More Dumb Liberal Ideas

It looks like the liberals are at it again.

With proposed laws like these we can all be happy that the US Congress is at a productivity low.

Internet Sales Tax
In New York they want to tax Internet sales. They say it's because brick and mortar stores are at a disadvantage unless they tax online sales too.

When was the last time the liberals stood up for businesses?

Why not just get rid of the sales tax all together? This would benefit most businesses and would particularly benefit low-wage earners (and the rest of us); those who the liberals pretend to represent. In addition, sales tax is essentially double-taxation.

The real reason is that they just want more tax revenue and bigger government controlling our lives; the sympathy for business is feigned.

Carbon Tax
As if Al Gore has not already been discredited, the president is bringing back the idea of a carbon tax.

The world may be warming but the cause is probably not carbon dioxide.

• We pump 5 ppm of Earth's atmosphere full of carbon dioxide every year but the actual concentration only increases by 2 ppm/year. This fact correlates well with the following fact;
• Ice cores show that temperatures rise before carbon dioxide, allowing the air to dissolve/absorb more carbon dioxide.
• Water vapor is a more potent greenhouse gas than carbon dioxide and there's a lot more of it; and it also increases with increasing temperature.
• Carbon dioxide does not appear to be the main culprit to anybody but the liberals; they even tried to reinterpret the ice core data to fit their theory so they can justify this tax.

This is just more obfuscation to take the heat off of Obamacare.

I'm not saying pollution is good, I'm just saying that the liberals are lying as a means to increase their efforts at redistributing wealth.

The oil companies favor the tax as a means to boost sales of all the natural gas they've found by fracking. Also, they won't have to pay the tax, we will. Those who support a given tax are rarely subjected to it; like the congressional democrat-liberals who gave us Obamacare.

It also shows that liberals favor tax revenue over the environment; why else would they try to reward the frackers that they profess to hate otherwise?

Pushback on Common Core Standards
We were 23rd in science, 26th in math and 15th in reading in 2009.

These rankings dropped to 23rd, 31st and 17th respectively in 2012. 

This year the U.S. was 21st in science, 26th in math and 17th in reading. Except for reading, this would be good news were it not for the fact that the results are still pathetic overall.

Parents are pushing back because the new standards are making their kids look more uneducated than they looked with more liberal standards (even though they publicly rant about the testing as the issue). However, the international rankings suggest a different tune; our kids are undereducated.

It could be a fluke but it's encouraging. Stay tuned. We need to undo the dumbing down of America.

Now, if we can only reduce the bureaucratic bloat and reduce the costs of publicly funded education back to where they should be, I'd be ecstatic; $6,660/student in CT. We spend more than any country but we get lackluster results.

Minimum Wage Increase
The protests to pay $15/hr in fast food restaurants are totally absurd.

The president is looking for $10.10, just enough to realign the minimum wage growth to the growth of inflation. While it sounds more reasonable than $15, the last time we tried that in 1980 we got a 50% increase in unemployment (see second chart below). In addition, it's a death spiral caused by government policies in the first place (explained below).

They're talking about fast food workers for $15 now but this is just the camel's nose under the tent. Seattle just did it for airport workers while, at the same time, the state of Washington (and its unions) rejected an offer by Boeing to build more jets there. Say what!?

Proponents argue that it doesn't increase prices. Remember this graph of minimum wage and inflation normalized to 1968?

You can clearly see that the rate of rise of inflation was the greatest when the increases in the minimum wage were most frequent (1973-1980).  You can also see that it took a while for industry to catch on to the lost-profit problems of the early years. You can also see that the inflation rate decreases a little (in 1982) after the last minimum wage increase in 1980.

Proponents argue that raising the minimum wage does not reduce employment.

Of interest here is the correlation between increases to the minimum wage and increases in unemployment; 1975, 1982, 1991 and 2007. We all know what happened in 2001.

A 2% increase in unemployment is about 2.8 million workers. Throw in a liberal president and congress and you get 4%.

At a time when most of the world is seeing that these policies don't work, the President is doubling down; anything to distract from the Obamacare chaos.

Do we really want more unemployment? Granted that the rate just dropped to 7% but the meaning is not what you'd think because of the way it's measured; actual employment of the workforce has been flat for the 5 years since the (last) meltdown.

Since 1968, US GDP is up by a factor of 16 but population is up 60% so GDP is really up by a factor of 7, matching the inflation factor.

So why does the cost of living keep going up with GDP? Here's why.

I've said before that the entire national debt could be attributed to our social(ist) institutions. The area under the curve above (from 1968 to 2012) is equal to about $16 trillion, same as the debt.

However, we've also made payments on the debt in the amount of $9 trillion since 1988. Those debt payments have averaged 5.5% of GDP whereas inflation has averaged 4.5% since 1968; inflation would be the same as debt burden if we counted food and energy.

I think the case can be made that government largesse (with our money) is the root cause of inflation. Prior to 1965, inflation was fairly tame (increased by a factor of 3 over 51 years). After the start of the War on Poverty, it takes off like a rocket;  growing by the same factor of seven as inflation aka the cost of living.

The cost of living applies especially to taxpayers since they pay the cost of everyone else's living.

Jacking up the minimum wage is just a backhanded way of increasing taxes since those earning the minimum wage pay the least in taxes but those earning more will pay more tax due to the upward pressure on all wages. This is exacerbated by the progressive, redistributive tax system loved by liberals.

The caveat is that the new taxes, like the inflated wages, are actually worthless since they are exactly cancelled by the inflation that generated them; this is obviously true since no new wealth was actually created; only the costs increase which is the definition of inflation.

The government giveth with its left hand while takething away with its other left hand. I suggest putting them both elsewhere.

In addition, my old friend Leo says that additionally, minimum wage laws:

• interferes with the right to contract
• subverts the employers right to private property
• distorts the invisible hand of the market for labor candidates for hire
• hides discernment of "good" jobs from "bad" jobs based on price (wages)
• eliminates the employer's choice to be virtuous at the point where forced cost of labor removes the employer's flexibility, they cannot choose to do good
• makes for Bad Karma or No Chance for Heaven 

Labor should be an auction, not prix fixe.

The objective should be to increase non-government-subsidized employment, not to provide a baseless wage increase.

For example, after we deport the 11 million illegal aliens, lots of jobs in the agriculture, restaurant and hotel businesses (among others) will become available.

As another example, after we finally fire all government employee unions, lots of the cost of government can be shaved by hiring individuals on an at-will basis with lower pay and ordinary benefits like high-deductible health plans, Social Security and Medicare.

For a third; bring back apprenticeships. These should be in jobs that can't be exported; plumbing, electrical, HVAC, landscaping, engine mechanics and so on. These jobs should not have minimum wage restrictions since they also supply training at the employer's expense.

The idea is to close the income gap but I just heard an interesting and plausible explanation for the gap; our population is aging and older workers make a lot more than younger workers. This makes sense to me since my own income increased by a factor of 20 since my apprenticeship.

Shameless Sleight of Hand

New from the administration of 'hope and change'; sleight of hand in the hope that voters will change the channel from the Obamacare train wreck to the Senate and Iranian nuclear option train wrecks. Oh, and let's not forget the background diversion of immigration reform.

These guys are shameless.

As was predicted by conservatives like me, the paltry number of insurance enrolees (not including the enormous number of new Medicaid enrollees) is heavily skewed toward the 45-65 year-old crowd with a correspondingly lackluster enrollment of younger, healthier people (adverse selection in action). Even the tax of $95/year (or 1% of adjusted gross income) looks good compared to an average premium of $250/month to people unlikely to get sick.

This is happening even in states the liberals tout as huge success stories; California, New York and Connecticut. Of course this makes sense since blue states have a greater addiction to the government teat. It gives me the blues to live in one of them.

I suspect the red state legislatures saw this coming; at least someone read the law!

Although I did not predict the cancellations of millions of policies in the individual, private insurance market since they were to be grandfathered (albeit in a way that was, in hindsight, guaranteed to not apply), I did predict that many employers would use the law as political cover to dump employer-provided insurance plans. Again, the $2-3,000 tax is much less than the premium; at my last job, my employer paid $14,000/year for my wife and me.

This suggests that employers will shed billions of dollars in cost for which taxpayers will have to pay since the actual cost of health services continues to rise unabated. This is why the so-called employer mandate was postponed until after the mid-term elections. In 2017, the taxpayer cost will really kick in.

Given a workforce of 140 million, half of whom don't pay federal income tax, this amounts to more than a $2,000/year tax on those who do pay tax.

This is why the law is backed by many big businesses.

In addition, this paves the way for even higher consumer costs since employer-provided insurance was tax-free but insurance in the private/exchange market will be purchased with after-tax dollars. This, in addition to the other $500 billion in tax hikes that came with Obamacare.

This will, in turn, lead to more calls for minimum wage increases causing an even higher cost of living including health care costs. Need I go on?

So it's no surprise that the President's backers are trying desperately to focus our attention on the other stupid things the administration is doing. It's like they're doing them on purpose.

Of course, the Iran debacle makes Hillary's do-nothing stint at the State Department look excellent compared to rewarding Iran for its continuing efforts to destabilize the Middle East. Hillary looks great...except for Benghazi.

However, we're not all fooled.

I can see that last month's employment numbers were magically boosted by the number of Navigators hired by government to help consumers with the poorly designed website; we learned late last week that 30-40% of it has not even been built yet, let alone tested!

Yep, shameless.

Thanksgiving in Switzerland

Last weekend, my wife found an article in the NY Times Sunday Magazine that she thought I should blog about. I have to agree.

The article discusses proposed legislation for a minimum income law; income given to all, just for breathing!

This idea sounds horrible except that it comes from the Swiss, notably the most effective government in the European Union (EU) and, possibly, in the world. Good local education, local welfare, high employment. The lowest spending in the EU at 34% of GDP.

I have suggested a limited version of this as a means to get rid of government bloat. The limit is that only those in need would get it.

In the US, we spend about $1.2 trillion/year on the poor. The poor comprise about 21.8% of children under 18, 13.7% of adults between 18 and 64 and 9.1% of those 65 and older.

A total of 46.5 million people.

Divide it up and we get $25,806 per person or $39,344 per adult.

Even one third of that in direct payment would be a boon to the poor (the bottom 20% of earners) and a huge savings to taxpayers. If they ever get the Obamacare website's income verification software working, we can do this and eliminate 30% of the federal government and nearly half of all state governments.

Poor folks could buy their own health insurance (without subsidy) and have about $4,100 left over for food and housing. Not bad outside of New York and New Jersey.

Throw in Medicare spending of $536 billion on 49.5 million beneficiaries and we get another $10,828 for them, more than adequate for them to buy their own insurance in all but about 10 states; allow insurance to cross state lines and this goes away too because of bigger risk pools. Throw in private charity and this is free too, allowing seniors to relax.

The rule used to be that nobody could pay more than five times as much as anyone else. Now it's three times under Obamacare so virtually everyone's rates have to go up to maintain the status quo; remember that Obamacare does nothing to reduce healthcare costs, it only addresses insurance.

The best part is that liberals could pay the whole tab and they'd pay less than they do now. Mean-spirited, greedy conservatives could give more to charities of our own choosing.

Correction
My old friend John found a math error in my Business as Usual post. I miscalculated the weight of a trillion pennies as 2,750 tons.

It should have been 2.75 million tons.

The Middle Class Myth

In my last post on the Minimum Wage Myth, I asked for comments regarding who the members of the mythic Middle Class might be.

Prior to giving it any serious thought, I would have thought that US wage income (not to be confused with total income) looked like the graph below with the top 1% earning about $560,000 with a linear distribution below that. The total area under the curve equals a bit over $8 trillion. A Middle Class between 25% and 75% makes perfect sense.

Additionally, this would lead to a Gaussian, or normal, distribution (see the σ=0.25 curve on the second figure below). Not unexpectedly, it isn't that way even though I thought so up until this year. I wonder why  this is not a well known fact.

Given the notion of a more serious inequality, I might have a wishful thought of a distribution like the one below. A Middle Class between 25% and 75% also makes perfect sense except that getting the same $8 trillion gives the poorest $220,000 in income; $110/hr for flipping burgers?

This is more of a log-normal distribution like the σ=0.5 and σ=1 curves below; my friend Jack calls these skewed Gaussians.

One difference is the way the curves are plotted (population percentage on the vertical with income on the horizontal) but the idea is that peak income densities are skewed to the low side. However, it doesn't happen that way.

The reality is shown below based on an average 1% earner income of $717,000. Here, the Middle Class might be between 5% and 15%; only 10-11% of the population of earners.

The top 4% earn $1.5 trillion (19%), the Middle Class (the next-highest 11%) earns $3 trillion (37%) and the bottom 85% earns $4.5 trillion (56%). The top 10% earn $3.3 trillion (41%).

This is a power-law distribution and it shows that we don't really have a Middle class, just a small group between the haves and the have-nots. These are the folks who do well but aren't rock stars, movie stars, Wall Street financiers or professional athletes.

You can see that the same thing happens in the countries of the European Union even though the 50% (of GDP) average government spending is 25% higher than the 40% of GDP in the US.

You can see that the top 10% in France, for example, receive a 25% share compared to 41% here. However, government spending (income redistribution) in France is 56.6% of GDP, 41% higher than here, it seems everyone gets 10% of the year off on vacation and our top 10% pays its own medical bills.

It's worth noting that the economy of the EU is still sucking wind 5 years after the meltdown, arguably because of their socialist tendencies.

We are recovering slowly, perhaps because businesses are worried about the the results of the left turn we took starting in 2009.

Total Personal Income
It's hard to account for income from criminal activity. Despite the fact that nobody was jailed, the fiasco in 2007 sure seems criminal to me. This cost trillions of dollars, easily 20% of GDP. But I won't count it even though I'm sure it continues as I type.

Again, my US examples comprise income from wages alone.

If we include government social benefits (Table 1 in linked document), this adds another $2.4 trillion (Social Security, Medicare, Medicaid, Veteran's benefits, unemployment benefits, etc.) predominantly to the bottom 40%. There's also another $1.7 trillion in employer private pension contributions that is similarly power-law-distributed among, say, the top 70% as is $2 trillion in investment income, $1.3 trillion in proprietor income and $574 billion in rental income for a total of about $14 trillion this year.

Presumably, the other trillion or two (GDP minus personal income) is income overseas including the $400 billion in national debt payments.

The net effect is that the left side gets taller and the right side gets flatter and higher.

For example, the bottom 40% (40% of the 140 million who work) rises by a factor of 4 ($43,000 each assuming a laughable 100% efficiency of government redistribution) and the rest rises by $59,500 each. The final result is about like the curve below.

This curve suggests that if Welfare and Medicaid dollars were more efficiently distributed like Social Security (except for the theft), our poor would be doing better than our mythic Middle Class. Even though this sounds nice to the do-gooder in all of us, it's totally wrong.

A Real Middle Class
Instead, imagine the $2 trillion in state taxes from sales, fuel, sin and property taxes being used to fund the poor in a direct and efficient manner (not welfare & medicaid) where more than the current 30% goes to beneficiaries instead of middlemen (in the form of salaries, health benefits and retirement benefits), buildings, transportation and other government bloat.

This alone would boost the bottom 40% of earners by over 200% ($35,625 per earner). With this, they could buy their own health insurance and feed & house themselves. This is 56 million earners which more than includes the 45 million supposed Obamacare, Medicare, Medicaid and Welfare users when the dependents are added in.

Even though I'm opposed to government-run programs like Obamacare, I was hopeful that the automation promised for the health insurance exchange website would enable the long-sought efficiency of delivery I've outlined in previous posts. Instead, we got a typical social engineering outcome; no specification until 6 months before delivery of 5 million lines of code, a major spec change weeks before roll-out and obviously little or no testing. No one held responsible. Oh, and millions thrown out of what were perfectly fine insurance plans they were paying for themselves.

But I digress.

Also imagine being allowed to save your own 15.3% FICA in an interest-bearing account to save for your own retirement income and health insurance; no more pay-as-you-go nonsense.

Best of all, imagine the extra 14% or so of our income we'd be able to keep by cutting government spending from 40% to 10% and taking care of ourselves.

Here's how to get there.

The Minimum Wage Myth

I could have sworn that I had written about this but, having searched my posts, I can only find indirect references to the subject.

The subject came up in a Facebook comment thread started by Alison and continued by my childhood pal Ned.

The myth is that raising the minimum wage benefits low-wage earners.

The reality it that it really doesn't and here's why.

An excellent article in, of all places, the NY Times does a good job explaining what it does to employment and other wages. Essentially, raising the bottom wage causes all other wages to rise since not doing so would be an affront to those higher on the ladder.

In addition, these increased wages must be recouped so manufacturers and service providers must raise prices to account for the higher costs. Don't forget that prices reflect both costs and profit so prices increase (inflation) at a parallel but higher rate than costs. On top of that, there's the 15.3% FICA tax on wages.

The never-ending consequences include;

• Loss of competitiveness between states and countries.
• Contracts made by government on behalf of employers who foot the bill.
• Increased tax revenue due to conflict of interest in government.
• Decreasing employment.

To show the relationship, I plot inflation against the minimum wage. I normalized wages ($1.40/hr) and inflation to the year 1967 near the end of LBJs socialist blitz, the Great Society programs.

You can clearly see that the rate of rise of inflation was the greatest when the increases in the minimum wage were most frequent (1973-1982).  You can also see that it took a while for industry to catch on to the lost-profit problems of the early years. You can also see that the inflation rate decreases (in 1982) after the last minimum wage increase in 1981.

Interestingly, the direct correlation between minimum wage increase and inflation disappears around 1991 until the final boost in 2009. I tried to explain it with interest rates, deficit spending and printing of money but all to no avail.

What I found to correlate was the market; it was strong during those years. The uncorrelated upticks in the inflation curve (2002 and 2009) correspond to downticks in the market.

So, the market is up by a factor of 12, inflation up by a factor of 7 and minimum wage up by a factor of 5 in 2012 as compared to 1967; profit, income and costs, respectively.

Prior to 1991, increases in the minimum wage correlate directly to increases in inflation because the market was weak as also measured by the unemployment rate.

Of interest here is the correlation between increases to the minimum wage and increases in unemployment; 1975, 1982, 1991, 1996, 2007. We all know what happened in 2001.

As I've said, if we want to improve the lot of the poor then let them (and the rest of us) keep more of what they earn by abolishing regressive taxation by the federal government, states and municipalities.

Get rid of sales, sin, fuel and property taxes.

Milestone
Thank you readers; I'm up over 2,000 page-reads in 10 countries on my blog.

Question
In discussion about the Wealth Gap, a curious question came up.

The above graph is the approximate income distribution in the USA by percentile of earners.

Question: Where is the "Middle Class"?

Please leave a comment with your thoughts on this.

Business As Usual?

There I was, out of the stock market against advice, waiting for Tea Party House Republicans to pull the trigger on the debt ceiling and get serious about deficits and the debt.

What  happened? Capitulation; the worst bit of negotiating ever seen.

First they write a bill to restore the pay of federal workers after just two days of shutdown.

Then they change their demands multiple times; defund Obamacare, repeal medical device tax, make congress participate, etc.

Then they fail to highlight the President's unilateral changes to Obamacare as a legitimate reason to defund or delay or reopen the law; if the executive can do it, why can't they?

• Delayed employer mandate
• Delayed out-of-pocket caps
• Rescinded congressional participation mandate
• Rescinded requirement for congressional employees to pay for their own Obamacare premiums
• Income verification requirement dropped
• Income verification for Obamacare subsidies is a stumbling block for the insurance exchanges (top left below) since the Hub software is reportedly the part that has been failing and liberals want no barrier to giving away taxpayer earnings (is the Hub software failing on purpose?). At least this was brought back as part of the deal.

Finally and inexplicably, Boehner caves and allows a floor vote instead of calling the President's bluff.

The good news is that the software (maybe) has kept enrollment for the first two weeks to about 70,000 nationwide, well short of the 30,000,000 goal.

The other good news is that when the Hub software is made to work (by competent software engineers), it can serve as the vehicle for Welfare and Medicaid reform by automating the work of millions of bureaucrats and eliminating the horrendous 263% overhead.

I'm not opposed to Obamacare per se'. I'm opposed to the projected $150 billion annual cost (all borrowed) to taxpayers. I am equally opposed to the fact that it does nothing to control actual health care costs. I am also opposed to some of its provisions since they put taxpayer's wallets at risk.

Given the 270 million insured people and the $2.7 trillion yearly cost of health care, we're talking $10,000 each. This means taxpayers will pick up half the cost to insure all enrollees (30 million people times $5,000 average subsidy equals $150 billion).

I think this is why establishment Republicans were siding with Democrats; not because they want government expansion but because their big-business constituents want taxpayers to pay for employee health insurance instead of them; a $2,000 fine, er, tax is cheaper than a $10,000 premium. Smaller businesses will be screwed since they can't afford to bribe, er, lobby capitol hill; I suspect that's why they're not hiring.

The Tea Party Republicans should have fought the cost, not the law. If they ever get elected again, they can repeal the law the same way we got it; by party line vote.

They should have forced a choice in spending priorities by demanding $150 billion/year in spending cuts to offset the impact of the law (prior to repealing it). They also needed to address the rest of the $800 billion annual deficit not covered by the sequester (Part II coming up in January).

What is a Trillion?
My friend Jack asked me to include a thought experiment of what a trillion is.

A penny is 1.55 millimeters thick. A trillion of them would make a stack 1.55 billion meters tall. The stack would weigh 2,750 tons.

A distance of 1.55 billion meters is 962,000 miles; roughly to and from the moon 4 times.

A dollar bill is  2.61 inches wide by 6.14 inches long, and the thickness is 0.0043 inches

It would take nearly two Stockholm Globes to hold a trillion of them.

It's a pretty big number!

Our debt is 17 times bigger.

Liberals like to compare the debt to GDP because they view ALL of our money as theirs; why stop at a paltry 40%?

Campaign Finance Reform

This topic is a little off the beaten path for me since it isn't really about fiscal policy.

However, it is in the news since the Supreme Court is on the subject again. In addition, it's all about selecting who gets to make fiscal policy and that is in my wheelhouse.

As most of you have gathered, I don't hold politicians in high esteem. I respect the office but it seems most office holders are lying, cheating, obfuscating, thieving sons of bitches.

Even those who are good are forced to spend most of their time raising money to combat the bullshitters, pinheads and windbags running against them. I, for one, would prefer it if they'd just do their jobs and fix the country's problems without putting us all in the poorhouse.

The big issue, ironically, is freedom of speech! I suspect we'd all like a lot less talk and a good deal more action solving problems.

So here's my idea; rather than limit how much money can be raised by who, for who or for/against what, let's limit all political campaigns to the 30 calendar days immediately preceding election (or primary) day. Print, TV, yard signage, radio and internet. Two weeks to lay out the plan, one week for rebuttal/debate and the rest for whatever.

We can also force all primaries to be held on the same day to prevent state-to-state contamination; I, for one, couldn't care less about the races in Manhattan yet I'm forced to endure it for months on end.

In addition, we'll insist that all unspent funds be given to a pre-selected list of charities the day after the election and that those charities are a matter of public record.

This has a ton of beneficial rewards and I'll list a few:

• Only those with solid plans will make it; no time for nonsense.
• Well organized candidates will have an advantage and get to prove who they are.
• The public will be spared endless political ads.
• The public can be more focused and weed out the bullshit early.
• It might improve voter interest and turnout; as opposed to disgust and disinterest.
• There will be fewer attack ads; with less time, better to focus on plans, not attacks.
• Unions, rich guys and the rest of us will be on equal footing.
• Charity gets a big boost since most candidates are losers (Weiner, Spitzer, Palin, etc.).
• The court can focus on more important matters.
• Once elected, more time can be spent working on problems.

This will not stop the endless chatter on Fox and MSNBC or in the Editorial pages since that's free speech too. It also won't fix the fact that most voters don't really grasp what's going on.

However, it will prevent the financing of political hacks with taxpayer money; who wants to pay to elect liberals to steal their money?