Third Section that could make a difference in these stalemates, yet I've never seen that Section mentioned in discussions of the debt ceiling. Section 3. says one can't be a President, Senator or Congressman, etc. if one has taken an oath to support the US Constitution and has engaged in insurrection or rebellion against it. "Insurrection" generally implies violence, but "rebellion" can be simple obstruction, such as a refusal to obey an order or fulfill a duty. Repaying government debt is one such duty. Refusing to pay it is rebellion.

If the debt ceiling is breached, then those responsible will have refused to honor US debt, will have engaged in rebellion, and will, therefore, be ineligible to remain in office. But who would enforce this? Certainly not the very Congressmen that voted not to honor the debt. Perhaps the President or the Senate could force those Congressmen out of office. Perhaps not.

What could make a difference is if the American people themselves called out their errant Congressmen. Here's what I'm writing:

Dear Congressman ______,

Please be advised that if you do not honor the United States debt you will have violated Section 3 of the 14th Amendment this act of rebellion will result in your being ineligible to remain in office. Should that happen, I will urge your removal from office.

The Fourteenth Amendment
Section 3.
No person shall be a Senator or Representative in Congress, or elector of President and Vice-President, or hold any office, civil or military, under the United States, or under any State, who, having previously taken an oath, as a member of Congress, or as an officer of the United States, or as a member of any State legislature, or as an executive or judicial officer of any State, to support the Constitution of the United States, shall have engaged in insurrection or rebellion against the same, or given aid or comfort to the enemies thereof. But Congress may by a vote of two-thirds of each House, remove such disability.

The oath that the amendment refers to is this:
“I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.”

Section 4.
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Sunday, September 12, 2021

The only sure thing is climate change and taxes


U.S. tax rates change over time. In 1913 the highest earners paid only 7 percent, but in 1918 they paid 77 percent to pay for the first world. During the early 1920s, top tax rates remained higher than today, but in 1925 the highest tax rate dropped to 25 percent. It stayed within a point of that rate until 1932 when it rose to 63 percent. The tax rate continued to climb during the Great Depression and beyond, reaching a high of 94 percent during the final two years of World War II. The rate dropped into the 80s after the war, but was generally around 91 percent between 1950 and 1963. The top rate then moved to 77 percent and began to fall after that, reaching a low of 35 percent in 2003. It remained at that rate until 2013 when it jumped to 39.6 percent.
The Tax Cuts and Jobs Act of 2017 (TCJA) reduced the top rate to 37 percent.

Corporate tax rates fluctuate as well. From 1946 through 1949 corporate profits were taxed at a maximum rate of 53 percent. This rate applied to profits over $25,000 and under $50,ooo. The rate fell to 38 percent on profits over $50,000.

Between 1993 and 2017 the highest corporate tax rate was 39 percent on profits between $100,000 and $335,000. Above that amount, the rate dropped to 34 or 35 percent on profits below 15 million dollars. Between 15 and 18.33 million dollars profit the rate returned to 38 percent, before falling back to a top rate of 35 percent. Progressive tax rates increase as income grows, while regressive taxes take a larger bite of income from those with smaller incomes. This period’s tax rates are generally progressive, but don’t entirely follow a straight progressive increase.

The 2017 Tax Cuts and Jobs Act (TCJA) sets a flat tax of 21 percent on corporate profits. Flat taxes are usually considered to be regressive. Large corporations must love TCJA since it forces smaller ones to pay 21 percent instead of 15 percent on their first $50,000 in profits.

During its history, the United States has held debt at various times, but in 2001, it held a surplus. That didn’t last long. Today the national debt is an enormous three trillion dollars. Higher taxes can lower a nation’s debt. The rationale behind TCJA was that lower taxes would pay for themselves by growing the economy. Did it work? The economy did grow a bit, but not as much as predicted. Our nation’s high deficit grew instead of decreased as predicted. According to the Economic Policy Institute, TCJA “did not increase wages for working people, failed to spur business investments, decreased corporate tax revenues, and boosted stock buybacks in its wake.” No surprise here — taxes are paid on profits taken after employees are paid and R&D costs accounted for. There was never any logic to its boosters’ claim that TCJA would increase business investment and benefit workers. Who lobbied for this lie?  The usual suspects,  including among others, the Business Roundtable, the U.S. Chamber of Commerce, and the National Association of Manufacturers. These same organizations plan to lobby against the 3.5 trillion dollar economic plan.

If that economic plan isn’t implemented, there could be a long wait before climate change is meaningfully addressed. The poor also suffer when the wealthy don’t pay their fair share. During the mid-twentieth century when taxes were high the middle class was broader and more affluent than today. Taxing wealth to repair the climate would also benefit the bottom 90 percent of U.S. citizens. Speak loudly Citizen and shame the greedy into social responsibility.

Monday, September 06, 2021

Of mice and (greedy) men

 On the final day of August a Washington Post headline read, “Corporate America launches massive lobbying blitz to kill key parts of Democrats’ $3.5 trillion economic plan.”  A few days later, Paul Krugman, writing for the New York Times, asked, “Why does Mickey Mouse want to destroy civilization?” Krugman explains that the Walt Disney Company is a member of the U.S. Chamber of Commerce which intends to lobby against tax increases on corporate profits which would be used, in part, to pay for the proposed economic plan. Krugman is correct to assume that if climate change isn’t addressed immediately, years could pass before it finally is. By that time, it might be too late to address it significantly.

Members of the U.S. Chamber of Commerce may, or may not, believe in climate change, but they certainly believe that protecting profits from taxation is more important than doing their share to address it. Joining the Chamber in its defense of greed are the Business Roundtable, and PhRMA which doesn’t want the government meddling in drug pricing.

The National Association of Manufacturers is also involved in a lobbying effort. Its senior vice president, Aric Newhouse, said that if the economic plan passes, “manufacturing families will suffer, jobs will be lost.” He’s lying. Profits are taken after employees have been paid, not before. A tax on profits has no effect on labor costs. Who really will suffer? Stockholders, because they receive their dividends after all taxes have been paid. Only the wealthiest Americans have significant stock holdings — they can afford to pay higher taxes, but spend millions to avoid doing so. According to Statista, the top 10 percent of Americans hold 70 percent of the nations’ wealth. Many of the other 90 percent of Americans are but a paycheck removed from homelessness. After seeing this summer’s hurricanes and wildfires, it’s obvious that climate change is coming for us all. It won’t spare the wealthy, even if they believe their money will cushion its blows.

Similar lobbying tactics were used to pass the 2017 Tax Cut and Jobs Act (TCJA). The name itself is a lie. The act failed to create the jobs it promised. According to the Brookings Institute:

"Overall, the TCJA's advocates promised many supply-side benefits and promised they would materialize quickly. But at least for the first two years, the Act failed to deliver its promises on investment and growth, leaving the country instead with higher deficits and a less equal distribution of after-tax income." 

 Gentle reader, consider speaking or writing the idolaters whose Mammon worship blinds them to the catastrophes to come. Here’s some contact information to get you started:

National Association of Manufacturers
(800) 814-8468
(202) 637-3000

U.S. Chamber of Commerce
(800) 638-6582
(202) 659-6000

Sample message:
Your company is a member of the U. S Chamber of Commerce which plans to lobby against corporate tax increases slated to be used in fighting climate change. Money can wait, but the climate can't. Stop being so greedy and pay your fair share.
The Coca-Cola Company
General Electric
Procter & Gamble
Walt Disney Company 

Thursday, August 12, 2021

Of Siren Servers and Radical Markets

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
Eric A Posner and E. Glen Weyl
Nonfiction 337 pages
Princeton University Press, 2018

Who Owns the Future?
Jaron Lanier
Nonfiction 396 pages
Simon & Schuster, 2013

It is difficult to review what one doesn't fully understand. Which isn't to say that I was totally baffled by these two books from these  three authors. Their descriptions of socioeconomic problems made perfect sense to me. It was their solutions that baffled me.

"Radical Markets" looks at capitalism in a radical way, starting with the premise that property is monopoly. While their solutions are sometimes over-explained, they none-the-less failed to convince me. That may be due to my inadequate understanding of economics, or perhaps I've correctly intuited that something is missing in their solutions.

Regardless, the ideas are certainly worth reading. One in particular was splendid. It's called quadradic voting, and it works like this: let's say you have a number of vote credits and you can spend them across a number of issues. To vote once on an issue costs one vote credit, to vote twice costs four credits, and voting three times costs nine. If you really cared about an issue, you could vote four times, spending sixteen vote credits. The more you care, the more it costs you. This might be a good way to decide certain popular issues. We live in times where manipulating complex math is easy. There are all kinds of new solutions we could try.

The authors also discuss the idea of treating data as currency, giving credit for this idea to Jaron Lanier. The idea evolved as a solution to what Lanier calls "Siren Servers." I feel the same ambivalence toward Lanier's solutions as I do to those of the other authors. Lanier's label, "Siren Servers", refers to technology companies that make their money by mining other people's content or data. According to Lanier, people should be paid for the demographic data they provide to those who mine it for marketing products or gaining or suppressing potential votes. Sadly, in the United States a great deal of money is spent persuading voters to embrace policies that harm them while enriching those who already have too much. Paying people for their demographic data won't fix this problem. Limiting how much Political Action Committees can spend would do greater good.

I'm not sure Lanier's solution is workable, but I'm completely sure that Siren Servers are an engine of income inequality. Once software is written, only maintenance costs remain. Siren Servers don't require factories full of workers. Only a few, very well paid, employees are needed. Since there are only a handful of Siren Servers, there is little competition to limit price. Apple can charge an app maker 30 percent for a sale in its app store because no competitor charges less. It may not seem like much, but 30 percent of retail price is a strain for both the app maker and the app consumer. On the unregulated internet, price gouging is business as usual. In its earliest days the internet was used to share government and academic information. As the World Wide Web gained popularity, this information source was commodified. Going forward, the internet needs to be more like a library and less a device for monopolist rent collectors.

Tuesday, July 04, 2017

Is there an artful approach to artificial intelligence?

During the week concluding 2017’s first half, three New York Times stories addressed the potential social dangers of Artificial Intelligence. Is this a mere coincidence, or is it rather a symptom of growing alarm? Previously economists have noted that just as industrialization eliminated many jobs only to create new ones, automation has done the same. But some economists now suspect that this time it will be different.

Kai-Fu Lee penned the most thoughtful of the week’s three stories. He notes, “Unlike the Industrial Revolution and the computer revolution, the A.I. revolution is not taking certain jobs (artisans, personal assistants who use paper and typewriters) and replacing them with other jobs (assembly-line workers, personal assistants conversant with computers). Instead, it is poised to bring about a wide-scale decimation of jobs — mostly lower-paying jobs but some higher-paying ones, too.” These will include, “Bank tellers, customer service representatives, telemarketers, stock and bond traders, even paralegals and radiologists,” who will, “gradually be replaced by such software.” In time robots and self driving vehicles will replace a slew of other jobs.

Lee notes that A.I. software is being developed faster than most people realize and that it has the potential to disrupt society in two ways. He asks; “we are thus facing two developments that do not sit easily together: enormous wealth concentrated in relatively few hands and enormous numbers of people out of work. What is to be done?”

Some who have pondered this question believe that education is the key to creating jobs in this soon-to-come economy. But Lee believes education is only a partial solution. “Artificial intelligence is poorly suited for jobs involving creativity, planning and “cross-domain” thinking — for example, the work of a trial lawyer. But these skills are typically required by high-paying jobs that may be hard to retrain displaced workers to do.” Lower paying, people-skill, jobs can’t easily be performed by artificial intelligence but, “How many bartenders does a society really need?”

Lee, among others, suggests that in addition to educating workers, a universal income may also be required. To prevent massive unemployment, Lee believes that service jobs which today are poorly paid, or done by volunteers, will acquire greater status. Wealth held by A.I.’s landlords and other wealthy people and companies will need to be taxed to pay for the new, and newly remodeled, jobs necessitated by A.I.

This means higher taxes, a solution applied during the Great Depression of the thirties, World War II, and the Cold War. However, high taxation went away in the Reagan era and it shows no sign of returning soon. Although high progressive taxes brought about a period during which America had a broader and more prosperous middle class, that approach has been unpopular in recent years. Instead, tax cuts, particularly for the wealthy have been used under the theory that wealth would trickle down and benefit society at large. These tax cuts have given the economy a few short-lived bumps, but they’ve also increased the nation’s deficits. Today, the top 20 percent of Americans hold roughly 90 percent of the country’s wealth. Recently both the Congress and the Senate proposed tax plans that would leave more than 20 million Americans without health insurance. Though universal health care is the norm in most well-developed nations, it’s an idea that remains unpopular in the United States. Lee and others who propose universal income are unrealistic: if universal healthcare is too socialistic for the United States, then a universal income will meet the same resistance.

Before universal income, or something like it, can become a reality, America’s economic attitudes will need to change. The difficulty here is that those with the most money influence our political process in a variety of ways—and they seem set on preserving their wealth. Today many Americans face poverty and economic uncertainty. The growth of A.I. will soon put more money in fewer hands increasing the misery of the 80 percent of Americans currently sharing 10 percent of the wealth.

Lee writes from Beijing. Perhaps his solution will work in China. But unless something major changes here, it won’t work in the United States.

Lee makes a secondary point as well. China and the United States are the two countries most likely to advance advanced A.I. technology. As they do so other nations may be plunged into poverty. Lee concludes, “…we are going to have to start thinking about how to minimize the looming A.I.-fueled gap between the haves and the have-nots, both within and between nations. Or to put the matter more optimistically: A.I. is presenting us with an opportunity to rethink economic inequality on a global scale. These challenges are too far-ranging in their effects for any nation to isolate itself from the rest of the world.”

Read more:
The Real Threat of Artificial Intelligence
Daily Report: Automation’s Effect on Developing Tech Economies
Robocalypse Now? Central Bankers Argue Whether Automation Will Kill Jobs