In Mitt's Defense (Or, What We Should Be Talking About)

Everyone is talking about Mr. Romney's latest gaffe: His statements to the effect that those who don't pay federal income tax are part of a poor, taker group that mooches off the rest and will vote to keep it that way.

Of course, the pundits rush in to provide the backstop facts: It truly is a much smaller group than Romney claimed who are actually free from federal income tax (most the elderly), and no, those in the lower half of the national income don't predominately vote for only one party, nor are they moochers in any real sense: They have jobs!

But what Mitt inadvertently cast a light upon is something that we should be talking about: namely, the large gap between the median income in the country and the average, and the impacts that has upon our society.

The median income in the U.S. is roughly $40,000 per year* – that is the point at which half the earners earn more, and half earn less. (I am going to use the per worker median rather than the household median ($50,000) to illuminate the individual's position within the workforce.)

Our Gross National Product (GNP) for 2011 was $15 trillion dollars – the sum of all productive activity in the nation for the year. Our workforce was 142 million people (fn1) – which works out to an average production per worker of approximately $100,000 annually.

This is a large difference: The average is significantly right skewed – in fact, earning upwards of $100,000 per year would place you in the top 16% of the nation's earners (and the top 20% of the nation's households.)

This shows that the fruits of our labor are accruing not across society, but predominately to a small percentage of the individuals. Now, while it is reasonable to believe that many are much more productive than others, it is hard to make a case that the distribution of productive ability shouldn't be a normal Bell Curve or standard distribution where the median and the average are closely in alignment.

There is a natural phenomenon behind some of this skewing: The time-value property of capital vs the ephemeral or transient property of labor. What any labor makes today doesn't compound into higher production tomorrow: Another unit must be produced with new labor tomorrow. However, money, through compounding, can earn more tomorrow than it earned today.

But what should concern us is the rest of the structure of society that places a premium on capital and capital earnings and forces this skewing to the the extreme level we see in our country. The structure of our economy is largely ours to choose: The laws that govern contracts, employment, money flows (taxes, tariffs), the formation of corporations, all provide this structure and hence impact the resulting distribution.

We should be talking about how we restructure so that all workers (and I'm talking the workers here, not those who choose to freeload) share equitably in the production of the nation. What changes do we need to make to restore the median worker's salary closer to where it should be near the average? What changes to our views of capital and labor do we need to foster to allow us to hold the worker in esteem, to perceive and accept the liberating effects of equality?

For surely many would willingly pay more federal taxes if their position in society was both monetarily richer and more esteemed, with the positive effect of an increase in commitment to the shared goals of our nation. There has been much research that has shown that gross inequality is a detriment to a society in both decreases in individual happiness and increases in civil unrest and a tearing of the social fabric that binds people to one another.

That is as far as a defense of Mr. Romney's comments I can make. Although we can thank him for bringing to light the problems of having a large financially extractive class by being a member of that class and forcing the research revealing the destructive nature of Private Equity, his comments are/were atrocious. They reveal a shallow individual with neither empathy nor moral compassion who has been thoroughly corrupted by the accumulation of ill-gotten money. There is nothing likable about a mindset that would deprive workers of the ability to make a modest and fair wage and then condemn them for not being rich enough to afford to pay taxes.

But, he has opened the door. We must have the discussion. Changing the structure so that everyone shares from the ground (or labor-hour) up is truly the way to progressive societal equality, for with the equality comes opportunity, and with opportunity comes the increases in productive capability and our living standard. This is exactly the progressive attitude towards wealth redistribution – not through taxes to correct an unfair system (although a progressive system is likely always needed to overcome the effects of chance), but structural changes to promote an equitable sharing of the productive capacity of all.

* I'm drawing all my data from stats.oecd.org

fn1: If you count our 14 million unemployed, our workforce is 156 million. I'm splitting the difference in my average calculation because I can see strong reasons to use either figure.

The Irony of Ryan's Entrancement with Rand

I did the college thing of reading several of Ayn Rand's works. What struck me most was how much the landscape she was describing resembled nothing like the world I know. However, it seemed pretty obvious that she was working against the landscape she knew: Soviet Russia. Her descriptions of the difficulties for entrepreneurs, of mindless bureaucrats standing in the way, of the waste and inefficiency of a command economy all fit when you realize that is the world she is describing. And, like a school girl caught up in her first crush, Ms. Rand gushes blindly about the wonderfulness of the structure of her chosen country, America.

Although her creed, that acting out of selfishness results in the best outcomes, is neither a description of how we actually act and has been discredited as a proscription for how we should act, she does draw a clear and useful distinction between those who work and produce, and those whose actions are extractive. The bureaucrats of her old world produced nothing of use, worked to expand mini-empires with the command economy, and they were the ones who ended up with the summer homes, the cars, the better life-style, while many faced hardship enduring goods shortages (the images of the breadlines come readily to mind.)

These parasites, the one's who so steadfastly stood in the way of entrepreneurs like John Galt (from Atlas Shrugged), who condemned the working man or woman to a lifetime of ill-spent productivity by their miss-allocation of production (creating both vast waste and shortages as they ill-anticipated the needs and desires of the population); These mindless wasters of both the labor capital and intellectual capital of their countrymen: About them Ayn Rand heaped her derision. Galt's 50+ page speech in Atlas Shrugged is simply a condemnation of a command Economy and its flaws, interspersed with unchecked praise for an American-style Capitalist Economy.

The more we learn about the inner workings of the American Economy, however, places things in a new perspective. Reports about the influences and outcomes of the financial sector; reports about the actual results of applying Private Equity, keep enforcing the idea that we have built a purely extractive layer upon our vaunted production (ideas, manufacturing, services). What the entrepreneurs and laborers of America put in, our financial services (and corporate elite) take out for personal use, trading lobbying power for actual production.

American Capitalism has degenerated into a quasi-Command Economy: The Banking members of the Federal Reserve set the dollar and maintain it high to benefit those who lend (extracting great wealth for themselves along the way); Congress interests itself with passing laws that maintain wealth or provide easy avenues for those with wealth to build more; The massive corporations use their market position and power to squelch new ideas and new innovations (or buy them up and squelch them internally or, after the initial pay-out to the entrepreneur, hoard the future income from the idea for themselves, along with accounting control fraud to extract more from the economy than the production of the idea or product places in.)

Just as this parasitic behavior was detrimental to the well-being and expansion of old Russia, so, too, this parasitic behavior has profound negative consequences for America's future. As labor is squashed, less demand is created for the production of the entrepreneur, curtailing the advancements that can and will be realized. As the benefits of the productive classes flow more and more to the parasitic classes, the velocity of money slows, reducing the opportunities for new ideas to enter the market; as the money available to educate all decreases, the number of fertile minds (and hence the number of innovations) decreases, leaving America a second-(or worse!) class producer and member of the world stage.

The irony arises, then, because all of these self identified acolytes of Rand are members of this parasitic class: From Greenspan to Geithner, from Cantor to Bernanke, from Romney to Ryan: Each is a member of the extractive classes, producing nothing, but extracting greatly. None of them would be heroes in a Rand novel, but rather would be the derided antagonists, standing in the way (and ultimately failing) the onslaught of a true producing giant. I think that Galt would smite them with a snort!

The Real Meaning of the Deficit

I think there is a lot of confusion about the real meaning of the deficit. There is a lot of talk about the need to balance the budget, the need to pay down the deficit, to make the 'hard choices' – but no-one really talks about the why. There is some ambiguous talk about deficit vis a vis the future, but no specifics at what is at stake.

In simple terms, as long as others are willing to purchase and hold U.S. Dollars, thereby funding the deficit (or holding it in terms of bonds), the dollar remains strong, e.g., its purchasing power remains great. However, if conditions were to change, if others' confidence starts to falter, and U.S. Bonds are not seen as the low risk instruments that they are today, it would signal a weakening of the U.S. Dollar, and the purchasing power of the dollar would likewise fall.

A falling dollar translates, here at home, to inflation, as the amount of goods or services that can be purchased with a given amount drops. Everything starts to cost more, from food to clothing, services to labor.

Inflation isn't necessarily good, although it impacts different people differently. To truly understand the demagoguery surrounding the deficit, one needs to ask the question: Who will be most impacted by inflation?

The answer, of course, is lenders. Bankers. Wall Street tycoons. Anyone who lends money and derives their income from the resultant payments sees their income fall. And, if their money is tied up in a long-term, fixed rate instrument (think a 30-year fixed rate loan at 4%), there is a huge risk that such an instrument's yield will drop to near (or possibly, below) zero if inflation climbs high enough – that the payment flow is actually negative.

Now, a debtor or borrower is in almost the opposite position. While there was likely some initial pain as their income dropped relative to the goods and services they wished to purchase, since labor (i.e., wages) are a form of service and hence increase their cost along with inflation, labor typically sees their income keep pace with inflation, and the resultant pain is from the fact that there is no growth in their wages. Conversely, as inflation takes hold, the amount relative to their pay that their long term debts require is dropping, laborers are seeing an actual increase in their standard of living as a greater amount is free to purchase other goods and services!

So, who really cares about the deficit? Not likely you or I. In fact, it has been suggested that one of the best ways forward would be for America to gradually inflate her way out of the problem of a high deficit, and that the consequences are orthogonal to the current horror stories told about a high deficit.

So, the next time someone tells you it is imperative that we balance the budget and begin serious efforts to reduce the deficit, ask them “Why?”

And if the answer isn't because they have substantial money tied up lending to others at low interest rates and a future inflation risk may lower their income, they either have no clue or are lying to you.

And in either case, they have no credibility. So why listen to them?

Do As I Say...(Boy Scouts Edition)

It should be obvious why the Boy Scouts don't allow gays or atheists into their ranks: They don't need the training that scouting has to offer, and their outstanding moral positions would prove to be a humiliating distraction to the rest of the poor boys who struggle with the 12 tenets of the scout law.

For who can demonstrate loyalty better than an atheist, who won't drop you as friend if he learns you worship a different god? Or a gay boy, who won't torment you for liking Sally or Billy, but accepts that liking someone and pledging undying friendship, kindness and love is the height of being human?

Either can demonstrate trustworthiness, thriftiness and cleanliness. And what of reverence? Being gay or atheist is a life lesson in respecting institutions that support connections between people, but rejecting any that smack of bigotry or prejudice. Showing reverence for hate and fear is as wrong as lacking any reverence.

With their extremely tolerant views of others and willingness to offer the freedoms for others to pursue goals as they want the freedom to pursue theirs, the presence of gays and atheists within an intolerant, struggling group of Christian Scouts would prove a constant embarrassment.

(And what of the members of the LDS, who deemed the Book of Mormon insufficient for instilling moral character into their boys, and added the canon of Lord Baden-Powell alongside as the sole youth program for young men? Being bested in the mastery of cheerfulness, helpfulness or bravery by one who didn't consult either text might prove to be a debilitating demoralization!)

Instead of attempting to get in, gays and atheists should rejoice that they have mastered what scouting would teach them. They are the graduates.

And, never-mind that for a boy to fully understand Friendliness (offering his friendship to people of all races and nations, and respecting them even if their beliefs and customs are different from his own.); Kindness (He treats others as he wants to be treated. He does not harm), or many of the other 12 tenets without the inclusion of all people, without leaders and an organization that lives those tenets and shows no prejudice, will, in the end, cripple him and his understanding.

For, obviously, the inclusion of gays and atheists within the ranks of scouting would prove too big a challenge, too great a test for the remainder, and their failure to live up to their tenets would become plain for all to see.

The Devil Is In The Details

Job Creator? Nope. More like pension looter, debt adder, layoff enjoyer.
Nicholas Shaxson gets the credit for this interesting Vanity Fair article looking into the finances (and perhaps moralities) of the man who would be president.

Ireland America's Future If...

...The policies advocated by the Romney campaign are enacted, according to Paul Krugman. Ireland's 14% unemployment (30% youth unemployment) are a direct result of the austerity measures enacted by Ireland's leaders: Low corporate taxes, diminished government spending, etc.

It just seems counter-intuitive to me that high unemployment benefits anyone over the long term. But, it's short-term, "I've got mine, go get your own" thinking that underlies so many of the difficulties we face today, I guess I shouldn't be surprised.

Lance Armstrong, Doper?

The news came out this week that the USADA was opening an investigation alleging that during his seven Tour wins, Lance Armstrong was doping. The USADA indicated they believed they had credible evidence and that this was an appropriate action to take.

The immediate consequence of the investigation is that Lance will be banned from competing in a National Ironman Qualifier June 24 in Nice, France (if he had qualified, he would be eligible to compete in the International Hawaii Ironman Triathalon this fall.)

I've mulled this news all week, and have to admit that I am as conflicted today as I was when I first heard it. I'm conflicted because I normally believe that cheating and unfairness should always be ferreted out, revealed, and punished. But I am uncertain that this is appropriate.

You see, I've always believed that the top echelon of cyclists are dirty. That they (along with their counterparts in other sports) hire team doctors who push the envelope with recovery and improvement enhancing substances, that the doctors earn their pay by masking the existence or previous use of the drugs with other substances so that the athlete can pass the myriad and constant tests they are forced to undergo. Call me cynical, but there have been enough 'caught' athletes, along with long after the career admissions of banned substance use that I've developed the idea that it is probably fairly widespread.

Sure, if he was doping, his seven Tour wins are tainted. But the relevant question is: Did Lance win because he alone amongst the 200 contenders was doping? Or did he win because among the 200 contenders and the unknown number of contenders who were doping he was still the best? If the controls in place 1999-2005 were not able to discern his (or, for the most part, anyone's) violations, shouldn't we just accept the outcomes of the races and move forward?

Hence my conflict: If Lance was doping for his wins, I am disappointed, and a reaction is that he should be denied the titles. However, I'm concerned that eliminating the winner doesn't create fairness: What if the first runner-up was doping? The second? How deep in the field would we have to go to find a clean cyclist to award the winner's yellow jersey to? And, if we don't know, can we strip any titles?

Because there is an aspect of revenge and spite to all of this: Some of Lance's most vociferous critics are fellow cyclists who did get caught using illegal substances. They somehow blundered, or their doctors, and the controls did catch them. Sure, if they feel that the drug use was widespread, they are angry at being singled out and punished when so many others continue on.

But they were caught red-handed, as it were: There is no doubt they were doping and cheating. As for Lance (and the bulk of the peloton) that didn't occur, and all we have are angry accusations...

And so the flip-side of the conflict: It is too easy to go back and review, to reveal actions that went undetected at the time of the athletic contest. We have rules, referees, control tests that are all designed to catch a cheating athlete at the time of the athletic contest. For the most part, they do their job, penalties are called, cheaters relegated to the sideline, etc. Sure, upon review of a tape we might find a missed call, a pushing of the limits that maybe should have been noticed, but that is all part of athletics.

And we don't go back and review the tapes on other contests: Football, basketball, hockey, baseball, and change the outcomes of the games based upon what we found. When a prominent baseball player admitted to steroid use we didn't strip his team of every win that occurred while he was on the field.

So my measured, but still conflicted opinion is that we should let matters regarding alleged previous drug use by Lance and others lie. The referees and controls didn't catch them at the time of the contests – and if they missed Lance, how many others were also providentially missed? Revisionist sports just doesn't play out well.

Let Lance race the Ironman. He'll be under scrutiny and repeated testing – I do believe that if he is continually cheating he will eventually be caught red-handed: And then there is no conflict: He is denied that race, perhaps prohibited from taking place in any for the next year or more, and the punishment is immediate and fair; The recipient of an elevated placing will have passed the very same testing that Lance failed, and we will have little doubt of their relative 'cleanness'.