Wednesday, April 13, 2016

Let's Talk NAFTA

I'm always fascinated by all the comments with lots of strong opinions but no data to back any of it up and the subject of NAFTA is no exception.

Here's some data to chew on.

NAFTA was ratified in 1993 and went into effect in 1994. It was negotiated under the George H.W. Bush administration so don't just blame Clinton if you don't like it.

NAFTA has been a mixed bag. Its been credited for increasing US exports to Mexico and Canada from $340 billion in 1993 to $1.2 trillion by 2011 but in the meantime the AFL-CIO blames it for some 700,000 manufacturing jobs going over the border to Mexico as well.

However to put that in perspective, the US labor force is around 150 million so that represents less than 0.5% of all US jobs.

The US Real GDP (adjusted for inflation) in 1993 was $9.65 trillion or $36,473 per capita. In 2015 the US Real GDP was $16.46 trillion or $51,171 per capita. So SOMEBODY is making lots of money regardless of the drop in manufacturing jobs.

I say SOMEBODY because US Real Median income per household was $50,421 in 1993 and is now, 23 years later, only $53,657. So an increase of $15,000 per capita in GDP has only moved the household Median Income by $3.200. That implies that income in lower paying jobs has been almost stagnant while income in higher paying jobs has increased significantly.

To put it another way we've traded jobs with solid middle class salaries for jobs with lower salaries and jobs with much higher salaries in almost equal measure. So depending upon which bucket you're in, you're either unhappy, happy or, if you're at the top of the income ladder, very, very happy.

Social Security and the National Debt

I find it interesting that it's not always clear exactly how things work. I have this bad habit of picking up rocks and very often I'm not terribly thrilled with what I find under the rock.

Let's talk about Social Security.

You pay into SS your working life, and your employer matches what you contribute, with the promise that when the time comes for you to retire you will get a small pension from SS.

Note that this is NOT meant to be your entire retirement income nor even a large part of it but it's not negligible either and can make the difference between an enjoyable retirement and one of financial hardship.

The payroll taxes go into a "trust fund" and there is currently $2.7 trillion in that fund. I put "trust fund" in quotes because like most funds it gets "invested" by the trustees. Notice those quotes again.

So, what us it "invested" in? It's "invested" in special issue US Treasury Securities. This is not something new. This apparently has always been the case.

In other words, the SS Trust Fund consists of IOUs from the federal government. This makes SS the single biggest holder of US debt. SS holds 16% of the National Debt. The civil service retirement and disability trust fund holds 5% of the debt and the military retirement trust fund holds 3% of the debt also I would assume in special issue US Treasury Securities. Another 4% is held by smaller federal funds.

That means that retirement trust funds hold a whopping 28% of the US debt. That's something like $5.4 trillion.

The federal reserve holds 12% of the debt also in Treasury Securities.

But let's focus on Social Security.

SS receives tax income and interest income. In 2014 it paid out $859 billion and received $786 billion in tax income. However it received $98 billion in interest giving it a positive cash flow of $25 billion.

But this is all accounting magic numbers since the "interest" is actually paid by the Treasury Department from tax revenues. We're essentially simply moving money from one bucket into another.

The problem of course is beginning around 2020 the total SS cash flow will turn negative. By 2036 or so the "trust fund" is expected to be depleted. All of the IOUs will have been cashed in.

What is clear from the current situation is first Social Security is NOT a current contributor to the massive US Debt. As a matter of fact it has lent the federal government more money than China and Japan combined.

Second it's about to start turning in those IOUs in the near future which is going to exacerbate the budget deficit problem if something isn't done in the near term while the problem still isn't a crisis.

There are two possible approaches. We can either make up any shortfall in payments by a budget line item by either cutting other expenditures or raising taxes OR we can increase SS payroll taxes by raising either the Social Security maximum, the Social Security percentage or some combination of the two.

I trust Hillary Clinton more to address this problem in a rational way than either Trump, Cruz or any other Republican that's ever been spawned.

Wednesday, March 30, 2016

Entre la espada y la pared

Between the sword and the wall. Between a rock and a hard place. Between the devil and the deep blue sea.

All expressions that try to convey the very uncomfortable situation when none of your options appears to be very palatable.

This is the situation on the Republican presidential side.

Back in July of 2015 I started down this road. At that time there were 16 apparent candidates. That grew to 17 by August of 2015. In my initial rumblings I divide the menagerie into two groups based upon my preferences without regard to a candidates viability.

I had six below what I called the Elmer Fudd line because I considered them loony toons. Unfortunately one of my loony toons six is still in the race.

Here's what I said at the beginning about the three still in the race.

Donald Trump - If nothing else he stands by what he says. The man may not have any political experience but he knows his way around finances. He has a tendency to say some strange stuff but he's not loony toons.

He has a tendency to say strange stuff indeed. After listening to him for nine months I'm convinced he's little more than an egotistical, loud mouthed bully. He's used to being able to intimidate everyone he encounters. He could be a complete disaster as president. Or, perhaps not. He's just too unpredictable.

Ted Cruz - Cruz is hopeless but most of the others are even worse!

The "others" were Scott Walker, Bobby Jindel, Rick Santorum, Ben Carson and Mike Huckabee. These were the six below the Elmer Fudd line. At that time it looked as if Cruz might be sliding. Unfortunately that turned out to be wrong.

John Kasich - ...given his fiscal conservative and business background this guy might actually be interesting to consider. I don't go for his abortion position but he doesn't strike me as completely crazy. For a Republican he might actually be acceptable.

I don't see Kasich winning the nomination in anything short of a wildly contested convention and I don't think that's going to happen. That means it's between Trump and Cruz. The sword and the wall.

Even given Trump's constant demonstration of the difference between having money and having class, Cruz is far more dangerous. He's crazy and his father is even crazier.

On the Democratic side Bernie is still, surprisingly enough, keeping it close.  Bernie, like Trump, is talking about things that he can't deliver on in the current political climate. It's just not reasonable.

However all progress is the result of unreasonable men because they try and adapt reality to what is right rather than simply accepting what is wrong.

Perhaps the best of all words would be a Trump vs. Sanders election? Let's put the two great outsiders on the stage against each other and see which the country prefers.

Tuesday, March 22, 2016

What's with the Rise of Trump?

The sudden rise of Donald Trump to political prominence is something of a puzzle. So what makes Trump supporters tick?

To some it's due to frustration over the economy, the continued national debt and the seeming inability of Washington to accomplish anything useful.

To others it's the result of anxiety over a changing society, the fear of terrorism mixed with a dash of xenophobia.

To still others it's racism pure and simple.

I think it’s a combination.

They have this vague feeling that things are spinning out of control for them. They also have this vague feeling that there are people, the so-called elites, that don’t have this problem. Then they go looking around for people to blame over this uneasiness.

Their gaze lands on people they see as taking things from them. They see it as their taxes being used to benefit people who don’t deserve it. People who either shouldn’t be here in the first place or are just too lazy to fend for themselves. The impression that these people are people of color simply adds to the angst. The federal debt is just one more example of money being taken from them and used to benefit people that don’t deserve it.

Now, they may not understand the numbers but the numbers say they have something of a valid point. If you look at household income the lowest 40% of wage earners actually experienced a decrease in real income between 2010 and 2014 while people in the 80th to 95th percentile had their real income increase by about 5%. So the economic recovery has been unbalanced at best.

There are about 125 million households in the US. In 2015 the federal budget included payment of $402 billion in interest on the federal debt. Some of this, about $180 billion, was offset by interest received on trust funds such as Social Security but the actual interest paid was $402 billion. Now divide $402 billion by 125 million. My spreadsheet says that’s about $3,200 per household.

The federal budget also includes $446 billion for Health Care Services which includes Medicaid, CHIP and SNAP but not Medicare which is a separate budget item. Do the same division and now you get about $3,500 per household. That totals $6,700 per household which is not an insignificant amount of money. And of course we all know that not all households contribute equally and so do the Trump supporters (I'm tempted to say Trumpettes).

These two numbers are currently projected to increase to $731 billion and $632 billion by 2020. Assuming a one million household increase per year that would mean $5,600 and $5,100 per household for a total of $10,700 per household which is clearly unworkable.

For years the Republicans have been garnering votes by promising to “fix” the “cause” of these “vague feelings.” But of course in many cases the “cause” is a myth or the solution isn’t that simple so now we add to the feeling of being ripped off a feeling of betrayal and you get Donald Trump for president.

Can he win a general election?

I'm still not sure he's getting the nomination but assuming he does, then the more bad things that happen between now and November, the better his chances.

Friday, March 11, 2016

The Economy

A series of exit polls conducted by Edison research for the TV channels and the Associated Press indicates that about 70% of Republican voters are "very worried" about the economy nad some 23% are "somewhat worried.

On the Democratic side the numbers were less but still significant with 42% saying they were very worried and 39% saying they were somewhat worried.

Yeah I can understand being concerned about the economy. Things have certainly been a mixed bag.

First the good news.

The deficit is down from a high of $1.4 trillion in FY 2009 to $440 billion in FY 2014. The unemployment rate is down from a high of 10,0% in October of 2009 to 4.9% in February of 2016. The Dow Jones Average is up from around 7,000 in March of 2009 to around 17,000 in March of 2016. The GDP is up from $14.2 trillion in 2Q 2009 to $18.1 trillion in 4Q 2015.

Now for the bad news.

The growth in GDP has been about 3.9% per year since 2010 but it only grew 2.9% in 2015 which is the worst growth rate since 0.11% in 2009. The labor force participation rate is at 62.9% down from 66.1% in 2008 so one could argue that the REAL unemployment rate is around 8.1%. However since 2008 the number of retired workers has increased by 2.6% of the population so that would suggest that the REAL unemployment rate is no greater than 5.5%. The deficit is estimated to increase back up to $615 billion in FY 2016 which is going in the wrong direction.

Now for the ugly news.

Based upon the quintile upper limit or the 5% lower limit, real income (adjusted for inflation) for the lowest quintile from 2010 to 2014 has DECREASED by about 1.3% so the poorest 20% of the population actually had less spending power in 2014 than in 2010. For the second quintile it has DECREASED by about 0.2%. So some 40% of American households were worse off in 2014 than they were in 2010. For the third quintile real income INCREASED by about 2.1%. For the fourth quintile it INCREASED by about 3.4% and for the top 5% it INCREASED by about 5.4%.

The change in real income differing by income category is typical of this increasing wealth and income inequality we keep hearing about. It's a real problem. To my mind it's #2 right behind the deficit. At #3 we have the solvency of Social Security and Medicare.

 I suspect, I don't know, but I suspect, that a significant overhaul of the tax system is required to address all three of my top concerns. But what do I know? I'm just an engineer.

Thursday, March 10, 2016

On Bernie Sanders

Sanders claims to be a Democratic Socialist. This is a variation on pure Socilism which postulates that both the economy and society should be run to meet public needs, not to make profits for a few, in order to achieve a more "just" society.

It doesn't necessarily call for public ownership of the means of production but it does believe in government regulation of private corporations.

I put "just" in quotes because that's usually the stumbling point. Who defines what is "just?" The simple answer is it's determined by who the people elect. I think it's safe to say that Republicans and Democrats in today's society disagree on what is "just."

I think most political scientists would consider the current US a "mixed economy." Primarilly Capitalist but with some Socialist like concepts such as significant government regulation, Social Security, Medicare, SNAP and Medicaid among others.

A major problem of course is that the US government has no significant source of income other than taxation since it doesn't own any means of production. That means the government doesn't actually pay for anything but acts as a middle man that makes Tom and Dick pay for Harry's benefits.

Needless to say that often doesn't please Tom and Dick.

Republicans tend to want to push things more toward Capitalism under the theory that will result in a stronger economy and benefit everyone. The Democrats believe that society needs a government safety net of some sort because regardless of how strong the economy is there will always be people on the outer edge of society that require government aid. Therefore they tend to try and push more toward more Socialist like programs.

For the past 80 years or so there has been a steady but ragged movement to the left and I don't think that going to change any time soon. Sanders is trying to jump to where we might be 50 or 60 years from now and I'm pretty sure that's not going to happen.

Monday, March 07, 2016

Josh Nailed It

I just read an article by Josh Marshall at TPM and he has managed to clearly articulate an issue that I've been sort of trying to get a handle on for a while now.

The intensity and volume of the pro-Trump movement is only understandable "if you are dealing with a chunk of the electorate with expectations that are deeply unrealistic in the context of conventional political action."

I've seen this clearly demonstrated in interviews and in comments on articles. Many of these people are simply ignorant of what is possible in a complex world. 

They don't understand how the budget process works; they don't understand how the political process works and they don't understand that the checks and balances are there to prevent things from rapidly spiraling out of control.

It's SUPPOSED to take effort to make significant changes.

Marshall goes on to observe that this "is a volatile situation when you're talking about at least a quarter of the national electorate."

He's right about that as well. That quarter appears willing to accept what amounts to a virtual dictatorship if it will achieve what they want.

Marshall's last thought, when taken to its logical conclusion, is chilling.

"That gets you Trump. It also gets you Ted Cruz. And it may get you worse still."

It could get you the unthinkable. Trump has threatened to issue what would be illegal orders to the military. Some military experts say that the military will refuse to obey them. I know better. Some of the military will refuse but others will not. 

That could lead to civil war. But civil war might be preferable to allowing Trump control of the nuclear arsenal.

Tuesday, March 01, 2016

Super Tuesday

I've been away. In the Florida Keys to be exact but I return to find Donald Trump and Hillary Clinton charging to victory on Super Tuesday.

A Trump vs. Clinton debacle seems more and more possible.

I continue to be astonished that people will vote for Trump who is little more than an abrasive bully, a hypocrite and a phony.

The thing about bullies is when they are stood up to they run and Clinton is not about to be intimidated by Trump.